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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003 Commission file number 0-1026
WHITNEY HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 72-6017893
(State of incorporation) (I.R.S. Employer
Identification No.)
228 St. Charles Avenue
New Orleans, Louisiana 70130
(Address of principal executive offices)
(504) 586-7272
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of exchange on which registered
------------------- -------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2.) Yes X No
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As of December 31, 2003, the aggregate market value of the registrant's
common stock (all shares are voting shares) held by nonaffiliates was
approximately $1,211,794,624 (based on the closing price of the stock on June
30, 2003).
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 5, 2004
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Common Stock, no par value 40,569,928
Documents incorporated by reference Part of 10-K in which incorporated
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Proxy Statement for the 2004 Annual Part II and Part III
Meeting of Shareholders to be filed
with the Securities and Exchange
Commission
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WHITNEY HOLDING CORPORATION
TABLE OF CONTENTS
Page
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PART I
Item 1: Business 1
Item 2: Properties 3
Item 3: Legal Proceedings 4
Item 4: Submission of Matters to a Vote of Security Holders 4
Item 4a: Executive Officers of the Registrant 4
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PART II
Item 5: Market for the Registrant's Common Stock and Related Stockholder Matters 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 Disclosures about Market Risk 31
Item 8: Financial Statements and Supplementary Data 32
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 68
Item 9A: Controls and Procedures 68
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PART III
Item 10: Directors and Executive Officers of the Registrant 69
Item 11: Executive Compensation 69
Item 12: Security Ownership of Certain Beneficial Owners and Management 69
Item 13: Certain Relationships and Related Transactions 69
Item 14: Principal Accounting Fees and Services 69
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PART IV
Item 15: Exhibits, Financial Statement Schedules and Reports on Form 8-K 70
Signatures 74
PART I
Item 1: BUSINESS
ORGANIZATION AND RECENT DEVELOPMENTS
Whitney Holding Corporation (the Company or Whitney) is a Louisiana
bank holding company registered pursuant to the Bank Holding Company Act of 1956
(BHCA). The Company began operations in 1962 as the parent of Whitney National
Bank, which has been in continuous operation in the greater New Orleans area
since 1883. Beginning in 1995 the Company has at times operated as a multi-bank
holding company, having established new entities in connection with business
acquisitions. The Company has merged all banking operations into Whitney
National Bank and intends to continue merging the operations of future
acquisitions at the earliest possible dates. Throughout this annual report,
references to the "Bank" will cover Whitney National Bank and all former
subsidiary banks. The Company made no acquisitions during 2003.
The Company also owns Whitney Community Development Corporation, which
is authorized to make equity and debt investments in corporations or projects
whose activities promote community welfare. Such activities could include
providing housing, services or jobs for residents of areas with mainly low or
moderate incomes and supporting small businesses that service such areas.
Whitney Securities, L.L.C., a broker-dealer in securities, is a wholly-owned
subsidiary of the Bank.
NATURE OF BUSINESS AND MARKETS
The Company, through the Bank, engages in community banking, serving a
market area that covers the five-state Gulf Coast region stretching from
Houston, Texas, across southern Louisiana and the coastal region of Mississippi,
to central and south Alabama, and into the western panhandle of Florida. The
Bank serves commercial, small business and retail customers, offering a variety
of transaction and savings deposit products and cash management services,
secured and unsecured loan products, including revolving credit facilities, and
letters of credit and similar financial guarantees. The Bank also provides trust
and investment management services to retirement benefit plans, corporations and
individuals, and, through Whitney Securities, L.L.C., offers investment
brokerage services and annuity products. In addition, the Bank maintains a
foreign branch domiciled on Grand Cayman in the British West Indies.
THE BANK
All material funds of the Company are invested in the Bank. The Bank
has a large number of customer relationships that have been developed over a
period of many years. The loss of any single customer or a few customers would
not have a material adverse effect on the Bank or the Company. The Bank has
customers in a number of foreign countries, but the revenue derived from these
foreign customers is not a material portion of its overall revenues.
COMPETITION
There is significant competition within the financial services industry
in general as well as with respect to the particular financial services provided
by the Company and the Bank. Within its market, the Bank competes directly with
major banking institutions of comparable or larger size and resources, as well
as with various other smaller banking organizations. The Bank also has numerous
local and national "nonbank" competitors, including thrifts, credit unions,
mortgage companies, personal and commercial finance companies, investment
brokerage and financial advisory firms, and registered investment companies.
Legislative efforts to modernize the financial services industry, as
discussed in the following section on industry regulation, may lead to changes
in the organizational structure of and scope of services provided by certain
1
of Whitney's competitors. As these changes occur, management will evaluate
whether they create competitive advantages and develop appropriate responses.
The growth of electronic communication and commerce over the Internet
influences the Company's competitive environment in several ways. Entities have
been formed which deliver financial services and access to financial products
and transactions exclusively through the Internet. Internet-based services have
been and are being developed that are designed to enhance the value of
traditional financial products. The Internet will also make it easier for
consumers to obtain comparative information on financial products and, over
time, could lead to changes in consumer preferences for financial products.
Whitney opened a website in 2000 to provide information about the
Company and to market the Bank's products and services. The Company has enhanced
the capabilities of the site in following years by adding online banking
services in each year since the introduction and plans to add new features in
the future. As management continues to monitor and evaluate the competitive
challenges posed by the growing use of the Internet, it will develop responses
appropriate in light of its overall market strategy.
For over a decade, there has been consolidation within the financial
services industry, particularly with respect to the banking and thrift segments
of this industry. General competitive pressures have driven the most recent
industry consolidation activity. All of the Bank's major direct banking
competitors have been relatively active in expansion through acquisition. Since
early 1994 Whitney has acquired 16 separate banking operations involving
approximately $2.5 billion of assets. Recently, the Company has focused on
opportunities in the Houston, Texas market, consistent with its goal of growing
its Houston-area operations to at least $1.5 billion over the next several
years. While growth in Houston is Whitney's primary focus, the Company continues
to seek opportunities to leverage its operations through acquisitions that
significantly expand existing market share or provide access to new parts of its
market area with attractive economic fundamentals. Whitney made no acquisitions
in 2003. The overall trend toward industry consolidation is expected to continue
in the near term.
INDUSTRY REGULATION AND INFLUENCE OF GOVERNMENTAL AGENCIES
The participants in the financial services industry are subject to
varying degrees of regulation and governmental supervision. The current system
of laws and regulations will likely change over time and will influence the
competitive positions of the participants. Whether these changes will be
favorable or unfavorable to the Company and the Bank cannot be predicted.
The banking industry is extensively regulated under both federal and
state law. The regulation and ongoing supervision of bank holding companies and
their subsidiaries is intended primarily for the protection of depositors, the
deposit insurance funds of the Federal Deposit Insurance Corporation (FDIC) and
the banking system as a whole, and not for the protection of the holding
company's shareholders and creditors. The Bank has been assessed at relatively
low rates for deposit insurance premiums in recent years, reflecting both the
level of the deposit insurance funds in relation to required levels and the
favorable overall risk rating assigned to the Bank by its primary regulator.
Growth in insured deposits and higher estimates of potential insured losses by
the FDIC could lower the ratio of deposit insurance funds to insured deposits
and increase the likelihood that premium rates will go up. Legislated changes to
the deposit insurance system could also lead to higher assessments. The
Company's management is unable to predict if or when deposit insurance premiums
will be increased or to what extent.
The Company is subject to regulation under the BHCA and to supervision
by the Board of Governors of the Federal Reserve System (FRB). Bank holding
companies must seek the FRB's approval for all bank acquisitions and must limit
their activities to those permitted under the BHCA, including the modifications
to the BHCA brought about by the enactment of the Gramm-Leach-Bliley Act (GLB)
of 1999. GLB attempts in many ways to modernize the framework of the U.S.
financial services industry. Among other provisions, it allows for the creation
of a financial holding company that is authorized to engage in underwriting and
selling insurance and securities, to conduct both commercial and merchant
banking, to invest in and develop real estate and to engage in other
complementary activities. Whitney currently has no plans to apply for a
financial holding company charter.
2
The Office of the Comptroller of the Currency (OCC) is the Bank's
primary regulator and provides ongoing supervision through regular examinations
and other means. Bank supervision focuses on evaluating management's ability to
identify, assess and control risk in all areas of bank operations in a safe and
sound manner. Regulators have a wide range of enforcement actions available to
deal with institutions with unacceptable levels of risk. These actions could
have a material impact on a bank's financial results and could impose additional
limits on a bank's ability to pay dividends to its holding company. Regulators
are also charged with monitoring compliance with other laws and regulations,
such as those designed to encourage banks to meet the needs of all segments of
their service areas. Regulatory agencies consider compliance ratings when
deciding, for example, whether to approve an acquisition by a bank or its
holding company.
The monetary and fiscal policies of the FRB also have a significant
impact on the banking industry. In its effort to restrain inflationary growth or
moderate recessions, the FRB uses various tools to influence the money supply
and interest rates. These actions attempt to regulate the availability of bank
credit and affect asset yields and costs of funds.
In July 2002, Congress enacted the Sarbanes-Oxley Act of 2002 in
response to corporate and accounting scandals involving large, prominent
companies in the United States. The Act mandates a number of new corporate
governance rules designed to enhance corporate responsibility and rebuild the
integrity of corporate business practices and reporting. The Company is subject
to the requirements of the Act and began filing the executive certifications
required by Sections 302 and 906 of the Act in 2002. These certifications are
public representations regarding, among other things, the fair presentation of
financial statements and the effectiveness of disclosure controls and
procedures.
Section 404 of the Sarbanes-Oxley Act requires the Company to include
in its annual report (beginning with next year's annual report) a report stating
management's responsibility to establish and maintain adequate internal control
over financial reporting and management's conclusion on the effectiveness of the
internal controls at year end. Additionally, the Company's independent auditor
will be required to attest to and report on management's evaluation of internal
control over financial reporting.
EMPLOYEES
At the end of 2003, the Company and the Bank employed a total of 2,369
employees. Whitney affords its employees a variety of competitive benefit
programs including retirement plans and group health, life and other insurance
programs. The Company also supports training and educational programs designed
to ensure that employees have the types and levels of skills needed to perform
at their best in their current positions and to help them prepare for positions
of increased responsibility.
AVAILABLE INFORMATION
The Company's filings with the Securities and Exchange Commission,
including annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports, are available on Whitney's
website as soon as reasonably practicable after the Company files with the SEC.
Copies can be obtained free of charge by visiting the Company's website at
www.whitneybank.com.
Item 2: PROPERTIES
The Company owns no real estate in its own name. The Company's
executive offices are located in downtown New Orleans in the main office
facility owned by Whitney National Bank. The Bank also owns an operations center
in the greater New Orleans area. The Bank makes portions of its main office
facility and certain other facilities available for lease to third parties,
although such incidental leasing activity is not material to Whitney's overall
operations. The Bank owns outright approximately three-quarters of its active
banking facilities, which total close to 130 locations. The remaining branch
facilities are subject to leases, each of which management
3
considers to be reasonable and appropriate to its location. Management ensures
that all properties, whether owned or leased, are maintained in suitable
condition. Management also evaluates its banking facilities on an ongoing basis
to identify possible under-utilization and to determine the need for functional
improvements, relocations or possible sales.
The Bank and a subsidiary hold a variety of property interests acquired
through the years in settlement of loans. Note 7 to the consolidated financial
statements included in Item 8 is incorporated here by reference for further
information regarding such property interests.
Item 3: LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the Company's business, to which the Company or
its subsidiaries is a party or to which any of their property is subject.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4a: EXECUTIVE OFFICERS OF THE REGISTRANT
Name and Age Position Held and Recent Business Experience
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William L. Marks, 60 Chief Executive Officer and Chairman of the Board of the Company
and Whitney National Bank since 1990
R. King Milling, 63 President of the Company and Whitney National Bank since 1984;
Director of the Company and Whitney National Bank since 1979
Robert C. Baird, Jr., 53 Executive Vice President of the Company and Whitney National Bank
since 1995, Division Executive of the Louisiana Banking Division
Thomas L. Callicutt, Jr., 56 Executive Vice President and Chief Financial Officer of the Company
and Whitney National Bank since 1999 and Treasurer of the Company
since 2001; Senior Vice President and Comptroller of Whitney
National Bank from 1998 to 1999
Rodney D. Chard, 61 Executive Vice President of the Company and Whitney National
Bank since 1996, Division Executive of Operations and Technology
John C. Hope III, 54 Executive Vice President of the Company since 1994 and of Whitney
National Bank since 1998, Division Executive of the Gulf Coast Region
Joseph S. Exnicios, 48 Senior Vice President of Whitney National Bank since 1994, Division
Executive of Commercial Banking
Kevin P. Reed, 43 Senior Vice President of Whitney National Bank since 1998, Division
Executive of Trust Division
Lewis P. Rogers, 51 Senior Vice President of Whitney National Bank since 1998, Division
Executive of Credit Administration
4
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's stock trades on The NASDAQ Stock Market under the symbol
WTNY. The Summary of Quarterly Financial Information appearing in Item 8 of this
Form 10-K shows the range of closing prices of the Company's stock for each
calendar quarter of 2003 and 2002 as reported on The NASDAQ Stock Market, and is
incorporated here by reference.
In 2002, the Company declared a 3-for-2 split of its common stock that
was paid on April 9, 2002. Share and per share figures in this annual report on
Form 10-K have been adjusted to reflect this split.
The approximate number of shareholders of record of the Company, as of
March 5, 2004, was as follows:
Title of Class Shareholders of Record
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Common Stock, no par value 5,265
Dividends declared by the Company are listed in the Summary of
Quarterly Financial Information appearing in Item 8 of this Form 10-K, which is
incorporated here by reference.
5
Item 6: SELECTED FINANCIAL DATA
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
Years Ended December 31
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(dollars in thousands, except per share data) 2003 2002 2001 2000 1999
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YEAR-END BALANCE SHEET DATA
Total assets $7,754,982 $7,097,881 $7,243,650 $6,650,265 $5,868,028
Earning assets 7,193,709 6,501,009 6,681,786 6,078,951 5,362,819
Loans 4,882,610 4,455,412 4,495,085 4,587,438 3,920,601
Investment in securities 2,281,405 1,975,698 1,632,340 1,462,189 1,387,016
Deposits 6,158,582 5,782,879 5,950,160 5,332,474 4,666,375
Shareholders' equity 840,313 800,483 717,888 665,764 596,204
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AVERAGE BALANCE SHEET DATA
Total assets $7,238,022 $7,016,675 $6,831,564 $6,282,044 $5,638,980
Earning assets 6,717,863 6,492,791 6,303,445 5,771,256 5,163,140
Loans 4,595,868 4,372,194 4,475,149 4,228,948 3,595,574
Investment in securities 2,004,245 1,816,216 1,525,254 1,478,609 1,466,061
Deposits 5,913,186 5,750,141 5,548,556 4,927,214 4,540,887
Shareholders' equity 823,698 760,725 698,099 622,814 600,012
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INCOME STATEMENT DATA
Interest income $338,069 $370,909 $441,145 $452,261 $378,493
Interest expense 43,509 75,701 161,349 185,181 135,433
Net interest income 294,560 295,208 279,796 267,080 243,060
Net interest income (TE) 300,115 300,134 285,161 273,176 249,407
Provision for loan losses (3,500) 7,500 19,500 12,690 6,470
Noninterest income 89,504 85,185 91,209 75,120 68,853
Net securities gains (losses) in
noninterest income 863 411 165 850 (32)
Noninterest expense 242,923 230,926 239,104 223,179 207,753
Net income 98,542 95,323 75,820 72,842 67,326
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KEY RATIOS
Return on average assets 1.36% 1.36% 1.11% 1.16% 1.19%
Return on average shareholders' equity 11.96 12.53 10.86 11.70 11.22
Net interest margin 4.47 4.62 4.52 4.73 4.83
Average loans to average deposits 77.72 76.04 80.65 85.83 79.18
Efficiency ratio 62.49 60.00 62.09 63.92 65.27
Allowance for loan losses to loans 1.22 1.48 1.59 1.33 1.21
Nonperforming assets to loans plus foreclosed
and surplus property .62 .95 .77 .55 .45
Net charge-offs to average loans .07 .28 .21 .04 .06
Average shareholders' equity to average assets 11.38 10.84 10.22 9.91 10.64
Shareholders' equity to total assets 10.84 11.28 9.91 10.01 10.16
Leverage ratio 10.13 9.76 8.72 8.93 10.01
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COMMON SHARE DATA
Earnings Per Share
Basic $2.47 $2.39 $1.92 $1.89 $1.73
Diluted 2.44 2.38 1.90 1.89 1.73
Dividends
Cash dividends per share $1.23 $1.11 $1.03 $.96 $.88
Dividend payout ratio 50.32% 46.50% 53.81% 50.04% 48.76%
Book Value Per Share $20.78 $19.98 $18.10 $16.92 $15.62
Trading Data
High closing price $40.99 $38.52 $32.56 $27.79 $27.83
Low closing price 31.62 28.09 24.00 21.00 21.46
End-of-period closing price 40.99 33.33 29.23 24.21 24.71
Trading volume 22,924,257 21,926,523 13,965,350 10,566,587 14,055,669
Average Shares Outstanding
Basic 39,929,431 39,848,881 39,550,723 38,475,984 38,833,197
Diluted 40,396,134 40,121,544 39,836,047 38,568,699 38,949,348
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Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
The efficiency ratio is noninterest expense to total net interest (TE) and noninterest income (excluding
securities transactions).
6
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to focus on significant
changes in the financial condition of Whitney Holding Corporation and its
subsidiaries (the Company or Whitney) and on their results of operations during
2003, 2002 and 2001. Virtually all of the Company's operations are contained in
its banking subsidiary, Whitney National Bank (the Bank). This discussion and
analysis is intended to highlight and supplement information presented elsewhere
in this annual report on Form 10-K, particularly the consolidated financial
statements and related notes in Item 8. Certain financial information in prior
years has been reclassified to conform to the current year's presentation.
OVERVIEW
The Company earned $2.47 per basic share, or $98.5 million, for 2003.
This was a 3% increase over earnings in 2002 on both a per share and dollar
basis. The key components of 2003's earnings performance follow:
o Net interest income, on a taxable-equivalent (TE) basis, was
little changed between 2002 and 2003. The favorable impact of 3%
growth in earning assets in 2003 was offset by moderate
compression during the year in the net interest margin (TE), to a
still healthy 4.47%. Whitney was and continues to be moderately
asset sensitive, which implies that its margin would tend to
compress in a declining rate environment, but also tend to widen
in a rising rate environment, holding other factors constant.
Whitney was able to limit the margin compression in 2003 to 15
basis points with the help of loan pricing discipline and
successful deposit pricing strategies.
o The direction of overall credit quality was favorable during 2003
and Whitney was able to reduce its allowance for loan losses by
$6.6 million from the end of 2002. Net charge-offs totaled $3.1
million in 2003, down from $12.1 million in the prior year. For
2003, the Company recognized a negative provision for loan losses
of $3.5 million compared to a provision of $7.5 million in 2002.
o Noninterest income grew 5%, or $4.3 million, in 2003. Income from
secondary mortgage market operations was again bolstered by a
strong refinancing market during most of 2003 and ended the year
up 24%, or $2.2 million, over 2002, although the pace of activity
slowed toward year end. Fees from bank cards were up 12%, or $1.0
million, in 2003, despite some rate reductions following the
settlement of a dispute between merchants and the card
association.
o Noninterest expense was 5%, or $12.0 million, higher in 2003. The
main driver was the 10%, or $12.4 million, increase in personnel
expense. Employee compensation was up close to 7%, as base pay
increased a moderate 3%, but payments under targeted employee
incentive programs rose more sharply, largely due to mortgage
origination incentives. The 25% jump in employee benefits was
driven by a combined $4.1 million increase in the actuarially
determined expense of providing pension and postretirement health
benefits. Most other major expense categories were lower in 2003,
as management continued its emphasis on cost control.
FORWARD-LOOKING STATEMENTS
This discussion contains "forward-looking statements" within the
meaning of section 27A of the Securities Act of 1933, as amended, and section
21E of the Securities Exchange Act of 1934, as amended. Such statements include,
but may not be limited to (a) discussion of potential earnings volatility from
changes in the estimated allowance for loan losses over time, (b) comments on
the expected growth rate of the loan portfolio and on future changes in the mix
of deposits, (c) statements of the results of net interest income simulations
run by the Company to measure interest rate sensitivity, (d) comments about the
performance of Whitney's net interest income and net interest margin assuming
certain future conditions, (e) comments about possible future levels of income
from secondary mortgage market operations, (f) discussion of the settlement of a
dispute between Visa USA and merchants and its expected impact on Whitney, and
(g) comments on changes or trends in expense levels for retirement benefits,
occupancy, equipment and data processing, legal services and deposit insurance.
7
Forward-looking statements, which Whitney makes in good faith, are
based on numerous assumptions, certain of which may be referred to specifically
in connection with a particular statement. Some of the more important
assumptions include:
o expectations about overall economic strength and the performance of
the economies in Whitney's market area,
o expectations about the movement of interest rates, including actions
that may be taken by the Federal Reserve Board in response to
changing economic conditions,
o reliance on existing or anticipated changes in laws or regulations
affecting the activities of the banking industry and other financial
service providers, and
o expectations regarding the nature and level of competition, changes
in customer behavior and preferences, and Whitney's ability to
execute its plans to respond effectively.
Because it is uncertain whether future conditions and events will
confirm these assumptions, there is a risk that Whitney's future results will
differ materially from what is stated in or implied by such forward-looking
statements. Whitney cautions the reader to consider this risk.
Whitney undertakes no obligation to update any forward-looking
statement included in this discussion, whether as a result of new information,
future events or developments, or for any other reason.
CRITICAL ACCOUNTING POLICIES
Whitney prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America. Note 2 to the
consolidated financial statements discusses certain accounting principles and
methods of applying those principles that are particularly important to this
process. In applying these principles to determine the amounts and other
disclosures that are presented in the financial statements and discussed in this
section, the Company is required to make estimates and assumptions.
Whitney believes that the determination of its estimate of the
allowance for loan losses involves a higher degree of judgment and complexity
than its application of other significant accounting policies. Factors
considered in this determination and the process used by management are
discussed in Note 2 and in the following section on Loans, Credit Risk
Management and Allowance for Loan Losses. Although management believes it has
identified appropriate factors for review and designed and implemented adequate
procedures to support the estimation process that are consistently followed, the
allowance remains an estimate about the effect of matters that are inherently
uncertain. Over time, changes in economic conditions or the actual or perceived
financial condition of Whitney's credit customers or other factors can
materially impact the allowance estimate, potentially subjecting the Company to
significant earnings volatility.
Management makes a variety of assumptions in applying principles that
govern the accounting for retirement benefits under the Company's defined
benefit pension plan. These assumptions are essential to the actuarial valuation
that determines the amounts the Company recognizes and certain disclosures it
makes in the consolidated financial statements related to the operation of this
plan (see Note 12 in Item 8). Two of the more significant assumptions concern
the expected long-term rate of return on plan assets and the rate needed to
discount projected benefits to their present value. Changes in these assumptions
impact the cost of pension benefits recognized in earnings. Certain assumptions
are closely tied to current conditions and are generally revised at each
measurement date. For example, the discount rate is set with reference to market
yields on high quality fixed-income investments. Other assumptions, such as the
rate of return on assets, are determined, in part, with reference to historical
and expected conditions over time and are not as susceptible to frequent
revision. Holding other factors constant, pension cost will move opposite to
changes in either the discount rate or the rate of return on assets. A 25 basis
point decrease in the expected return on assets or the discount rate would have
increased the actuarially determined expense for 2003 by $.2 million or $.6
million, respectively. Recent trends in pension costs are discussed in the
section on "Noninterest Expense".
8
FINANCIAL CONDITION
LOANS, CREDIT RISK MANAGEMENT AND ALLOWANCE FOR LOAN LOSSES
Loan Portfolio Developments
Total loans increased close to 10%, or $427 million, from year-end
2002, after registering declines of 1% to 2% in each of the previous two years.
Beginning in the latter half of 2002, the commercial loan portfolio has shown
some steady growth, with strong support from new customer development. The
residential mortgage loan portfolio has decreased steadily over the last three
years, reflecting the effects of refinancing activity and management's
continuing decision to sell most current production in the secondary market.
Table 1, which is based on regulatory reporting codes, shows loan balances at
December 31, 2003 and at the end of the previous four years.
TABLE 1. LOANS OUTSTANDING BY TYPE
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December 31
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(dollars in thousands) 2003 2002 2001 2000 1999
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Commercial, financial and agricultural loans $2,213,207 $1,917,859 $1,852,497 $1,815,205 $1,564,903
Real estate loans - commercial and other 1,726,212 1,584,099 1,576,817 1,544,390 1,318,130
Real estate loans - residential mortgage 619,869 638,703 761,355 874,645 718,952
Loans to individuals 323,322 314,751 304,416 353,198 318,616
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Total loans $4,882,610 $4,455,412 $4,495,085 $4,587,438 $3,920,601
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The portfolio of commercial loans, other than those secured by real
property, was up $295 million, or 15%, compared to year-end 2002. This followed
a $65 million, or 4%, increase in 2002 from the end of 2001. Overall the
portfolio remained well-diversified, with customers in a wide range of
industries, including oil and gas exploration and production, marine
transportation, wholesale and retail trade in and manufacture of various durable
and nondurable products, financial services, and professional services. There
have been no major trends or changes in the concentration mix of this portfolio
category from year-end 2002, although there has been some noticeable growth in
loans to customers in the oil and gas industry as discussed below. Also included
in the commercial loan category are loans to individuals, generally secured by
collateral other than real estate, that are used to fund investments in new or
expanded business opportunities. Outstanding balances under participations in
larger shared-credit loan commitments totaled approximately $317 million at
December 31, 2003, including $152 million related to the oil and gas industry.
Substantially all such shared credits are with customers operating in Whitney's
market area. The rate of commercial loan growth at the Bank in 2004 will depend
mainly on the economic fundamentals affecting its customers as well as on its
ability to continue to develop customers in the newer parts of its market and
take advantage of competitive circumstances to attract new business in its
established market.
At December 31, 2003, outstanding loans to oil and gas industry
customers totaled $504 million, or approximately 10% of total loans, an increase
of approximately $120 million from the end of the previous year after a $50
million increase in 2002. The growth in 2003 was concentrated in the exploration
and production sector of this industry. With expectations of sustained higher
commodity prices, Whitney increased its attention to lending opportunities in
this sector, and outstanding loans to exploration and production companies grew
to approximately 30% of the industry portfolio in 2003, from 14% at the end of
2002. The Bank has a petroleum engineer on staff who participates in the
underwriting of loans to exploration and production customers. The major portion
of the Company's customer base provides transportation and other services and
products to support exploration and production activities. Whitney seeks service
and supply customers who are quality operators that can manage through volatile
commodity price cycles. Management, through the Bank's Credit Policy Committee,
monitors both industry fundamentals and portfolio performance and credit quality
on a formal ongoing basis and establishes and adjusts internal exposure
guidelines as a percent of capital both for the industry as a whole and for
individual sectors within the industry. The level of activity in this industry
continues to have an important impact on the economies of certain portions of
Whitney's market area, particularly southern Louisiana and Houston.
9
The commercial real estate portfolio, which includes loans secured by
properties used in commercial or industrial operations, grew 9%, or $142
million, after a period of relative stability dating back to the end of 2000.
Whitney has been able to develop new business in this highly competitive market,
including significantly increased activity at its Houston operations, and the
Company continues to finance new projects for its well-established customer
base. The pace of new real estate project development has picked up some with
improving economic conditions and higher confidence that these conditions can be
sustained. The growth achieved through new business development has, in part,
been offset by expected paydowns on and permanent takeouts of seasoned projects
as developers take advantage of favorable long-term financing rates. The Bank's
Credit Policy Committee has also set exposure guidelines for the overall
portfolio of commercial real estate loans as well as for loans to developers or
owner-users that are secured by various subcategories of property. As with the
lending to the oil and gas industry, management regularly monitors real estate
industry fundamentals and portfolio credit quality. In recent years, activity in
this portfolio sector has been driven by the development of retail, small office
and commercial facilities by customers throughout Whitney's market area and by
apartment and condominium projects, particularly in the eastern Gulf Coast
region. Financing activity for hotel and other hospitality industry projects,
which have largely been concentrated in the New Orleans metropolitan area, has
slowed over this period. Hotel loans were 3% of total loans, or $155 million, at
the end of 2003.
Increased promotion of tailored home mortgage products that are held in
the portfolio helped limit the decrease in residential mortgage loans to $19
million from the end of 2002 to year-end 2003. The $123 million decrease in 2002
from the prior year end more clearly showed the impact of refinancing activity
on this segment of the portfolio. Fixed-term home equity loans outstanding grew
moderately in both 2003 and 2002. This loan product offers customers the
opportunity to leverage increased home values and equity to obtain
tax-advantaged consumer financing. The rate of growth in this product slowed as
borrowers increasingly tapped home equity when refinancing their primary home
mortgages.
Loans to individuals include various consumer installment and credit
line loan products other than fixed-term retail mortgage loan products. This
portfolio sector grew a moderate 3% in both 2003 and 2002, mainly from the
promotion of secured personal credit lines. The 14%, or $49 million, decrease in
2001 from the prior year reflected, in part, the decision by management to
shorten the period it holds student loans before being taken out by the
permanent financing source.
Table 2 reflects contractual loan maturities, unadjusted for scheduled
principal reductions, prepayments or repricing opportunities. Approximately 61%
of the value of loans with a maturity greater than one year carries a fixed rate
of interest.
TABLE 2. LOAN MATURITIES BY TYPE
- -----------------------------------------------------------------------------------------------------------------
December 31, 2003
- -----------------------------------------------------------------------------------------------------------------
One year One through More than
(dollars in thousands) or less five years five years Total
- -----------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural loans $1,475,120 $ 660,083 $ 78,004 $2,213,207
Real estate loans - commercial and other 453,474 1,111,726 161,012 1,726,212
Real estate loans - residential mortgage 77,442 287,426 255,001 619,869
Loans to individuals 156,408 160,679 6,235 323,322
- -----------------------------------------------------------------------------------------------------------------
Total $2,162,444 $2,219,914 $500,252 $4,882,610
- -----------------------------------------------------------------------------------------------------------------
10
Credit Risk Management and Allowance for Loan Losses
Whitney manages credit risk through adherence to consistent
underwriting standards established by its Credit Policy Committee. Written
credit policies define underwriting criteria, concentration guidelines, and
lending approval processes that cover individual authority and the appropriate
involvement of regional loan committees and a senior loan committee. The senior
loan committee is composed of the Bank's senior lenders, the President and the
Chairman and Chief Executive Officer. The credit administration function ensures
consistent credit underwriting, policy administration and monitoring throughout
the Company. Strong monitoring processes are key to early identification of
problem credits. Lending officers are responsible for ongoing monitoring and the
assignment of risk ratings based on established guidelines. An independent
credit review function overseen by the Audit Committee of the Board of Directors
assesses the accuracy of officer ratings and the timeliness of rating changes
and performs concurrent reviews of the underwriting processes. The credit review
function also provides the Audit Committee with its assessment of the adequacy
of the allowance for loan losses on a quarterly basis. Once a problem
relationship over a certain size threshold is identified, a quarterly watch
committee process is initiated. The watch committee, composed of senior lending
and credit administration management, must approve any substantive changes to
identified problem credits and assigns relationships to the special credits
department when appropriate.
Commercial credits, including commercial real estate loans, are
underwritten principally based upon cash flow coverage, as well as on collateral
value and guarantor strength. Commercial loans are typically relationship-based
rather than transaction-driven. Loan concentrations are monitored monthly by
management and the Board of Directors. Consumer loans are centrally underwritten
using automated credit scoring tools, with appropriate secondary review
procedures.
Management's evaluation of credit risk in the portfolio is ultimately
reflected in the estimate of probable loan losses that is reported in the
Company's financial statements as the allowance for loan losses. Changes in this
ongoing evaluation over time are reflected in the provision for loan losses
charged to expense. The allowance is established at a level management believes
is adequate to absorb probable losses inherent in the portfolio. The methodology
for determining the allowance involves significant judgment and is re-evaluated
quarterly to respond to changing conditions.
The recorded allowance encompasses three elements: (1) allowances
established for losses on criticized loans; (2) allowances based on historical
loss experience for loans with acceptable credit quality; and (3) allowances
based on general economic conditions and other qualitative risk factors internal
and external to the Company.
Criticized loans are credits with above-average weaknesses as
identified through the internal risk-rating process. Criticized loans include
those that are deemed to be impaired as defined by Statement of Financial
Accounting Standards (SFAS) No. 114. Specific allowances are determined for
impaired loans based on the present value of expected future cash flows
discounted at the loan's contractual interest rate, the fair value of the
collateral if the loan is collateral dependent, or, when available, the loan's
observable market price. The allowance for the remainder of criticized loans is
calculated by applying loss factors to loan balances aggregated by the severity
of the internal risk rating. The loss factors applied to criticized loans are
determined with reference to the results of migration analysis, which analyzes
the charge-off experience over time for loans with different ratings.
For the second element, loans assessed as having average or better
credit quality with similar risk ratings and homogeneous loans not subject to
individual rating, such as residential mortgage loans and consumer installment
loans and draws under consumer credit lines, are grouped together and individual
loss factors are applied to each group. The loss factors for homogeneous loan
groups are based on average historical charge-off information. Industry-based
factors are applied to other portfolio segments for which migration analysis has
not been performed.
Determining the final element of the allowance involves assessing how
other current factors, both internal and external, impact the accuracy of
results obtained for the other two elements. Internally, management must
consider whether trends have been identified in the quality of underwriting and
loan administration as well as in the timely identification of credit quality
issues. Management also monitors shifts in portfolio concentrations and other
changes in portfolio characteristics that indicate levels of risk not fully
captured in the loss factors. External factors
11
include local and national economic trends, as well as changes in the economic
fundamentals of specific industries that are well-represented in Whitney's
customer base. Management has established procedures to help ensure a consistent
approach to this inherently judgmental process over time.
The direction of overall credit quality was favorable during 2003.
Table 3 provides information on nonperforming loans and other nonperforming
assets for each of the five years in the period ended December 31, 2003.
Nonperforming loans are included in the criticized loan total discussed below
and encompass substantially all loans separately evaluated for impairment. The
Company reduced nonperforming loans by $11 million in 2003, partly as a result
of the successful efforts to fully collect on several larger credits that were
categorized as impaired at year-end 2002. There have been no significant trends
related to industries or markets underlying the changes in nonperforming assets.
TABLE 3. NONPERFORMING ASSETS
- -----------------------------------------------------------------------------------------------------------------
December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $26,776 $37,959 $33,412 $23,579 $13,966
Restructured loans 114 336 383 465 1,634
- -----------------------------------------------------------------------------------------------------------------
Total nonperforming loans 26,890 38,295 33,795 24,044 15,600
Foreclosed assets and surplus banking property 3,490 3,854 991 995 1,909
- -----------------------------------------------------------------------------------------------------------------
Total nonperforming assets $30,380 $42,149 $34,786 $25,039 $17,509
- -----------------------------------------------------------------------------------------------------------------
Loans 90 days past due still accruing $3,385 $5,817 $6,916 $4,343 $3,020
- -----------------------------------------------------------------------------------------------------------------
Ratios:
Nonperforming assets to loans plus foreclosed
assets and surplus property .62% .95% .77% .55% .45%
Allowance for loan losses to
nonperforming loans 221.18 172.65 211.96 253.77 304.76
Loans 90 days past due still accruing to loans .07 .13 .15 .09 .08
- -----------------------------------------------------------------------------------------------------------------
During 2003, there was a $17 million reduction in the total of loans
classified through the internal risk-rating process as having well-defined
weaknesses or doubtful prospects for full repayment. Criticized loans at
December 31, 2003 included $9 million of loans whose full repayment is in doubt,
down $12 million from year-end 2002. Loans identified as having well-defined
weaknesses that would likely result in some loss if not corrected decreased $5
million during the year, to a total of $108 million. Loans warranting special
attention totaled $71 million at year-end 2003, up $11 million from the prior
year end. The total of all criticized loans at the end of 2003 was down $6
million from the level at year-end 2002.
Beginning in 2001, management's evaluation of credit risk included an
assessment of what impact the economic repercussions of that year's terrorist
attacks on the United States could have on the Company's customers. In Whitney's
market area, the impact has been felt mainly by businesses related to the
convention and tourism industry, including, among others, hotels and
restaurants, and by the employees of these businesses. Loan officers continue to
monitor the operations of affected customers and their responses to a reduced
level of travel and tourism. Management has applied tests to identify credits
that would have the most difficulty with debt service under stressed conditions
different than would normally have been considered in the underwriting process.
The results continue to indicate acceptable levels of risk.
12
TABLE 4. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Balance at the beginning of year $66,115 $71,633 $61,017 $47,543 $43,187
Allowance acquired in bank purchases - - 1,196 2,388 -
Allowance on loans transferred to held for sale - (895) (651) - -
Provision for loan losses charged to operations (3,500) 7,500 19,500 12,690 6,470
Loans charged to the allowance:
Commercial, financial and agricultural (7,286) (6,894) (11,678) (4,244) (5,673)
Real estate - commercial and other (963) (5,148) (252) (884) (917)
Real estate - residential mortgage (1,176) (1,816) (552) (697) (461)
Individuals (3,509) (3,353) (3,020) (2,656) (2,991)
- -------------------------------------------------------------------------------------------------------------------
Total charge-offs (12,934) (17,211) (15,502) (8,481) (10,042)
- -------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 2,273 2,472 3,130 2,679 4,408
Real estate - commercial and other 3,666 463 965 1,796 788
Real estate - residential mortgage 1,873 509 348 658 525
Individuals 1,982 1,644 1,630 1,744 2,207
- -------------------------------------------------------------------------------------------------------------------
Total recoveries 9,794 5,088 6,073 6,877 7,928
- -------------------------------------------------------------------------------------------------------------------
Net charge-offs (3,140) (12,123) (9,429) (1,604) (2,114)
- -------------------------------------------------------------------------------------------------------------------
Balance at the end of year $59,475 $66,115 $71,633 $61,017 $47,543
- -------------------------------------------------------------------------------------------------------------------
Ratios
Net charge-offs to average loans .07% .28% .21% .04% .06%
Gross charge-offs to average loans .28 .39 .35 .20 .28
Recoveries to gross charge-offs 75.72 29.56 39.18 81.09 78.95
Allowance for loan losses to loans at end
of year 1.22 1.48 1.59 1.33 1.21
- -------------------------------------------------------------------------------------------------------------------
The improvement in overall credit quality and a favorable change in
certain loss experience factors helped reduce the allowance for loan losses
needed at December 31, 2003 to a level $6.6 million below that at year-end 2002.
The allowance required for impaired loans at December 31, 2003 was down $3.9
million from the end of 2002. Table 4 shows the activity in the allowance over
the past five years, and the allocation of the allowance is included in Table 5.
Net charge-offs of $3.1 million in 2003 were $9.0 million lower than in 2002.
With relatively strong loan growth during the year, the allowance declined as a
percentage of total loans to 1.22% at December 31, 2003, from 1.48% at 2002's
year end. The allowance represented 221% of nonperforming loans at year-end 2003
and 173% a year earlier.
TABLE 5. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- -------------------------------------------------------------------------------------------------------------------
Commercial, financial
and agricultural 49.1% 45.3% 48.5% 43.0% 50.7% 41.2% 48.2% 39.5% 47.6% 39.9%
Real estate -
commercial and other 32.3 35.4 28.4 35.6 24.8 35.1 28.1 33.7 29.0 33.6
Real estate -
residential mortgage 8.4 12.7 8.3 14.3 10.7 16.9 11.5 19.1 14.8 18.4
Individuals 4.4 6.6 7.1 7.1 6.3 6.8 8.1 7.7 8.4 8.1
Unallocated 5.8 - 7.7 - 7.5 - 4.1 - .2 -
- -------------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------------------
13
INVESTMENT IN SECURITIES
In 2001, the liquidity of the Company's earning assets surged in
response to heightened demand for deposit products during a period of restrained
loan demand. Beginning in 2002, management redirected this liquidity to the
investment portfolio, particularly to mortgage-backed securities with relatively
short duration, based on its expectations regarding the stability of the funding
sources and the near term prospects for loan demand. Continued strong demand in
the deposit base helped fund further growth in the investment portfolio in 2003
in addition to supporting increased loan production during this period.
At December 31, 2003, total securities were $2.28 billion, an increase
of 15%, or $306 million, compared to year-end 2002. The majority of this
increase came toward the end of 2003 when management, in response to market
conditions, executed a strategy to temporarily leverage portfolio growth in
anticipation of expected portfolio paydowns during the early part of 2004. The
average investment in securities in 2003 was up 10%, or $188 million, from 2002.
Mortgage-backed securities grew to 63% of the total portfolio at the end of 2003
from 59% in 2002 and 51% in 2001. Short-term liquidity investments, including
federal funds sold, totaled $14 million at the end of 2003, compared to $4
million at year-end 2002. On average, short-term liquidity investments were $67
million in 2003, compared to $283 million in 2002, a decrease of $216 million
that reflected the gradual reallocation of excess liquidity to the investment
portfolio during the earlier year.
TABLE 6. DISTRIBUTION OF INVESTMENT MATURITIES
- -------------------------------------------------------------------------------------------------------------------------
December 31, 2003
- -------------------------------------------------------------------------------------------------------------------------
Over one through Over five through
(dollars in thousands) One year and less five years ten years Over ten years Total
- -------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
- -------------------------------------------------------------------------------------------------------------------------
Mortgage-backed
securities(a) $ 4,473 3.04% $ 38,044 4.78% $377,217 4.46% $1,027,070 4.43% $1,446,804 4.44%
U. S. agency securities 133,721 4.18 188,253 2.82 75,790 3.96 - - 397,764 3.49
U. S. Treasury securities 75,270 2.68 58,892 5.35 48,530 4.01 - - 182,692 3.89
Obligations of states and
political subdivisions (b) 4,329 5.73 13,396 6.52 9,478 6.77 1,456 7.54 28,659 6.54
Other debt securities 85 7.53 4,247 4.76 2,296 6.27 - - 6,628 5.32
Equity securities(c) - - - - - - 28,323 - 28,323 -
- -------------------------------------------------------------------------------------------------------------------------
Total $217,878 3.67% $302,832 3.75% $513,311 4.39% $1,056,849 4.43% $2,090,870 4.24%
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY
- -------------------------------------------------------------------------------------------------------------------------
Obligations of states and
political subdivisions (b) $6,487 6.86% $34,687 6.85% $69,393 6.63% $79,968 6.27% $190,535 6.53%
- -------------------------------------------------------------------------------------------------------------------------
Total $6,487 6.86% $34,687 6.85% $69,393 6.63% $79,968 6.27% $190,535 6.53%
- -------------------------------------------------------------------------------------------------------------------------
(a) Distributed by contractual maturity without regard to repayment schedules or projected prepayments.
(b) Tax exempt yields are expressed on a fully taxable equivalent basis.
(c) These securities have no stated maturities or guaranteed dividends.
Information about the contractual maturity structure of investment
securities at December 31, 2003 is shown in Table 6 above. The carrying value of
securities with explicit call options totaled $153 million at year-end 2003.
These call options and the scheduled principal reductions and projected
prepayments on mortgage-backed securities are not reflected in Table 6.
Including expected principal reductions on mortgage-backed securities, the
weighted-average maturity of the overall securities portfolio was approximately
45 months at December 31, 2003, compared with 39 months at year-end 2002.
The weighted-average taxable-equivalent portfolio yield was
approximately 4.43% at December 31, 2003, a decrease of 57 basis points from
approximately 5.00% at December 31, 2002, reflecting mainly lower rates
available in 2003 for reinvestment opportunities. Substantially all of the
securities in the investment portfolio bear fixed interest rates. The investment
in mortgage-backed securities with final contractual maturities beyond ten years
shown in Table 7 included approximately $323 million of adjustable-rate issues
with a weighted-average yield of
14
4.27%. The initial reset dates on these securities are mainly within five to
seven years.
Whitney has steadily built its investment in securities classified as
available for sale in recent years, primarily as a means to increase liquidity
management flexibility. Effective January 1, 2001, the Company reclassified
securities with a carrying value of $528 million, and an unrealized net loss of
$6.4 million, as available for sale in connection with the adoption of SFAS No.
133. The unrealized loss at the effective date of the reclassification was
reported net of tax in other comprehensive income in 2001. Securities available
for sale constituted 92% of the total investment portfolio at December 31, 2003.
There was a net unrealized gain on this portfolio segment of $13 million at
year-end 2003 that was concentrated in mortgage-backed securities. The overall
unrealized gain represented less than 1% of amortized cost. At year-end 2002,
there was a net unrealized gain of $46 million, or 2.7% of amortized cost,
including $28 million related to mortgage-backed securities. The net unrealized
gain or loss will vary based on overall changes in market rates, shifts in the
slope of the yield curve, movement in spreads to the yield curve for different
types of securities, and changing expectations about the timing of cash flows on
securities that can be prepaid.
Securities in the Company's portfolio that are subject to possible
credit quality deterioration, such as obligations of states and political
subdivisions, are monitored for signs that contractual obligations may not be
met and that there may be value impairment that is other than temporary. If such
impairment is identified, the carrying amount of the security is reduced with a
charge to operations. No impairment losses were recognized in the three years
ended December 31, 2003. The Company's Investment Policy requires special
approval for the purchase of other than investment grade securities.
The Company does not normally maintain a trading portfolio, other than
holding trading account securities for short periods while buying and selling
securities for customers. Such securities, if any, are included in other assets
in the consolidated balance sheets.
At December 31, 2003, Whitney held no investment in securities of a
single issuer, other than securities issued or guaranteed by the U. S.
government or its agencies, that exceeded 10% of its shareholders' equity.
DEPOSITS AND SHORT-TERM AND OTHER BORROWINGS
Deposits at December 31, 2003 were up 6%, or $376 million, from the
level at year-end 2002. Many of the factors that prompted the increased
availability of deposit funds in 2001 and 2002 continued to influence customer
behavior during 2003. Average deposits in 2003 were up 3%, or $163 million,
compared to 2002. Short-term and other borrowings, the major part of which
represents liabilities under repurchase agreements with customers, increased
32%, or $147 million, from year-end 2002, but were little changed on average for
2003 compared to the prior year.
TABLE 7. AVERAGE DEPOSITS
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits $1,759,414 29.8% $1,601,316 27.8% $1,447,871 26.1%
NOW account deposits 709,508 12.0 690,011 12.0 598,973 10.8
Money market deposits 1,409,491 23.8 1,321,729 23.0 1,065,027 19.2
Savings deposits 557,178 9.4 515,878 9.0 463,583 8.3
Other time deposits 798,626 13.5 913,492 15.9 1,114,207 20.1
Time deposits $100,000 and over 678,969 11.5 707,715 12.3 858,895 15.5
- --------------------------------------------------------------------------------------------------------------
Total $5,913,186 100.0% $5,750,141 100.0% $5,548,556 100.0%
- --------------------------------------------------------------------------------------------------------------
Deposit pricing strategies implemented during 2002 and sustained demand
for deposit products helped improve the mix of deposits throughout that year,
and these improvements have been preserved in 2003. Noninterest-bearing demand
deposits at year-end 2003 were up 15%, or $250 million, from the end of 2002.
For the year, average demand deposits increased 10%, or $158 million. Over the
last three years, noninterest-bearing demand deposits have steadily increased as
a percentage of total deposits, as can be seen in Table 7 above. Interest-
15
bearing deposits, were up 3%, or $125 million, between year-end 2002 and the
most recent year end. On average, interest-bearing deposits were little changed
in 2003 compared to 2002. The slower growth in interest-bearing deposits during
2003 was largely a reaction to steadily declining renewal rates for time
deposits.
The shift in the mix of interest-bearing deposits over these years was
partly a function of funds flows between deposit products, and to deposits from
short-term borrowings, in response to the reduced yields. Money market deposits
were up moderately from the end of 2002, but increased 7%, or $88 million, on
average in 2003. Regular savings deposits grew 11%, or $58 million, during 2003,
and were up 8% on average from the prior year, at least temporarily continuing
the reversal of a trend away from this more traditional deposit product. NOW
account deposits were up 18%, or $128 million, at year-end 2003, reflecting in
part an increased share of public funds during the active tax collection period
at year end. The average balance of NOW deposits grew only 3% between 2002 and
2003. Total time deposits, however, decreased 7%, or $111 million, from the end
of 2002, and were down 9%, or $144 million, on average in 2003 compared to the
prior year. Table 8 shows the maturity structure of time deposits over and under
$100,000 at December 31, 2003. The maturity of $615 million of time deposits in
the first quarter of 2004 is not expected to have a significant impact on the
mix of deposits.
TABLE 8. MATURITIES OF TIME DEPOSITS
- --------------------------------------------------------------------------------
(dollars in thousands)
- --------------------------------------------------------------------------------
Remaining maturity of time deposits of $100,000 or more
as of December 31, 2003
Three months or less $ 403,296
Over three months through twelve months 194,597
Over twelve months 62,240
- --------------------------------------------------------------------------------
Total time deposits of $100,000 or more 660,133
- --------------------------------------------------------------------------------
Remaining maturity of time deposits of less than $100,000
as of December 31, 2003
Three months or less 211,690
Over three months through twelve months 387,255
Over twelve months 146,533
- --------------------------------------------------------------------------------
Total time deposits of less than $100,000 745,478
- --------------------------------------------------------------------------------
Total time deposits $1,405,611
- --------------------------------------------------------------------------------
As noted earlier, short-term borrowings consist primarily of sales of
securities under repurchase agreements to customers using Whitney's treasury
management sweep product. Other than in connection with the temporary leveraging
of growth in the investment portfolio toward the end of 2003 discussed earlier,
Whitney made little use of available wholesale short-term funding sources in
either 2003 or 2002. These sources include overnight and term federal funds
purchased and brokered repurchase agreements. Average short-term borrowings from
customers under repurchase agreements declined a little over 10% in each of the
past two years, partly representing the flow of funds back to deposits as the
comparative yield advantage was largely eliminated. Because of the underlying
customer relationship, these borrowings serve as a relatively stable source of
funds.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
Shareholders' equity totaled $840 million at December 31, 2003, which
represented an increase of $40 million from the end of 2002. During 2003,
Whitney retained $49 million of earnings, net of dividends declared, and
recognized $11 million in additional equity from activity in stock-based
compensation plans for employees and directors, including option exercises.
These factors were partly offset by a $22 million decrease in other
comprehensive income representing an unrealized net holding loss on securities
available for sale during the period. Total shareholders' equity grew $82
million in 2002, to $800 million at December 31, 2002. Driving this growth were
net retained earnings of $51 million, $10 million in stock-based compensation
plan activity, and a $20 million increase in comprehensive income. The Company
paid a relatively stable percentage of its earnings in dividends over the last
three years. The dividend payout ratio was 50% in 2003, 47% in 2002 and 54% in
2001.
16
The ratios in Table 9 indicate that the Company remained strongly
capitalized at December 31, 2003. The increase in risk-weighted assets at
December 31, 2003 from the end of 2002 resulted mainly from an increase in loans
and other on-balance-sheet assets and, to a lesser degree, from growth in
off-balance-sheet obligations, such as loan facilities and letters of credit,
which are converted to assets for the risk-based capital calculations.
TABLE 9. RISK-BASED CAPITAL AND CAPITAL RATIOS
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Tier 1 regulatory capital $739,236 $672,408 $604,179 $577,036 $568,117
Tier 2 regulatory capital 59,475 66,115 63,878 61,017 47,543
- -------------------------------------------------------------------------------------------------------------------
Total regulatory capital $798,711 $738,523 $668,057 $638,053 $615,660
- -------------------------------------------------------------------------------------------------------------------
Risk-weighted assets $5,777,094 $5,301,764 $5,102,470 $5,063,114 $4,427,620
- -------------------------------------------------------------------------------------------------------------------
Ratios
Leverage ratio (Tier 1 capital to average
assets) 10.13% 9.76% 8.72% 8.93% 10.01%
Tier 1 capital to risk-weighted assets 12.80 12.68 11.84 11.40 12.83
Total capital to risk-weighted assets 13.83 13.93 13.09 12.60 13.90
Shareholders' equity to total assets 10.84 11.28 9.91 10.01 10.16
- -------------------------------------------------------------------------------------------------------------------
The regulatory capital ratios of Whitney National Bank exceed the
minimum required ratios, and the Bank has been categorized as "well-capitalized"
in the most recent notice received from its primary regulatory agency.
LIQUIDITY MANAGEMENT AND CONTRACTUAL OBLIGATIONS
Liquidity Management
The objective of liquidity management is to ensure that funds are
available to meet cash flow requirements of depositors and borrowers, while at
the same time meeting the operating, capital and strategic cash flow needs of
the Company and the Bank, all in the most cost-effective manner. Whitney
develops its liquidity management strategies and measures and monitors liquidity
risk as part of its overall asset/liability management process, making full use
of the quantitative modeling tools available to project cash flows under a
variety of possible scenarios. Projections are also made assuming credit
stressed conditions, although such conditions are not likely to arise.
On the liability side, liquidity management focuses on growing the base
of more stable core deposits at competitive rates, including the use of
treasury-management products for commercial customers, while at the same time
ensuring access to economical wholesale funding sources. The section above on
Deposits and Short-term Borrowings discusses changes in these liability-funding
sources in 2003. Whitney National Bank is a member of the Federal Home Loan Bank
system. This membership provides access to a variety of Federal Home Loan Bank
advance products as an alternative source of funds, although the Bank had made
only very limited use of this funding source through the end of 2003. In
addition, both the Company and the Bank have access to external funding sources
in the financial markets, and the Bank has developed the ability to gather
deposits at a nationwide level.
Liquidity management on the asset side primarily addresses the
composition and maturity structure of the loan and investment securities
portfolios and their capacity to generate cash flows from scheduled payments,
contractual maturities, prepayments, use as collateral for borrowings under
repurchase agreements and possible outright sales or securitizations. Table 2
above presents the contractual maturity structure of the loan portfolio and
Table 6 presents contractual investment maturities. Whitney has built its
investment in securities classified as available for sale in recent years to
further increase liquidity management flexibility.
Cash generated from operations is another important source of funds to
meet liquidity needs. The consolidated statements of cash flows present
operating cash flows and summarize all significant sources and uses of funds for
each year in the three-year period ended December 31, 2003.
The Bank's liquidity position had grown significantly in 2001
reflecting strong deposit inflows, moderate loan demand, and an attractive
refinancing environment. Conditions supported ample liquidity again in 2002, and
17
Whitney made investment allocation decisions and developed deposit pricing
strategies consistent with management's assessment of the underlying conditions.
Continued high levels of liquidity in the deposit base helped support increased
loan production and overall earning asset growth in 2003. Management anticipates
that some of the demand for deposit products will moderate with increased
economic activity, a return to confidence in the capital markets and rising
market interest rates and has factored this possibility into its liquidity
projections and planning processes.
Whitney Holding Corporation had approximately $184 million in cash and
demand notes from the Bank available to provide liquidity for acquisitions,
dividend payments to shareholders, or other corporate uses at the end of 2003,
before consideration of any future dividends that may be received from the Bank.
During 2004, the Bank will have available an amount equal to approximately $2
million plus its current net income to declare as dividends to the Company
without prior regulatory approval.
Contractual Obligations
The following table summarizes payments due from the Company under
specified long-term and certain other contractual obligations as of December 31,
2003. Obligations under deposit contracts are not included. The maturities of
time deposits are scheduled in Table 8 above in the section on "Deposits and
Short-Term and Other Borrowings". Purchase obligations represent legal and
binding contracts to purchase services or goods that cannot be settled or
terminated without paying substantially all of the contractual amounts. The
balance includes approximately $4 million under contracts to construct or
improve bank facilities. Not included are a number of contracts entered into to
support ongoing operations that either do not specify fixed or minimum amounts
of goods or services or are cancelable on short notice without cause and
without significant penalty. The consolidated statements of cash flows provide a
picture of the Company's ability to fund these and other more significant cash
operating expenses, such as interest expense and compensation and benefits, out
of current operating cash flows.
TABLE 10. CONTRACTUAL OBLIGATIONS
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) Payments due by period from December 31, 2003
- -----------------------------------------------------------------------------------------------------------------
Less than 1 - 3 3 - 5 More than
Total 1 year years years 5 years
- -----------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank advance (a) $ 5,833 $ 296 $ 969 $1,107 $ 3,461
Capital lease obligation (a) 555 222 333 - -
Operating lease obligations 38,325 4,249 11,214 8,161 14,701
Purchase obligations 8,013 5,712 2,301 - -
Other long-term liabilities (b) (c) - - - - -
- -----------------------------------------------------------------------------------------------------------------
Total $52,726 $10,479 $14,817 $9,268 $18,162
- -----------------------------------------------------------------------------------------------------------------
(a) Balances are included with short-term and other borrowings in the Company's consolidated financial
statements.
(b) Obligations under the qualified defined benefit pension plan are not included. The Company made an
$8 million contribution to the pension trust fund during 2003 and recognized a $7 million prepaid
pension asset at December 31, 2003. The Company does not anticipate making a pension contribution
during 2004, and does not anticipate any significant near-term payments under the unfunded
nonqualified pension plan. A $4.3 million nonqualified plan obligation was recorded at year-end 2003.
(c) The recorded obligation for postretirement benefits other than pensions was $9.4 million at December
31, 2003. The funding to purchase benefits for current retirees, net of retiree contributions, has not
been significant.
18
OFF-BALANCE SHEET ARRANGEMENTS
As a normal part of its business, the Company enters into arrangements
that create financial obligations that are not recognized, wholly or in part, in
the consolidated financial statements. Certain of these arrangements, such as
noncancelable operating leases, are reflected in Table 10 above. The most
significant off-balance sheet obligations are the Bank's commitments under
traditional credit-related financial instruments. Table 11 schedules these
commitments as of December 31, 2003 by the periods in which they expire.
Commitments under credit card and personal credit lines generally have no stated
maturity.
TABLE 11. CREDIT-RELATED COMMITMENTS
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) Commitments expiring by period from December 31, 2003
- -----------------------------------------------------------------------------------------------------------------
Less than 1 - 3 3 - 5 More than
Total 1 year years years 5 years
- -----------------------------------------------------------------------------------------------------------------
Loan commitments - revolving $1,410,555 $1,054,558 $294,335 $60,823 $839
Loan commitments - nonrevolving 355,076 169,133 185,943 - -
Credit card and personal credit lines 388,902 388,902 - - -
Standby and other letters of credit 292,558 228,857 63,701 - -
- -----------------------------------------------------------------------------------------------------------------
Total $2,447,091 $1,841,450 $543,979 $60,823 $839
- -----------------------------------------------------------------------------------------------------------------
Revolving loan commitments are issued to support commercial activities.
The availability of funds under revolving loan commitments generally depends on
whether the borrower continues to meet credit standards established in the
underlying contract. Many such commitments are used only partially or not at all
before they expire. Credit card and personal credit lines are generally subject
to cancellation if the borrower's credit quality deteriorates, and many lines
remain partly or wholly unused. Unfunded balances on revolving loan commitments
and credit lines should not be used to project actual future liquidity
requirements. Nonrevolving loan commitments are issued mainly to provide
financing for the acquisition and construction of real property, both commercial
and residential, although many are not expected to lead to permanent financing
by the Bank. Expectations about the level of draws under all credit-related
commitments are incorporated into the Company's liquidity and asset/liability
management models.
Substantially all of the letters of credit are standby agreements that
obligate the Bank to fulfill a customer's financial commitments to a third party
if the customer is unable to perform. The Bank issues standby letters of credit
primarily to provide credit enhancement to its customers' other commercial or
public financing arrangements and to help them demonstrate financial capacity to
vendors. The Company has historically had minimal calls to perform under standby
agreements.
ASSET/LIABILITY MANAGEMENT
The objective of the Company's asset/liability management is to
implement strategies for the funding and deployment of its financial resources
that are expected to maximize soundness and profitability over time at
acceptable levels of risk.
Interest rate sensitivity is the potential impact of changing rate
environments on both net interest income and cash flows. The simplest method of
measuring interest rate sensitivity is gap analysis, which identifies the
difference between the dollar volume of assets and liabilities that reprice
within specified time periods. Table 12 shows the Company's static gap position
as of December 31, 2003. This table indicates that Whitney is somewhat liability
sensitive in the very near term and somewhat asset sensitive over a one-year
time horizon. Gap analysis has several limitations, including the fact that it
is a point-in-time measurement that ignores the dynamic nature of the Company's
assets and liabilities, and it does not take into consideration actions that
management can and will take to maximize net interest income over time.
The Company has developed a model that allows it to obtain more
accurate and meaningful measures of its interest rate sensitivity by running net
interest income simulations and monitoring the economic value of equity. The
model can be used to test the Company's sensitivity in various economic
environments. The model is able to
19
incorporate management's assumptions and expectations regarding such factors as
loan and deposit growth, pricing, prepayment speeds and spreads between interest
rates. Assumptions can also be entered into the model to evaluate the impact of
possible strategic responses to changes in the competitive environment.
Management, through the Company's Asset & Liability Committee, monitors
simulation results against rate sensitivity guidelines specified in Whitney's
asset/liability management policy.
TABLE 12. INTEREST RATE SENSITIVITY
- --------------------------------------------------------------------------------------------------------------------
By Maturity or Repricing Date at December 31, 2003
- --------------------------------------------------------------------------------------------------------------------
Non-
0-30 31-90 91-180 181-365 After interest-
(dollars in millions) Days Days Days Days 1 Year bearing Total
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Loans $2,840 $325 $325 $401 $ 992 $ - $4,883
Securities available for sale 62 138 123 252 1,516 - 2,091
Securities held to maturity - 3 5 8 174 - 190
Loans held for sale and other
short-term investments 30 - - - - - 30
Other assets - - - - - 561 561
- --------------------------------------------------------------------------------------------------------------------
Total assets 2,932 466 453 661 2,682 561 7,755
- --------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS
NOW account deposits 827 - - - - - 827
Money market deposits 1,397 - - - - - 1,397
Savings deposits 14 - - - 572 - 586
Other time deposits 72 136 192 198 147 - 745
Time deposits $100,000 and over 254 153 81 112 61 - 661
Short-term borrowings 600 - - - - - 600
Noninterest-bearing demand deposits - - - - - 1,943 1,943
Other liabilities - - - - - 156 156
Shareholders' equity - - - - - 840 840
- --------------------------------------------------------------------------------------------------------------------
Total sources of funds 3,164 289 273 310 780 2,939 7,755
- --------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ (232) $177 $180 $351 $1,902 $(2,378)
Cumulative interest rate sensitivity
gap $ (232) $(55) $125 $476 $2,378 $ -
Cumulative interest rate sensitivity
gap as a percentage of total
earning assets (3.22)% (.76)% 1.74% 6.62% 33.06%
- --------------------------------------------------------------------------------------------------------------------
The net interest income simulations run at the end of 2003 also
indicated that Whitney was moderately asset sensitive over the near term,
similar to its position at year-end 2002. Based on these simulations, annual net
interest income (TE) would be expected to increase $14.7 million, or 4.7%, and
decrease $15.4 million, or 5.0%, if interest rates instantaneously increased or
decreased, respectively, from current rates by 100 basis points. These changes
are measured against the results of a base simulation run that uses current
growth forecasts and assumes a stable rate environment and structure. The
comparable simulation run at year-end 2002 produced results that ranged from a
positive impact on net interest income (TE) of $12.8 million, or 4.3%, to a
negative impact of $14.6 million, or 4.9%. At the end of each year, additional
simulations were run applying instantaneous parallel rate shocks up to 300 basis
points as well as gradual rate changes of up to 200 basis points. In the recent
rate environment, certain downward rate shocks caused unrealistic model
assumptions, and the results from these simulation runs were disregarded.
The actual impact that changes in interest rates have on net interest
income will depend on many factors. These include Whitney's ability to achieve
expected growth in earning assets and maintain a desired mix of earning assets
and interest-bearing liabilities, the actual timing when assets and liabilities
reprice, the magnitude of interest rate changes, interest rate spreads and the
level of success of asset/liability management strategies implemented.
The method used for measuring longer-term interest rate risk is the
economic value of equity analysis. At year-end 2003, the simulated measure of
the Company's sensitivity was acceptable under internal guidelines at all levels
of rate shock that produced realistic model assumptions.
20
Changes in interest rates affect the fair values of financial
instruments. The earlier section on Investment in Securities and Notes 4 and 16
to the consolidated financial statements contain information regarding fair
values.
To be able to accommodate the maturity/rate preferences of certain
potential borrowers, during 2003 the Bank began to employ interest rate swaps to
bring the market risk associated with these longer-duration fixed-rate loans in
line with Whitney's asset/liability management objectives. At December 31, 2003,
only one swap with a notional amount of $22 million had been executed,
essentially converting the related fixed-rate commercial loan into a
floating-rate loan. The swap has been structured to be a highly effective hedge
against changes in the loan's fair value, and there was no ineffectiveness to be
recognized in earnings during 2003.
Other than this swap activity, the Company has made no investments in
financial instruments or participated in agreements with values that are linked
to or derived from changes in the value of some underlying asset or index. These
are commonly referred to as derivatives and include such instruments as futures,
forward contracts, option contracts, and other financial arrangements with
similar characteristics. Management continues to evaluate whether to make
additional use of derivatives as part of its asset/liability and liquidity
management processes.
IMPACT OF INFLATION AND CHANGING PRICES
The great majority of assets and liabilities of a financial institution
are monetary in nature. Management believes the most significant potential
impact of inflationary or deflationary economic cycles on Whitney's financial
results is its ability to react to changes in interest rates. Interest rates do
not, however, necessarily move in the same direction, or at the same magnitude,
as the prices of goods and services. As discussed above, the Company employs
asset/liability management strategies in its attempt to minimize the effects of
economic cycles on its net interest income.
Inflation and changing prices also have an impact on the growth of
total assets in the banking industry and the resulting need to increase capital
at higher than normal rates in order to maintain an appropriate equity to assets
ratio. Changing prices will also affect the trend in noninterest operating
expenses and noninterest income.
21
RESULTS OF OPERATIONS
NET INTEREST INCOME (TE)
Whitney's net interest income (TE) was little changed between 2002 and
2003, following an increase of 5%, or $15.0 million, from 2001 to 2002. Earning
assets grew 3% on average in both 2003 and 2002. The favorable impact of earning
asset growth in 2003 was offset by moderate compression during the year in the
net interest margin (TE) to a still healthy 4.47%. In 2002, the net interest
margin (TE), which is net interest income (TE) as a percent of average earning
assets, widened slightly to 4.62%, from 4.52% in 2001. Tables 13 and 14 show the
components of changes in the Company's net interest income (TE) and net interest
margin (TE).
As mentioned earlier, Whitney is moderately asset sensitive, which
implies that its net interest margin would tend to compress in a declining rate
environment, holding other factors constant, but also tend to widen in a rising
rate environment. The operating environment over the last three years has proved
a difficult one for improving the margin and generating significant growth in
net interest income. The most important characteristics of this environment for
Whitney have been sustained low market interest rates, high levels of liquidity
in the deposit base, and restrained commercial loan demand. The relative
stability of the net interest margin (TE) over this period was the result of
numerous factors, including the implementation of successful pricing strategies
on deposits, careful deployment of excess liquidity in the deposit base, and
pricing discipline on loans in a highly competitive market.
Although the latter half of 2003 has seen some upward movement in
yields at longer maturities, an overall environment of low, though relatively
stable, market interest rates prevailed during 2003 and 2002 after a steep
decline during 2001. As expected, Whitney's funding costs trended down, but at a
declining rate, including the impact of the gradual repricing of fixed-rate time
deposits. Sustained low rates coupled with increased demand for deposit products
also allowed Whitney to implement deposit-pricing strategies to help shift the
mix of funds in favor of noninterest-bearing and lower-cost interest-bearing
sources. Average noninterest-bearing deposits funded 26% of average earning
assets in 2003, up from a healthy 25% in 2002 and 23% in 2001, and the
percentage of funding from all noninterest-bearing sources rose steadily to 32%
from 27% over this three-year period. Lower-cost interest-bearing deposits
supported close to 40% of earning assets in 2003, up from 39% in 2002 and 34% in
2001. Higher-cost sources of funds, which include time deposits and short-term
and other borrowings, fell to 29% of average earning assets in 2003, from 32% in
2002 and 39% in 2001.
The overall cost of funds decreased 52 basis points between 2002 and
2003, and was down 139 basis points in 2002 from 2001. The average rate on
lower-cost interest-bearing deposits also declined 52 basis points in 2003 after
a fall of 101 basis points in 2002. Because of their maturity structure, the
average rate on time deposits fell further, decreasing 102 basis points in 2003
after the steep 245 basis points decline in 2002.
The overall yield (TE) on average earning assets decreased 67 basis
points in 2003, or 15 basis points beyond the reduction in the cost of funds
from 2002. In 2002, the overall asset yield (TE) declined 129 basis points, or
10 basis points better than the decrease in the cost of funds from 2001. Both
loan and investment yields trended lower as higher-yielding fixed-rate
instruments gradually repriced and new funds were invested at current low rates.
Loan yields (TE) were down 80 basis points in 2003, following a decrease of 137
basis points in 2002. The average yield (TE) earned on the investment portfolio
decreased 83 basis points in 2003 and was down 78 basis points in 2002 compared
to the prior year. A substantial number of loans, approximately 54% of the
portfolio by dollar value, have an adjustable rate tied to market indices or
prime, while the Company's investment securities are predominantly fixed-rate
instruments. As such, the overall loan yield tends to be more responsive to
changes in market rates than the overall yield on the investment portfolio. With
low market rates stimulating home mortgage refinancing activity, mortgage-backed
securities prepayments accelerated in 2002 and 2003 and the yield on this
portfolio segment suffered. This was particularly evident in 2003 when the yield
on mortgage-backed securities fell 100 basis points, compared to the 80 basis
point decline in loan yields (TE) for this period. As noted earlier, Whitney
sold certain mortgage-backed securities in the third quarter of 2003 and
reinvested in other issues with a higher and more stable yield and duration more
consistent with overall investment and asset/liability management strategies.
The sale
22
TABLE 13. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (TE) (a) AND INTEREST RATES
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (TE)(b) (c) $4,647,090 $253,555 5.46% $4,393,266 $274,979 6.26% $4,515,740 $344,613 7.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 1,145,511 50,428 4.40 1,023,277 55,243 5.40 684,934 41,070 6.00
U.S. agency securities 422,331 16,547 3.92 433,554 21,723 5.01 530,411 31,372 5.91
U.S. Treasury securities 196,214 7,344 3.74 152,349 6,160 4.04 104,670 6,215 5.94
Obligations of states and political
subdivisions (TE) 196,410 13,175 6.71 152,052 10,527 6.92 165,809 11,894 7.17
Other securities 43,779 1,825 4.17 54,984 2,432 4.42 39,430 2,015 5.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities 2,004,245 89,319 4.46 1,816,216 96,085 5.29 1,525,254 92,566 6.07
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 66,528 750 1.13 283,309 4,771 1.68 262,451 9,331 3.56
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,717,863 $343,624 5.12% 6,492,791 $375,835 5.79% 6,303,445 $446,510 7.08%
- ------------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets 585,676 595,445 592,469
Allowance for loan losses (65,517) (71,561) (64,350)
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $7,238,022 $7,016,675 $6,831,564
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits $ 709,508 $ 2,838 .40% $ 690,011 $ 5,508 .80% $ 598,973 $ 7,727 1.29%
Money market deposits 1,409,491 11,407 .81 1,321,729 19,152 1.45 1,065,027 30,655 2.88
Savings deposits 557,178 2,180 .39 515,878 4,014 .78 463,583 7,055 1.52
Other time deposits 798,626 14,085 1.76 913,492 26,315 2.88 1,114,207 58,772 5.27
Time deposits $100,000 and over 678,969 10,183 1.50 707,715 16,868 2.38 858,895 42,006 4.89
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,153,772 40,693 .98 4,148,825 71,857 1.73 4,100,685 146,215 3.57
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 439,869 2,816 .64 441,777 3,844 .87 515,152 15,134 2.94
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 4,593,641 $ 43,509 .95% 4,590,602 $ 75,701 1.65% 4,615,837 $161,349 3.50%
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING
LIABILITIES AND
SHAREHOLDERS' EQUITY
Demand deposits 1,759,414 1,601,316 1,447,871
Other liabilities 61,269 64,032 69,757
Shareholders' equity 823,698 760,725 698,099
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $7,238,022 $7,016,675 $6,831,564
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin (TE) $300,115 4.47% $300,134 4.62% $285,161 4.52%
Net earning assets and spread $2,124,222 4.17% $1,902,189 4.14% $1,687,608 3.58%
Interest cost of funding
earnings assets .65% 1.17% 2.56%
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) Includes loans held for sale.
(c) Average balance includes nonaccruing loans of $34,507, $37,152 and $27,492, respectively, in 2003, 2002 and 2001.
23
TABLE 14. SUMMARY OF CHANGES IN NET INTEREST INCOME (TE) (a) (b)
- ------------------------------------------------------------------------------------------------------------------
2003 Compared to 2002 2002 Compared to 2001
- ------------------------------------------------------------------------------------------------------------------
Due to Due to
Change in Total Change in Total
----------------------- Increase ---------------------- Increase
(dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
- ------------------------------------------------------------------------------------------------------------------
INTEREST INCOME (TE)
Loans (TE) $15,254 $(36,678) $(21,424) $(9,126) $(60,508) $(69,634)
- ------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 6,120 (10,935) (4,815) 18,605 (4,432) 14,173
U.S. agency securities (549) (4,627) (5,176) (5,252) (4,397) (9,649)
U.S. Treasury securities 1,669 (485) 1,184 2,300 (2,355) (55)
Obligations of states and political
subdivisions (TE) 2,985 (337) 2,648 (963) (404) (1,367)
Other securities (473) (134) (607) 715 (298) 417
- ------------------------------------------------------------------------------------------------------------------
Total investment in securities 9,752 (16,518) (6,766) 15,405 (11,886) 3,519
- ------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments (2,808) (1,213) (4,021) 690 (5,250) (4,560)
- ------------------------------------------------------------------------------------------------------------------
Total interest income (TE) 22,198 (54,409) (32,211) 6,969 (77,644) (70,675)
- ------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW account deposits 151 (2,821) (2,670) 1,047 (3,266) (2,219)
Money market deposits 1,198 (8,943) (7,745) 6,190 (17,693) (11,503)
Savings deposits 299 (2,133) (1,834) 723 (3,764) (3,041)
Other time deposits (2,995) (9,235) (12,230) (9,222) (23,235) (32,457)
Time deposits $100,000 and over (660) (6,025) (6,685) (6,425) (18,713) (25,138)
- ------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits (2,007) (29,157) (31,164) (7,687) (66,671) (74,358)
- ------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings (17) (1,011) (1,028) (1,900) (9,390) (11,290)
- ------------------------------------------------------------------------------------------------------------------
Total interest expense (2,024) (30,168) (32,192) (9,587) (76,061) (85,648)
- ------------------------------------------------------------------------------------------------------------------
Change in net interest income (TE) $24,222 $(24,241) $ (19) $16,556 $ (1,583) $ 14,973
- ------------------------------------------------------------------------------------------------------------------
(a) Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) The change in interest shown as due to changes in either volume or rate includes an allocation of the amount
that reflects the interaction of volume and rate changes. This allocation is based on the absolute dollar
amounts of change due solely to changes in volume or rate.
24
generated a gain of approximately $.9 million. The pace of refinancings recently
moderated, and this has slowed prepayments and helped stabilize the overall
yield (TE) on investment securities toward the end of 2003.
There was some favorable shift in the mix of average earning assets in
2003, with average loans growing to 69% of the total from 68% in 2002. Loans
had declined as a percentage of average earning assets in 2002, from 72% in
2001, reflecting the more restrained loan demand over much of this period.
Restrained loan demand and higher demand for deposit products, among other
factors, had caused a surge in the liquidity of the asset mix in 2001 that
carried over into 2002. Short-term investments grew to 4% of average earning
assets in 2001 and remained on average at the higher level in 2002. Beginning in
2002, management gradually redirected this liquidity to securities portfolio
investments and, eventually, to fund renewed loan growth. For 2003, the average
investment in securities increased to 30% of average earning assets, from 28% in
2002.
PROVISION FOR LOAN LOSSES
The overall credit risk profile of Whitney's customers improved in both
2003 and 2002. With these improvements, Whitney was able to reduce its allowance
for loan losses by $6.6 million in 2003, following a reduction of $5.5 million
in 2002 from year-end 2001. Net charge-offs were $3.1 million in 2003, compared
to $12.1 million in 2002 and $9.4 million in 2001. In 2003, Whitney recognized a
$3.5 million negative provision for loan losses, compared to provisions of $7.5
million in 2002 and $19.5 million in 2001.
For a more detailed discussion of changes in the allowance for loan
losses, nonperforming assets and general credit quality, see the earlier section
on Loans, Credit Risk Management and Allowance for Loan Losses. The future level
of the allowance and provisions for loan losses will reflect management's
ongoing evaluation of credit risk, based on established internal policies and
practices.
NONINTEREST INCOME
Table 15 shows the components of noninterest income for each year in
the three-year period ended December 31, 2003, along with the percent changes
between years for each component. Noninterest income increased 5%, or $4.3
million, in 2003 after decreasing 7%, or $6.0 million, in 2002. Excluding
revenue and gains associated with merchant processing agreements that were sold
in 2001, as discussed below, noninterest income grew 6%, or $4.5 million, in
2002.
TABLE 15. NONINTEREST INCOME
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 % change 2002 % change 2001
- -----------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $38,309 -% $38,327 8.7% $35,275
Secondary mortgage market operations 11,248 24.4 9,045 19.4 7,575
Bank card fees 9,193 11.9 8,219 (41.3) 14,002
Trust service fees 8,126 (7.8) 8,814 (6.1) 9,384
ATM fees 4,691 (3.5) 4,861 13.5 4,281
Investment services income 4,010 (5.8) 4,257 9.0 3,906
Other fees and charges 7,145 18.2 6,047 41.1 4,285
Other operating income 4,764 59.2 2,993 (15.2) 3,529
Net gain on sales and other
revenue from foreclosed assets 1,132 (34.0) 1,714 (12.7) 1,963
Net gains on disposals of surplus property 23 (95.4) 497 (84.8) 3,274
Gain on sale of merchant processing agreements - - - (a) 3,570
Securities transactions 863 110.0 411 149.1 165
- -----------------------------------------------------------------------------------------------------------------
Total noninterest income $89,504 5.1% $85,185 (6.6)% $91,209
- -----------------------------------------------------------------------------------------------------------------
(a) Not meaningful.
Income from service charges on deposit accounts was stable in 2003
after an increase of 9%, or $3.1 million, in 2002. Account maintenance charges
on business customers were up 3% in 2003, but grew 31%, or $2.6
25
million, in 2002. Refinements to pricing policies for certain business accounts
implemented mid-2001 and a relatively steep reduction in the earnings credit
available to offset charges on these accounts both benefited the results in
2002. Whitney appropriately lowered the earnings credit rate as short-term
market interest rates declined sharply in 2001. The earnings credit rate moved
moderately lower into 2003, but the potential favorable impact on business
charges was partly offset by the impact of increased liquidity and balances in
the deposit base and some reduction in the volume of chargeable transactions.
Overall service charge income in 2002 also benefited from the introduction,
beginning in 2001's second quarter, of automated tools to help banking officers
with certain service fee decisions and to measure their performance against
corporate standards. The integration of customers acquired in mergers also
generated additional fee income in 2002.
Secondary mortgage market operations posted a 24%, or $2.2 million,
increase in fee income in 2003. This followed an increase of 19%, or $1.5
million, in 2002. Low rates have benefited loan production volumes for several
years by stimulating homeowners to refinance and by helping sustain demand for
new home purchases. Total home loan production, including loans originated for
the portfolio, was $761 million in 2003, $510 million in 2002 and $461 million
in 2001. Whitney sold approximately 84% of this production in 2003, compared to
86% in 2002 and 95% in 2001. Refinancing activity accounted for approximately
70% of the total dollar volume of loans originated in 2003, compared to 65% in
both 2002 and 2001. There was a marked reduction in home loan production toward
the end of the third quarter of 2003 as mortgage rates trended higher and
refinancing activity abated. A return to a more favorable rate environment in
the near term is not currently anticipated, and both overall production levels
and secondary mortgage market fee income in 2004 are expected to be well below
2003 results.
At the end of 2001's third quarter, Whitney entered into an alliance
with a firm that specializes in processing credit card sale transactions for
merchants. In forming this alliance, Whitney sold its existing merchant
processing agreements to the firm and recognized a gain of $3.6 million, while
maintaining an interest in the ongoing net revenues generated through the
alliance. With this move, bank card fees decreased a net 41%, or $5.8 million,
in 2002. The corresponding reduction in bank card processing expense is
discussed in the following section. Excluding revenues associated with merchant
processing in all periods, bank card income rose 8%, or $.6 million, in 2003,
and was up 18%, or $1.2 million in 2002.
In addition to income from merchant processing services, this category
includes fees from activity on Bank-issued credit and debit cards. Fee income
from credit card activity grew 11% in 2003, consistent with the growth in
transaction volume, and was up 7% in 2002. Fee income from debit card activity
has made an increasingly important contribution in recent years as the Company
expanded the distribution of this product and saw increasing acceptance and use
of these cards for retail transactions. Debit card fee income was up 7%, or $.3
million in 2003, on a 15% increase in transaction volume. This followed income
growth of 26%, or $1.0 million, in 2002 when transaction volume rose 25%. The
income growth in 2003 did not fully reflect the underlying growth in transaction
volume because rates were reduced beginning in August 2003 under the terms of a
settlement between Visa USA and merchants. As part of this settlement, Visa USA
also agreed to modify its policy requiring merchants who honor its credit cards
to also accept its check or debit card product. Although the implementation of
this policy in January 2004 is not expected to significantly impact transaction
volume, it is expected to lead to lower interchange fees per transaction
relative to pre-settlement levels.
Trust service fees were lower in both 2003 and 2002, although the most
recent quarterly results have shown some improvement with the recovery of
capital market valuations after an extended period of market weakness.
Investment service income decreased 6% in 2003, following 9% growth in 2002.
Market conditions in 2003 limited the volume of fixed-income transactions in
which the Company has traditionally been most active and reduced the demand for
and the profitability of annuity products. At the same time, there was some
improvement in retail brokerage activity with improving equity markets and
investor confidence. Income growth in 2002 had been driven mainly by customers'
reinvestment of called bond proceeds and sales of annuity products when returns
were relatively more attractive.
26
Fees on letters of credit and unused loan commitments were the main
contributors to the growth in other fees and charges in both 2003 and 2002,
mainly reflecting successful lending efforts. Other operating income in 2003
includes a gain of $1.4 million recognized on the sale of a portfolio of
seasoned loans originated under affordable-housing programs.
The net gain on sales and other revenue from foreclosed assets includes
income from grandfathered assets that vary from year to year as opportunities
for sales arise. Management evaluates its banking facilities on an ongoing basis
to identify possible under-utilization and to determine the need for functional
improvements, relocations or possible sales. The net gains recognized in each
period from these and other dispositions of surplus banking property are shown
in Table 15. The total for 2001 includes a gain of approximately $1.1 million
related to a property acquired through merger.
NONINTEREST EXPENSE
Table 16 shows the components of noninterest expense for each year in
the three-year period ended December 31, 2003, along with the percent changes
between years for each component. Noninterest expense increased 5%, or $12.0
million, in 2003, driven mainly by a 10%, or $12.4 million, increase in
personnel expense. Noninterest expense declined 3% between 2001 and 2002.
Adjusting for the impact of the merchant business sale in each period and
excluding merger-related expenses of $6.2 million in 2001, noninterest expense
in 2002 was up 2% from 2001. Personnel costs were again the most significant
factor.
TABLE 16. NONINTEREST EXPENSE
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 % change 2002 % change 2001
- -------------------------------------------------------------------------------------------------------------------
Employee compensation $113,994 6.5% $107,021 2.1% $104,806
Employee benefits 27,377 24.6 21,966 24.8 17,604
- -------------------------------------------------------------------------------------------------------------------
Total personnel expense 141,371 9.6 128,987 5.4 122,410
Net occupancy expense 19,521 (1.9) 19,907 (1.3) 20,179
Equipment and data processing expense 17,264 (8.5) 18,876 (18.1) 23,040
Telecommunication and postage 8,614 4.0 8,281 (3.5) 8,582
Corporate value and franchise taxes 7,079 (6.3) 7,557 7.3 7,045
Legal and professional services 6,029 (.9) 6,083 (30.2) 8,712
Amortization of intangibles 5,332 (8.8) 5,846 (21.3) 7,430
Security and other outsourced services 8,846 8.8 8,127 4.3 7,792
Advertising 3,679 (22.9) 4,769 7.3 4,443
Operating supplies 3,546 2.4 3,462 (19.8) 4,315
Bank card processing services 2,293 6.1 2,161 (73.4) 8,134
Deposit insurance and regulatory fees 1,926 (2.3) 1,971 1.8 1,936
Miscellaneous operating losses 1,645 15.1 1,429 (43.8) 2,544
Other operating expense 15,778 17.1 13,470 7.4 12,542
- -------------------------------------------------------------------------------------------------------------------
Total noninterest expense $242,923 5.2% $230,926 (3.4)% $239,104
- -------------------------------------------------------------------------------------------------------------------
Underlying the rise in personnel expense in 2003 were a 7%, or $7.0
million, increase in employee compensation and a 25%, or $5.4 million, increase
in employee benefits. Base pay increased a moderate 3%, or close to $3 million.
Continued attention to efficient management of human resources helped the
Company maintain its full-time equivalent staff during 2003 at a level that was
on average 2% below the level in 2002. Payments in 2003 under targeted employee
incentive programs rose more sharply than base pay, with the $2.4 million
increase driven mainly by the impact of higher loan production volumes on retail
mortgage origination incentives. An increase in stock-based compensation, which
fluctuates with changes in Whitney's stock price and employee participation
levels, was the main factor in the overall $1.6 million increase in management
incentive plan expense.
Defined benefit pension plan expense and the cost of providing health
benefits to retirees increased a combined $4.1 million in 2003, with pension
expense alone up $3.3 million. This was the main factor behind the
27
overall rise in employee benefits for the year. A weak investment performance by
the pension trust fund or a decline in market yields on fixed-income securities
will cause the actuarially-determined periodic pension expense to increase in
future periods, holding other variables constant. Declines in market yields and
negative trends in actual benefit outlays will also have an unfavorable impact
on actuarial valuation results for postretirement health benefits. All of these
conditions were present in 2002, leading to the higher expense levels in 2003.
The Company also experienced an expected increase in the cost of providing
current health benefits in 2003.
A much more moderate increase in pension expense is anticipated for
2004, reflecting the beneficial impact of better than assumed investment
performance in 2003 and the $8 million employer contribution to the pension
trust during that year. Although the cost of postretirement health benefits is
also expected to continue to rise in 2004, the size of the increase could be
favorably impacted by recently enacted legislation on prescription drug benefits
under Medicare. Whitney has deferred recognizing the impact of this legislation
in its accounting for postretirement health benefits, pending issuance of
authoritative guidance on certain accounting issues raised by the act. The basis
for this deferral is discussed more fully in Note 12 to the consolidated
financial statements.
Total personnel costs increased 5%, or $6.6 million, in 2002, with
employee compensation up 2%, or $2.2 million, and employee benefits up 25%, or
$4.4 million. Excluding $2.9 million of merger-related expense incurred in 2001,
related mainly to severance or retention bonuses and change-in-control payments,
employee compensation increased 5%, or $5.1 million, in 2002 over the previous
year. Base salaries and the cost of various targeted employee incentive pay
plans, such as for mortgage originators, increased a combined 4%, or $3.7
million, including the impact of recurring costs of bank operations purchased in
late 2001. The staff level during 2002 was essentially unchanged from 2001,
partly reflecting the successful integration of operations and employees from
the 2001 acquisitions. Management incentive expense was up $1.6 million in 2002,
similar to the increase in 2003. Stock-based compensation was again the main
factor.
The same conditions that led to higher pension costs in 2003 also
impacted 2002. The defined benefit plan expense was up $3.1 million from 2001,
accounting for approximately three-quarters of the overall increase in employee
benefits expense in 2002. Higher costs of providing both current and retirement
health benefits also contributed to the overall increase in 2002.
Net occupancy expense was moderately lower in both 2003 and 2002.
Management has emphasized expense control through aggressive contract
management, careful analysis of proposed capital expenditures, and ongoing
identification of under-utilized facilities. Several branch facilities were
eliminated during 2003 after their operations were consolidated with nearby
locations. Six new or replacement branches are scheduled to open through the
third quarter of 2004, including three additional locations to serve the Houston
market. With the impact of these openings and other factors, a moderate increase
in net occupancy expense is expected in 2004. To reduce costs over the long term
and enhance productivity, certain operations in Houston will be moved to one of
the new locations and out of office space that is subject to a noncancelable
lease. Whitney expects to recognize a loss of up to $1.8 million related to its
remaining obligation under the lease when the move is completed, which is
currently planned for the third quarter of 2004.
Equipment and data processing expense also trended lower in recent
years, with a decrease of 9%, or $1.6 million, in 2003, following a decrease of
18%, or $4.2 million, in 2002. Excluding $1.2 million in system integration
expenses in 2001 related to mergers, the improvement in 2002 was 13%, or $2.9
million. As with occupancy expense, the Company's equipment and data processing
process in recent years has shown the benefit of contract management and close
control over capital expenditures for both new projects and the replacement of
fully-depreciated assets. Systems integration activities completed in 2001 also
produced ongoing savings. Although cost control efforts will continue, recent
upgrades to the data processing system and new applications and capabilities
that have been or will be added to support expanded customer service are
expected to lead to a year-over-year increase in this expense category in 2004.
A project to upgrade the capacity and functionality of branch
communication lines was the main factor behind the 4% increase in
telecommunication and postage expense in 2003. This expense category was
slightly
28
lower in 2002 despite postal rate increases in that year and in 2001. During
2002 and 2001, Whitney renegotiated its contract for mail services, improved
internal mail operations, and restructured its data and voice communication
contracts. The Company has also noted some trends in customer transaction
preferences that have reduced the cost of periodic mailings.
The expense for legal and professional services was little changed in
2003 compared to the prior year. This followed a decrease of 30%, or $2.6
million, from 2001 to 2002. The results in 2001 included $2.3 million of
merger-related expense primarily for system conversion consulting services.
Excluding merger-related costs, Whitney's expenditures for consulting and other
nonlegal professional services have been relatively stable over the last three
years. During this period, the Company pursued various initiatives that included
implementing new systems to support trust operations and funds transfer
services, introducing new on-line banking services, developing products and
service protocols that better target different customer groups, and evaluating
overall organizational efficiency and effectiveness. Legal expense, which covers
services for both loan collection efforts and general corporate matters, was
relatively stable over this three-year period. The improvements in loan credit
quality during 2003 that were discussed earlier should translate into lower
demand for collection services over the near term.
Amortization of purchased intangibles decreased $1.6 million in 2002
compared to 2001. The $3.6 million benefit from the elimination of goodwill
amortization in 2002 was partly offset by amortization of the deposit
relationship intangible purchased in the Northwest Bank acquisition in 2001's
fourth quarter and adjustments to the amortization schedule for certain other
purchased intangibles. Note 9 to the consolidated financial statements presents
pro forma information to show the impact elimination of goodwill amortization
has on net income and earnings per share. Scheduled amortization of intangible
assets other than goodwill in 2004 is $5.2 million.
The expense for security and other outsourced services increased 9% in
2003 after rising 4% in 2002. The outsourcing of trust-related processing
services was the main contributor to the larger increase in 2003.
Toward the end of 2000, Whitney launched a multi-faceted advertising
campaign featuring a Louisiana-based celebrity spokesperson. Costs associated
with this campaign continued throughout 2002. During 2003, no new major
campaigns were introduced, leading to a decrease in expense of 23%, or $1.1
million.
The significant reduction in bank card processing services expense in
2002 was directly related to the merchant business sale discussed earlier.
Excluding merchant processing costs, this expense category will vary mainly with
changes in transaction volume on Bank-issued credit cards.
The Bank has been assessed at relatively low rates for deposit
insurance premiums in recent years, reflecting both the level of the deposit
insurance funds in relation to required levels and the favorable overall risk
rating assigned to the Bank by its primary regulator. The Company does not
expect the Bank's deposit insurance premiums to rise significantly in the near
term.
The expense categories included in other operating expense were up 17%,
or $2.3 million, on a combined basis in 2003. The Company experienced a sharp
jump in its insurance premiums when certain coverages were renewed in an
insurance market much harder than at the beginning of the prior multi-year
contract. The required amortization of new affordable housing project
investments was also a factor behind the increases in 2003 and 2002, but the
related tax credits reduced income tax expense and the effective tax rates as
noted in the following section and Note 20 to the consolidated financial
statements.
29
INCOME TAXES
Income tax expense was $46.1 million in 2003, $46.6 million in 2002 and
$36.6 million in 2001. The Company's effective tax rate was 31.9% in 2003, 32.9%
in 2002 and 32.6% in 2001. The effective rates in each of these years was lower
than the 35% federal statutory tax rate primarily because of tax-exempt interest
income from the financing of state and local governments. Additional investments
in projects that generate affordable housing credits helped lower the effective
tax rate in 2003 as compared to 2002. As discussed in Note 20 to the
consolidated financial statements, Whitney recorded a deferred tax benefit of
approximately $1 million in 2001 when an acquired bank's Subchapter S election
was terminated. The effective rate in 2001 was also impacted by nondeductible
goodwill amortization. This was not a factor in 2002 and 2003, because the
amortization of goodwill was discontinued after 2001 as was discussed earlier.
Louisiana-sourced income of commercial banks is not subject to state
income taxes. Rather, banks in Louisiana pay a tax based on the value of their
capital stock in lieu of income and franchise taxes, and these corporate value
taxes are included in noninterest expense. This expense will fluctuate based in
part on the growth in the Bank's equity and earnings and in part based on market
valuation trends for the banking industry.
See Note 20 for additional information on the Company's effective tax
rates and the composition of changes in income tax expense for all periods.
FOURTH QUARTER RESULTS
Whitney earned $23.8 million, or $.59 per basic share, in the fourth
quarter of 2003, compared to $25.1 million, or $.63 per basic share, in the
fourth quarter of 2002.
Selected highlights from the fourth quarter's results follow:
o Whitney's net interest income (TE) increased 2%, or $1.6 million,
from the fourth quarter of 2002. The favorable impact of 6% growth
in earning assets was partly offset by an 18 basis point
compression of the net interest margin (TE) between these periods.
The margin for the most recent quarter was 4.43%, down only
slightly from 4.45% in the third quarter of 2003. Although the
latter part of 2003 has seen some upward movement in rates for
longer maturities, an overall environment of low market rates has
been prevalent for some time now. Both funding costs and asset
yields have trended down, but at a declining rate, as
higher-yielding fixed-rate instruments gradually repriced and new
instruments were added at current low rates. Funding costs
decreased 43 basis points between the fourth quarters of 2002 and
2003, but were only 5 basis points lower than in 2003's third
quarter. Deposit pricing strategies implemented in response to
market conditions have helped shift the mix of funds in favor of
noninterest-bearing and lower-cost interest-bearing sources. The
overall yield on earning assets was 61 basis points lower than in
2002's fourth quarter, but was down only 7 basis points in
comparison to the third quarter of 2003. A recent nationwide
slowdown in home mortgage refinancing activities led to lower
prepayments on mortgage-backed securities and helped stabilize the
overall yield on investment securities. Loans increased slightly
as a percentage of earning assets between the fourth quarters of
2002 and 2003, reflecting continued steady growth.
o The direction of overall credit quality was again favorable during
the fourth quarter of 2003. This development and a favorable
change in certain loss experience factors helped reduce the
allowance for loan losses needed at December 31, 2003 to a level
$1.9 million below that at September 30, 2003. With net
charge-offs of a comparable $1.9 million for the period, Whitney
recorded no provision for loan losses in the final quarter of
2003, compared to a $4 million negative provision in 2003's third
quarter and a provision of $.5 million in the fourth quarter of
2002. Net charge-offs were $.8 million in the third quarter of
2003 and $1.7 million in 2002's final quarter. The successful
resolution of a larger problem credit was the major factor in a
$3.9 million reduction in total nonperforming loans from the end
of 2003's third quarter. The allowance required for impaired loans
at the end of 2003 was $1.2 million below the level at September
30, 2003. The total of loans criticized through the internal
credit risk classification process was down $11 million from the
end of the third quarter of 2003. With continued loan growth, the
allowance declined as a percentage of total loans to 1.22% at
December 31,
30
2003, from 1.31% at September 30, 2003. The allowance
represented 221% of nonperforming loans at year-end 2003 and 200%
at the end of 2003's third quarter.
o Noninterest income decreased 2%, or $.5 million, from the fourth
quarter of 2002. Fee income from Whitney's secondary mortgage
market operations in 2003's fourth quarter was down 30%, or $.9
million, compared to the fourth quarter of 2002. There was a
marked reduction in home loan production toward the end of the
third quarter of 2003 as mortgage rates trended higher and
refinancing activity abated. Service charges from deposit accounts
were 4%, or $.3 million, higher in the fourth quarter of 2003 and
income from bank-issued credit and debit cards was up 3%, or $.1
million, compared to 2002's fourth quarter. The results for bank
card income do not fully reflect the underlying growth in
transaction volumes because of a reduction in debit transaction
rates beginning in August 2003 under the terms of a settlement
between Visa USA and merchants. Trust service fees declined 3%, or
$.1 million, compared to the fourth quarter of 2002, but were up
slightly from 2003's third quarter with rising capital market
valuations.
o Noninterest expense increased 6%, or $3.7 million, from 2002's
fourth quarter. Total personnel expense was up 7%, or $2.3
million, as employee compensation increased 4% and employee
benefits rose 21%, or each approximately $1.1 million. Base pay
increased 4%, or close to $.9 million, but payments under targeted
employee incentive programs declined, reflecting the impact of
reduced loan production volumes on retail mortgage origination
incentives. Management incentive plan expense, which includes
certain stock-based compensation, increased $.4 million. A
combined increase of $.9 million in defined benefit pension plan
expense and the cost of providing postretirement health benefits
was the main factor behind the overall rise in employee benefits
expense for the fourth quarter of 2003. A project to upgrade the
capacity and functionality of communication lines was the main
factor behind the 8% increase in the telecommunication and postage
expense category. The categories making up other noninterest
expense increased a net 15%, or $1.3 million. The most significant
factor of a recurring nature was the sharp jump in insurance
premiums for the current coverage period, reflecting an insurance
market much harder than at the beginning of the prior multi-year
contract. The required amortization of new affordable housing
project investments during 2003 was also a factor, but the related
tax credits reduced income tax expense and helped lower the
effective tax rate for the fourth quarter of 2003.
The Summary of Quarterly Financial Information appearing in Item 8 of
this Form 10-K provides selected comparative financial information for each of
the four quarters in 2003 and 2002.
Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required for this item is included in the section
entitled Asset/Liability Management in Management's Discussion and Analysis of
Financial Condition and Results of Operations that appears in Item 7 of this
Form 10-K and is incorporated here by reference.
31
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (Unaudited)
- ----------------------------------------------------------------------------------------------------------
2003 Quarters
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
- ----------------------------------------------------------------------------------------------------------
Net interest income $74,961 $74,283 $72,522 $72,794
Net interest income (TE) 76,346 75,696 73,857 74,216
Provision for loan losses - (4,000) - 500
Noninterest income 21,345 23,538 23,126 21,495
Net securities gains (losses) in noninterest income - 863 - -
Noninterest expense 61,652 61,332 60,645 59,294
Income tax expense 10,834 12,987 11,253 11,025
- ----------------------------------------------------------------------------------------------------------
Net income $23,820 $27,502 $23,750 $23,470
- ----------------------------------------------------------------------------------------------------------
Average balances
Total assets $7,389,183 $7,293,393 $7,191,244 $7,074,196
Earning assets 6,858,134 6,772,338 6,686,717 6,550,281
Loans 4,733,236 4,620,970 4,564,160 4,461,849
Deposits 6,039,349 5,949,378 5,898,219 5,762,353
Shareholders' equity 835,924 822,678 824,584 811,347
- ----------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.28% 1.50% 1.32% 1.35%
Return on average equity 11.31 13.26 11.55 11.73
Net interest margin 4.43 4.45 4.43 4.57
- ----------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.59 $.69 $.60 $.59
Diluted .59 .68 .59 .58
Cash dividends per share .33 .30 .30 .30
Trading data
High closing price $40.99 $35.74 $34.07 $34.39
Low closing price 34.67 31.94 31.67 31.62
End-of-period closing price 40.99 34.00 32.00 34.20
Trading volume 3,077,088 5,300,892 8,201,397 6,344,880
- ----------------------------------------------------------------------------------------------------------
2002 Quarters
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
- ----------------------------------------------------------------------------------------------------------
Net interest income $73,463 $73,964 $75,174 $72,607
Net interest income (TE) 74,758 75,162 76,381 73,833
Provision for loan losses 500 1,500 2,500 3,000
Noninterest income 21,890 22,280 20,646 20,369
Net securities gains (losses) in noninterest income - (15) 426 -
Noninterest expense 57,946 58,230 57,773 56,977
Income tax expense 11,777 12,198 11,762 10,907
- ----------------------------------------------------------------------------------------------------------
Net income $25,130 $24,316 $23,785 $22,092
- ----------------------------------------------------------------------------------------------------------
Average balances
Total assets $6,957,714 $6,883,963 $6,986,870 $7,242,746
Earning assets 6,449,785 6,373,798 6,460,942 6,690,593
Loans 4,417,449 4,326,383 4,344,882 4,400,375
Deposits 5,660,729 5,634,831 5,757,493 5,951,971
Shareholders' equity 792,292 773,326 745,352 731,120
- ----------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.43% 1.40% 1.37% 1.24%
Return on average equity 12.58 12.47 12.80 12.25
Net interest margin 4.61 4.69 4.74 4.45
- ----------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.63 $.61 $.60 $.56
Diluted .63 .60 .59 .55
Cash dividends per share .30 .27 .27 .27
Trading data
High closing price $34.27 $34.00 $38.52 $34.50
Low closing price 29.46 28.09 30.51 29.13
End-of-period closing price 33.33 32.08 30.74 33.24
Trading volume 5,774,008 5,078,531 8,115,882 2,958,102
- ----------------------------------------------------------------------------------------------------------
All closing prices represent closing sales prices as reported on The NASDAQ Stock Market.
32
WHITNEY HOLDING COPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from financial institutions $ 270,387 $ 326,124
Federal funds sold and short-term investments 14,385 4,327
Loans held for sale 15,309 65,572
Investment in securities
Securities available for sale 2,090,870 1,773,591
Securities held to maturity, fair values of $196,717 and $209,506,
respectively 190,535 202,107
- -------------------------------------------------------------------------------------------------------------------
Total investment in securities 2,281,405 1,975,698
Loans, net of unearned income 4,882,610 4,455,412
Allowance for loan losses (59,475) (66,115)
- -------------------------------------------------------------------------------------------------------------------
Net loans 4,823,135 4,389,297
- -------------------------------------------------------------------------------------------------------------------
Bank premises and equipment 148,259 151,620
Goodwill 69,164 69,164
Other intangible assets 23,475 28,807
Accrued interest receivable 27,305 28,649
Other assets 82,158 58,623
- -------------------------------------------------------------------------------------------------------------------
Total assets $7,754,982 $7,097,881
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing demand deposits $1,943,248 $1,692,939
Interest-bearing deposits 4,215,334 4,089,940
- -------------------------------------------------------------------------------------------------------------------
Total deposits 6,158,582 5,782,879
- -------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 600,053 453,415
Accrued interest payable 4,493 7,383
Other liabilities 151,541 53,721
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 6,914,669 6,297,398
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized - 100,000,000 shares
Issued - 40,448,929 and 40,067,783 shares, respectively 2,800 2,800
Capital surplus 183,624 167,235
Retained earnings 656,195 607,235
Accumulated other comprehensive income 8,438 30,104
Treasury stock at cost - 937 shares in 2003 (30) -
Unearned restricted stock compensation (10,714) (6,891)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 840,313 800,483
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $7,754,982 $7,097,881
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
33
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $252,611 $273,737 $343,397
Interest and dividends on investments
Mortgage-backed securities 50,428 55,243 41,070
U.S. agency securities 16,547 21,723 31,372
U.S. Treasury securities 7,344 6,160 6,215
Obligations of states and political subdivisions 8,564 6,843 7,745
Other securities 1,825 2,432 2,015
Interest on federal funds sold and short-term investments 750 4,771 9,331
- -------------------------------------------------------------------------------------------------------------------
Total interest income 338,069 370,909 441,145
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 40,693 71,857 146,215
Interest on short-term and other borrowings 2,816 3,844 15,134
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 43,509 75,701 161,349
- -------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 294,560 295,208 279,796
PROVISION FOR LOAN LOSSES (3,500) 7,500 19,500
- -------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 298,060 287,708 260,296
- -------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 38,309 38,327 35,275
Secondary mortgage market operations 11,248 9,045 7,575
Bank card fees 9,193 8,219 14,002
Trust service fees 8,126 8,814 9,384
Other noninterest income 21,765 20,369 24,808
Securities transactions 863 411 165
- -------------------------------------------------------------------------------------------------------------------
Total noninterest income 89,504 85,185 91,209
- -------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Employee compensation 113,994 107,021 104,806
Employee benefits 27,377 21,966 17,604
- -------------------------------------------------------------------------------------------------------------------
Total personnel expense 141,371 128,987 122,410
Net occupancy expense 19,521 19,907 20,179
Equipment and data processing expense 17,264 18,876 23,040
Telecommunication and postage 8,614 8,281 8,582
Corporate value and franchise taxes 7,079 7,557 7,045
Legal and professional fees 6,029 6,083 8,712
Amortization of intangibles 5,332 5,846 7,430
Other noninterest expense 37,713 35,389 41,706
- -------------------------------------------------------------------------------------------------------------------
Total noninterest expense 242,923 230,926 239,104
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 144,641 141,967 112,401
INCOME TAX EXPENSE 46,099 46,644 36,581
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 98,542 $ 95,323 $ 75,820
- -------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $2.47 $2.39 $1.92
Diluted 2.44 2.38 1.90
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic 39,929,431 39,848,881 39,550,723
Diluted 40,396,134 40,121,544 39,836,047
CASH DIVIDENDS PER SHARE $1.23 $1.11 $1.03
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
34
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, 2000 $2,800 $158,083 $521,220 $ 1,657 $(13,680) $ (4,316) $665,764
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 75,820 - - - 75,820
Other comprehensive income:
Cumulative effect of accounting change - - - (4,175) - - (4,175)
Unrealized net holding gain on securities,
net of reclassification adjustments and taxes - - - 12,622 - - 12,622
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 75,820 8,447 - - 84,267
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.03 per share - - (40,597) - - - (40,597)
Cash dividends, pooled entities - - (202) - - - (202)
Stock issued to dividend reinvestment plan - 1,613 - - 1,535 - 3,148
Long-term incentive plan stock activity:
Restricted grants and related activity - 5,273 - - (934) (1,338) 3,001
Options exercised - 2,103 - - - - 2,103
Directors' compensation plan stock activity - 42 - - 101 - 143
Treasury stock issued in pooling
business combination - (12,978) - - 12,978 - -
Stock transactions, pooled entities - 261 - - - - 261
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 2,800 154,397 556,241 10,104 - (5,654) 717,888
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 95,323 - - - 95,323
Other comprehensive income:
Unrealized net holding gain on securities,
net of reclassification adjustments and taxes - - - 20,000 - - 20,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 95,323 20,000 - - 115,323
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.11 per share - - (44,329) - - - (44,329)
Stock issued to dividend reinvestment plan - 1,490 - - - - 1,490
Long-term incentive plan stock activity:
Restricted grants and related activity - 4,451 - - (243) (1,237) 2,971
Options exercised - 6,355 - - 31 - 6,386
Directors' compensation plan stock activity - 255 - - 212 - 467
Stock transactions, pooled entities - 287 - - - - 287
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 2,800 167,235 607,235 30,104 - (6,891) 800,483
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 98,542 - - - 98,542
Other comprehensive income:
Unrealized net holding loss on securities,
net of reclassification adjustments and taxes - - - (21,666) - - (21,666)
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 98,542 (21,666) - - 76,876
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.23 per share - - (49,582) - - - (49,582)
Stock issued to dividend reinvestment plan - 1,303 - - 487 - 1,790
Long-term incentive plan stock activity:
Restricted grants and related activity - 9,630 - - (1,227) (3,823) 4,580
Options exercised - 5,023 - - 503 - 5,526
Directors' compensation plan stock activity - 433 - - 207 - 640
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 $2,800 $183,624 $656,195 $ 8,438 $ (30) $(10,714) $840,313
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
35
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
- ------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 98,542 $ 95,323 $ 75,820
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of bank premises and equipment 13,242 15,336 19,201
Amortization of purchased intangibles 5,332 5,846 7,430
Restricted stock compensation earned 5,954 4,951 3,758
Premium amortization (discount accretion), net 8,221 4,338 302
Provision for losses on loans and foreclosed assets (3,443) 7,634 19,579
Net gains on sales of foreclosed assets and surplus property (547) (1,269) (4,542)
Net gains on sales of investment securities (863) (411) (165)
Deferred tax expense (benefit) 1,415 (811) (5,619)
Net (increase) decrease in loans originated and held for sale 22,802 21,342 (45,399)
Increase (decrease) in accrued income taxes (4,170) (744) 2,155
(Increase) decrease in accrued interest receivable and prepaid expenses (2,578) 4,824 12,850
Increase (decrease) in accrued interest payable and other accrued expenses 2,078 (6,777) (7,168)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 145,985 149,582 78,202
- ------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 52,938 40,710 206,034
Purchases of investment securities held to maturity (40,898) (51,368) -
Proceeds from maturities of investment securities available for sale 785,351 588,067 562,282
Proceeds from sales of investment securities available for sale 278,752 56,375 140,305
Purchases of investment securities available for sale (1,321,413) (950,507) (1,004,264)
Net (increase) decrease in loans (403,268) (5,356) 157,698
Net (increase) decrease in federal funds sold and short-term investments (10,058) 490,581 (456,988)
Proceeds from sales of foreclosed assets and surplus property 4,495 10,915 8,078
Purchases of bank premises and equipment (11,128) (7,678) (10,501)
Net cash paid in business acquisitions - - (35,933)
Other, net (16,209) (3,562) (1,088)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (681,438) 168,177 (434,377)
- ------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in transaction account and savings account deposits 486,468 148,904 683,648
Net decrease in time deposits (110,765) (316,185) (212,110)
Net increase (decrease) in short-term and other borrowings 146,638 (58,102) (82,421)
Proceeds from issuance of common stock 7,151 7,385 5,096
Purchases of common stock (1,528) (2,256) (847)
Cash dividends (48,248) (42,893) (38,800)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 479,716 (263,147) 354,566
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (55,737) 54,612 (1,609)
Cash and cash equivalents at beginning of year 326,124 271,512 273,121
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $270,387 $326,124 $271,512
- ------------------------------------------------------------------------------------------------------------------
Cash received during the year for:
Interest income $339,413 $374,721 $452,887
Cash paid during the year for:
Interest expense 46,399 83,264 169,895
Income taxes 47,800 46,600 39,842
Noncash investing activities:
Loans transferred to held for sale - 27,461 2,927
Foreclosed assets received in settlement of loans 2,574 4,707 1,249
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
NATURE OF BUSINESS
Whitney Holding Corporation is a Louisiana bank holding company
headquartered in New Orleans, Louisiana. Its principal subsidiary is Whitney
National Bank (the Bank), which represents virtually all its operations and net
income.
The Bank, which has been in continuous operation since 1883, engages in
community banking in its market area stretching across the five-state Gulf Coast
region, including southern Louisiana; the Houston, Texas metropolitan area; the
coastal region of Mississippi; central and south Alabama; and the panhandle of
Florida. The Bank, together with its wholly-owned subsidiary, Whitney Securities
L.L.C., offers commercial and retail banking products and services, including
trust products and investment services, to the customers in the communities it
serves.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT PRONOUNCEMENTS
Whitney Holding Corporation and its subsidiaries (the Company or
Whitney) follow accounting and reporting policies that conform with accounting
principles generally accepted in the United States of America and those
generally practiced within the banking industry. The following is a summary of
the more significant accounting policies.
Basis of Presentation
The consolidated financial statements include the accounts of Whitney
Holding Corporation and its subsidiaries. All significant intercompany balances
and transactions have been eliminated. Whitney reports the balances and results
of operations from business combinations accounted for as purchases from the
respective dates of acquisition (see Note 3). Certain financial information for
prior years has been reclassified to conform to the current year's presentation.
In the first quarter of 2002, Whitney declared a three-for-two split of
its common stock that was effective on April 9, 2002. All share and per share
data in this annual report give effect to this stock split.
Use of Estimates
In preparing the consolidated financial statements, the Company is
required to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Investment in Securities
Securities are classified as trading, held to maturity or available for
sale. Management determines the classification of securities when they are
purchased and reevaluates this classification periodically as conditions change
that could require reclassification.
Trading account securities are bought and held principally for resale
in the near term. They are carried at fair value with realized and unrealized
gains or losses reflected in noninterest income. Trading account securities are
immaterial in each period presented and have been included in other assets on
the consolidated balance sheets.
Securities which the Company both positively intends and has the
ability to hold to maturity are classified as securities held to maturity and
are carried at amortized cost. Intent and ability to hold are not considered
satisfied when a security is available to be sold in response to changes in
interest rates, prepayment rates, liquidity needs or other reasons as part of an
overall asset/liability management strategy.
37
Securities not meeting the criteria to be classified as either trading
securities or securities held to maturity are classified as available for sale
and are carried at fair value. Net unrealized holding gains or losses are
excluded from net income and are recognized, net of tax, in other comprehensive
income and in accumulated other comprehensive income, a separate component of
shareholders' equity.
Premiums and discounts on securities, both those held to maturity and
those available for sale, are amortized and accreted to income as an adjustment
to the securities' yields using the interest method. Realized gains and losses
on securities, including declines in value judged to be other than temporary,
are reported as a component of noninterest income. The cost of securities sold
is specifically identified for use in calculating realized gains and losses.
Loans Held for Sale
Loans originated for sale are carried at the lower of either cost or
market value. At times, management may decide to sell loans that were not
originated for that purpose. These loans are reclassified as held for sale when
that decision is made and also are carried at the lower of cost or market. The
cost of such loans at reclassification is their carrying value, which includes
remaining principal, deferred fees or costs and the applicable allowance for
loan losses.
Loans
Loans are carried at the principal amounts outstanding net of unearned
income. Interest on loans and accretion of unearned income, including deferred
loan fees, are computed in a manner that approximates a level rate of return on
recorded principal.
Interest is no longer accrued on a loan when the borrower's ability to
meet contractual payments is in doubt. For commercial and real estate loans, a
loan is placed on nonaccrual status generally when it is ninety days past due as
to principal or interest, and the loan is not otherwise both well secured and in
the process of collection. When a loan is placed on nonaccrual status, any
accrued but uncollected interest is reversed against interest income. Interest
payments on nonaccrual loans are used to reduce the reported loan principal
under the cost recovery method when the collectibility of the remaining
principal is not reasonably assured; otherwise, such payments are recognized as
interest income in the period in which they are received. A loan on nonaccrual
status may be reinstated to accrual status when full payment of contractual
principal and interest is expected and this expectation is supported by current
sustained performance.
A loan is considered impaired when it is probable that all amounts will
not be collected as they become due according to the contractual terms of the
loan agreement. Generally, impaired loans are accounted for on a nonaccrual
basis. The extent of impairment is measured based upon a comparison of the
recorded investment in the loan with either the expected cash flows discounted
using the loan's original effective interest rate or, in the case of certain
collateral-dependent loans, the fair value of the underlying collateral. The
amount of impairment is included in the allowance for loan losses.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that, in the
opinion of management, is adequate to absorb probable losses inherent in the
loan portfolio as of the balance sheet date. The adequacy of the allowance is
evaluated on an ongoing basis. Management considers various sources of
information including analyses of specific loans reviewed for impairment,
statistics from the internal credit risk rating process, reports on the payment
performance of portfolio segments not subject to individual risk ratings,
historical loss experience and reports on general and local economic conditions.
Management also forms a judgment about the level of accuracy inherent in the
evaluation process. Changes in management's evaluation over time are reflected
in the provision for loan losses charged to operating expense.
As actual loan losses are incurred, they are charged against the
allowance. Subsequent recoveries are added back to the allowance when collected.
38
Bank Premises and Equipment
Bank premises and equipment are carried at cost, less accumulated
depreciation. Depreciation is computed primarily using the straight-line method
over the estimated useful lives of the assets and over the shorter of the lease
terms or the estimated lives of leasehold improvements. Useful lives range
principally from fifteen to thirty years for buildings and improvements and from
three to ten years for furnishings and equipment, including data processing
equipment and software. Additions to bank premises and equipment and major
replacements or improvements are capitalized.
Foreclosed Assets and Surplus Property
Collateral acquired through foreclosure or in settlement of loans and
surplus property are both reported with other assets in the consolidated balance
sheets. With the exception of grandfathered property interests, which are
assigned a nominal book value, these assets are recorded at estimated fair
value, less estimated selling costs, if this value is lower than the carrying
value of the related loan or property asset. Any initial reduction in the
carrying amount of a loan to the fair value of the collateral received is
charged to the allowance for loan losses. Losses arising from the transfer of
bank premises and equipment to surplus property are charged to current earnings.
Subsequent valuation adjustments for either foreclosed assets or surplus
property are also included in current earnings, as are the revenues and expenses
associated with managing these assets before they are sold.
Goodwill and Other Intangible Assets
Whitney has recognized intangible assets in connection with its
purchase business combinations. Identifiable intangible assets acquired by the
Company have mainly represented the value of the deposit relationships purchased
in these transactions. Goodwill represents the purchase price premium over the
fair value of the net assets of an acquired business, including identifiable
intangible assets.
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 142, "Goodwill and Other Intangible Assets," beginning in 2002, goodwill is
no longer subject to amortization but is subject to at least an annual
assessment for impairment, unless interim events or circumstances make it more
likely than not that an impairment loss has occurred. Impairment is defined as
the amount by which the implied fair value of the goodwill contained in any
reporting unit within a company is less than the goodwill's carrying value. The
Company has assigned all goodwill to one reporting unit that represents
Whitney's overall banking operations. This reporting unit is the same as the
operating segment identified below, and its operations constitute substantially
all of the Company's consolidated operations. Impairment losses identified after
a transition period that ended in 2002 would be charged to operating expense.
Identifiable intangible assets with finite lives continue to be
amortized over the periods benefited and are evaluated for impairment similar to
other long-lived assets. If the useful life of an identifiable intangible asset
is indefinite, the recorded asset is not amortized but tested for impairment by
comparison to its estimated fair value. Unidentifiable intangibles other than
goodwill that were recognized in certain earlier banking industry acquisitions
not meeting the definition of a business combination also continue to be
amortized in accordance with accounting guidance that existed at the acquisition
date.
Stock-Based Compensation
At December 31, 2003, the Company had two incentive compensation plans
that incorporate stock-based compensation, as is more fully described in Note
12. SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS
No. 148, established a fair value-based method of accounting for stock-based
compensation, among other provisions. As provided for in SFAS No. 123, however,
the Company elected to continue to follow Accounting Principles Board Opinion
(APB) No. 25 and related interpretations to measure and recognize stock-based
compensation expense. Under this Opinion, Whitney recognizes no compensation
expense with respect to fixed awards of stock options. The Company grants
options with an exercise price equal to the stock's market price. As such, the
options have no intrinsic value on the award date, which is also the measurement
date for compensation expense. The compensation expense recognized under APB No.
25 for the Company's restricted stock grants reflects their fair value, but the
timing of when fair value is determined and the method of allocating expense
over time differ in certain respects from what is required under SFAS No. 123,
as amended.
39
The following shows the effect on net income and earnings per share if
Whitney had applied the provisions of SFAS No. 123 to measure and recognize
stock-based compensation expense for all awards:
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Net income $98,542 $95,323 $75,820
Stock-based compensation expense included in reported net income,
net of related tax effects 3,870 3,218 2,442
Stock-based compensation expense determined under fair value-based
method for all awards, net of related tax effects (5,935) (5,462) (4,222)
- -----------------------------------------------------------------------------------------------------------------
Pro forma net income $96,477 $93,079 $74,040
- -----------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic - as reported $2.47 $2.39 $1.92
Basic - pro forma 2.42 2.34 1.87
Diluted - as reported 2.44 2.38 1.90
Diluted - pro forma 2.39 2.32 1.86
- -----------------------------------------------------------------------------------------------------------------
Weighted-average fair value of options awarded during the year $6.55 $7.91 $6.40
- -----------------------------------------------------------------------------------------------------------------
The fair values of the stock options were estimated as of the grant
dates using the Black-Sholes option-pricing model. The estimated option value
for each year's award totaled $3.0 million in 2003, $3.4 million in 2002, and
$2.3 million in 2001. The Company made the following significant assumptions in
applying the option-pricing model: (a) an expected annualized volatility for
Whitney's common stock of 25.55% in 2003, 25.25% in 2002, and 24.17% in 2001;
(b) an average option life of seven years before exercise; (c) an expected
annual dividend yield of 3.56% in 2003, 3.44% in 2002, and 3.64% in 2001; and
(d) a weighted-average risk-free interest rate of 3.01% in 2003, 4.94% in 2002,
and 5.28% in 2001.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. Income taxes are accounted for using the asset and liability method.
Under this method the expected tax consequences of temporary differences that
arise between the tax bases of assets or liabilities and their reported amounts
in the financial statements represent either deferred tax liabilities to be
settled in the future or deferred tax assets that will be realized as a
reduction of future taxes payable. Currently enacted tax rates and laws are used
to calculate the expected tax consequences. Valuation allowances are established
against deferred tax assets if, based on all available evidence, it is more
likely than not that some or all of the assets will not be realized.
Earnings per Share
Basic earnings per share is computed by dividing income applicable to
common shares (net income in all periods presented) by the weighted-average
number of common shares outstanding for the applicable period. Shares
outstanding are adjusted for restricted shares issued to employees under the
long-term incentive compensation plan and for certain shares that will be issued
under the directors' compensation plan. Diluted earnings per share is computed
using the weighted-average number of shares outstanding increased by the number
of restricted shares in which employees would vest based on current performance
and by the number of additional shares that would have been issued if
potentially dilutive stock options were exercised, each as determined using the
treasury stock method.
Statements of Cash Flows
The Company considers only cash on hand and balances due from financial
institutions as cash and cash equivalents for purposes of the consolidated
statements of cash flows.
40
Operating Segment Disclosures
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", established standards for reporting information about a company's
operating segments using a "management approach." Reportable segments are
identified in this statement as those revenue-producing components for which
separate financial information is produced internally and which are subject to
evaluation by the chief operating decision maker in deciding how to allocate
resources to segments. Consistent with its stated strategy that is focused on
providing a consistent package of community banking products and services
throughout a coherent market area, Whitney has identified its overall banking
operations as its only reportable segment. Because the overall banking
operations comprise substantially all of the consolidated operations, no
separate segment disclosures are presented.
Derivative Financial Instruments
To be able to accommodate the maturity/rate preferences of certain
potential borrowers, during 2003 the Bank began to employ interest rate swaps to
bring the market risk associated with these longer-duration fixed-rate loans in
line with Whitney's asset/liability management objectives by essentially
converting them to floating-rate loans. The only contract entered into to date
was designated at inception as a hedge of the fair value of a specific loan.
To qualify as a fair value hedge, changes in the value of the hedging
derivative instrument or swap must be expected to be highly effective in
offsetting changes in the value of the hedged instrument or loan that result
from changes in the benchmark interest rate. Hedge effectiveness is assessed at
inception and on an ongoing basis. On at least a quarterly basis, changes in the
values of the swap and the loan are recognized in noninterest income, such that
any ineffectiveness would impact earnings. There was no ineffectiveness
recognized in 2003. The fair value of the derivative instrument is recognized in
the consolidated balance sheets with other assets or other liabilities.
The counterparty to a swap can default on its obligations and, as such,
the use of these derivatives exposes the Company to credit risk. Whitney's
policies attempt to control this risk by limiting dealings in derivatives to
high-quality counterparties, among other requirements.
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 December 2003, the Financial Accounting Standards Board (FASB)
issued a revised version of SFAS No. 132. This revised statement adds to the
annual disclosures about pensions and other postretirement benefits that were
required by the original statement issued in 1997. The revised statement also
requires certain interim disclosures. Both the original and the revised
statements address disclosure only and do not address accounting measurement or
recognition for benefit obligations. With certain limited exceptions, the added
annual disclosures were effective as of December 31, 2003 for the Company and
are included in Note 12. Whitney is required to present the interim disclosures
beginning with its quarter ending March 31, 2004.
Also related to postretirement benefits, the FASB issued a staff
position in early January 2004 in response to certain accounting issues raised
by the enactment of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 on December 8, 2003. The most significant issue
concerns how and when to account for the federal subsidy to plan sponsors that
is provided for in the act. As is discussed more fully in Note 12, the staff
position allows a company to defer recognizing the impact of this new
legislation in its accounting for postretirement health benefits. If elected,
the deferral is effective until authoritative guidance on the accounting for the
federal subsidy is issued, or until certain significant events occur, such as a
plan amendment. Whitney made this deferral election. The authoritative guidance
that is eventually issued could require the Company to change previously
reported information, although the impact would likely be immaterial.
41
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". An
issuer of financial instruments that fall within the scope of this statement,
many of which were previously classified as equity, must now classify these
financial instruments as liabilities (or assets in certain circumstances). Such
instruments include equity shares with mandatory redemption features, and
instruments, other than outstanding equity shares, that represent an obligation
to repurchase equity shares or an obligation that must or may be settled by
issuing a variable number of equity shares. Whitney has issued no financial
instruments that fall within the scope of SFAS No. 150.
The FASB issued SFAS No. 149 in April 2003 to amend and clarify various
provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". In general, the provisions of SFAS No. 149 applied prospectively to
derivative contracts entered into or modified after June 30, 2003, and to
hedging relationships designated after that date. Certain amendments reflected
decisions on SFAS No. 133 implementation issues that had been previously
approved by the FASB, and these provisions retained their original effective
dates. Whitney has made limited use of derivative instruments and hedging
activities, and the issuance of SFAS No. 149 did not materially affect its
financial position, results of operations or cash flows.
In late 2002 and early 2003 the Financial Accounting Standards Board
(FASB) issued two interpretations of existing accounting principles. FASB
Interpretation (FIN) No. 45 elaborated on disclosures an entity should make
about its obligations under certain guarantees and clarified that a guarantor
should recognize a liability for the fair value of the obligation when a
guarantee is first issued. The only significant guarantees issued by Whitney
that are subject to the guidance in FIN No. 45 are its standby letters of
credit. The disclosure provisions were effective for the Company's fiscal year
ended December 31, 2002. The requirement to recognize a liability was effective
for those guarantees issued or modified beginning in 2003. Adopting this
requirement has had no material impact on the Company's financial position and
results of operations.
FIN No. 46 was issued to correct perceived weaknesses in the accounting
for special-purpose entities, in particular the possibility that a controlling
financial interest in such an entity might not result in consolidation of the
entity with the holder of that interest. The specific entities to which FIN No.
46 refers are called "variable interest entities," and the interpretation
explains how to identify a variable interest entity and how an enterprise should
assess its interest in such an entity to decide whether consolidation is
appropriate. The FASB issued a revision to this interpretation (FIN No. 46R) in
December 2003. This revision incorporated additional guidance developed to
address FIN 46 implementation issues and delayed certain effective dates.
Whitney currently has no interests that require consolidation under the guidance
of FIN No. 46 or 46R.
NOTE 3
MERGERS AND ACQUISITIONS
Whitney entered into no business combinations during 2003 or 2002.
Information about mergers and acquisitions in 2001 follows.
Purchase Transactions
In October 2001, Whitney purchased Redstone Financial, Inc. and one of
its subsidiary banks, Northwest Bank, N.A., for cash of approximately $34
million. Northwest Bank had two offices in Houston, Texas with approximately
$170 million in total assets, including $74 million in loans, and $145 million
in deposits. Applying purchase accounting to this transaction, the Company
recorded approximately $25 million in intangible assets, with $7.5 million
assigned to the value of deposit relationships with an eight-year life and the
remainder to goodwill.
The Company's financial statements include the results from these
acquired operations since the acquisition date. The pro forma impact of these
acquisitions on Whitney's results of operations is insignificant. All acquired
banking operations have been merged into Whitney National Bank.
Poolings of Interests
In January 2001, Whitney completed two acquisitions that were accounted
for as poolings of interests: American Bank in Houston, Texas (American) and
Prattville Financial Services Corporation (PFSC), whose principal subsidiary was
Bank of Prattville. American had five locations in the Houston area with $275
million in total assets and
42
$247 million in deposits. American shareholders received 2,722,485 shares in
this transaction. Bank of Prattville had approximately $160 million in total
assets and $136 million of deposits in its three locations in the metropolitan
area of Montgomery, Alabama. The Company exchanged 1,590,205 shares of its
common stock in this transaction.
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, 2003
- ------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $1,433,855 $15,425 $ (2,476) $1,446,804
U. S. agency securities 401,545 3,365 (7,146) 397,764
U. S. Treasury securities 180,211 2,949 (468) 182,692
Obligations of states and political
subdivisions 27,342 1,317 - 28,659
Other securities 34,937 18 (4) 34,951
- ------------------------------------------------------------------------------------------------------------
Total $2,077,890 $23,074 $(10,094) $2,090,870
- ------------------------------------------------------------------------------------------------------------
December 31, 2002
- ------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $1,128,912 $28,363 $ - $1,157,275
U. S. agency securities 354,173 9,845 - 364,018
U. S. Treasury securities 158,075 6,010 - 164,085
Obligations of states and political
subdivisions 32,942 1,521 - 34,463
Other securities 53,378 372 - 53,750
- ------------------------------------------------------------------------------------------------------------
Total $1,727,480 $46,111 $ - $1,773,591
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
- ------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains (Losses) Value
- ------------------------------------------------------------------------------------------------------------
December 31, 2003
- ------------------------------------------------------------------------------------------------------------
Obligations of states and political
subdivisions $190,535 $7,230 $(1,048) $196,717
- ------------------------------------------------------------------------------------------------------------
Total $190,535 $7,230 $(1,048) $196,717
- ------------------------------------------------------------------------------------------------------------
December 31, 2002
- ------------------------------------------------------------------------------------------------------------
U. S. agency securities $ 32,847 $1,108 $ - $ 33,955
U. S. Treasury securities 10,323 292 - 10,615
Obligations of states and political
subdivisions 158,937 6,316 (317) 164,936
- ------------------------------------------------------------------------------------------------------------
Total $202,107 $7,716 $ (317) $209,506
- ------------------------------------------------------------------------------------------------------------
The aggregate fair value of securities with unrealized losses as of
December 31, 2003 was as follows: mortgage-backed securities, $324 million; U.
S. agency securities, $193 million; U. S. Treasury securities, $49 million;
obligations of states and political subdivisions, $38 million; and other
securities, $.2 million. As of December 31, 2003, no individual security had
been in a continuous unrealized loss position for more than 12 months. The
unrealized losses reflect the impact on securities' prices of such factors as
changing market rates and expectations about the timing of cash flows from
securities that can be prepaid. No loss would be realized on these securities if
held to maturity or held until market prices recover. The Company is able to
hold these securities to maturity and management has no current intention to
dispose of any securities at a loss. Securities subject to possible credit
quality deterioration, such as obligations of states and political subdivisions,
are monitored for signs that contractual obligations may not be met and that
there may be value impairment that is other than temporary. If
43
such impairment is identified, the carrying amount of the security is reduced
with a charge to operations. No such impairment losses were recognized in the
three years ended December 31, 2003.
Proceeds from sales of securities available for sale were $279 million
in 2003, $56 million in 2002 and $140 million in 2001. Gross realized gains and
losses were, respectively, $3.0 million and $2.1 million in 2003, $1.1 million
and $.7 million in 2002, and $.4 million and $.2 million in 2001.
Securities with carrying values of $892 million and $867 million at
December 31, 2003 and 2002, respectively, were sold under repurchase agreements,
pledged to secure public deposits and trust deposits or pledged for other
purposes. In these totals were $60 million in 2003 and $84 million in 2002 for
securities pledged at the Federal Reserve discount window in connection with the
Company's overall contingency funding plans.
The following table shows the amortized cost and estimated fair value
of securities available for sale and held to maturity grouped by contractual
maturity. Debt securities with scheduled repayments, such as mortgage-backed
securities, and equity securities are presented in separate totals.
- -------------------------------------------------------------------------
Securities Available for Sale
- -------------------------------------------------------------------------
Amortized Fair
(dollars in thousands) Cost Value
- -------------------------------------------------------------------------
December 31, 2003
- -------------------------------------------------------------------------
Within one year $ 211,091 $ 213,320
One to five years 258,378 260,541
Five to ten years 138,260 133,798
After ten years 1,369 1,456
- -------------------------------------------------------------------------
Debt securities with single
maturities 609,098 609,115
Mortgage-backed securities 1,433,855 1,446,804
Equity and other debt securities 34,937 34,951
- -------------------------------------------------------------------------
Total $2,077,890 $2,090,870
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Securities Held to Maturity
- -------------------------------------------------------------------------
Amortized Fair
(dollars in thousands) Cost Value
- -------------------------------------------------------------------------
December 31, 2003
- -------------------------------------------------------------------------
Within one year $ 6,487 $ 6,556
One to five years 34,687 36,700
Five to ten years 69,393 66,485
After ten years 79,968 86,976
- -------------------------------------------------------------------------
Total $190,535 $196,717
- -------------------------------------------------------------------------
The expected maturity of a security may differ from its contractual
maturity, particularly for certain U.S. agency securities and obligations of
states and political subdivisions, because of the exercise of call options.
44
NOTE 5
LOANS
The composition of the Company's loan portfolio follows:
December 31
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $2,213,207 45.3% $1,917,859 43.0%
Real estate loans - commercial and other 1,726,212 35.4 1,584,099 35.6
Real estate loans - residential mortgage 619,869 12.7 638,703 14.3
Loans to individuals 323,322 6.6 314,751 7.1
- ----------------------------------------------------------------------------------------------------------------
Total $4,882,610 100.0% $4,455,412 100.0%
- ----------------------------------------------------------------------------------------------------------------
The Bank makes loans in the normal course of business to directors and
executive officers of the Company and the Bank and to their associates. Loans to
such related parties carry substantially the same terms, including interest
rates and collateral requirements, as those prevailing at the time for
comparable transactions with unrelated parties and do not involve more than
normal risks of collectibility when originated. An analysis of the changes in
loans to related parties during 2003 follows:
- --------------------------------------------------------------------------
(dollars in thousands) 2003
- --------------------------------------------------------------------------
Beginning balance $ 59,506
Additions 104,638
Repayments (95,674)
Net increase from changes in related parties 17,971
- --------------------------------------------------------------------------
Ending balance $ 86,441
- --------------------------------------------------------------------------
Outstanding unfunded commitments and letters of credit to related
parties totaled $114 million and $85 million at December 31, 2003 and 2002,
respectively.
NOTE 6
ALLOWANCE FOR LOAN LOSSES
A summary analysis of changes in the allowance for loan losses follows:
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------
Balance at beginning of year $66,115 $71,633 $61,017
Allowance acquired in bank purchases - - 1,196
Allowance on loans transferred to held for sale - (895) (651)
Provision for loan losses (3,500) 7,500 19,500
Loans charged off (12,934) (17,211) (15,502)
Recoveries 9,794 5,088 6,073
- -------------------------------------------------------------------------------------------------------------
Net charge-offs (3,140) (12,123) (9,429)
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $59,475 $66,115 $71,633
- -------------------------------------------------------------------------------------------------------------
45
NOTE 7
IMPAIRED LOANS, NONPERFORMING LOANS, FORECLOSED ASSETS AND SURPLUS PROPERTY
Information on loans evaluated for possible impairment loss follows:
December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- -------------------------------------------------------------------------------------------------------------
Impaired loans at year end
Requiring a loss allowance $19,675 $24,852
Not requiring a loss allowance 2,089 6,265
- -------------------------------------------------------------------------------------------------------------
Total recorded investment in impaired loans $21,764 $31,117
- -------------------------------------------------------------------------------------------------------------
Impairment loss allowance required at year end $6,157 $10,084
- -------------------------------------------------------------------------------------------------------------
Average recorded investment in impaired loans during the year $28,380 $29,172
- -------------------------------------------------------------------------------------------------------------
The following is a summary of nonperforming loans and foreclosed assets
and surplus property:
December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- -------------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $26,776 $37,959
Restructured loans 114 336
- -------------------------------------------------------------------------------------------------------------
Total nonperforming loans $26,890 $38,295
- -------------------------------------------------------------------------------------------------------------
Foreclosed assets and surplus property $3,490 $3,854
- -------------------------------------------------------------------------------------------------------------
Interest income is recognized on certain nonaccrual loans as payments
are received. Interest payments on other nonaccrual loans are accounted for
under the cost recovery method, but this interest may later be recognized in
income when loan collections exceed expectations or when workout efforts result
in fully rehabilitated credits. The following compares contractual interest
income on nonaccrual loans and restructured loans with the cash-basis and
cost-recovery interest actually recognized on these loans:
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------
Contractual interest $2,789 $3,394 $ 2,752
Interest recognized 1,237 1,119 945
- -------------------------------------------------------------------------------------------------------------
Decrease in reported interest income $1,552 $2,275 $1,807
- -------------------------------------------------------------------------------------------------------------
The Bank and a subsidiary own various property interests that it
acquired in routine banking transactions generally before 1933. There was no
ready market for these assets when they were initially acquired, and, as was
general banking practice at the time, they were written down to a nominal value.
The assets include direct and indirect ownership interests in scattered
undeveloped acreage, various mineral interests, and a few commercial and
residential sites primarily in southeast Louisiana.
The revenues and direct expenses related to these grandfathered
property interests that are included in the statements of income follow:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- --------------------------------------------------------------------------------
Revenues $1,067 $983 $1,365
Direct expenses 205 154 211
- --------------------------------------------------------------------------------
46
NOTE 8
BANK PREMISES AND EQUIPMENT
An analysis of bank premises and equipment by asset classification
follows:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- --------------------------------------------------------------------------------
Land $ 36,335 $ 36,483
Buildings and improvements 174,788 171,903
Equipment and furnishings 106,369 100,764
- --------------------------------------------------------------------------------
317,492 309,150
Accumulated depreciation (169,233) (157,530)
- --------------------------------------------------------------------------------
Total bank premises and equipment $148,259 $151,620
- --------------------------------------------------------------------------------
Provisions for depreciation and amortization included in noninterest
expense were as follows:
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------
Buildings and improvements $ 6,609 $ 6,794 $ 7,099
Equipment and furnishings 6,633 8,542 12,102
- -------------------------------------------------------------------------------------------------------------
Total depreciation and amortization expense $13,242 $15,336 $19,201
- -------------------------------------------------------------------------------------------------------------
At December 31, 2003, the Bank was obligated under a number of
noncancelable operating leases. Certain of these leases have escalation clauses
and renewal options. Total rental expense was $4.0 million in 2003 and 2002 and
$3.8 million in 2001.
As of December 31, 2003, the future minimum rentals under noncancelable
operating leases having an initial lease term in excess of one year were as
follows:
(dollars in thousands)
- ------------------------------------------------
2004 $ 4,249
2005 4,224
2006 3,739
2007 3,252
2008 2,998
Later years 19,863
- ------------------------------------------------
Total $38,325
- ------------------------------------------------
Management has decided to move certain operations in Houston from
office space that is subject to a noncancelable lease. Whitney expects to
recognize a loss of up to $1.8 million related to its remaining obligation under
the lease when the move is completed, which is currently scheduled for the third
quarter of 2004.
NOTE 9
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist of identifiable intangibles, such as the
value of deposit relationships; goodwill acquired in business combinations
accounted for as purchases; and unidentifiable intangibles acquired in certain
banking-industry transactions that did not meet the criteria for business
combinations.
As is discussed in Note 2, the accounting for goodwill and other
intangible assets is governed by SFAS No. 142, "Goodwill and Other Intangible
Assets". Under this standard, there is no goodwill amortization in 2002 and
later years.
47
Beginning in 2002, goodwill must be tested for impairment at least
annually. No indication of goodwill impairment was identified in either the
preliminary initial assessment required by SFAS No. 142 in 2002 or in the annual
assessments as of September 30, 2003 and 2002.
Identifiable intangible assets with finite lives continue to be
amortized under SFAS No. 142. The Company's only significant identifiable
intangible assets reflect the value of deposit relationships, all of which have
finite lives. Remaining lives ranged from four to six years at December 31,
2003. The weighted-average remaining life of identifiable intangible assets was
approximately five years. Unidentifiable intangible assets are being amortized
over a remaining life of approximately four years.
The carrying value of intangible assets subject to amortization was as
follows:
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) December 31, 2003 December 31, 2002
- ----------------------------------------------------------------------------------------------------------------
Purchase Accumulated Carrying Purchase Accumulated Carrying
Value Amortization Value Value Amortization Value
- ----------------------------------------------------------------------------------------------------------------
Deposit relationships and other
identifiable intangibles $31,377 $14,326 $17,051 $37,261 $16,591 $20,670
Unidentifiable intangibles 11,321 4,897 6,424 11,321 3,184 8,137
- ----------------------------------------------------------------------------------------------------------------
Total $42,698 $19,223 $23,475 $48,582 $19,775 $28,807
- ----------------------------------------------------------------------------------------------------------------
Amortization of intangible assets included in noninterest expense was
as follows:
Years Ended December 31
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------
Deposit relationships and other identifiable intangibles $3,619 $4,133 $3,352
Unidentifiable intangibles 1,713 1,713 453
Goodwill - - 3,625
- ----------------------------------------------------------------------------------------------------------------
Total amortization $5,332 $5,846 $7,430
- ----------------------------------------------------------------------------------------------------------------
Approximately $2.5 million of the goodwill amortization in 2001 was not
deductible for income tax purposes. The balance of goodwill that will not
generate future tax deductions was $60 million at December 31, 2003.
The following shows estimated amortization expense for the five
succeeding years, calculated based on current amortization schedules.
(dollars in thousands)
- ------------------------------------
2004 $5,152
2005 5,113
2006 5,107
2007 4,420
2008 2,356
- ------------------------------------
48
The following table shows net income and earnings per share adjusted to
show the impact of the elimination of goodwill amortization.
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2003 2002 2001
- --------------------------------------------------------------------------------
Net income $98,542 $95,323 $75,820
Eliminate goodwill amortization, net of tax - - 3,227
- --------------------------------------------------------------------------------
Adjusted net income $98,542 $95,323 $79,047
- --------------------------------------------------------------------------------
Basic earnings per share $2.47 $2.39 $1.92
Effect of eliminating goodwill amortization - - .08
- --------------------------------------------------------------------------------
Adjusted basic earnings per share $2.47 $2.39 $2.00
- --------------------------------------------------------------------------------
Diluted earnings per share $2.44 $2.38 $1.90
Effect of eliminating goodwill amortization - - .08
- --------------------------------------------------------------------------------
Adjusted diluted earnings per share $2.44 $2.38 $1.98
- --------------------------------------------------------------------------------
NOTE 10
SHORT-TERM AND OTHER BORROWINGS
Short-term and other borrowings consisted of the following:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- --------------------------------------------------------------------------------
Securities sold under agreements to repurchase $296,580 $349,305
Federal funds purchased 257,084 64,886
Treasury Investment Program 40,000 39,224
Other borrowings 6,389 -
- --------------------------------------------------------------------------------
Total short-term and other borrowings $600,053 $453,415
- --------------------------------------------------------------------------------
The Bank has the ability to exercise legal authority over the
securities that serve as collateral for the securities sold under repurchase
agreements. The estimated fair value and carrying value of securities sold under
repurchase agreements at December 31, 2003, by term of the underlying borrowing
agreement, were as follows:
Up to 30 to
(dollars in thousands) Overnight 30 days 90 days
- --------------------------------------------------------------------------------
December 31, 2003
- --------------------------------------------------------------------------------
Fair and carrying value:
U.S. agency securities $286,288 $ - $ -
U.S. Treasury securities 8,977 1,419 281
- --------------------------------------------------------------------------------
Total fair and carrying value $295,265 $1,419 $281
- --------------------------------------------------------------------------------
Outstanding borrowings $294,881 $1,419 $280
- --------------------------------------------------------------------------------
Additional information about securities sold under repurchase
agreements follows:
- --------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- --------------------------------------------------------------------------------
Average effective yield on December 31 .50% .52%
- --------------------------------------------------------------------------------
Average for the year
Effective yield .47% .71%
Balance $325,213 $352,603
- --------------------------------------------------------------------------------
Maximum month-end outstanding $362,904 $403,775
- --------------------------------------------------------------------------------
49
Additional information about federal funds purchased follows:
- --------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- --------------------------------------------------------------------------------
Average effective yield on December 31 .97% .75%
- --------------------------------------------------------------------------------
Average for the year
Effective yield 1.00% 1.51%
Balance $99,382 $69,249
- --------------------------------------------------------------------------------
Maximum month-end outstanding $257,084 $95,397
- --------------------------------------------------------------------------------
Under the Treasury Investment Program, temporary excess U.S. Treasury
receipts are loaned to participating financial institutions at 25 basis points
under the federal funds rate. Repayment of these borrowed funds can be demanded
at any time. The Company limited its participation to $40 million and has
pledged securities with a comparable value as collateral for borrowings under
this program.
NOTE 11
OTHER ASSETS AND OTHER LIABILITIES
The more significant components of other assets and other liabilities
at December 31, 2003 and 2002 were as follows:
Other assets December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- --------------------------------------------------------------------------------
Net deferred income tax asset $21,190 $11,141
Low-income housing tax credit fund investments 16,199 7,738
Cash surrender value of life insurance 8,665 8,137
Prepaid pension asset 7,230 3,968
Prepaid expenses 4,288 3,527
Foreclosed assets and surplus property 3,490 3,854
Miscellaneous investments, receivables and other assets 21,096 20,258
- --------------------------------------------------------------------------------
Total other assets $82,158 $58,623
- --------------------------------------------------------------------------------
Other liabilities December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- --------------------------------------------------------------------------------
Trade date securities payable $100,925 $ -
Accrued taxes and expenses 15,161 15,036
Dividend payable 13,344 12,009
Obligation for postretirement benefits other than
pensions 9,379 8,149
Miscellaneous payables, deferred income and other
liabilities 12,732 18,527
- --------------------------------------------------------------------------------
Total other liabilities $151,541 $53,721
- --------------------------------------------------------------------------------
50
NOTE 12
EMPLOYEE BENEFIT PLANS
Retirement Plans
Whitney has a noncontributory qualified defined benefit pension plan
covering substantially all of its employees. The benefits are based on an
employee's total years of service and his or her highest five-year level of
compensation during the final ten years of employment. Contributions are made in
amounts sufficient to meet funding requirements set forth in federal employee
benefit and tax laws plus such additional amounts as the Company may determine
to be appropriate. Based on currently available information, the Company does
not anticipate making a contribution during 2004.
The following table details the changes both in the actuarial present
value of the pension benefit obligation and in the plan's assets for the years
ended December 31, 2003 and 2002. The table also shows the funded status of the
plan at each year end and identifies the related amounts recognized and
unrecognized in the Company's consolidated balance sheets. Whitney uses a
December 31 measurement date for all of its defined benefit retirement plans and
other postretirement benefit plans.
- --------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- --------------------------------------------------------------------------------
Changes in benefit obligation:
Benefit obligation, beginning of year $91,991 $77,734
Service cost for benefits 5,311 3,893
Interest cost on benefit obligation 6,030 5,451
Net actuarial loss 10,418 9,124
Benefits paid (3,992) (4,211)
- --------------------------------------------------------------------------------
Benefit obligation, end of year 109,758 91,991
- --------------------------------------------------------------------------------
Changes in plan assets:
Plan assets at fair value, beginning of year 84,736 94,822
Actual return on plan assets 13,903 (5,560)
Employer contribution 8,000 -
Benefits paid (3,992) (4,211)
Plan expenses (302) (315)
- --------------------------------------------------------------------------------
Plan assets at fair value, end of year 102,345 84,736
- --------------------------------------------------------------------------------
Funded status and amounts recognized and
unrecognized:
Benefit obligation in excess of plan assets,
end of year (7,413) (7,255)
Unrecognized net actuarial losses 15,166 12,137
Unrecognized net implementation asset - (283)
Unrecognized prior service cost resulting
from plan amendments (523) (631)
- --------------------------------------------------------------------------------
Prepaid pension asset recognized $7,230 $3,968
- --------------------------------------------------------------------------------
The weighted-average assumptions used to determine the benefit
obligation at December 31, 2003 and 2002 follow:
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Discount rate 6.00% 6.50%
Rate of future compensation increases 4.00 4.00
- --------------------------------------------------------------------------------
The accumulated benefit obligation was $91 million and $79 million at
December 31, 2003 and 2002, respectively. The calculation of the accumulated
benefit obligation ignores the assumption about future compensation levels.
51
The Company recognized a net pension expense in 2003 and 2002 and a net
pension benefit in 2001. The components of the net pension expense or benefit
were as follows:
- --------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
Service cost for benefits during the period $5,311 $3,893 $ 3,020
Interest cost on benefit obligation 6,030 5,451 4,843
Expected return on plan assets (6,620) (7,421) (7,857)
Amortization of:
Unrecognized net actuarial (gains) losses 408 - (1,149)
Unrecognized net implementation asset (283) (405) (405)
Unrecognized prior service cost (108) (108) (124)
- --------------------------------------------------------------------------------------------------------------
Net pension expense (benefit) $4,738 $1,410 $(1,672)
- --------------------------------------------------------------------------------------------------------------
The Company used the following weighted-average assumptions in
determining the net pension expense or benefit for each of the three years in
the period ended December 31, 2003.
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Discount rate 6.50% 6.75% 7.25%
Rate of future compensation increases 4.00 4.00 4.00
Expected long-term return on plan
assets 8.00 8.00 8.00
- --------------------------------------------------------------------------------
The following table shows the percentage allocation of plan assets by
investment category at December 31, 2003 and 2002, as well as the most recent
target allocation set by the investment manager and the target allocation ranges
specified in the plan's investment policy. The employer contribution in 2003 was
made late in the year and was in the process of being allocated to investment
categories at year end. This is reflected in the higher proportion of liquidity
investments for 2003.
- --------------------------------------------------------------------------------------------------------------
Actual Allocation Current Policy
2003 2002 Target Range
- --------------------------------------------------------------------------------------------------------------
Equity securities 58% 47% 60% 40-70%
Corporate debt securities 17 19
U. S. Treasury and government agency securities 18 29
- --------------------------------------------------------------------------------------------------------------
Total debt securities 35 48 40 30-60
Cash investments 7 5 0-20
- --------------------------------------------------------------------------------
Total 100% 100%
- --------------------------------------------------------------------------------------------------------------
Whitney determines its assumption regarding the expected long-term
return on plan assets with reference to the plan's investment policy and
practices, including the tolerance for market and credit risk, and historical
returns for benchmark indices specified in the policy. The policy communicates
risk tolerance in terms of diversification criteria and constraints on
investment quality. The plan may not hold debt or equity securities of any
single issuer, except the U. S. Treasury and U. S. government agencies, in
excess of 10% of plan assets. In addition, all purchases for the debt portfolio
are limited to investment grade securities of less than 10 years' maturity. The
policy also calls for diversification of equity holdings across business
segments and states a preference for holdings in companies which demonstrate
consistent growth in earnings and dividends. Limited use of derivatives is
authorized by the policy, but the investment manager has not employed these
instruments.
The plan held 182,200 shares of Whitney common stock with a value of
$7.5 million (7% of plan assets) at December 31, 2003, and 257,200 shares with a
value of $8.6 million (10% of plan assets) at December 31, 2002.
52
Whitney also has an unfunded nonqualified defined benefit pension plan
that provides retirement benefits to designated executive officers. These
benefits are calculated using the qualified plan's formula, but without applying
the restrictions imposed on qualified plans by certain provisions of the
Internal Revenue Code. Benefits that become payable under the nonqualified plan
would be reduced by amounts paid from the qualified plan. At December 31, 2003,
the actuarial present value of the nonqualified benefit plan obligation was $5.1
million. The accumulated benefit obligation and the recorded accrued pension
liability were both $4.3 million. The accrued pension liability is reported with
other liabilities in the consolidated balance sheets. The net pension expense
for nonqualified plan benefits was approximately $.6 million for each of the
three years in the period ending with 2003. Benefit obligations and expense for
the nonqualified pension plan were determined using, where applicable, the same
assumptions that were employed for the qualified plan.
Whitney sponsors an employee savings plan under Section 401(k) of the
Internal Revenue Code that covers substantially all full-time employees.
Beginning in 2001, the Company annually matches the savings of each participant
up to 4% of his or her compensation. Tax law imposes limits on total annual
participant savings. Participants are fully vested in their savings and in the
matching Company contributions at all times. The expense of the Company's
matching contributions was approximately $2.8 million in 2003, $2.7 million in
2002 and $2.5 million in 2001.
Health and Welfare Plans
Whitney maintains health care and life insurance benefit plans for
retirees and their eligible dependents. Participant contributions are required
under the health plan. All health care benefits are covered under contracts with
health maintenance or preferred provider organizations or insurance contracts.
The Company recognizes the expected cost of providing these postretirement
benefits during the period employees are actively working. The Company funds its
obligations under these plans as contractual payments come due.
The actuarial present value of the postretirement benefit obligation
was $15.3 million at December 31, 2003 and $10.6 million at December 31, 2002.
Adjusting for unrecognized actuarial gains and losses and unrecognized prior
service cost, the net postretirement benefit liability reported with other
liabilities in the consolidated balance sheets was $9.4 million at year-end 2003
and $8.1 million at the end of 2002. The net periodic postretirement benefit
expense was approximately $1.9 million for 2003 and $1.1 million for 2002 and
2001. This expense includes components for the portion of the expected benefit
obligation attributed to current service, for interest on the accumulated
benefit obligation, and for amortization of unrecognized actuarial gains or
losses. None of the individual components of either the change in the benefit
obligation or the net periodic expense was individually significant for any
period reported.
The discount rates used to determine the present value of the
postretirement benefit obligation and the net periodic expense were the same as
those shown above for the defined benefit pension plan. The Company also assumed
the following trends in health care costs for the actuarial calculation of the
benefit obligation at December 31, 2003 and 2002.
- --------------------------------------------------------------------------------------------------------------
Pre-Medicare Age Cost Post-Medicare Age Cost
2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------------
Cost trend rate for next year 10% 11% 10% 11%
Ultimate rate to which the cost trend rate gradually
declines 5 5 5 5
Year in which the ultimate trend rate is reached 2009 2009 2009 2009
- --------------------------------------------------------------------------------------------------------------
53
A 1% increase or decrease in the assumed health care cost trend rates
would impact the calculation of the benefit obligation and net periodic expense
as follows:
- --------------------------------------------------------------------------------
(dollars in thousands) 1% Increase 1% Decrease
- --------------------------------------------------------------------------------
Effect on total of service and interest components of
expense $ 494 $ (388)
Effect on postretirement benefit obligation 2,710 (2,184)
- --------------------------------------------------------------------------------
The Medicare Prescription Drug, Improvement and Modernization Act of
2003 (Medicare Drug Act) was signed into law on December 8, 2003. This act
establishes a prescription drug benefit under Medicare (Part D) as well as a
federal subsidy to sponsors of retiree health care plans that provide benefits
at least actuarially equivalent to Medicare Part D.
Under existing accounting standards, the impact of presently enacted
laws must be considered in measuring obligations and expense for postretirement
benefits. The existing guidance does not, however, explicitly address the
accounting impact of certain concepts introduced by the Medicare Drug Act - most
significantly, how and when to account for the direct subsidy to sponsors.
Uncertainties also remain concerning some important aspects of the practical
application of the Medicare Drug Act and its impact on the behavior of plan
participants and future health care costs. These uncertainties impact the
availability of sufficiently reliable information for actuarial measurements of
benefit obligations and expense.
Recognizing these issues, the FASB issued a staff position in January
2004 that allows a sponsoring company to defer recognizing the impact of the
Medicare Drug Act in its accounting for postretirement health benefits. If
elected, the deferral is effective until authoritative guidance on the
accounting for the federal subsidy is issued, or until certain other significant
events occur, such as a plan amendment. Whitney made this deferral election and
the information on benefit obligations and expense shown above does not reflect
the impact of the Medicare Drug Act. The authoritative guidance that is
eventually issued could require the Company to change previously reported
information.
NOTE 13
STOCK-BASED COMPENSATION
Whitney maintains two incentive compensation plans that incorporate
stock-based compensation, one for key employees and one for directors. Each of
these plans has been approved by the Company's shareholders.
The Compensation Committee of the Board of Directors administers the
employee plan, designates who will participate and authorizes the awarding of
grants. Under this plan, participants may receive stock options, restricted
stock subject to a vesting period, performance shares, phantom shares and stock
appreciation rights. To date, the Committee has awarded only stock options and
restricted stock. The Company may issue up to 7% of its outstanding common
shares in connection with awards. At December 31, 2003, future awards and
performance-based adjustments to past awards covering the issuance of 107,403
shares could be made under this plan.
A new long-term incentive plan for key employees will be presented to
the shareholders for approval at the Company's annual meeting in April 2004. The
new plan provides for substantially the same types of stock-based compensation
awards as the present plan. If approved, the new plan will authorize the
issuance of up to 2,600,000 common shares, plus any unused authorization from
the present plan, to satisfy awards.
The directors' plan provides for the annual award of stock grants and
stock options to each nonemployee director. Under this plan, Whitney is
authorized to issue an aggregate number of common shares not exceeding 3% of the
Company's outstanding shares but in no event more than 1,125,000 shares. At
December 31, 2003, 994,200 shares remain available for future award and issuance
under the directors' plan.
54
The stock option grants are fixed awards. The exercise price for
options is set at the market price for Whitney's stock on the grant date. All
options are fully exercisable after six months from the grant date and expire
after ten years. Unexercised options are subject to earlier expiration if a
recipient terminates service with the Company. The following table summarizes
stock option activity under the plan for key employees and under the directors'
plan for each of the three years in the period ended December 31, 2003. All
shares outstanding at the end of each year were exercisable.
- ------------------------------------------------------------------------------------------------------------------
Employee Director
- ------------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Number Exercise Price Number Exercise Price
- ------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2000 1,182,247 $26.22 153,000 $24.61
Options granted 335,812 27.87 21,000 31.12
Options exercised (77,144) 21.38 (1,500) 20.33
Options forfeited (19,500) 30.15 - -
- ------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2001 1,421,415 26.82 172,500 25.44
Options granted 388,825 33.87 45,000 30.79
Options exercised (237,193) 23.09 (6,000) 27.84
Options forfeited (9,825) 30.30 - -
- ------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2002 1,563,222 29.12 211,500 26.51
Options granted 411,000 33.67 45,000 31.99
Options exercised (208,194) 25.78 (13,500) 31.00
Options forfeited (39,875) 35.59 - -
- ------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2003 1,726,153 $30.45 243,000 $27.28
- ------------------------------------------------------------------------------------------------------------------
The following table summarizes certain information about the stock
options outstanding under these plans at December 31, 2003:
- --------------------------------------------------------------------------------
Weighted-
Number of Average Weighted-
Range of Shares Years to Average
Exercise Prices Under Option Expiration Exercise Price
- --------------------------------------------------------------------------------
$17.50-$19.25 64,348 1.2 $18.39
$20.00-$24.79 276,333 5.2 23.12
$26.21-$28.29 592,947 5.7 27.73
$30.79-$33.92 877,650 8.8 33.49
$36.67-$36.67 157,875 4.4 36.67
- --------------------------------------------------------------------------------
$17.50-$36.67 1,969,153 6.8 $30.06
- --------------------------------------------------------------------------------
55
The following schedule summarizes the stock grants awarded under these
plans during 2003, 2002 and 2001:
- ----------------------------------------------------------------
(dollars in thousands) Initial Market Value
Shares of Award on
Year Plan Awarded Grant Date
- ----------------------------------------------------------------
2003 Employee 149,125 $5,020
Director 6,750 216
2002 Employee 137,775 4,666
Director 6,750 208
2001 Employee 123,300 3,436
Director 6,300 196
- ----------------------------------------------------------------
Employees forfeit their stock grants if they terminate employment
within three years of the award date and they are prohibited during this period
from transferring or otherwise disposing of the shares received. In addition,
the employee grants can be adjusted based on Whitney's financial performance
over the restriction period in relation to that of a designated peer group.
Depending on the performance adjustment, the actual number of shares that vest
can range from 0% to 200% of the initial grants. All restrictions on employee
shares would lapse upon a change in control of the Company. The directors'
shares are awarded without restrictions and are not subject to adjustment.
Compensation expense for stock grants, initially measured as the market
value of the shares awarded on the grant date, is recognized ratably over the
restriction period, if any. The expense for employee grants is re-measured
periodically to reflect changes in the expected performance adjustment and in
the market value of the Company's stock, and any difference from the previous
measurement is recognized prospectively. Adjustments are made for forfeitures as
they occur. Whitney recognized compensation expense for stock grants of $6.2
million in 2003, $5.0 million in 2002, and $3.8 million in 2001.
SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by
SFAS No. 148, established a fair value-based method of accounting for
stock-based compensation. As provided for in SFAS No. 123, however, the Company
elected to continue to follow Accounting Principles Board Opinion No. 25 and
related interpretations to measure and recognize stock-based incentive
compensation expense. The impact of this election is discussed in Note 2.
NOTE 14
REGULATORY MATTERS
Regulatory Capital Requirements
Measures of regulatory capital are an important tool used by regulators
to monitor the financial health of insured financial institutions. The primary
quantitative measures used by regulators to gauge capital adequacy are the ratio
of Tier 1 regulatory capital to average total assets, also known as the leverage
ratio, and the ratios of Tier 1 and total regulatory capital to risk-weighted
assets. The regulators define the components and computation of each of these
ratios. The minimum capital ratios for both the Company and the Bank are
generally 4% leverage, 4% Tier 1 capital and 8% total capital. Regulators may,
however, set higher capital requirements for an individual institution when
particular circumstances warrant.
56
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, 2003 Amount Ratio Minimum(a) Capitalized(b)
- -------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company $739,236 10.13% $291,862 (c)
Bank 562,639 7.72 291,491 $364,364
- -------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk-Weighted Assets):
Company 739,236 12.80 231,084 (c)
Bank 562,639 9.76 230,687 346,030
- -------------------------------------------------------------------------------------------------------------
Total Capital (to Risk-Weighted Assets):
Company 798,711 13.83 462,168 (c)
Bank 622,114 10.79 461,374 576,717
- -------------------------------------------------------------------------------------------------------------
December 31, 2002
- -------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company $672,408 9.76% $275,470 (c)
Bank 550,041 8.00 275,115 $343,894
- -------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk-Weighted Assets):
Company 672,408 12.68 212,071 (c)
Bank 550,041 10.39 211,745 317,618
- -------------------------------------------------------------------------------------------------------------
Total Capital (to Risk-Weighted Assets):
Company 738,523 13.93 424,141 (c)
Bank 616,156 11.64 423,490 529,363
- -------------------------------------------------------------------------------------------------------------
(a) Minimum capital required for capital adequacy purposes.
(b) Capital required for well-capitalized status.
(c) Not applicable.
To evaluate capital adequacy, regulators compare an institution's
regulatory capital ratios with their agency guidelines as well as with the
guidelines established as part of the uniform regulatory framework for prompt
corrective supervisory action toward insured institutions. In reaching an
overall conclusion on capital adequacy or assigning an appropriate
classification under the uniform framework, regulators must also consider other
subjective and quantitative assessments of risk associated with the institution.
Regulators will take certain mandatory as well as possible additional
discretionary actions against institutions they judge to be inadequately
capitalized. These actions could materially impact the institution's financial
position and results of operations.
Under the regulatory framework for prompt corrective action, the
capital levels of banks are categorized into one of five classifications ranging
from well-capitalized to critically under-capitalized. For an institution to
qualify as well-capitalized, its total capital, Tier 1 capital and leverage
ratios must be at least 10%, 6% and 5%, respectively. Maintaining capital ratios
at the well-capitalized levels avoids certain restrictions that, for example,
could impact the FDIC insurance premium rate. As of December 31, 2003 and 2002,
the Bank was categorized as well-capitalized, and there have been no events
since December 31, 2003 that management believes would cause this status to
change.
Other Regulatory Matters
Dividends received from the Bank represent the primary source of funds
available to the Company for the declaration and payment of dividends to
Whitney's shareholders. There are various regulatory and statutory provisions
that limit the amount of dividends that the Bank can distribute to the Company.
During 2004, the Bank will have available an amount equal to approximately $2
million plus its current net income to declare as dividends
57
to the Company without prior regulatory approval. The Company had approximately
$184 million in cash and demand notes from the Bank available at the end of 2003
to provide liquidity for future dividend payments and other corporate purposes.
Under current Federal Reserve regulations, the Bank is limited in the
amounts it may lend to the Company to a maximum of 10% of its capital and
surplus, as defined in the regulations. Any such loans must be collateralized
from 100% to 130% of the loan amount, depending upon the nature of the
underlying collateral. The Bank made no loans to the Company during 2003 and
2002.
Banks are required to maintain currency and coin or a
noninterest-bearing balance with the Federal Reserve Bank to meet reserve
requirements based on a percentage of deposits. During 2003 as in 2002, the Bank
covered its reserve maintenance requirement with balances of coin and currency.
NOTE 15
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS AND DERIVATIVES
To meet the financing needs of its customers, the Bank issues financial
instruments which represent conditional obligations that are not recognized on
the consolidated balance sheets. These financial instruments include commitments
to extend credit under loan facilities and guarantees under standby and other
letters of credit. Such instruments expose the Bank to varying degrees of credit
and interest rate risk in much the same way as funded loans.
Commitments under loan facilities, including credit card and related
lines, obligate the Bank to make loans to customers as long as there is no
violation of the conditions established in the underlying contracts. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Substantially all of the letters of credit are standby
agreements that obligate the Bank to fulfill a customer's financial commitments
to a third party if the customer is unable to perform. The Bank issues standby
letters of credit primarily to provide credit enhancement to its customers'
commercial or public financing arrangements and to help customers demonstrate
the financial capacity required to obtain essential goods and services, such as
insurance services. The majority of standby letters of credit outstanding at
year-end 2003 have a term of one year or less.
The Bank's exposure to credit losses from these financial instruments
is represented by their contractual amounts. Because loan commitments and
financial guarantees may, and many times do, expire without being drawn upon,
however, the contractual amounts should not be understood to represent expected
future funding requirements. The Bank follows its standard credit policies in
making loan commitments and financial guarantees and requires collateral support
if warranted. The collateral required could include cash instruments, marketable
securities, accounts receivable, inventory, property, plant and equipment, and
income-producing commercial property.
A summary of off-balance-sheet financial instruments follows:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- --------------------------------------------------------------------------------
Commitments to extend credit - revolving $1,410,555 $1,302,747
Commitments to extend credit - nonrevolving 355,076 229,413
Standby and other letters of credit 292,558 263,220
Credit card and related lines 388,902 338,463
- --------------------------------------------------------------------------------
To be able to accommodate the maturity/rate preferences of certain
potential borrowers, during 2003 the Bank began to employ interest rate swaps to
bring the market risk associated with these longer-duration fixed-rate loans in
line with Whitney's asset/liability management objectives. At December 31, 2003,
only one swap with a remaining notional amount of $22 million had been executed,
essentially converting the related amortizing fixed-rate loan into a
floating-rate loan. The swap has been structured to be a highly effective hedge
against changes in the loan's fair value that result from changes in the
benchmark interest rate. There was no ineffectiveness recognized in 2003. The
cumulative decline in the fair value of the swap agreement though December 31,
2003 of $.7 million was
58
recognized with other liabilities in the consolidated balance sheets.
Periodic net settlements of interest under the swap are recorded as an
adjustment to interest income and were insignificant for 2003. Because of the
Company's current position in the swap, it was not exposed to the risk of
counterparty default at December 31, 2003. This could change over time, and
Whitney's policies control this risk by limiting dealings in derivatives to
high-quality counterparties, among other requirements.
NOTE 16
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of estimated fair value information about certain on-
and off-balance-sheet financial instruments where it is practicable to estimate
those values. If quoted market prices are not available, which is true for many
of Whitney's financial instruments, the Company estimates fair value using
present value or other valuation techniques. The assumptions used in applying
these techniques, such as those concerning appropriate discount rates and
estimates of future cash flows, require considerable judgment and significantly
affect the resulting fair value estimates. In addition, no value estimate is
assigned to future business opportunities from long-term customer relationships
underlying certain financial instruments. Accordingly, the derived fair value
estimates may not indicate the amount the Company could realize in a current
settlement of the financial instruments. Reasonable comparability of fair value
estimates between financial institutions may not be possible due to the wide
range of permitted valuation techniques and numerous assumptions involved. The
aggregate fair value amounts presented do not, and are not intended to,
represent an aggregate measure of the underlying fair value of the Company.
The following significant methods and assumptions were used by the
Company to estimate the fair value of financial instruments:
Cash and short-term investments - The carrying amount is a reasonable
estimate of the fair value of cash and due from financial institutions, federal
funds sold and short-term investments.
Investment in securities - Fair values of securities are based on
quoted market prices obtained from independent pricing services.
Loans - Loans with no significant change in credit risk and with rates
that are repriced in coordination with movements in market rates are valued at
carrying amounts. The fair values of other loans are estimated by discounting
scheduled cash flows to maturity using current rates at which loans with similar
terms would be made to borrowers of similar credit quality. Appropriate
adjustments are made to reflect probable credit losses.
Deposits - SFAS No. 107 requires that deposits without a stated
maturity, such as noninterest-bearing demand deposits, NOW account deposits,
money market deposits and savings deposits, be assigned fair values equal to the
amounts payable upon demand (carrying amounts). Deposits with a stated maturity
were valued by discounting contractual cash flows using a discount rate
approximating current market rates for deposits of similar remaining maturity.
Short-term and other borrowings - Short-term borrowings are valued
fairly at their carrying amounts. Other borrowings were valued by discounting
contractual cash flows at current market rates.
Off-balance-sheet financial instruments - Off-balance-sheet financial
instruments include commitments to extend credit and guarantees under standby
and other letters of credit. The fair values of such instruments are estimated
using fees currently charged for similar arrangements in the market, adjusted
for changes in terms and credit risk as appropriate. The estimated fair values
of these instruments are not material.
59
The estimated fair values of the Company's financial instruments
follow:
December 31, 2003 December 31, 2002
- -----------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(dollars in thousands) Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and short-term investments $ 284,772 $ 284,772 $ 330,451 $ 330,451
Investment in securities 2,281,405 2,287,587 1,975,698 1,983,097
Loans held for sale 15,309 15,578 65,572 67,534
Loans, net 4,823,135 4,840,838 4,389,297 4,429,790
LIABILITIES:
Deposits 6,158,582 6,163,437 5,782,879 5,790,908
Short-term and other borrowings 600,053 599,936 453,415 453,415
Derivative contracts 704 704 - -
- ------------------------------------------------------------------------------------------------------------------
NOTE 17
CONTINGENCIES
The Company and its subsidiaries are parties to various legal
proceedings arising in the ordinary course of business. After reviewing pending
and threatened actions with legal counsel, management believes that the ultimate
resolution of these actions will not have a material effect on the Company's
financial condition, results of operations or cash flows.
NOTE 18
OTHER NONINTEREST INCOME
The components of other noninterest income were as follows:
Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------
ATM fees $ 4,691 $ 4,861 $ 4,281
Investment services income 4,010 4,257 3,906
Other fees and charges 7,145 6,047 4,285
Other operating income 4,764 2,993 3,529
Net gains on sales and other revenue from foreclosed
assets 1,132 1,714 1,963
Net gains on disposals of surplus property 23 497 3,274
Gain on sale of merchant processing agreements - - 3,570
- -----------------------------------------------------------------------------------------------------------------
Total $21,765 $20,369 $24,808
- -----------------------------------------------------------------------------------------------------------------
60
NOTE 19
OTHER NONINTEREST EXPENSE
The components of other noninterest expense were as follows:
Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Security and other outsourced services $ 8,846 $ 8,127 $ 7,792
Advertising 3,679 4,769 4,443
Operating supplies 3,546 3,462 4,315
Bank card processing services 2,293 2,161 8,134
Deposit insurance and regulatory fees 1,926 1,971 1,936
Miscellaneous operating losses 1,645 1,429 2,544
Other operating expense 15,778 13,470 12,542
- -----------------------------------------------------------------------------------------------------------------
Total $37,713 $35,389 $41,706
- -----------------------------------------------------------------------------------------------------------------
NOTE 20
INCOME TAXES
The components of income tax expense (benefit) follow:
Years Ended December 31
- ------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Included in net income
Current
Federal $43,853 $46,573 $41,063
State 831 882 1,137
- ------------------------------------------------------------------------------------------------------------------
Total current 44,684 47,455 42,200
- ------------------------------------------------------------------------------------------------------------------
Deferred
Federal 1,328 (883) (5,567)
State 87 72 (52)
- ------------------------------------------------------------------------------------------------------------------
Total deferred 1,415 (811) (5,619)
- ------------------------------------------------------------------------------------------------------------------
Total included in net income $46,099 $46,644 $36,581
- ------------------------------------------------------------------------------------------------------------------
Included in shareholders' equity
Deferred tax expense related to the change in the
net unrealized gain on securities $(11,464) $10,563 $4,581
Current tax benefit related to nonqualified stock options
and restricted stock (751) (1,306) (512)
- ------------------------------------------------------------------------------------------------------------------
Total included in shareholders' equity $(12,215) $ 9,257 $ 4,069
- ------------------------------------------------------------------------------------------------------------------
61
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) 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Federal income tax expense 35.00% 35.00% 35.00%
Increase (decrease) resulting from
Tax exempt income (2.41) (2.14) (2.74)
Low income housing credit (.94) (.51) (.22)
Subchapter S election termination - - (.84)
Nondeductible goodwill amortization - - .77
State income tax and miscellaneous items .22 .51 .58
- ------------------------------------------------------------------------------------------------------------------
Effective tax rate 31.87% 32.86% 32.55%
- ------------------------------------------------------------------------------------------------------------------
Before its acquisition by Whitney in January 2001, American Bank had
elected to be taxed under Subchapter S of the Internal Revenue Code. Under this
election, American was not subject to income tax at the corporate level and
reported no income tax expense. The acquisition by the Company terminated the
Subchapter S election, and income tax expense has been provided for earnings
from the acquired operations. In addition, the Company recorded a net deferred
tax asset, and a corresponding deferred tax benefit, of approximately $1 million
in 2001 to reflect the expected tax effects of the resolution of temporary
differences that had accumulated in American Bank through the termination date.
The impact of terminating the Subchapter S election on Whitney's effective tax
rate is shown above.
Temporary differences arise between the tax bases of assets or
liabilities and their reported amounts in the financial statements. The expected
tax effects when these differences are resolved are recorded currently as
deferred tax assets or liabilities. The components of the net deferred income
tax asset, which is included in other assets on the consolidated balance sheets,
follow:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- --------------------------------------------------------------------------------
Deferred tax assets:
Allowance for losses on loans and foreclosed
assets $20,725 $22,761
Employee compensation and benefits 7,909 7,528
Unrecognized interest income 2,549 2,197
Net operating loss carryforward 1,103 1,732
Other 3,624 3,079
- --------------------------------------------------------------------------------
Total deferred tax assets 35,910 37,297
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Net unrealized gain on securities 4,543 16,007
Accumulated depreciation and amortization 6,344 7,163
Other 3,833 2,986
- --------------------------------------------------------------------------------
Total deferred tax liabilities 14,720 26,156
- --------------------------------------------------------------------------------
Net deferred tax asset $21,190 $11,141
- --------------------------------------------------------------------------------
At December 31, 2003, the Company had approximately $3 million in net
operating loss carryforwards generated by acquired entities. Substantially all
of the carryforwards expire in 2020.
62
NOTE 21
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) 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Numerator:
Net income $98,542 $95,323 $75,820
Effect of dilutive securities - - -
- -----------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $98,542 $95,323 $75,820
- -----------------------------------------------------------------------------------------------------------------
Denominator:
Weighted-average shares outstanding 39,929,431 39,848,881 39,550,723
Effect of potentially dilutive securities
and contingently issuable shares 466,703 272,663 285,324
- -----------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 40,396,134 40,121,544 39,836,047
- -----------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $2.47 $2.39 $1.92
Diluted 2.44 2.38 1.90
- -----------------------------------------------------------------------------------------------------------------
Antidilutive stock options 346,915 424,461 514,807
- -----------------------------------------------------------------------------------------------------------------
NOTE 22
PARENT COMPANY FINANCIAL STATEMENTS
The following financial statements are for the parent company only. For the
statements of cash flows, cash and cash equivalents include noninterest-bearing
deposits in the Bank and the demand note receivable from the Bank.
BALANCE SHEETS December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Investment in bank subsidiary $583,716 $598,116
Note receivable - bank subsidiary 183,963 128,400
Investments in nonbank subsidiaries 1,374 1,210
Notes receivable - nonbank subsidiaries 80,974 80,394
Other assets 11,560 10,196
- -----------------------------------------------------------------------------------------------------------------
Total assets $861,587 $818,316
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable $ 13,345 $ 12,009
Other liabilities 7,929 5,824
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 21,274 17,833
SHAREHOLDERS' EQUITY 840,313 800,483
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $861,587 $818,316
- -----------------------------------------------------------------------------------------------------------------
63
STATEMENTS OF INCOME Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Dividend income from bank subsidiary $93,300 $89,200 $162,597
Equity in undistributed earnings of subsidiaries
Bank 574 1,854 (88,166)
Nonbanks 164 68 100
Other income, net of expenses 4,504 4,201 1,289
- -----------------------------------------------------------------------------------------------------------------
Net income $98,542 $95,323 $ 75,820
- -----------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS Years Ended December 31
- -----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 98,542 $ 95,323 $ 75,820
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (738) (1,922) 88,066
(Increase) decrease in dividends receivable - 10,572 (2,165)
Other, net 1,072 (1,073) 48
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 98,876 102,900 161,769
- -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investments in subsidiaries - (20) (39,147)
Loans to nonbank subsidiaries, net of repayments (580) 690 (80,248)
Other, net (16) 13 376
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (596) 683 (119,019)
- -----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash dividends (48,248) (42,893) (38,598)
Proceeds from issuance of stock 7,151 7,385 5,096
Purchases of stock (1,528) (2,256) (847)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (42,625) (37,764) (34,349)
- -----------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 55,655 65,819 8,401
Cash and cash equivalents at beginning of year 128,705 62,886 54,485
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $184,360 $128,705 $ 62,886
- -----------------------------------------------------------------------------------------------------------------
64
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Whitney is responsible for the preparation and fair
presentation of the consolidated financial statements and other financial
information included in this annual report on Form 10-K. The financial
statements are prepared in accordance with accounting principles generally
accepted in the United States of America and include amounts based on
management's estimates and judgments where appropriate. Financial information
appearing throughout this annual report on Form 10-K is consistent with that in
the financial statements.
Management has established and maintains a system of internal control
that provides reasonable assurance as to the integrity and reliability of the
Company's financial statements, the protection of assets from unauthorized use
or disposition, and the prevention and detection of fraudulent financial
reporting. The system of internal control provides for appropriate division of
responsibility, is documented by written policies and procedures that are
communicated to employees with significant roles in the financial reporting
process, and is updated as necessary. The Company maintains a professional staff
of internal auditors who independently assess the effectiveness of internal
controls and make recommendations on policies and procedures. Management
believes that, as of December 31, 2003, the Company's system of internal control
is adequate to accomplish the objectives discussed above.
The Audit Committee of the Board of Directors, which is composed
entirely of independent directors, has oversight responsibilities for the
Company's financial reporting and internal controls. The Committee has appointed
PricewaterhouseCoopers LLP as independent auditors to audit the financial
statements in accordance with auditing standards generally accepted in the
United States of America and to express an opinion as to the fairness of
presentation of such financial statements. The Committee meets periodically with
management, the independent auditors and internal auditors to review accounting,
financial reporting and internal control matters. Both the independent auditors
and internal auditors have direct access to the Committee.
65
REPORT OF INDEPENDENT AUDITORS
To Shareholders and Board of Directors
of Whitney Holding Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, changes in shareholders' equity and
cash flows present fairly, in all material respects, the financial position of
Whitney Holding Corporation and subsidiaries (the "Corporation") at December 31,
2003 and 2002, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Corporation's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. The financial statements of the Corporation
for the year ended December 31, 2001, prior to the revisions discussed in Notes
2 and 9, were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
those financial statements in their report dated January 16, 2002.
As discussed in Note 9 to the consolidated financial statements, the
Corporation changed its method of accounting for goodwill and intangible assets
on January 1, 2002.
As discussed above, the financial statements of the Corporation for the
year ended December 31, 2001, were audited by other independent accountants who
have ceased operations. As described in Notes 2 and 9, these financial
statements have been revised to include the transitional disclosures required by
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", which was adopted by the Corporation as of January 1, 2002
and to reflect a three-for-two stock split. We audited the transitional
disclosures described in Note 9 and the three-for-two stock split described in
Note 2. In our opinion, the transitional disclosures for 2001 in Note 9 and the
impact of the three-for-two stock split described in Note 2 are appropriate.
However, we were not engaged to audit, review, or apply any procedures to the
2001 financial statements of the Corporation other than with respect to such
disclosures and, accordingly, we do not express an opinion or any other form of
assurance on the 2001 financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
January 21, 2004
66
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR
ANDERSEN LLP IN CONNECTION WITH WHITNEY'S FILING ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2001. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH THIS FILING ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003.
FOR FURTHER DISCUSSION, SEE EXHIBIT 23.2 WHICH IS FILED HEREWITH.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS
AND BOARD OF DIRECTORS OF
WHITNEY HOLDING CORPORATION:
We have audited the consolidated balance sheets of Whitney Holding
Corporation (a Louisiana corporation) and subsidiaries as of December 31, 2001
and 2000 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Whitney Holding
Corporation and subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 133 effective
January 1, 2001.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
January 16, 2002
67
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In response to this item, registrant incorporates by reference the
subsection entitled "Former Auditors" in the section entitled "Auditors" of its
Proxy Statement for the 2004 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission.
Item 9A: CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the reports it
files under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and forms. Such controls include those designed to ensure
that material information is communicated to management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to
allow timely decisions regarding required disclosure.
The Company's management, with the participation of the CEO and CFO,
have evaluated the effectiveness of the Company's disclosure controls and
procedures as of the end of the period covered by this annual report on Form
10-K. Based on that evaluation, the CEO and CFO have concluded that the
disclosure controls and procedures as of the end of the period covered by this
annual report are effective. There were no changes in the Company's internal
control over financial reporting during the last fiscal quarter in the period
covered by this annual report that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
68
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Whitney has adopted a Code of Ethics and Conduct for Senior Financial
Officers and Executive Officers that applies to its chief executive officer,
chief financial officer, controller or principal accounting officer, as well as
such other persons, including officers of its subsidiaries, identified by Board
resolution from time to time as performing similar functions for the Company and
any other persons the Board designates as executive officers. A copy of the code
is available on the Company's website at www.whitneybank.com. Whitney will also
post on its website at the same address any amendments to the code and any
waivers from or violations of the code by any person covered by the code.
In further response to this Item 10, registrant incorporates by
reference Item 4a of this Form 10-K and the following sections of its Proxy
Statement for the 2004 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission:
o The subsections entitled "Nominees for Term Expiring 2005",
"Nominees for Terms Expiring 2009", and "Directors with
Continuing Terms" of the section entitled "Beneficial Ownership of
Directors and Management and Other Information".
o The first paragraph of the subsection entitled "Audit Committee" and
the subsection entitled "Shareholder Recommendations of Director
Candidates" of the section entitled "Board of Directors and Its
Committees".
o The section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance".
Item 11: EXECUTIVE COMPENSATION
In response to this item, registrant incorporates by reference the
section entitled "Executive Compensation" of its Proxy Statement for the 2004
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In partial response to this item, registrant incorporates by reference
the sections entitled "Voting Securities and Principal Holders" and "Beneficial
Ownership of Directors and Management and Other Information" of its Proxy
Statement for the 2004 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission.
Information regarding securities authorized for issuance under equity
compensation plans is incorporated by reference to the subsection entitled
"Additional Plan Information" in the "Executive Compensation" section of the
Proxy Statement for the 2004 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this item, registrant incorporates by reference the
section entitled "Certain Transactions" of its Proxy Statement for the 2004
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission.
Item 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
In response to this item, registrant incorporates by reference the
subsections entitled "Audit Fees", "Audit-Related Fees", "Tax Fees", "All Other
Fees" and "Audit Committee Pre-approval Policies and Procedures" of the section
entitled "Auditors" of its Proxy Statement for the 2004 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission.
69
PART IV
Item 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)The following consolidated financial statements and supplementary
data of the Company and its subsidiaries are included in Part II
Item 8 of this Form 10-K:
Page Number
-----------
Summary of Quarterly Financial Information 32
Consolidated Balance Sheets --
December 31, 2003 and 2002 33
Consolidated Statements of Income --
Years Ended December 31, 2003, 2002 and 2001 34
Consolidated Statements of Changes in Shareholders' Equity --
Years Ended December 31, 2003, 2002 and 2001 35
Consolidated Statements of Cash Flows --
Years Ended December 31, 2003, 2002 and 2001 36
Notes to Consolidated Financial Statements 37
Report of Independent Auditors 66
(a)(2)All schedules have been omitted because they are either not
applicable or the required information has been included in the
consolidated financial statements or notes to the consolidated
financial statements.
(a)(3)Exhibits:
To obtain a copy of any listed exhibit send your request to the
address below. The copy will be furnished upon payment of a fee.
Mrs. Shirley Fremin, Manager
Investor Relations
Whitney Holding Corporation
P. O. Box 61260
New Orleans, LA 70161-1260
(504) 586-3627 or toll free (800) 347-7272
E-mail: investor.relations@whitneybank.com
Exhibit 3.1 - Copy of the Company's Composite Charter (filed as
Exhibit 3.1 to the Company's quarterly report on Form 10-Q for
the quarter ended September 30, 2000 (Commission file number
0-1026) and incorporated by reference).
Exhibit 3.2 - Copy of the Company's Bylaws, as amended February
18, 2004.
Exhibit 10.1 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and William L. Marks (filed as
Exhibit 10.3 to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1993 (Commission file number 0-1026)
and incorporated by reference).
70
Exhibit 10.2 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and R. King Milling (filed as
Exhibit 10.4 to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1993 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.4 *- Executive agreement between Whitney Holding
Corporation, Whitney Bank of Alabama (now Whitney National Bank)
and John C. Hope III (filed as Exhibit 10.8 to the Company's
annual report on Form 10-K for the year ended December 31, 1994
(Commission file number 0-1026) and incorporated by reference).
Exhibit 10.5 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Robert C. Baird, Jr.
(filed as Exhibit 10.9 to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1995 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.6 *- Long-term incentive program (filed as Exhibit
10.7 to the Company's annual report on Form 10-K for the year
ended December 31, 1991 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.6a *- Long-term incentive plan (filed as a Proposal in
the Company's Proxy Statement dated March 18, 1997 (Commission
file number 0-1026) and incorporated by reference).
Exhibit 10.7 *- Executive compensation plan (filed as Exhibit
10.8 to the Company's annual report on Form 10-K for the year
ended December 31, 1991 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.8 *- Form of restricted stock agreement between
Whitney Holding Corporation and certain of its officers (filed as
Exhibit 19.1 to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1992 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.8a *- Form of amendment to restricted stock agreement
between Whitney Holding Corporation and certain of its officers
(filed as Exhibit 10.9a to the Company's annual report on Form
10-K for the year ended December 31, 2000 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.8b *- Form of amendment to restricted stock agreement
between Whitney Holding Corporation and certain of its officers
(filed as Exhibit 10.8b to the Company's annual report on Form
10-K for the year ended December 31, 2001 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.8c *- Form of restricted stock agreement between
Whitney Holding Corporation and certain of its officers (filed as
Exhibit 10.8c to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 2002 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.9 *- Form of stock option agreement between Whitney
Holding Corporation and certain of its officers (filed as Exhibit
19.2 to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1992 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.9a *- Form of amendment to stock option agreement
between Whitney Holding Corporation and certain of its officers
(filed as Exhibit 10.10a to the Company's annual report of Form
10-K for the year ended December 31, 2000 (Commission file number
0-1026) and incorporated by reference).
71
Exhibit 10.9b *- Form of Amendment to stock option agreement
between Whitney Holding Corporation and certain of its officers
(filed as Exhibit 10.9b to the Company's annual report of Form
10-K for the year ended December 31, 2001 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.10 *- Directors' Compensation Plan (filed as Exhibit A
to the Company's Proxy Statement dated March 24, 1994 (Commission
file number 0-1026) and incorporated by reference).
Exhibit 10.10a *- Amendment No. 1 to the Whitney Holding
Corporation Directors' Compensation Plan (filed as Exhibit A to
the Company's Proxy Statement dated March 15, 1996 (Commission
file number 0-1026) and incorporated by reference).
Exhibit 10.10b *- Whitney Holding Corporation 2001 Directors'
Compensation Plan (filed as Appendix B to the Company's Proxy
Statement dated March 15, 2001 (Commission file number 0-1026)
and incorporated by reference).
Exhibit 10.11 *- Retirement Restoration Plan effective January 1,
1995 (filed as Exhibit 10.16 to the Company's annual report on
Form 10-K for the year ended December 31, 1995 (Commission file
number 0-1026) and incorporated by reference).
Exhibit 10.12 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Rodney D. Chard (filed as
Exhibit 10.17 to the Company's quarterly report on Form 10-Q for
the quarter ended September 30, 1996 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.13 *- Form of Amendment to Section 2.1e of the
Executive agreements filed as Exhibits 10.1 through 10.5 herein
(filed as Exhibit 10.18 to the Company's annual report on Form
10-K for the year ended December 31, 1996 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.14 *- Form of Amendment adding subsection 2.1g to the
Executive Agreements filed as Exhibits 10.1 through 10.5 and
Exhibit 10.12 herein (filed as Exhibit 10.19 to the Company's
quarterly report on Form 10-Q for the quarter ended March 31,
1998 (Commission file number 0-1026) and incorporated by
reference).
Exhibit 10.15 *- Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Thomas L. Callicutt, Jr.
(filed as Exhibit 10.20 to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1999 (Commission file
number 0-1026) and incorporated by reference).
Exhibit 10.16 *- Form of officer agreement between Whitney
Holding Corporation, Whitney National Bank and Joseph S.
Exnicios, executed May 11, 1993, and amended March 27, 1998, and
Lewis P. Rogers, executed June 23, 1999 (filed as Exhibit 10.16
to the Company's quarterly report on Form 10-Q for the quarter
ended September 30, 2002 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.18 *- Form of officer agreement between Whitney
Holding Corporation, Whitney National Bank and Kevin P. Reed,
executed July 20, 1998, who became a reportable executive during
the quarter ended December 31, 2003.
Exhibit 16.1 - Letter from Arthur Andersen LLP dated May 22, 2002
(filed as Exhibit 16 to the Company's Form 8-K dated May 22, 2002
(Commission file number 0-1026) and incorporated by reference).
72
Exhibit 21 - Subsidiaries
Whitney Holding Corporation owns 100% of Whitney National
Bank, a national banking association organized under the laws of
the United States of America. All other subsidiaries considered
in the aggregate would not constitute a significant subsidiary.
Exhibit 23.1 - Consent of PricewaterhouseCoopers LLP dated March
15, 2004.
Exhibit 23.2 - Notice Regarding Consent of Arthur Andersen LLP.
Exhibit 31.1 - Certification of the Company's Chief Executive
Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 - Certification of the Company's Chief Financial
Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 - Certification by the Company's Chief Executive
Officer and Chief Financial Officer pursuant to 18 U.S.C Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
* Management contract or compensatory plan or arrangement.
(b) Reports of Form 8-K
On a Form 8-K dated October 16, 2003, the registrant reported under
Item 12 the release of its financial results for the quarter ended September 30,
2003. The news release covering the financial results was attached as an exhibit
under Item 7.
73
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WHITNEY HOLDING CORPORATION
(Registrant)
By: /s/ William L. Marks
-------------------------------
William L. Marks
Chairman of the Board and
Chief Executive Officer
March 15, 2004
-------------------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------------------------------------------------------------------
/s/ William L. Marks Chairman of the Board, March 15, 2004
- ------------------------------ Chief Executive Officer --------------
William L. Marks and Director
/s/ R. King Milling President and Director March 15, 2004
- ------------------------------ --------------
R. King Milling
/s/ Thomas L. Callicutt, Jr. Executive Vice President and March 15, 2004
- ------------------------------ Chief Financial Officer --------------
Thomas L. Callicutt, Jr. (Principal Accounting Officer)
/s/ Harry J. Blumenthal, Jr. Director March 15, 2004
- ------------------------------ --------------
Harry J. Blumenthal, Jr.
/s/ Joel B. Bullard, Jr. Director March 15, 2004
- ------------------------------ --------------
Joel B. Bullard, Jr.
/s/ James M. Cain Director March 15, 2004
- ------------------------------ --------------
James M. Cain
/s/ Angus R. Cooper II Director March 15, 2004
- ------------------------------ --------------
Angus R. Cooper II
/s/ Richard B. Crowell Director March 15, 2004
- ------------------------------ --------------
Richard B. Crowell
74
Signature Title Date
- --------------------------------------------------------------------------------
/s/ William A. Hines Director March 15, 2004
- ------------------------------ --------------
William A. Hines
/s/ John J. Kelly Director March 15, 2004
- ------------------------------ --------------
John J. Kelly
/s/ E. James Kock, Jr. Director March 15, 2004
- ------------------------------ --------------
E. James Kock, Jr.
/s/ Alfred S. Lippman Director March 15, 2004
- ------------------------------ --------------
Alfred S. Lippman
/s/ Michael L. Lomax Director March 15, 2004
- ------------------------------ --------------
Michael L. Lomax
/s/ Eric J. Nickelsen Director March 15, 2004
- ------------------------------ --------------
Eric J. Nickelsen
/s/ John G. Phillips Director March 15, 2004
- ------------------------------ --------------
John G. Phillips
/s/ Carroll W. Suggs Director March 15, 2004
- ------------------------------ --------------
Carroll W. Suggs
/s/ Kathryn M. Sullivan Director March 15, 2004
- ------------------------------ --------------
Kathryn M. Sullivan
/s/ Dean E. Taylor Director March 15, 2004
- ------------------------------ --------------
Dean E. Taylor
/s/ Thomas D. Westfeldt Director March 15, 2004
- ------------------------------ --------------
Thomas D. Westfeldt
75
Exhibit 3.2
BY-LAWS
OF
WHITNEY HOLDING CORPORATION
Section 1. Meetings of the Board of Directors of this corporation may be held by
means of conference telephone or similar communications equipment.
Section 2. A. Without limiting in any way the indemnification by the corporation
of persons as provided in its charter and the existing applicable law, the
corporation shall have authority to indemnify persons in accordance with
Louisiana Revised Statutes 12:83 as it may from time to time become amended,
supplemented or replaced.
B. The corporation shall have authority to procure or maintain
insurance or other similar arrangement in accordance with Louisiana Revised
Statutes 12:83(F) and (G) as they may from time to time become amended,
supplemented or replaced.
Section 3. The Company may issue stock certificates signed by the Chief
Executive Officer and Secretary of the Company. In addition to the Chief
Executive Officer and Corporate Secretary of the Company, the President, any
Vice President and any Assistant Corporate Secretary, respectively, of the
Company may sign the Company's stock certificates. All stock certificates
representing shares of the Company's stock, whether currently outstanding or
that may be issued in the future, may bear facsimile signatures of the Company's
Chief Executive Officer and Secretary, or other authorized officers, provided
such certificates are or have been countersigned by a transfer agent or
registrar other than the Company itself or an employee of the Company.
Section 4. There shall be a standing committee of this Corporation, appointed by
the Board, to be known as the Executive Committee, consisting of the Chairman of
the Board, the President, and such other Directors as may be appointed from time
to time, each to serve a 12 months' term, four (4) members of which shall
constitute a quorum for the transaction of business. This committee shall have
power to direct and transact all business of the Corporation, which properly
might come before the Board of Directors, except such as the Board only, by law,
is authorized to perform. The Executive Committee shall report its actions in
writing at each regular meeting of the Board of Directors, which shall approve
or disapprove the report and record such action in the minutes of the meeting.
The Board shall appoint Audit, Nominating and Compensation
Committees and may appoint such other committees as it deems advisable. The
Board may define the composition, powers, and duties of such committees by
adopting committee charters or resolutions.
Section 5. A. Directors shall retire from the Board of this corporation upon
the earlier occurrence of either of the following events:
1. Upon attainment of the Director's 70th birthday. A Director
shall retire effective the date of the annual meeting of
shareholders following his or her 70th birthday.
2. Upon the Director's resignation or retirement from the
principal business enterprise by which he or she was employed
when he or she became a Director ("principal business
enterprise"). A Director shall retire from the Board effective
the date of the annual meeting of shareholders following the
expiration of a one year period beginning with his or her
resignation or retirement from his or her principal business
enterprise, unless the Director meets both of the following
requirements:
a. He or she has assumed a prominent role in a business
or community organization during the one year period; and
b. Both the Director's role and the organization's status
in a significant Whitney market satisfy this
corporation's customary requirements for the nomination
of a new Director.
B. Neither event set forth in Section 5A shall require (i) the
retirement at any time of any Director who, on October 26, 1994, had already
achieved the age of 70 or had already resigned or retired from his or her
principal business enterprise or (ii) the retirement prior to the end of his or
her term of any Director who, on July 22, 1998, had already achieved the age of
70 or had already resigned or retired from his or her principal business
enterprise.
76
Exhibit 10.18
WHITNEY HOLDING CORPORATION
and
WHITNEY NATIONAL BANK
OFFICER AGREEMENT
THIS AGREEMENT (the "Agreement") is made, effective as of the ______
day of ___________, by and between WHITNEY HOLDING CORPORATION, a corporation
organized and existing under the laws of the State of Louisiana (the "Holding
Corporation"), WHITNEY NATIONAL BANK, a financial institution organized and
existing under the laws of the United States (the "Bank"), and _________________
(the "Officer").
WHEREAS, the Officer is presently employed by the Bank as a SENIOR VICE
PRESIDENT;
WHEREAS, the Holding Corporation and the Bank desire to retain the
services of the Officer by providing certain assurances in the event the
officer's employment with the Bank is terminated under the circumstances set
forth in this Agreement;
NOW, THEREFORE, the Holding Corporation, the Bank and the Officer agree
to the following terms and conditions:
SECTION I
---------
DEFINITIONS
-----------
1.1 "Change in Duties" means the occurrence of one of the
following events in connection with a Change in Control:
a. A diminution in the nature or scope of the officer's authorities
or duties, a change in his reporting responsibilities or titles
or the assignment of the Officer to any duties or
responsibilities that are inconsistent with his position, duties,
responsibilities or status immediately preceding such assignment;
b. A reduction in the officer's compensation during the Covered
Period. For this purpose, "compensation" means the fair market
value of all remuneration paid to the Officer by the Employer
during the immediately preceding calendar year, including,
without limitation, deferred compensation, stock options and
other forms of incentive compensation awards, coverage under any
employee benefit plan (such as a pension, thrift, medical,
dental, life insurance or long-term disability plan) and other
perquisites;
c. The transfer of the Officer to a location requiring a change in
his residence or a material increase in the amount of travel
ordinarily required of the Officer in the performance of his
duties; or
d. A good faith determination by the Officer that his position,
duties, responsibilities or status has been affected, whether
directly or indirectly, in any manner which prohibits the
effective discharge of any such duties or responsibilities.
1.2 "Change in Control" means and shall be deemed to have occurred if:
a. Any "person," including any "group," determined in accordance
with Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, becomes the beneficial owner, directly or indirectly, of
securities of the Holding Corporation representing 20% or more of
the combined voting power of the Holding Corporation's then
outstanding securities, without the approval, recommendation, or
support of the Board of Directors of the Holding Corporation as
constituted immediately prior to such acquisition;
b. The Federal Deposit Insurance Corporation or any other regulatory
agency negotiates and implements a plan for the merger, transfer
of assets and liabilities, reorganization, and/or liquidation of
the Bank;
c. Either of the Holding Corporation or the Bank is merged into
another corporate entity or consolidated with one or more
corporations, other than a wholly owned subsidiary of the Holding
Corporation, unless before the effective date of such merger or
consolidation the board of directors of the surviving corporation
agrees, in writing, to assume the obligations and liabilities of
the Holding Corporation and the Bank under this Agreement;
77
d. A change in the members of the Board of Directors of the Holding
Corporation which results in the exclusion of a majority of the
"continuing board." For this purpose, the term "continuing board"
means the members of the Board of Directors of the Holding
Corporation, determined as of the date on which this Agreement is
executed and subsequent members of such board who are elected by
or on the recommendation of a majority of such "continuing
board"; or
e. The sale or other disposition of all or substantially all of the
stock or the assets of the Bank by the Holding Corporation (or
any successor corporation thereto), unless before the effective
date of such sale or other disposition the board of directors of
the acquiring corporation agrees, in writing, to assume the
obligations of the Holding Corporation and the Bank under this
Agreement.
1.3 "Company" means the Holding Corporation and the Bank.
1.4 "Covered Period" means the one-year period immediately preceding
and the three-year period immediately following the occurrence of a Change in
Control.
1.5 "Employer" means the Holding Corporation or the Bank or both, as
the case may be.
1.6 "Severance Amount" means 200% of the Officer's "annual salary."
For this purpose, "annual salary" means the average of all compensation paid to
the Officer by the Company which is includible in the Officer's gross income for
the highest 3 of the 5 calendar years immediately preceding the calendar year in
which a Change in Control occurs, including the amount of any compensation which
the Officer elected to defer under any plan or arrangement of the Company with
respect to such years. If the Officer has been employed less than 5 years prior
to the calendar year in which a Change in Control occurs, "annual salary" shall
be determined by averaging the compensation (as defined in the preceding
sentence) for the Officer's actual period of employment. Further, if the Officer
has been employed less than 12 months prior to the occurrence of a Change in
Control, the actual compensation of the Officer shall be annualized for purposes
of this Section 1.6. In the event of dispute between the Officer and the
Company, the determination of the "annual salary" shall be made by an
independent public accounting firm agreed upon by the Officer and the Company.
1.7 "Termination" or "Terminated" means (a) termination of the
employment of the Officer with the Employer for any reason, other than cause, or
(b) the resignation of the Officer following a Change in Duties. In no event,
however, shall the Officer's voluntary separation from service with the Employer
on account of death, disability, or resignation on or after the attainment of
the normal retirement age specified in any qualified employee benefit plan
maintained by the Employer constitute a Termination. For purposes of determining
whether a Termination has occurred, "cause" means fraud, misappropriation of or
intentional material damage to the property or business of the Employer or the
commission of a felony by the Officer.
SECTION II
----------
TERMINATION RIGHTS AND OBLIGATIONS
----------------------------------
2.1 Severance Awards. If the Officer's employment is Terminated during
the Covered Period, then no later than 30 days after the later of (a) the date
of such Termination, or (b) the occurrence of a Change in Control, the Company
shall:
a. Pay to the Officer the Severance Amount;
b. Transfer to the Officer the ownership of all club memberships,
automobiles and other perquisites which were assigned to the
Officer as of the day immediately preceding such Termination;
c. In accordance with Section 2.2 hereof, provide for the benefit of
the Officer, his spouse, and his dependents, if any, coverage
under the plans, policies or programs (as the same may be amended
from time to time) maintained by the Company for the purpose of
providing medical benefits and life insurance to other Officers
of the Company with comparable duties; provided, however, that in
no event shall the coverage provided under this paragraph be
substantially less than the coverage provided to the Officer as
of the date immediately preceding a Termination;
d. Pay to the Officer an amount equal to the contributions by the
Company to the Whitney National Bank of New Orleans Thrift
Incentive Plan, or a successor arrangement, that would have been
made
78
for the lesser of (i) three years following the date of
Termination, or (ii) the number of years until the Officer's
normal retirement age under such plan;
e. Pay to the Officer an amount equal to the present value of the
additional retirement benefit which would have accrued under the
Whitney National Bank of New Orleans Retirement Plan, or a
successor arrangement, that would have made for the lesser of (i)
three years following the date of Termination, or (ii) the number
of years until the Officer's normal retirement age under such
plan; and
f. Pay to the Officer the amount to which the Officer would be
entitled under the 1991 Officer Compensation Plan, or a successor
thereto, for the calendar year in which a Change in Control
occurs determined as if all performance goals applicable to the
Company and the Officer were achieved.
g. Pay to the Officer an amount equal to the present value of any
benefit accrued under the Whitney National Bank Retirement Plan,
or any successor thereto, that would have been payable under the
terms of such plan, including any additional accrual provided
under Section 2.1e hereto, but was forfeited on account of the
application of the vesting provisions contained in such plan.
2.2 Special Rules Governing Group Benefits. Coverage under Section
2.1c, hereof, shall (a) commence as of the later of the date of Termination or
the occurrence of a Change in Control, and (b) end as of the earlier of the
Officer's coverage under Medicare Part B or the date on which the Officer is
covered under group plans providing substantially similar benefits maintained by
another employer. For this purpose, the Company shall provide coverage during
any period in which the payment of benefits is limited by any form of
pre-existing condition clause.
Coverage under Section 2.1c, hereof, may be provided under a
group policy or program maintained by the Company, or the Company, in its sole
discretion, may acquire or adopt an individual plan, policy or program providing
coverage solely for the benefit of the Officer, his spouse, and his dependents,
if any.
If coverage commences as of a Change in Control, the Company
shall (a) retroactively reinstate the Officer, his spouse, and dependents, if
any, as of the date of Termination, and (b) reimburse to the Officer his cost of
obtaining similar coverage for the period commencing on the date of Termination
and ending on the occurrence of a Change in Control. As to medical claims
incurred during such period, any coverage actually obtained by the Officer shall
be designated as the Officer's primary coverage, and the reinstated coverage
shall operate as secondary coverage.
2.3 Other Plans and Agreements. To the maximum extent permitted by law
and not withstanding any provision to the contrary contained in any plan, grant,
program, contract or other arrangement under which the Officer and the Employer
are parties, if the Officer's employment is Terminated during the Covered
Period, then any vesting schedule or other restriction on the ownership of any
benefits payable to the Officer under the terms of any such plan, grant,
contract, or arrangement shall be accelerated or lapse, as the case may be.
Notwithstanding any provision to the contrary contained in any
plan, grant, program, contract, or arrangement under which the Officer and the
Employer are parties, in the event the Officer has elected to defer the payment
of any benefit under any such plan, grant, contract, or arrangement, the payment
of such benefit shall be accelerated and paid to the Officer in the form of a
single-sum no later than 30 days after the Officer's Termination during the
Covered Period.
2.4 Taxes. The Officer shall be responsible for applicable income tax
and the Company shall have the right to withhold from any payment made under
this Agreement, or to collect as a condition of any payment, any income taxes
required by law to be withheld.
Notwithstanding the preceding paragraph, the Company shall pay
any excise tax or similar penalty imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") or any comparable successor
provision, on the Officer as a consequence of any "excess parachute payment"
within the meaning of Section 280G of the Code (or a comparable successor
provision) payable under this Agreement or any plan, grant, program, contract or
other arrangement under which the Officer and the Employer are parties.
The Officer shall submit to the Company the calculation of the
amount to be paid by the Company under this Section 2.4, together with
supporting documentation. If the Officer and the Company disagree as to such
amount, an independent public accounting firm agreed upon by the Officer and the
Company shall make such determination.
79
SECTION III
-----------
MISCELLANEOUS
-------------
3.1 Notices. Notices and other communication required under this
Agreement shall be made to the Company at 228 St. Charles Avenue, New Orleans,
Louisiana 70130 and to the Officer at 228 St. Charles Avenue, New Orleans,
Louisiana 70130 or, as to each party, at such other address as may be designated
by written notice to the other. All such notices and communications shall be
effective when deposited in the United States mail, postage prepaid, or
delivered to the affected party.
3.2 Employment Rights. The terms of this Agreement shall not be deemed
to confer on the Officer any right to continue in the employ of the Employer for
any period or any right to continue his present or any other rate of
compensation.
3.3 Assignment. The Officer shall not sell, assign, pledge, transfer
or otherwise convey the right to receive any form of payment or benefit provided
under the Agreement, except by will or the laws of intestacy.
3.4 Inurement. This Agreement shall be binding upon and inure to the
benefit of the Holding Corporation, the Bank and the Officer and their
respective heirs, executors, administrators, successors and assigns.
3.5 Payment of Expenses. In the event that it is necessary or
desirable for the Officer to retain legal counsel and/or incur other cost and
expenses in connection with the enforcement of the terms of the Agreement, the
Company shall pay (or the Officer shall be entitled to reimbursement of)
reasonable attorneys' fees, costs, and expenses actually incurred, without
regard to the final outcome, unless there is no reasonable basis for the
Officer's action.
3.6 Amendment and Termination. This Agreement shall not be amended or
terminated by any act of the Company, except as may be expressly agreed upon, in
writing, by the Company and the Officer.
3.7 Nature of Obligation. The Company intends that its obligations
hereunder be construed in the nature of severance pay. The Company's obligations
under Section 2 are absolute and unconditional and shall not be affected by any
circumstance, including. without limitation, any right of offset, counterclaim,
recoupment, defense, or other right which the Company may have against the
Officer or others. All amounts payable by the Company hereunder shall be paid
without notice or demand.
3.8 Choice of Law. The Agreement shall be governed and construed
in accordance with the laws of the State of Louisiana.
3.9 No Effect on Other Benefits. Any other compensation paid or
benefits provided to the Officer shall be in addition to and not in lieu of the
benefits provided to such Officer under this Agreement. Except as may be
expressly provided herein, nothing in this Agreement shall be construed as
limiting, varying or reducing the provision of any benefit available to the
Officer (or to such Officer's estate or other beneficiary) pursuant to any
employment agreement, group plan, including any qualified pension or
profit-sharing plan, health, disability or life insurance plan, or any other
form of agreement or arrangement between the Company and the Officer.
3.10 Entire Agreement. This Agreement constitutes the entire agreement
between the Officer and the Holding Corporation and the Bank and is intended to
supersede all prior written or oral understandings with respect to the subject
matter of this Agreement.
3.11 Invalidity. In the event that any one or more provisions of this
Agreement shall, for any reason, be held invalid, illegal or unenforceable in
any manner, such invalidity, illegality or unenforceability shall not affect any
other provision of such Agreement.
80
3.12 Mitigation. Notwithstanding any provision of this Agreement to the
contrary and to the maximum extent permitted by law, the Officer shall not be
subject to any duty to mitigate the severance awards received hereunder by
seeking other employment. No severance award received under this Agreement shall
be offset by any compensation the Officer receives from future employment, and
the Officer shall not be required to perform any service as a condition of this
Agreement.
EXECUTED in multiple counterparts as of the dates set forth below, each
of which shall be deemed as original, and effective as of the date first set
forth above.
Officer WHITNEY HOLDING CORPORATION
WHITNEY NATIONAL BANK
- ------------------------------
By:
------------------------------
Date:
------------------------- Title:
---------------------------
Date:
----------------------------
81
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-3 (No. 33-52999, No. 33-55307, No. 333-56277, No.
333-75676 and No. 333-112501) of Whitney Holding Corporation and the
Registrations Statements on Form S-8 (No. 333-56024, as amended, No. 333-68506,
No. 333-30257, No. 333-87050 and No. 333-91358) of Whitney Holding Corporation
of our report dated January 21, 2004 relating to the financial statements, which
appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
March 15, 2004
82
Exhibit 23.2
NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP
-----------------------------------------------
Section 11(a) of the Securities Act of 1933, as amended (the Securities
Act), provides that if part of a registration statement at the time it becomes
effective contains an untrue statement of a material fact, or omits a material
fact required to be stated therein or necessary to make the statements therein
not misleading, any person acquiring a security pursuant to such registration
statement (unless it is proved that at the time of such acquisition such person
knew of such untruth or omission) may assert a claim against, among others,
every accountant who has consented to be named as having prepared or certified
any report or valuation which is used in connection with the registration
statement, report of valuation which purports to have been prepared or certified
by the accountant.
The Annual Report on Form 10-K for the year ended December 31, 2003
(the Form 10-K) to which this notice is filed as an exhibit is incorporated by
reference into the following registration statements (collectively, the
Registration Statements) filed by Whitney Holding Corporation (the Company) with
the Securities and Exchange Commission (the SEC), and, for purposes of
determining any liability under the Securities Act, is deemed to be a new
registration statement for each Registration Statement into which it is
incorporated by reference:
Form S-3 No. 33-52999 (dated April 6, 1994)
Form S-3 No. 33-55307 (dated August 31, 1994)
Form S-3 No. 33-56277 (dated November 1, 1994)
Form S-3 MEF No. 333-75676 (dated December 21, 2001)
Form S-3 No. 333-112501 (dated February 5, 2004)
Form S-8 No. 333-56024, as amended (dated December 18, 1992)
Form S-8 No. 333-68506 (dated September 8, 1993)
Form S-8 No. 333-30257 (dated June 27, 1997)
Form S-8 No. 333-87050 (dated April 26, 2002)
Form S-8 No. 333-91358 (dated June 27, 2002)
On May 22, 2002, Whitney Holding Corporation decided not to continue
the engagement of Arthur Andersen LLP (Andersen) as the Company's independent
accountants. This action was taken with the approval of Whitney's Board of
Directors, which ratified the decision reached by its Audit Committee. For
additional information see the Company's Current Report on Form 8-K filed with
the SEC on May 23, 2002. The Company understands that the staff of the SEC has
taken the position that it will not accept consents from Andersen if the
engagement partner and the manager for the Company's audit are no longer with
Andersen. Both the engagement partner and the manager for the Company's audit
are no longer with Andersen. As a result, the Company has been unable to obtain
Andersen's written consent to the incorporation by reference into the
Registration Statements of Andersen's audit report with respect to the Company's
consolidated financial statements as of December 31, 2001 and for the year then
ended. Under these circumstances, Rule 437a under the Securities Act permits the
Company to file this Form 10-K without a written consent from Andersen. As a
result, however, Andersen will not have any liability under Section 11(a) of the
Securities Act for any untrue statements of a material fact contained in the
financial statements audited by Andersen or any omissions of a material fact
required to be stated therein. Accordingly, purchasers of the Company's
securities would be unable to assert a claim against Andersen under Section
11(a) of the Securities Act for any purchases of the Company's securities made
on or after the date of this Form 10-K pursuant to the Registration Statements.
To the extent provided in Section 11(b)(3)(C) of the Securities Act, however,
other persons who are liable under Section 11(a) of the Securities Act,
including the Company's officers and directors, may still rely on Andersen's
original audit reports as being made by an expert for purposes of establishing a
due diligence defense under Section 11(b) of the Securities Act.
83
Exhibit 31.1
CERTIFICATION
-------------
I, William L. Marks, certify that:
1. I have reviewed this annual report on Form 10-K for the year ended
December 31, 2003 of Whitney Holding Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing
the equivalent functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 15, 2004
-------------------
/s/ William L. Marks
----------------------------
William L. Marks
Chief Executive Officer
84
Exhibit 31.2
CERTIFICATION
-------------
I, Thomas L. Callicutt, Jr., certify that:
1. I have reviewed this annual report on Form 10-K for the year ended
December 31, 2003 of Whitney Holding Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing
the equivalent functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 15, 2004
-------------------
/s/ Thomas L. Callicutt, Jr.
----------------------------
Thomas L. Callicutt, Jr.
Chief Financial Officer
85
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned officers of Whitney Holding Corporation (the
"Company"), in the capacities and on the dates indicated below, hereby certify
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,
(1) the Company's Annual Report on Form 10-K for the period ended
December 31, 2003 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Dated: March 15, 2004 By: /s/ William L. Marks
--------------------- -----------------------------------
William L. Marks
Chief Executive Officer
Dated: March 15, 2004 By: /s/ Thomas L. Callicutt, Jr.
--------------------- -----------------------------------
Thomas L. Callicutt, Jr.
Chief Financial Officer
86