UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005 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)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at April 30, 2005
------- ------------------------------
Common Stock, no par value 41,938,377
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WHITNEY HOLDING CORPORATION
TABLE OF CONTENTS
Page
PART I. Financial Information
Item 1: Financial Statements:
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Changes in
Shareholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Selected Financial Data 12
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3: Quantitative and Qualitative Disclosures about
Market Risk 30
Item 4: Controls and Procedures 30
PART II. Other Information
Item 1: Legal Proceedings 31
Item 2: Unregistered Sales of Equity Securities and Use
of Proceeds 31
Item 3: Defaults upon Senior Securities 31
Item 4: Submission of Matters to a Vote of Security Holders 31
Item 5: Other Information 31
Item 6: Exhibits 31
Signature 32
Exhibit Index 33
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PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
------------------------------------------------------------------------------------------------------------------
March 31 December 31
(dollars in thousands) 2005 2004
------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from financial institutions $ 244,610 $ 213,751
Federal funds sold and short-term investments 7,989 22,424
Loans held for sale 14,842 8,796
Investment securities
Securities available for sale 1,767,017 1,763,774
Securities held to maturity, fair values of $229,362 and $232,225, respectively 228,524 227,470
------------------------------------------------------------------------------------------------------------------
Total investment securities 1,995,541 1,991,244
Loans, net of unearned income 5,642,031 5,626,276
Allowance for loan losses (53,920) (54,345)
------------------------------------------------------------------------------------------------------------------
Net loans 5,588,111 5,571,931
------------------------------------------------------------------------------------------------------------------
Bank premises and equipment 156,186 156,602
Goodwill 115,771 115,771
Other intangible assets 22,612 24,240
Accrued interest receivable 30,762 28,985
Other assets 99,525 88,880
------------------------------------------------------------------------------------------------------------------
Total assets $8,275,949 $8,222,624
------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing demand deposits $2,165,751 $2,111,703
Interest-bearing deposits 4,555,335 4,500,904
------------------------------------------------------------------------------------------------------------------
Total deposits 6,721,086 6,612,607
------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 561,930 634,259
Accrued interest payable 5,708 5,032
Accrued expenses and other liabilities 117,850 65,961
------------------------------------------------------------------------------------------------------------------
Total liabilities 7,406,574 7,317,859
------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized - 100,000,000 shares
Issued - 42,230,143 and 42,108,932 shares, respectively 2,800 2,800
Capital surplus 256,582 250,793
Retained earnings 712,518 697,977
Accumulated other comprehensive income (loss) (18,834) (2,963)
Treasury stock at cost - 1,616,547 and 707,878 shares, respectively (72,079) (31,475)
Unearned restricted stock compensation (11,612) (12,367)
------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 869,375 904,765
------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $8,275,949 $8,222,624
------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
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WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2005 2004
------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $81,741 $63,011
Interest and dividends on investment securities
Taxable securities 17,808 21,087
Tax-exempt securities 2,541 2,412
Interest on federal funds sold and short-term investments 99 30
------------------------------------------------------------------------------------------------------------------
Total interest income 102,189 86,540
------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 10,708 7,970
Interest on short-term and other borrowings 3,062 1,380
------------------------------------------------------------------------------------------------------------------
Total interest expense 13,770 9,350
------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 88,419 77,190
PROVISION FOR LOAN LOSSES 1,500 (2,000)
------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 86,919 79,190
------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 8,040 9,316
Bank card fees 2,660 2,336
Trust service fees 2,356 2,189
Secondary mortgage market operations 956 1,286
Other noninterest income 7,379 5,780
Securities transactions - -
------------------------------------------------------------------------------------------------------------------
Total noninterest income 21,391 20,907
------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Employee compensation 30,921 28,552
Employee benefits 8,290 7,513
------------------------------------------------------------------------------------------------------------------
Total personnel 39,211 36,065
Net occupancy 5,187 4,784
Equipment and data processing 4,274 4,378
Telecommunication and postage 2,062 2,229
Corporate value and franchise taxes 1,954 1,863
Legal and other professional services 1,551 1,011
Amortization of intangibles 1,629 1,289
Other noninterest expense 10,393 10,407
------------------------------------------------------------------------------------------------------------------
Total noninterest expense 66,261 62,026
------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 42,049 38,071
INCOME TAX EXPENSE 13,293 11,913
------------------------------------------------------------------------------------------------------------------
NET INCOME $28,756 $26,158
------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $ .71 $ .65
Diluted .70 .64
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic 40,378,578 40,191,444
Diluted 41,064,134 40,861,274
CASH DIVIDENDS PER SHARE $ .35 $ .33
------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
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WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
-----------------------------------------------------------------------------------------------------------------------
Accumulated Unearned
Other Restricted
(dollars in thousands, Common Capital Retained Comprehensive Treasury Stock
except per share data) Stock Surplus Earnings Income (Loss) Stock Compensation Total
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 $2,800 $183,624 $656,195 $ 8,438 $(30) $(10,714) $840,313
-----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 26,158 - - - 26,158
Other comprehensive income:
Unrealized net holding gain on
securities, net of reclassification
adjustments and taxes - - - 11,991 - - 11,991
-----------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 26,158 11,991 - - 38,149
-----------------------------------------------------------------------------------------------------------------------
Cash dividends, $.33 per share - - (13,393) - - - (13,393)
Stock issued to dividend reinvestment
plan - 483 - - 30 - 513
Long-term incentive plan stock activity:
Restricted grants and related activity - 2,337 - - - (32) 2,305
Options exercised - 3,602 - - - - 3,602
Directors' compensation plan
stock activity - 302 - - - - 302
-----------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2004 $2,800 $190,348 $668,960 $20,429 $ - $(10,746) $871,791
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2004 $2,800 $250,793 $697,977 $ (2,963) $(31,475) $(12,367) $904,765
-----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 28,756 - - - 28,756
Other comprehensive loss:
Unrealized net holding loss on
securities, net of reclassification
adjustments and taxes - - - (15,871) - - (15,871)
-----------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 28,756 (15,871) - - 12,885
-----------------------------------------------------------------------------------------------------------------------
Cash dividends, $.35 per share - - (14,215) - - - (14,215)
Stock acquired under repurchase program - - - - (42,094) - (42,094)
Stock issued to dividend reinvestment
plan - (2) - - 584 - 582
Long-term incentive plan stock activity:
Restricted grants and related activity - 1,827 - - - 755 2,582
Options exercised - 3,863 - - 830 - 4,693
Directors' compensation plan
stock activity - 101 - - 76 - 177
-----------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2005 $2,800 $256,582 $712,518 $(18,834) $(72,079) $(11,612) $869,375
-----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
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WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
-------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
-------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2005 2004
-------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 28,756 $ 26,158
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment 3,285 3,312
Amortization of purchased intangibles 1,629 1,289
Restricted stock compensation earned 2,527 2,260
Premium amortization (discount accretion) on securities, net 748 1,011
Provision for losses on loans and foreclosed assets 1,567 (1,978)
Net gains on asset sales (680) (218)
Deferred tax expense (benefit) (351) 176
Net increase in loans originated and held for sale (6,046) (994)
Net increase in accrued interest receivable and prepaid expenses (3,250) (1,436)
Net increase in accrued interest payable and accrued expenses 7,427 9,401
Other, net (643) (681)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 34,969 38,300
-------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for sale 96,475 162,158
Purchases of investment securities available for sale (74,860) (161,636)
Proceeds from maturities of investment securities held to maturity 3,910 2,510
Purchases of investment securities held to maturity (5,885) (23,216)
Net increase in loans (17,874) (101,936)
Net (increase) decrease in federal funds sold and short-term investments 14,435 (86,322)
Proceeds from sales of foreclosed assets and surplus property 1,794 2,045
Purchases of bank premises and equipment (2,986) (2,816)
Other, net 125 (718)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 15,134 (209,931)
-------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in transaction account and savings account deposits (4,469) 38,719
Net increase in time deposits 113,051 101,089
Net increase (decrease) in short-term and other borrowings (72,303) 5,953
Proceeds from issuance of common stock 4,712 3,883
Purchases of common stock (45,778) -
Cash dividends (14,457) (13,346)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (19,244) 136,298
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 30,859 (35,333)
Cash and cash equivalents at beginning of period 213,751 270,387
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $244,610 $235,054
-------------------------------------------------------------------------------------------------------------------
Cash received during the period for:
Interest income $100,140 $85,989
Cash paid during the period for:
Interest expense $13,223 $9,530
Income taxes 2,915 -
Noncash investing activities:
Foreclosed assets received in settlement of loans $1,216 $1,079
-------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
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WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Whitney
Holding Corporation and its subsidiaries (the Company or Whitney). All
significant intercompany balances and transactions have been eliminated. Certain
financial information for prior periods has been reclassified to conform to the
current presentation.
In preparing the consolidated financial statements, the Company is
required to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates. The consolidated financial statements reflect
all adjustments which are, in the opinion of management, necessary for a fair
statement of the financial condition, results of operations, changes in
shareholders' equity and cash flows for the interim periods presented. These
adjustments are of a normal recurring nature and include appropriate estimated
provisions.
Pursuant to rules and regulations of the Securities and Exchange
Commission (SEC), certain financial information and disclosures have been
condensed or omitted in preparing the consolidated financial statements
presented in this quarterly report on Form 10-Q. These financial statements
should be read in conjunction with the Company's 2004 annual report on Form
10-K. Financial information reported in these financial statements is not
necessarily indicative of the financial condition, results of operations or cash
flows of any other interim or annual periods.
NOTE 2
MERGERS AND ACQUISITIONS
On April 22, 2005, Whitney completed its acquisition of Destin
Bancshares, Inc. (Destin). Destin's major subsidiary was Destin Bank which
operated ten banking centers in the Destin, Fort Walton Beach and Pensacola
areas of the Florida panhandle, with approximately $540 million in total assets,
including $390 million in loans, and $440 million in deposits. Destin Bank was
merged into Whitney National Bank (the Bank) on the same date. The transaction
was valued at approximately $115 million, with approximately $58 million paid to
Destin shareholders in cash and the remainder in Whitney stock totaling 1.3
million shares. Whitney's financial statements for the second quarter of 2005
will include the results from these acquired operations since the acquisition
date. The purchase price allocation for this transaction has not yet been
completed.
In August 2004, Whitney acquired Madison BancShares, Inc. (Madison) and
its subsidiary, Madison Bank. Madison Bank was merged immediately into Whitney
National Bank. Madison shareholders received 1.0 million Whitney shares and cash
totaling $23 million, for a total transaction value of approximately $65
million. At acquisition, Madison Bank reported $219 million in assets, including
$189 million in loans, and $177 million in deposits at four banking locations in
the Tampa Bay, Florida metropolitan area. Applying purchase accounting to this
transaction, the Company recorded $51 million in intangible assets, with $4
million assigned to the value of deposit relationships with an estimated
weighted-average life of approximately 3.5 years and the remaining $46 million
to goodwill. Whitney's financial statements include the results from these
acquired operations since the acquisition date.
In June 2004, the Bank assumed approximately $24 million in deposits and acquired certain assets from the First National Bank Northwest Florida. The deposits and assets were associated with two First National locations in Fort Walton Beach, Florida. Whitney recognized an intangible asset for the value of the deposit relationships acquired of $2.1 million that will be amortized over an estimated life of 8 years. No loans or other noncash financial assets were exchanged in this transaction.
NOTE 3
OTHER ASSETS AND OTHER LIABILITIES
The more significant components of other assets and other liabilities
at March 31, 2005 and December 31, 2004 were as follows:
Other Assets
----------------------------------------------------------------------------------------------------------
March 31 December 31
(in thousands) 2005 2004
----------------------------------------------------------------------------------------------------------
Net deferred income tax asset $40,686 $31,796
Low-income housing tax credit fund investments 19,935 20,578
Cash surrender value of life insurance 9,872 9,768
Prepaid expenses 8,241 4,872
Prepaid pension asset 170 1,865
Miscellaneous investments, receivables and other assets 20,621 20,001
----------------------------------------------------------------------------------------------------------
Total other assets $99,525 $88,880
----------------------------------------------------------------------------------------------------------
Other Liabilities
----------------------------------------------------------------------------------------------------------
March 31 December 31
(in thousands) 2005 2004
----------------------------------------------------------------------------------------------------------
Trade date securities payable $ 50,000 $ 4,583
Accrued taxes and expenses 28,415 22,959
Dividends payable 11,396 11,638
Obligation for postretirement benefits other than pensions 10,797 10,344
Miscellaneous payables, deferred income and other liabilities 17,242 16,437
----------------------------------------------------------------------------------------------------------
Total other liabilities $117,850 $65,961
----------------------------------------------------------------------------------------------------------
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NOTE 4
EMPLOYEE BENEFIT PLANS
Retirement Plans
Whitney has a noncontributory qualified defined benefit pension plan
covering substantially all of its employees, subject to minimum age and
service-related requirements. The Company made no contributions to the plan
during 2004 or the first quarter of 2005, and, based on currently available
information, does not anticipate making a contribution for the remainder of
2005. The components of net pension expense were as follows:
----------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
----------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
----------------------------------------------------------------------------------------------------------
Service cost for benefits during the period $1,809 $1,558
Interest cost on benefit obligation 1,766 1,616
Expected return on plan assets (2,060) (2,000)
Amortization of:
Unrecognized net actuarial (gains) losses 187 90
Unrecognized net implementation asset - -
Unrecognized prior service cost (27) (27)
----------------------------------------------------------------------------------------------------------
Net periodic benefit expense $1,675 $1,237
----------------------------------------------------------------------------------------------------------
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Whitney also has an unfunded nonqualified defined benefit pension plan that provides retirement benefits to designated executive officers. The net pension expense for nonqualified plan benefits was approximately $.2 million for the first quarters of both 2005 and 2004.
Health and Welfare Plans
Whitney maintains health care and life insurance benefit plans for
retirees and their eligible dependents. Participant contributions are required
under the health plan. The Company funds its obligations under these plans as
contractual payments come due to health care organizations and insurance
companies.
Whitney recognized a net periodic expense for postretirement benefits
of approximately $.6 million in the first quarter of 2005 and $.5 million in the
first quarter of 2004. None of the individual components of the net periodic
expense was individually significant for either period.
NOTE 5
STOCK-BASED COMPENSATION
Whitney maintains incentive compensation plans that incorporate
stock-based compensation. The plans for both employees and directors have been
approved by the Company's shareholders. No stock-based compensation awards were
made during the first quarter of 2005 or 2004.
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, as amended by SFAS No. 148, established a fair
value-based method of accounting for stock-based compensation. As allowed for in
SFAS No. 123, however, Whitney elected to continue to follow Accounting
Principles Board Opinion (APB) No. 25 and related interpretations to measure and
recognize stock-based incentive compensation expense. Under this Opinion, the
Company recognizes no compensation expense with respect to fixed awards of
stock options. Whitney has awarded options with an exercise price equal to the
stock's market price on the grant date. As such, these options had no intrinsic
value on the grant date, which was also the date compensation expense is
measured for such awards under the Opinion. The compensation expense recognized
under APB No.25 for the Company's restricted stock grants reflects their fair
value, but the timing of when fair value is determined and the method of
allocating expense over time differ in certain respects from what is required
under SFAS No. 123, as amended.
The following shows the effect on net income and earnings per share if
Whitney had applied the provisions of SFAS No. 123 to measure and to recognize
stock-based compensation expense for all awards.
-----------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
-----------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 2005 2004
-----------------------------------------------------------------------------------------------------------
Net income $28,756 $26,158
Stock-based compensation expense included in reported net income,
net of related tax effects 1,643 1,469
Stock-based compensation expense determined under fair value-based
method for all awards, net of related tax effects (1,328) (1,108)
-----------------------------------------------------------------------------------------------------------
Pro forma net income $29,071 $26,519
-----------------------------------------------------------------------------------------------------------
Earnings per share:
Basic - as reported $.71 $.65
Basic - pro forma .72 .66
Diluted - as reported .70 .64
Diluted - pro forma .71 .65
-----------------------------------------------------------------------------------------------------------
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The Financial Accounting Standards Board (FASB) replaced the guidance
in SFAS No. 123 with the issuance in December 2004 of SFAS No. 123 (revised
2004) (SFAS No. 123R), Share-Based Payment. Of greatest significance to Whitney,
the revised standard established the fair value-based method as the exclusive
method of accounting for stock-based compensation, with only limited exceptions,
and eliminated the ability to follow the guidance in APB No. 25. Under SFAS No.
123R, the grant-date fair value of equity instruments, including stock options,
awarded to employees determines the cost of the services received in exchange,
and the cost associated with awards that are expected to vest is recognized over
the required service period. The revised standard also clarifies and expands
existing guidance on measuring fair value, including considerations for
selecting and applying an option-pricing model, on classifying an award as
equity or a liability, and on attributing compensation cost to reporting
periods.
In accordance with a recent ruling by the SEC, Whitney must apply SFAS
No. 123R to all awards granted after December 31, 2005 and to awards modified,
repurchased, or cancelled after that date. The Company currently has no plans to
modify, repurchase or cancel existing awards. If there are outstanding awards
for which the required service period extends beyond December 31, 2005, Whitney
will recognize compensation cost after that date based on the grant-date fair
value of those awards as calculated for pro forma disclosure under the original
SFAS No. 123. As of March 31, 2005, all stock options awarded by the Company
were fully-exercisable and there were no continuing service requirements. The
service requirement for certain restricted stock awards does extend beyond
December 31, 2005, and the related compensation expense
recognized after that date will differ from what would have been recognized under APB No. 25. The extent of this difference cannot be determined at this time, but it is unlikely to be material. The impact of the revised standard on the accounting for future awards of stock-based compensation will depend on the timing and terms of those awards.
NOTE 6
CONTINGENCIES
The Company and its subsidiaries are parties to various legal
proceedings arising in the ordinary course of business. After reviewing pending
and threatened actions with legal counsel, management believes that the ultimate
resolution of these actions will not have a material effect on Whitney's
financial condition, results of operations or cash flows.
NOTE 7
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS AND DERIVATIVES
To meet the financing needs of its customers, the Bank issues financial
instruments which represent conditional obligations that are not recognized,
wholly or in part, in the consolidated balance sheets. These financial
instruments include commitments to extend credit under loan facilities and
guarantees under standby and other letters of credit. Such instruments expose
the Bank to varying degrees of credit and interest rate risk in much the same
way as funded loans.
Revolving loan commitments are issued primarily to support commercial
activities. The availability of funds under revolving loan commitments generally
depends on whether the borrower continues to meet credit standards established
in the underlying contract and has not violated other contractual conditions.
Many such commitments are used only partially or not at all before they expire.
Nonrevolving loan commitments are issued mainly to provide financing for the
acquisition and development or construction of real property, both commercial
and residential, although many are not expected to lead to permanent financing
by the Bank. Loan commitments generally have fixed expiration dates and may
require payment of a fee. Credit card and personal credit lines are generally
subject to cancellation if the borrower's credit quality deteriorates, and many
lines remain partly or wholly unused.
Substantially all of the letters of credit are standby agreements that
obligate the Bank to fulfill a customer's financial commitments to a third party
if the customer is unable to perform. The Bank issues standby letters of credit
primarily to provide credit enhancement to its customers' other commercial or
public financing arrangements and to help them demonstrate financial capacity to
vendors of essential goods and services. A substantial majority of standby
letters of credit outstanding at March 31, 2005 and December 31, 2004 have a
term of one year or less.
The Bank's exposure to credit losses from these financial instruments
is represented by their contractual amounts. The Bank follows its standard
credit policies in approving loan facilities and financial guarantees and
requires collateral support if warranted. The required collateral could include
cash instruments, marketable securities, accounts receivable, inventory,
property, plant and equipment, and income-producing commercial property.
A summary of off-balance-sheet financial instruments follows:
-----------------------------------------------------------------------------------------------------------------
March 31 December 31
(in thousands) 2005 2004
-----------------------------------------------------------------------------------------------------------------
Commitments to extend credit - revolving $1,811,724 $1,652,600
Commitments to extend credit - nonrevolving 455,214 415,173
Credit card and personal credit lines 454,089 437,386
Standby and other letters of credit 354,371 355,040
-----------------------------------------------------------------------------------------------------------------
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NOTE 8
EARNINGS PER SHARE
The components used to calculate basic and diluted earnings per share
were as follows:
-----------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
-----------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2005 2004
-----------------------------------------------------------------------------------------------------------------
Numerator:
Net income $28,756 $26,158
Effect of dilutive securities - -
-----------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $28,756 $26,158
-----------------------------------------------------------------------------------------------------------------
Denominator:
Weighted-average shares outstanding 40,378,578 40,191,444
Effect of potentially dilutive securities
and contingently issuable shares 685,556 669,830
-----------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 41,064,134 40,861,274
-----------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $.71 $.65
Diluted .70 .64
-----------------------------------------------------------------------------------------------------------------
Antidilutive stock options - -
-----------------------------------------------------------------------------------------------------------------
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NOTE 9
STOCK REPURCHASE PROGRAM
In October 2004, the Board of Directors authorized the Company to
repurchase up to 1.75 million shares of its common stock. As of March 31, 2005,
Whitney had repurchased 1.65 million shares at an average cost of $44.59 per
share under this program. The program extends through October 2005.
NOTE 10
SUSBSEQUENT EVENT - STOCK SPLIT
On April 27, 2005, the Board of Directors authorized a three-for-two
split of the Company's common stock to be paid in the form of a 50% stock
dividend on May 25, 2005 to shareholders of record on May 11, 2005. The
following presents pro forma earnings per share information assuming the split
was effective as of January 1, 2004.
-----------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
-----------------------------------------------------------------------------------------------------------------
2005 2004
-----------------------------------------------------------------------------------------------------------------
Pro forma earnings per share:
Basic $.47 $.43
Diluted .47 .43
-----------------------------------------------------------------------------------------------------------------
Pro forma weighted-average shares outstanding:
Basic 60,567,867 60,287,166
Diluted 61,596,201 61,291,911
-----------------------------------------------------------------------------------------------------------------
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NOTE 11
ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
Share-Based Payment. This statement replaces SFAS No. 123, Accounting for
Stock-Based Compensation. Information about the more significant provisions of
SFAS No. 123R, including effective dates, and the expected impact on the
Company's financial results is presented in Note 5.
The Emerging Issues Task Force reached a consensus in March 2004 on a
model to be used to determine if the impairment of certain debt and equity
securities and cost method investments should be considered other than temporary
and an impairment loss recognized. The model was to be applied prospectively in
interim or annual reporting periods beginning after June 15, 2004. In September
2004, the FASB proposed additional implementation guidance and delayed the
effective date for applying the model until the proposed guidance is finalized.
The eventual impact of applying this model on Whitney's financial condition or
results of operations cannot be determined until the final guidance is released.
In December 2003, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 03-3 to address the accounting
for differences between contractual cash flows and expected cash flows from
loans or debt securities acquired in a transfer if those differences are
attributable, at least in part, to credit quality. This SOP prohibits the
"carrying over" or creation of valuation allowances in the initial accounting
for all acquired loans that are within its scope. It also specifies how these
differences impact the yield subsequently recognized on these loans. SOP 03-3 is
effective for loans acquired in fiscal years beginning after December 31, 2004
and does not change the accounting for loans previously acquired.
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Unaudited)
-------------------------------------------------------------------------------------------------------------------------------
2005 2004
-------------- ---------------------------------------------------------------
(dollars in thousands, except per share data) First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter
-------------------------------------------------------------------------------------------------------------------------------
QUARTER-END BALANCE SHEET DATA
Total assets $8,275,949 $8,222,624 $8,072,040 $7,789,126 $7,855,897
Earning assets 7,660,403 7,648,740 7,463,380 7,221,846 7,333,849
Loans 5,642,031 5,626,276 5,380,023 5,139,549 4,984,165
Investment securities 1,995,541 1,991,244 2,042,615 2,063,826 2,232,674
Deposits 6,721,086 6,612,607 6,490,808 6,340,782 6,298,390
Shareholders' equity 869,375 904,765 919,999 842,724 871,791
-------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $8,225,375 $8,170,990 $7,882,497 $7,782,108 $7,722,135
Earning assets 7,597,501 7,568,194 7,309,316 7,253,932 7,175,034
Loans 5,591,349 5,506,923 5,231,828 5,069,304 4,906,710
Investment securities 1,979,796 2,036,438 2,052,769 2,149,211 2,245,626
Deposits 6,593,001 6,577,154 6,440,765 6,248,685 6,119,857
Shareholders' equity 887,059 925,176 882,744 862,016 855,476
-------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Interest income $102,189 $98,095 $90,472 $85,665 $86,540
Interest expense 13,770 11,740 10,286 9,306 9,350
Net interest income 88,419 86,355 80,186 76,359 77,190
Net interest income (TE) 89,933 87,972 81,725 77,869 78,671
Provision for loan losses 1,500 2,000 - 2,000 (2,000)
Noninterest income 21,391 20,172 20,053 21,391 20,907
Net securities gains (losses) in noninterest
income - - 68 - -
Noninterest expense 66,261 65,719 68,261 64,272 62,026
Net income 28,756 26,998 22,078 21,903 26,158
-------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.42% 1.31% 1.11% 1.13% 1.36%
Return on average shareholders' equity 13.15 11.61 9.95 10.22 12.30
Net interest margin (TE) 4.78 4.63 4.46 4.31 4.40
Average loans to average deposits 84.81 83.73 81.23 81.13 80.18
Efficiency ratio 59.52 60.77 67.11 64.75 62.29
Allowance for loan losses to loans .96 .97 1.02 1.10 1.16
Nonperforming assets to loans plus foreclosed
assets and surplus property .43 .46 .53 .68 .56
Annualized net charge-offs (recoveries) to average
loans .14 .16 .33 .25 (.01)
Average shareholders' equity to average assets 10.78 11.32 11.20 11.08 11.08
Shareholders' equity to total assets 10.50 11.00 11.40 10.82 11.10
Leverage ratio 9.27 9.56 10.05 10.03 9.96
-------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
Earnings Per Share
Basic $.71 $.65 $.54 $.54 $.65
Diluted .70 .64 .53 .53 .64
Dividends
Cash dividends per share $.35 $.35 $.33 $.33 $.33
Dividend payout ratio 49.43% 54.24% 62.74% 61.48% 51.20%
Book Value Per Share $21.41 $21.85 $21.92 $20.65 $21.48
Trading Data
High sales price $46.63 $46.24 $45.18 $44.79 $44.00
Low sales price 42.66 41.21 39.90 39.52 39.72
End-of-period closing price 44.51 44.99 42.00 44.67 41.74
Trading volume 6,275,063 6,795,612 4,828,742 3,328,548 3,488,599
Average Shares Outstanding
Basic 40,378,578 41,516,835 40,969,394 40,304,997 40,191,444
Diluted 41,064,134 42,153,707 41,551,024 40,978,580 40,861,274
-------------------------------------------------------------------------------------------------------------------------------
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.
|
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to focus on significant
changes in the financial condition of Whitney Holding Corporation and its
subsidiaries (the Company or Whitney) from December 31, 2004 to March 31, 2005
and on their results of operations during the first quarters of 2005 and 2004.
Nearly all of the Company's operations are contained in its banking subsidiary,
Whitney National Bank (the Bank). This discussion and analysis is intended to
highlight and supplement information presented elsewhere in this quarterly
report on Form 10-Q, particularly the consolidated financial statements and
related notes in Item 1. This discussion and analysis should be read in
conjunction with the Company's 2004 annual report on Form 10-K.
Certain financial information for prior periods has been reclassified
to conform to the current presentation.
FORWARD-LOOKING STATEMENTS
This discussion contains "forward-looking statements" within the
meaning of section 27A of the Securities Act of 1933, as amended, and section
21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements provide projections of results of operations or of financial
condition or state other forward-looking information, such as expectations about
future conditions and descriptions of future plans and strategies.
Forward-looking statements often contain words such as "anticipate," "believe,"
"estimate," "expect," "forecast," "goal," "intend," "plan," "project" or other
words of similar meaning.
The forward-looking statements made in this discussion include, but may
not be limited to, (a) comments about conditions impacting certain sectors of
the loan portfolio; (b) information about changes in the duration of the
investment portfolio with changes in market rates, (c) comments about future
level of funds available in the customer deposit base, (d) statements of the
results of net interest income simulations run by the Company to measure
interest rate sensitivity, (e) discussion of the performance of Whitney's net
interest income, net interest margin, yields on the loan and investment
portfolios, and deposit rates assuming certain conditions, (f) projections of
possible future levels of income from secondary mortgage market operations, and
(g) comments on expected changes or trends in expense levels for retirement
benefits, equipment and data processing, and amortization of intangibles.
Whitney's ability to accurately project results or predict the effects
of future plans or strategies is inherently limited. Although Whitney believes
that the expectations reflected in forward-looking statements are based on
reasonable assumptions, actual results and performance could differ materially
from those set forth in the forward-looking statement. Factors that could cause
actual results to differ from those expressed in the Company's forward-looking
statements include, but are not limited to:
o Changes in economic and business conditions, including those caused
by natural disasters or by acts of war or terrorism, that directly
or indirectly affect the financial health of Whitney's customer
base.
o Changes in interest rates that affect the pricing of Whitney's
financial products, the demand for its financial services and the
valuation of its financial assets and liabilities.
o Changes in laws and regulations that significantly affect the
activities of the banking industry and the industry's competitive
position relative to other financial service providers.
o Technological changes affecting the nature or delivery of financial
products or services and the cost of providing them.
o The failure to capitalize on growth opportunities and realized cost
savings in connection with business acquisitions.
o Management's inability to develop and execute plans for Whitney
to effectively respond to unexpected changes.
Whitney does not intend, and undertakes no obligation, to update or
revise any forward-looking statements, whether as a result of differences in
actual results, changes in assumptions or changes in other factors affecting
such statements.
OVERVIEW
Whitney earned $28.8 million for the quarter ended March 31, 2005, a
10% increase compared to net income of $26.2 million reported for the first
quarter of 2004. Per share earnings were $.71 per basic share and $.70 per
diluted share in 2005's first quarter, up 9% from per share earnings of $.65 and
$.64, respectively, in the year-earlier period. The results for the first
quarter of 2005 included a $1.0 million distribution ($.6 million after tax or
approximately $.02 per share) received on the acquisition of the PULSE
electronic payment network by Discover Financial Services.
Selected first quarter highlights follow:
o Average total loans for the quarter were up 14% compared to the
first quarter of 2004, although the rate of loan growth during the
first quarter of 2005 was tempered by seasonal repayments and
payoffs in connection with refinancing activity, among other
factors. A bank acquisition in August 2004 contributed
approximately 4% to the year-over-year growth in average loans.
Average investment securities decreased 12% from the first quarter
of 2004 to 2005's first quarter, with proceeds supporting loan
growth. Average earning assets for the quarter were up a net 6%
compared to the first quarter of 2004. The net growth in earning
assets compared to the first quarter of 2004 was mainly funded by
8% growth in average deposits, approximately 3% of which was
related to acquisitions in the second and third quarters of 2004.
o Whitney's net interest income (TE) for the first quarter of 2005
increased $11.3 million, or 14%, compared to the first quarter of
2004, driven by both the 6% increase in average earning assets and
a widening net interest margin. The net interest margin (TE) was
4.78% for the first quarter of 2005, up 38 basis points from the
year-earlier period, including a 5 basis point increase related to
interest recognized on a long-standing problem credit.
o Whitney provided $1.5 million for loan losses in the first quarter
of 2005. There had been a negative provision of $2 million in the
first quarter of 2004. Net-charge offs totaled $1.9 million in
2005's first quarter, or .14% of average loans on an annualized
basis. The first quarter of 2004 showed a small net recovery.
There was no significant change in Whitney's overall credit risk
posture during the first quarter of 2005.
o Noninterest income increased 2%, or $.5 million, from the first
quarter of 2004. In addition to the $1.0 million PULSE gain noted
earlier, the results for the first quarter of 2005 included $.8
million more in gains on sales and other revenue from foreclosed
assets compared to the first quarter of 2004. Revenue from service
charges on deposit accounts in 2005's first quarter was down 14%,
or $1.3 million, compared to the year-earlier period, partly
reflecting the impact of rising short-term market rates on the
earnings credit allowed against service charges certain business
deposit accounts.
o Noninterest expense increased 7%, or $4.2 million, from 2004's
first quarter, mainly reflecting the 9%, or $3.1 million, increase
in personnel expense. Employee compensation increased 8%, or $2.4
million, with approximately $.6 million related to the staff of
bank operations acquired in 2004 and $.6 million related to
management incentive programs, including the cost of stock-based
compensation. Higher costs of providing pension and retiree health
benefits accounted for most of the 10% increase in employee
benefits expense.
FINANCIAL CONDITION
LOANS, CREDIT RISK MANAGEMENT AND ALLOWANCE FOR LOAN LOSSES
Loan Portfolio Developments
Total loans increased $16 million, or less than 1%, from year-end 2004
to the end of 2005's first quarter, but were up 13%, or $658 million, from the
end of 2004's first quarter, including approximately $189 million from a bank
acquisition in August 2004. Table 1 shows loan balances by type of loan at March
31, 2005 and at the end of the four prior quarters.
TABLE 1. LOANS
---------------------------------------------------------------------------------------------------------------
2005 2004
---------------------------------------------- ----------------------------------------------------------------
(in thousands) March 31 December 31 September 30 June 30 March 31
---------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural $2,355,929 $2,399,794 $2,263,882 $2,276,942 $2,203,213
Real estate - commercial,
construction and other 2,273,158 2,209,975 2,104,184 1,882,044 1,821,445
Real estate -
residential mortgage 676,250 685,732 684,303 658,187 628,331
Individuals 336,694 330,775 327,654 322,376 331,176
---------------------------------------------------------------------------------------------------------------
Total loans $5,642,031 $5,626,276 $5,380,023 $5,139,549 $4,984,165
---------------------------------------------------------------------------------------------------------------
|
The portfolio of commercial loans, other than those secured by real property, decreased 2%, or $44 million, between year-end 2004 and March 31, 2005. This portfolio sector grew 7%, or $153 million, from the end of 2004's first quarter. The bank acquisition in 2004 had little impact on this portfolio segment. The rate of growth in the commercial portfolio during the first quarter of 2005 was tempered by seasonal reductions in credit demand for certain customers and by payoffs related to recapitalizations and other corporate financial restructurings, among other factors. Overall the portfolio has remained diversified, with customers in a range of industries, including oil and gas exploration and production, marine transportation, wholesale and retail trade in various durable and nondurable products and the manufacture of such products, financial
services, and professional services. Also included in the commercial loan
category are loans to individuals, generally secured by collateral other than
real estate, that are used to fund investments in new or expanded business
opportunities. There have been no major trends or changes in the concentration
mix of this portfolio category from year-end 2004.
Loans outstanding to oil and gas industry customers totaled $514
million, or approximately 9% of total loans at March 31, 2005, little changed
from year-end 2004 or the end of 2004's first quarter. The major portion of
Whitney's customer base in this industry provides transportation and other
services and products to support exploration and production activities. With
expectations of sustained higher commodity prices, Whitney has increased its
attention to lending opportunities in the exploration and production sector in
recent years.
Outstanding balances under participations in larger shared-credit loan
commitments totaled $347 million at the end of 2005's first quarter, including
approximately $111 million related to the oil and gas industry. Substantially
all such shared credits are with customers operating in Whitney's market area.
The commercial real estate portfolio includes loans for construction
and real estate development, both commercial and residential, loans secured by
multi-family residential properties, and loans secured by properties used in
commercial or industrial operations. This portfolio sector grew 3%, or $63
million, from December 31, 2004, and has increased 25%, or $452 million, since
the end of the first quarter of 2004, with approximately $145 million from loans
with acquired operations. Whitney has been able to develop new business in this
highly competitive sector throughout its market area, and the Company continues
to finance new projects for its established customer base. 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 and residential development, particularly in
the eastern Gulf Coast region. The future pace of new real estate projects will
reflect the level of confidence by developers in the sustainability of favorable
economic conditions. The level of portfolio growth achieved in a given period
will also be impacted by paydowns on and permanent takouts of seasoned projects.
The residential mortgage loan portfolio decreased by approximately 1%
from the end of 2004 to March 31, 2005. The total at the end of the first
quarter of 2005 was up 8%, or $48 million, from the end of 2004's first quarter.
Growth in the category has been associated mainly with the promotion of tailored
mortgage products that are held in the portfolio. Whitney continues to sell most
conventional residential mortgage loan production in the secondary market. A
bank acquisition accounted for most of the growth in this portfolio segment
between the second and third quarters of 2004 as shown in Table 1.
Credit Risk Management and Allowance for Loan Losses
Whitney manages credit risk mainly through adherence to underwriting
and loan administration standards established by its Credit Policy Committee and
through the efforts of the credit administration function to ensure consistent
application and monitoring of standards throughout the Company. Lending officers
are responsible for ongoing monitoring and the assignment of risk ratings to
individual loans based on established guidelines. An independent credit review
function reporting to the Audit Committee of the Board of Directors assesses the
accuracy of officer ratings and the timeliness of rating changes and performs
concurrent reviews of the underwriting processes.
Management's evaluation of credit risk in the loan portfolio is
ultimately reflected in the estimate of probable losses inherent in the
portfolio that is reported in the Company's financial statements as the
allowance for loan losses. Changes in this ongoing evaluation over time are
reflected in the provision for loan losses charged to expense. The methodology
for determining the allowance involves significant judgment, and important
factors that influence this judgment are re-evaluated quarterly to respond to
changing conditions.
The recorded allowance encompasses three elements: (1) allowances
established for losses on criticized loans; (2) allowances based on historical
loss experience for loans with acceptable credit quality and groups of
homogeneous loans not individually rated; and (3) allowances based on general
economic conditions and other qualitative risk factors internal and external to
the Company. The allowance for criticized loans includes any specific allowances
determined for loans deemed impaired under the definition in Statement of
Financial Accounting Standards No. 114. The allowance for the remainder of
criticized loans is calculated by applying loss factors to loan balances
aggregated by severity of the internal risk rating.
Consistent with stable credit quality and limited loan growth, none of
the elements of the recorded allowance changed significantly during the first
quarter of 2005, and the overall allowance determined as of quarter end was
slightly lower than the allowance at year-end 2004. Management's regular
quarterly reassessment of loss experience factors and the consideration of
general economic and other qualitative risk factors also had a minimal impact.
The total amount of loans criticized through the internal credit risk
classification process at March 31, 2005 was virtually unchanged from December
31, 2004. The total amount of loans whose full repayment is in doubt decreased
$2 million in the first quarter of 2005, to $13 million at quarter end.
Charge-offs and collections also led to a $2 million decrease in the total of
nonperforming loans from year-end 2004 to March 31, 2005, as shown in Table 2.
Nonperforming loans encompass substantially all loans separately evaluated for
impairment. Loans identified as having well-defined weaknesses that would likely
result in some loss if not corrected increased $2 million during the first
quarter of 2005, to a total of $88 million at quarter end. Loans warranting
special attention, but without a well-defined weakness, totaled $72 million at
the end of the current quarter, essentially unchanged from December 31, 2004.
Table 3 compares activity in the allowance for loan losses for the
first quarter of 2005 with the comparable period of 2004. There have been no
significant trends related to industries or markets underlying the Company's
charge-off and recovery activity or the changes in its nonperforming assets.
TABLE 2. NONPERFORMING ASSETS
------------------------------------------------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------- ---------------------------------------------------
March December September June March
(dollars in thousands) 31 31 30 30 31
------------------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $21,912 $23,597 $25,659 $32,560 $25,095
Restructured loans 36 49 61 74 98
------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 21,948 23,646 25,720 32,634 25,193
Foreclosed assets and surplus banking property 2,547 2,454 2,950 2,450 2,812
------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $24,495 $26,100 $28,670 $35,084 $28,005
------------------------------------------------------------------------------------------------------------------
Loans 90 days past due still accruing $1,559 $3,533 $4,814 2,986 $3,653
------------------------------------------------------------------------------------------------------------------
Ratios:
Nonperforming assets to loans plus
foreclosed assets and surplus property .43% .46% .53% .68% .56%
Allowance for loan losses to
nonperforming loans 245.67 229.83 212.33 172.97 228.65
Loans 90 days past due still accruing to loans .03 .06 .09 .06 .07
------------------------------------------------------------------------------------------------------------------
|
TABLE 3. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2005 2004
------------------------------------------------------------------------------------------------------------------
Balance at the beginning of period $54,345 $59,475
Provision for loan losses charged to operations 1,500 (2,000)
Loans charged to the allowance:
Commercial, financial and agricultural (2,775) (525)
Real estate - commercial, construction and other (57) (90)
Real estate - residential mortgage (154) (60)
Individuals (690) (721)
------------------------------------------------------------------------------------------------------------------
Total charge-offs (3,676) (1,396)
------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 1,092 1,082
Real estate - commercial, construction and other 142 36
Real estate - residential mortgage 113 68
Individuals 404 338
------------------------------------------------------------------------------------------------------------------
Total recoveries 1,751 1,524
------------------------------------------------------------------------------------------------------------------
Net (charge-offs) recoveries (1,925) 128
------------------------------------------------------------------------------------------------------------------
Balance at the end of period $53,920 $57,603
------------------------------------------------------------------------------------------------------------------
Ratios:
Annualized net charge-offs (recoveries) to average loans .14% (.01)%
Annualized gross charge-offs to average loans .26 .11
Recoveries to gross charge-offs 47.63 109.17
Allowance for loan losses to loans at period end .96 1.16
------------------------------------------------------------------------------------------------------------------
|
INVESTMENT SECURITIES
The investment securities portfolio balance remained steady at $2.0
billion between year-end 2004 and March 31, 2005. There was only moderate net
loan growth between these periods that was largely matched by growth in
deposits, and management reinvested proceeds from investment maturities and
repayments in the investment portfolio. Average investment securities decreased
12%, or $266 million, from the first quarter of 2004 to 2005's first quarter,
with proceeds supporting the higher rate of loan growth between these periods.
The composition of the average portfolio of investment securities and
effective yields are shown in Table 7. Over time, Whitney has increased the
proportion of both mortgage-backed securities and state and municipal
obligations in the portfolio. The duration of the portfolio was 3.3 years at
March 31, 2005 and would extend to 4.0 years assuming an immediate 300 basis
point increase in market rates, according to the Company's asset/liability
management model. Duration provides a measure of the sensitivity of the
portfolio's fair value to changes in interest rates.
Securities available for sale made up the bulk of the total investment
portfolio at March 31, 2005. There was a net unrealized loss of $29 million on
this portfolio segment at quarter end, compared to a net loss of $5 million at
year-end 2004. Gross losses totaled $33 million and were mainly related to
mortgage-backed securities and certain longer-maturity U. S. government agency
securities. The gross losses represented a little over 2% of the total amortized
cost for the underlying securities. Substantially all the unrealized losses at
March 31, 2005 resulted from increases in market interest rates over the yields
available at the time the underlying securities were purchased. Management
identified no value impairment related to credit quality in the portfolio. At
March 31, 2005, management had both the intent and ability to hold
value-impaired securities until full recovery of cost and no impairment was
evaluated as other than temporary.
The Company does not normally maintain a trading portfolio, other than
holding trading account securities for short periods while buying and selling
securities for customers. Such securities, if any, are included in other assets
in the consolidated balance sheets.
DEPOSITS AND BORROWINGS
Deposits at March 31, 2005 were up 2%, or $108 million, from the level
at year-end 2004. Compared to March 31, 2004, deposits were up 7%, or $423
million, with approximately 3% of this growth rate related to deposits at the
locations acquired in a bank acquisition and branch purchase in the third and
second quarters of 2004. The overall mix of deposits remained favorable in the
first quarter of 2005, although there was some movement among deposit categories
reflecting available liquidity in different segments of the deposit base and
management of the pricing structure for different products. Table 4 presents the
composition of deposits at March 31, 2005 and at the end of the previous four
quarters. The composition of average deposits and the effective yields on
interest-bearing deposits for the first quarter of 2005 and the first and fourth
quarters of 2004 are presented in Table 7.
TABLE 4. DEPOSIT COMPOSITION
----------------------------------------------------------------------------------------------------------------------
2005 2004
----------------------------------------------------------------------------------------------------------------------
March December September June March
(dollars in thousands) 31 31 30 30 31
----------------------------------------------------------------------------------------------------------------------
Noninterest-bearing
demand deposits $2,165,751 32% $2,111,703 32% $2,008,634 31% $1,952,420 31% $1,937,379 31%
Interest-bearing deposits:
NOW account deposits 861,389 13 901,859 14 818,677 13 823,298 13 860,650 14
Money market deposits 1,190,772 18 1,270,479 19 1,353,702 21 1,343,645 21 1,373,574 22
Savings deposits 771,547 11 709,887 11 691,402 11 644,783 10 620,087 10
Other time deposits 677,509 10 694,458 10 729,410 10 715,594 11 730,186 11
Time deposits
$100,000 and over 1,054,118 16 924,221 14 888,983 14 861,042 14 776,514 12
----------------------------------------------------------------------------------------------------------------------
Total interest bearing 4,555,335 68 4,500,904 68 4,482,174 69 4,388,362 69 4,361,011 69
----------------------------------------------------------------------------------------------------------------------
Total $6,721,086 100% $6,612,607 100% $6,490,808 100% $6,340,782 100% $6,298,390 100%
----------------------------------------------------------------------------------------------------------------------
|
Lower-cost deposits, which exclude time deposits, were stable between
year-end 2004 and the end of 2005's first quarter. Compared to the end of the
first quarter of 2004, lower-cost deposits were up 4%, or $198 million, with
noninterest-bearing demand deposits up 12%, or $228 million. Deposits in
lower-cost interest-bearing products were down approximately 1% compared to the
balance at March 31, 2004, which included an unexpected large deposit of $80
million that was held only briefly in a NOW account. Lower-cost deposits made up
close to three-quarters of total deposits at the end of each period, and
noninterest-bearing demand deposits were steady at close to one-third of total
deposits. The acquisitions in 2004 added approximately $100 million to
lower-cost deposits.
Higher-cost time deposits at March 31, 2005 were up 7%, or $113
million, compared to year-end 2004, and 15%, or $225 million, compared to March
31, 2004. The balance at March 31, 2005 included $70 million of short-term funds
deposited at quarter end from the proceeds of a customer's corporate
transaction. Acquired deposits contributed approximately $64 million to the
increase from the end of 2004's first quarter, including approximately $29
million of time deposits of $100,000 and over. Time deposits of $100,000 and
over include competitively bid public funds and excess funds of certain larger
commercial and private banking customers that are maintained in
treasury-management deposit products pending redeployment for corporate or
investment purposes. Whitney has attracted these funds partly as an alternative
to other short-term borrowings.
With additional short-term liquidity in the deposit base and moderate
loan growth for the period, Whitney reduced its short-term and other borrowings
in the first quarter by 11%, or $72 million, from year-end 2004.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
Shareholders' equity totaled $869 million at March 31, 2005, which was
a decrease of $35 million from the end of 2004. Whitney repurchased 942,122 of
its common shares during the first quarter of 2005 at a cost of approximately
$42 million. For the first quarter of 2005, the Company retained $15 million of
earnings, net of dividends declared, but this was offset by a $16 million
decrease in other comprehensive income representing an unrealized net holding
loss on securities available for sale during the period. Whitney recognized $7
million in additional equity during the first quarter of 2005 from activity in
stock-based compensation plans for employees and directors, including option
exercises. The Company declared a dividend for the first quarter of 2005 that
represents a payout totaling 49% of earnings for the period, compared to a 51%
payout ratio in 2004's first quarter and 57% for the full year in 2004.
The ratios in Table 5 indicate that the Company remained strongly
capitalized at March 31, 2005. The decrease in the various ratios from year-end
2004 mainly reflected the planned reduction in absolute capital levels through
the stock repurchase program. The increase in risk-weighted assets since
year-end 2004 resulted mainly from an increase in loans and 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. The
acquisition of Destin Bancshares, Inc. for cash and stock in April 2005 will
lower the Company's regulatory capital ratios over the near term compared to the
level at March 31, 2005, but all ratios are expected to remain well above
regulatory minimums.
TABLE 5. RISK-BASED CAPITAL AND CAPITAL RATIOS
--------------------------------------------------------------------------------------------
March 31 December 31
(dollars in thousands) 2005 2004
--------------------------------------------------------------------------------------------
Tier 1 regulatory capital $749,826 $767,717
Tier 2 regulatory capital 53,920 54,345
--------------------------------------------------------------------------------------------
Total regulatory capital $803,746 $822,062
--------------------------------------------------------------------------------------------
Risk-weighted assets $6,590,477 $6,527,821
--------------------------------------------------------------------------------------------
Ratios
Leverage (Tier 1 capital to average assets) 9.27% 9.56%
Tier 1 capital to risk-weighted assets 11.38 11.76
Total capital to risk-weighted assets 12.20 12.59
Shareholders' equity to total assets 10.50 11.00
--------------------------------------------------------------------------------------------
|
The regulatory capital ratios for the Bank exceed the minimum required ratios, and the Bank has been categorized as "well-capitalized" in the most recent notice received from its primary regulatory agency. The acquisition of Destin Bancshares will have limited impact on the Bank's regulatory capital ratios.
LIQUIDITY MANAGEMENT AND CONTRACTUAL OBLIGATIONS
Liquidity Management
The objective of liquidity management is to ensure that funds are
available to meet cash flow requirements of depositors and borrowers, while at
the same time meeting the operating, capital and strategic cash flow needs of
the Company and the Bank. Whitney develops its liquidity management strategies
and measures and monitors liquidity risk as part of its overall asset/liability
management process.
On the liability side, liquidity management focuses on growing the base
of core deposits at competitive rates, including the use of treasury-management
products for commercial customers, while at the same time ensuring access to
economical wholesale funding sources. The section above on "Deposits and
Borrowings" discusses changes in these liability funding sources in the first
quarter of 2005. Liquidity management on the asset side primarily addresses the
composition and maturity structure of the loan and investment securities
portfolios and their impact on the Company's ability to generate cash flows.
Cash generated from operations is another important source of funds to
meet liquidity needs. The consolidated statements of cash flows present
operating cash flows and summarize all significant sources and uses of funds for
the first quarters of 2005 and 2004.
Funds available from the Bank's customer deposit base helped support
increased loan production and overall growth in earning assets during 2004 and
into the first quarter of 2005. Management anticipates that some of this funds
availability will moderate with increased economic activity, renewed confidence
in the capital markets and rising market interest rates and has factored this
possibility into its liquidity projections and modeling parameters.
At March 31, 2005, Whitney Holding Corporation had approximately $118
million in cash and demand notes from the Bank available to provide liquidity
for acquisitions, dividend payments to shareholders, stock repurchases, or other
corporate uses, before consideration of any future dividends that may be
received from the Bank. In October 2004, the Board of Directors authorized the
Company to repurchase up to 1.75 million shares of its common stock over a
one-year period beginning October 27, 2004. Through March 31, 2005, 1.65 million
shares had been repurchased, leaving 100,000 shares authorized for repurchase.
On April 22, 2005, Whitney completed its acquisition of Destin Bancshares, Inc.
for stock and cash with a total value of approximately $115 million. The cash
component of the purchase price totaled approximately $58 million.
Contractual Obligations
Payments due from the Company and the Bank under specified long-term
and certain other binding contractual obligations were scheduled in Whitney's
annual report on 10-K for the year ended December 31, 2004. The most significant
obligations, other than obligations under deposit contracts and short-term
borrowings, were for operating leases for banking facilities. The Company and
the Bank have no significant long-term borrowings.
During the first quarter of 2005, the Bank entered into a contract to
outsource virtually all aspects of its ATM operations, including ownership of
the equipment. This contract allows Whitney to avoid significant costs to
upgrade its ATMs to comply with new regulatory mandates and is expected to be
the less expensive solution to compliance. The contract calls for annual
payments in excess of $3 million for a seven-year period, or a total of
approximately $24 million over the life of the contract. The contract is being
phased-in during 2005 and payments during the current year will be substantially
less than the scheduled annual outlay. Apart from this contract, there have been
no material changes in contractual obligations from year-end 2004 through the
end of 2005's first quarter.
OFF-BALANCE SHEET ARRANGEMENTS
As a normal part of it business, the Company enters into arrangements
that create financial obligations that are not recognized, wholly or in part, in
the consolidated financial statements. The most significant off-balance-sheet
obligations are the Bank's commitments under traditional credit-related
financial instruments. Table 6 schedules these commitments as of March 31, 2005
by the periods in which they expire. Commitments under credit card and personal
credit lines generally have no stated maturity.
TABLE 6. CREDIT-RELATED COMMITMENTS
----------------------------------------------------------------------------------------------------------------
(in thousands) Commitments expiring by period from March 31, 2005
----------------------------------------------------------------------------------------------------------------
Less than 1 - 3 3 - 5 More than
Total 1 year years years 5 years
----------------------------------------------------------------------------------------------------------------
Loan commitments - revolving $1,811,724 $1,365,479 $268,739 $176,851 $655
Loan commitments - nonrevolving 455,214 236,815 218,399 - -
Credit card and personal credit lines 454,089 454,089 - - -
Standby and other letters of credit 354,371 283,907 70,464 - -
----------------------------------------------------------------------------------------------------------------
Total $3,075,398 $2,340,290 $557,602 $176,851 $655
----------------------------------------------------------------------------------------------------------------
|
Revolving loan commitments are issued primarily to support commercial
activities. The availability of funds under revolving loan commitments generally
depends on whether the borrower continues to meet credit standards established
in the underlying contract and has not violated other contractual conditions.
Many such commitments are used only partially or not at all before they expire.
Credit card and personal credit lines are generally subject to cancellation if
the borrower's credit quality deteriorates, and many lines remain partly or
wholly unused. Unfunded balances on revolving loan commitments and credit lines
should not be used to project actual future liquidity requirements. Nonrevolving
loan commitments are issued mainly to provide financing for the acquisition and
development or construction of real property, both commercial and residential,
although many are not expected to lead to permanent financing by the Bank.
Expectations about the level of draws under all credit-related commitments are
incorporated into the Company's liquidity and asset/liability management models.
Substantially all of the letters of credit are standby agreements that
obligate the Bank to fulfill a customer's financial commitments to a third party
if the customer is unable to perform. The Bank issues standby letters of credit
primarily to provide credit enhancement to its customers' other commercial or
public financing arrangements and to help them demonstrate financial capacity to
vendors. The Bank has historically had minimal calls to perform under standby
agreements.
ASSET/LIABILITY MANAGEMENT
The objective of the Company's asset/liability management is to
implement strategies for the funding and deployment of its financial resources
that are expected to maximize soundness and profitability over time at
acceptable levels of risk.
Interest rate sensitivity is the potential impact of changing rate
environments on both net interest income and cash flows. The Company measures
interest rate sensitivity primarily by running net interest income simulations.
The net interest income simulations run at the end of 2005's first quarter
indicated that Whitney was moderately asset sensitive over the near term,
similar to its position at year-end 2004. Based on these simulations, annual net
interest income
(TE) would be expected to increase $14.5 million, or 3.8%, and decrease $21.3 million, or 5.6%, 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 2004 produced results that ranged from a positive impact on net interest income (TE) of $17.3 million, or 4.8%, to a negative impact of $25.6 million, or 7.1%. 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.
RESULTS OF OPERATIONS
NET INTEREST INCOME (TE)
Whitney's net interest income (TE) increased $11.3 million, or 14%, in
the first quarter of 2005 compared to the first quarter of 2004. Average earning
assets were 6% higher in the first quarter of 2005 and the net interest margin
(TE) widened 38 basis points to 4.78% from 4.40% in the first quarter of 2004.
The net interest margin (TE) is net interest income (TE) as a percent of average
earning assets. The most important factors behind the increase in net interest
income between these periods were loan growth and an improved mix of earning
assets, higher market interest rates, active management of the pricing structure
for both loans and deposits, continued liquidity in the deposit base, and
additional interest recognized on the resolution of certain long-standing
problem credits. First quarter net interest income (TE) in 2005 was $2.0
million, or 2%, higher than in the 2004's fourth quarter on average earning
asset growth of less than 1% and a 15 basis point increase in the net interest
margin (TE) between these periods. Tables 7 and 8 provide details on the
components of the Company's net interest income (TE) and net interest margin
(TE).
Average loans, which in Table 7 include loans held for sale, increased
14% between the first quarters of 2004 and 2005 and comprised 74% of average
earning assets for the first quarter of 2005, up from 69% in the year-earlier
period. Rising benchmark rates for the large variable-rate segment of Whitney's
loan portfolio were evident in the 76 basis point improvement in loan yields
(TE) from the first quarter of 2004 to 2005's first quarter and 38 basis points
from the fourth quarter of 2004. The full resolution of a long-standing troubled
credit in the first quarter of 2005 added approximately $1.0 million to interest
income for this period, 8 basis points to the overall loan yield (TE) and 5
basis points to the net interest margin (TE). With successful collection efforts
on problem credits, Whitney is able to recognize interest that previously was
accounted for on a cost-recovery basis as a reduction of principal. The yield on
the largely fixed-rate investment portfolio is less responsive to changes in
market rates and the overall investment portfolio yield (TE) has fluctuated
within a narrow range from the first quarter of 2004 through the current year's
first quarter. The overall earning asset yield increased 59 basis points between
the first quarters of 2004 and 2005 and was up 27 basis points from the fourth
quarter of 2004 to 2005's first quarter.
TABLE 7. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME(TE)(a) AND INTEREST RATES
-----------------------------------------------------------------------------------------------------------------------------------
First Quarter 2005 Fourth Quarter 2004 First Quarter 2004
-----------------------------------------------------------------------------------------------------------------------------------
Average Effective Average Effective Average Effective
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (TE)(b)(c) $5,601,179 $ 81,887 5.93% $5,518,551 $77,018 5.55% $4,917,213 $63,193 5.17%
-----------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 1,310,291 14,210 4.34 1,352,588 14,628 4.33 1,437,831 15,913 4.43
U.S. agency securities 296,511 2,368 3.19 317,702 2,529 3.18 385,251 3,333 3.46
U.S. Treasury securities 87,317 812 3.77 80,910 904 4.44 158,036 1,549 3.94
Obligations of states and political
subdivisions (TE) 249,000 3,909 6.28 249,004 4,169 6.70 229,439 3,711 6.47
Other securities 36,677 418 4.56 36,234 400 4.42 35,069 292 3.33
-----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,979,796 21,717 4.39 2,036,438 22,630 4.44 2,245,626 24,798 4.42
-----------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 16,526 99 2.43 13,205 64 1.93 12,195 30 .99
-----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 7,597,501 $103,703 5.52% 7,568,194 $99,712 5.25% 7,175,034 $88,021 4.93%
-----------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Other assets 682,828 657,024 606,708
Allowance for loan losses (54,954) (54,228) (59,607)
-----------------------------------------------------------------------------------------------------------------------------------
Total assets $8,225,375 $8,170,990 $7,722,135
-----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits $ 890,727 $ 963 .44% $ 842,536 $ 831 .39% $ 791,812 $ 668 .34%
Money market deposits 1,237,536 2,213 .73 1,342,641 2,179 .65 1,409,981 2,292 .65
Savings deposits 734,874 827 .46 702,667 684 .39 602,763 439 .29
Other time deposits 687,019 2,352 1.39 714,222 2,317 1.29 738,464 2,455 1.34
Time deposits $100,000 and over 932,905 4,353 1.89 883,398 3,595 1.62 698,795 2,116 1.22
-----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,483,061 10,708 .97 4,485,464 9,606 .85 4,241,815 7,970 .76
-----------------------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 675,917 3,062 1.84 599,527 2,134 1.42 692,076 1,380 .80
-----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5,158,978 $ 13,770 1.08% 5,084,991 $11,740 .92% 4,933,891 $ 9,350 .76%
-----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING
LIABILITIES AND
SHAREHOLDERS' EQUITY
Demand deposits 2,109,940 2,091,690 1,878,042
Other liabilities 69,398 69,133 54,726
Shareholders' equity 887,059 925,176 855,476
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $8,225,375 $8,170,990 $7,722,135
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin (TE) $ 89,933 4.78% $87,972 4.63% $78,671 4.40%
Net earning assets and spread $2,438,523 4.44% $2,483,203 4.33% $2,241,143 4.17%
Interest cost of funding earning assets .74% .62% .53%
-----------------------------------------------------------------------------------------------------------------------------------
(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 $21,949, $24,560 and $26,095, respectively,
in the first quarter of 2005 and the fourth and first quarters of 2004.
25
|
TABLE 8. SUMMARY OF CHANGES IN NET INTEREST INCOME(TE)(a) (b)
---------------------------------------------------------------------------------------------------------------------
First Quarter 2005 Compared to:
Fourth Quarter 2004 First Quarter 2004
-------------------------------------------------------------------------
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) $886 $3,983 $4,869 $9,093 $9,601 $18,694
---------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities (458) 40 (418) (1,388) (315) (1,703)
U.S. agency securities (169) 8 (161) (723) (242) (965)
U.S. Treasury securities 62 (154) (92) (672) (65) (737)
Obligations of states and political
subdivisions (TE) - (260) (260) 309 (111) 198
Other securities 5 13 18 14 112 126
---------------------------------------------------------------------------------------------------------------------
Total investment securities (560) (353) (913) (2,460) (621) (3,081)
---------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 17 18 35 14 55 69
---------------------------------------------------------------------------------------------------------------------
Total interest income (TE) 343 3,648 3,991 6,647 9,035 15,682
---------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW account deposits 43 89 132 88 207 295
Money market deposits (194) 228 34 (307) 228 (79)
Savings deposits 29 114 143 109 279 388
Other time deposits (105) 140 35 (188) 85 (103)
Time deposits $100,000 and over 189 569 758 843 1,394 2,237
---------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits (38) 1,140 1,102 545 2,193 2,738
---------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 278 650 928 (34) 1,716 1,682
---------------------------------------------------------------------------------------------------------------------
Total interest expense 240 1,790 2,030 511 3,909 4,420
---------------------------------------------------------------------------------------------------------------------
Change in net interest income (TE) $103 $1,858 $1,961 $6,136 $5,126 $11,262
---------------------------------------------------------------------------------------------------------------------
(a) Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) The change in interest shown as due to changes in either volume or rate includes an allocation of the amount
that reflects the interaction of volume and rate changes. This allocation is based on the absolute dollar
amounts of change due solely to changes in volume or rate.
26
|
The overall cost of funds for the current year's first quarter was up
21 basis points from the first quarter of 2004 and 12 basis points from 2004's
fourth quarter, comparable to the increases in the cost of interest-bearing
deposits between these periods. Whitney continued to actively manage the rate
structure on its deposit products in the first quarter of 2005 in response to
competition and rising rates on alternative financial products available to
customers. The overall rate on interest-bearing deposits other than time
deposits was relatively stable, having risen only 8 basis points between the
first quarters of 2004 and 2005 and 6 basis points from 2004's fourth quarter.
Rates paid on time deposits, and in particular time deposits of $100,000 or
more, increased at a more rapid rate, reflecting in part the cost of attracting
public funds and excess liquidity from certain corporate and private banking
customers as noted earlier in the section on "Deposits and Borrowings." The rate
on large time deposits in 2005's first quarter was up 67 basis points from the
year-earlier period and was 27 basis points higher than in the fourth quarter of
2004. The rate on short-term and other borrowings, which are most sensitive to
market rate changes, increased 104 basis points in 2005's first quarter compared
to the same period in 2004 and 42 basis points compared to the fourth quarter of
2004.
Changes in the mix of funding sources have a significant impact on the
direction of the overall cost of funds. The overall funding mix shifted only
slightly in the first quarter of 2005 compared to the first quarter of 2004.
Average noninterest-bearing deposits funded 28% of average earning assets in the
first quarter of 2005, up from 26% in 2004's first quarter, and the percentage
of funding from all noninterest-bearing sources was up slightly at 32%.
Lower-cost interest-bearing deposits supported 38% of earning assets in the
first quarter of 2005, down slightly from 39% in the year-earlier quarter.
Higher-cost sources of funds, which include time deposits and short-term
borrowings, were stable at 30% of average earning assets in each of these
periods. Whitney's ability to maintain this favorable mix and cost of funding
sources will depend on, among other factors, its continued success in growing or
retaining the deposit base in a highly competitive environment and in managing
its deposit-pricing structure as rates rise on alternative financial products
available to its customers or on similar products offered by direct competitors.
PROVISION FOR LOAN LOSSES
Whitney recorded a $1.5 million provision for loan losses in the first
quarter of 2005, compared to a $2 million provision in 2004's fourth quarter and
a negative provision of $2 million in the first quarter of 2004. Net charge-offs
totaled $1.9 million in the first quarter of 2005, compared to net charge-offs
of $2.3 million in fourth quarter of 2004 and a small net recovery in 2004's
first quarter.
For a more detailed discussion of changes in the allowance for loans
losses, nonperforming assets and general credit quality, see the earlier section
on "Loans, Credit Risk Management and Allowance for Loan Losses." The future
level of the allowance and provisions for loan losses will reflect management's
ongoing evaluation of credit risk, based on established internal policies and
practices.
NONINTEREST INCOME
Noninterest income totaled $21.4 million for the first quarter of 2005,
up 2%, or $.5 million, from the first quarter of 2004. In the first quarter of
2005, PULSE EFT Association was acquired by Discover Financial Services. As a
member of the PULSE electronic payment network, Whitney received a $1.0 million
distribution from this acquisition that was included as
part of other noninterest income for the quarter. Other noninterest income for
the first quarter of 2005 also included approximately $1.7 million in gains on
sales of and other revenue from foreclosed assets, which represented an increase
of $.8 million from the total recognized in 2004's first quarter. Substantially
all of this income was derived from collateral acquired many years earlier.
There was no ready market for these assets when first acquired, and, as was
general banking practice at the time, they were written down to a nominal value.
Excluding the PULSE gain and additional revenue from foreclosed assets,
noninterest income in the first quarter of 2005 was 6%, or $1.2 million, lower
than in the year-earlier period.
Income from service charges on deposit accounts in 2005's first quarter
was down 14%, or $1.3 million, compared to the first quarter of 2004. Service
charges include periodic account maintenance fees, for both business and
personal customers, charges for specific transactions or services, such as
processing return items or wire transfers, and other revenue associated with
deposit accounts, such as commissions on check sales.
As would be expected, the earnings credit allowed against service
charges on certain business deposit accounts has increased with the rise in
short-term market rates between the first quarters of 2004 and 2005. This was
the major factor behind a 31%, or $.8 million, decline in account maintenance
fees for business customers between these periods. Personal account service
charges were also lower in the first quarter of 2005, largely reflecting the
loss of lower-balance customers to competitive "no-fee" account products. The
loss of such customers was also a factor behind a $.3 million decrease in
charges earned on specific transactions and services compared to the first
quarter of 2004, although broader trends in how customers execute transactions
are also reducing charging opportunities.
Bank card fees, both credit and debit cards, increased a combined 14%,
or $.3 million, compared to 2004's first quarter, reflecting both higher
transaction volumes and improvement in the effective fee rates realized. Trust
service fees increased 8%, or $.2 million, compared to the first quarter of
2004, principally from new business development. Fee income generated by
Whitney's secondary mortgage market operations in the first quarter of 2005 was
down $.3 million on lower home loan production mainly related to fewer
refinancing transactions. Although the allocation of additional resources to
selected parts of Whitney's market area has had a positive impact on recent
production statistics, given the current rate environment and rate expectations
over the near term, both loan production levels and secondary mortgage market
fee income for the second quarter of 2005 are expected to be below the results
for the comparable period of 2004.
Without the PULSE gain and additional revenue from foreclosed assets,
the categories comprising other noninterest income decreased a net $.2 million
in the first quarter of 2005. Fees on letters of credit and unused loan
commitments increased $.4 million compared to the first quarter of 2004, with
increased demand for guarantees under letters of credit activity the main
factor. Investment service fees, however, decreased a comparable amount as
market conditions continued to limit demand for fixed-income securities among
Whitney's institutional customer base and there was some reduction in retail
brokerage activity.
NONINTEREST EXPENSE
Total noninterest expense of $66.3 million in the first quarter of 2005
was 7%, or $4.2 million, higher than the total for the year-earlier period.
Personnel expense represented more than half of the Company's noninterest
expense in each period and was the major factor in
fluctuations from year to year. Employee compensation increased 8%, or $2.4
million, and the cost of employee benefits was up 10%, or $.8 million.
Base pay and compensation earned under sales-based and other employee
incentive programs increased a combined 7%, or $1.8 million, including
approximately $.6 million for the staff of bank operations acquired in 2004.
Compensation expense under management incentive programs was up 17%, or $.6
million, with stock-based compensation driving half of this increase. The
stock-based compensation that Whitney recognizes with respect to
performance-based restricted stock grants will vary with changes in the
Company's stock price and the level of employee participation, among other
factors. Whitney does not currently recognize compensation expense with respect
to grants of stock options. Note 5 to the consolidated financial statements
discusses new accounting guidance on stock-based compensation that, among other
provisions, requires recognition of compensation expense for stock options based
on their grant-date fair value. As determined by the SEC, the new guidance
applies to stock-based compensation awards granted after December 31, 2005 and
to awards modified, repurchased, or cancelled after that date.
Higher costs of providing pension and retiree health benefits accounted
for $.6 million of the total increase in employee benefits in the first quarter
of 2005. The annual increase in expense for these retirement benefits in 2005 is
expected to be somewhat more than $2 million.
Net occupancy expense in 2005's first quarter was up 8%, or $.4
million, compared to the first quarter of 2004, mainly reflecting increased
energy costs and the incremental costs of acquired operations and other branch
expansion. Six new or replacement branches are scheduled to open during 2005.
Equipment and data processing expense decreased 2% in the first quarter
of 2005 compared to 2004's first quarter, although expansion, upgrades and new
applications are expected to lead to a moderate increase in this expense
category for the full year. Telecommunication expense in the first quarter of
2005 has benefited from savings realized on a change in service provider that
was effective for the second half of 2004.
The expense for professional services, both legal and other services,
increased $.5 million in the first quarter of 2005, with each category
contributing approximately half of the increase. Expenditures for legal services
were higher for both general corporate matters and loan collection matters in
the first quarter of 2005. Collection services included work to successfully
resolve several problem loans, including the long-standing problem credit noted
earlier. Project-specific consulting services were the major factor behind the
increased expense for other professional services, although there was also some
increase for recurring services, such as audit and tax.
Bank and branch acquisitions in 2004 led to the increase in
amortization of intangibles in the first quarter of 2005 mainly associated with
the value of deposit relationships acquired in these transactions. Scheduled
amortization of these intangibles will add approximately $.8 million to annual
expense in 2005 compared to 2004. This amount does not include the impact of the
business acquisition completed in April 2005.
The total for the categories making up other noninterest expense was
little changed in the first quarter of 2005. There were no significant trends in
the underlying individual expense categories compared to the first quarter of
2004.
INCOME TAXES
The Company provided for income tax expense at an effective rate of
31.6% in the first quarter of 2005 compared to a rate of 31.3% in the 2004's
first quarter. Whitney's effective tax rate has been lower than the 35% federal
statutory rate primarily because of tax-exempt interest income from the
financing of state and local governments and the availability of tax credits
generated by investments in affordable housing projects.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required for this item is included in the section entitled "Asset/Liability Management" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" that appears in Item 2 of this Form 10-Q and is incorporated here by reference.
Item 4. CONTROLS AND PROCEDURES
The Company's management, with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, the CEO and CFO have concluded that the disclosure controls and procedures as of the end of the period covered by this quarterly report are effective.
There were no changes in the Company's internal control over financial reporting during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information with respect to purchases made by or on behalf of the Company or any "affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of the Company's common stock during the three months ended March 31, 2005.
---------------------------- ------------------- -------------- ------------------------ ------------------------
Total Number of Shares Maximum Number of
Total Number Average Purchased as Part of Shares that May Yet Be
of Shares Price Paid Publicly Announced Purchased under the
Period Purchased per Share Plans or Programs (1) Plans or Programs (1)
---------------------------- ------------------- -------------- ------------------------ ------------------------
January 2005 703,160 (2) $44.309 697,875 344,247
---------------------------- ------------------- -------------- ------------------------ ------------------------
February 2005 244,698 (2) $45.750 244,247 100,000
---------------------------- ------------------- -------------- ------------------------ ------------------------
March 2005 - - - 100,000
---------------------------- ------------------- -------------- ------------------------ ------------------------
(1) In October 2004, the Board of Directors authorized the Company to
repurchase up to 1.75 million shares of its common stock. The
repurchase program is authorized for one year, beginning October 27,
2004.
(2) Includes 5,285 shares in January and 451 shares in February tendered to
the Company as consideration for the exercise price of employee stock
options.
|
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS
The exhibits listed on the accompanying Exhibit Index, located on page 33, are filed (or furnished, as applicable) as part of this report. The Exhibit Index is incorporated herein by reference in response to this Item 6.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WHITNEY HOLDING CORPORATION
(Registrant)
By: /s/ Thomas L. Callicutt, Jr.
-----------------------------------------------------------
Thomas L. Callicutt, Jr.
Executive Vice President and
Chief Financial Officer
(in his capacities as a duly authorized
officer of the registrant and as
principal accounting officer)
May 10, 2005
--------------
Date
|
EXHIBIT INDEX
Exhibit Description
-------------- --------------------------------------------------------------
Exhibit 3.1 Copy of the Company's Composite Charter (filed as Exhibit
3.1 to the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 2000 (Commission file number
0-1026) and incorporated by reference).
Exhibit 3.2 Copy of the Company's Bylaws (filed as Exhibit 3.2 to the
Company's annual report on Form 10-K for the year ended
December 31, 2003 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 31.1 Certification by the Company's Chief Executive Officer
pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification by the Company's Chief Financial Officer
pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 Certification by the Company's Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
Exhibit 31.1
I, William L. Marks, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period ended
March 31, 2005 of Whitney Holding Corporation;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ William L. Marks
----------------------
William L. Marks
Chief Executive Officer
Date: May 10, 2005
--------------
|
Exhibit 31.2
I, Thomas L. Callicutt, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period ended
March 31, 2005 of Whitney Holding Corporation;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ Thomas L. Callicutt, Jr.
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Thomas L. Callicutt, Jr.
Chief Financial Officer
Date: May 10, 2005
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Exhibit 32
Each of the undersigned officers of Whitney Holding Corporation (the Company), in the capacities and on the dates indicated below, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, based on their knowledge, that
(1) the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2005 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 10, 2005 By: /s/ William L. Marks
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William L. Marks
Chairman of the Board and
Chief Executive Officer
Dated: May 10, 2005 By: /s/ Thomas L. Callicutt, Jr.
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Thomas L. Callicutt, Jr.
Executive Vice President and
Chief Financial Officer
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