UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 (504) 586-7272
New Orleans, Louisiana 70130 (Registrant's telephone number)
(Address of principal executive offices)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)
As of December 31, 2005, the aggregate market value of the registrant's common stock (all shares are voting shares) held by nonaffiliates was approximately $ 1.98 billion (based on the closing price of the stock on June 30, 2005).
At March 6, 2006, 63,460,447 shares of the registrant's no par value common stock were outstanding.
Certain specifically identified parts of the registrant's Proxy Statement for the 2006 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission are incorporated by reference into Part III of this Form 10-K.
WHITNEY HOLDING CORPORATION
TABLE OF CONTENTS
Page
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PART I
Item 1: Business 1
Item 1A: Risk Factors 7
Item 1B: Unresolved Staff Comments 8
Item 2: Properties 8
Item 3: Legal Proceedings 8
Item 4: Submission of Matters to a Vote of Security Holders 8
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PART II
Item 5: Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of
Equity Securities 9
Item 6: Selected Financial Data 10
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 7A: Quantitative and Qualitative Disclosures about Market
Risk 40
Item 8: Financial Statements and Supplementary Data 41
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 80
Item 9A: Controls and Procedures 80
Item 9B: Other Information 80
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PART III
Item 10: Directors and Executive Officers of the Registrant 81
Item 11: Executive Compensation 81
Item 12: Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 81
Item 13: Certain Relationships and Related Transactions 83
Item 14: Principal Accounting Fees and Services 83
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PART IV
Item 15: Exhibits and Financial Statement Schedules 84
Signatures 88
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PART I
Item 1: BUSINESS
ORGANIZATION AND RECENT DEVELOPMENTS
Whitney Holding Corporation (the Company or Whitney) is a Louisiana corporation that is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (BHCA). The Company began operations in 1962 as the parent of Whitney National Bank (the Bank). The Bank is a national banking association headquartered in New Orleans, Louisiana, that has been in continuous operation in the greater New Orleans area since 1883. The Company has at times operated as a multi-bank holding company when it established new entities in connection with business acquisitions. The Company has merged all banking operations into the Bank and intends to continue merging the operations of future acquisitions at the earliest possible dates.
During 2005, Whitney acquired Destin Bancshares, Inc., whose major subsidiary, Destin Bank, operated in the Destin, Fort Walton Beach and Pensacola areas of Florida. Destin Bancshares, Inc. also owned a full-service independent insurance agency, and Whitney has continued to offer these services in northwest Florida through a Bank subsidiary, Southern Coastal Insurance Agency, Inc. In July 2005, Whitney announced plans to expand its presence in the Tampa Bay metropolitan area of Florida through the acquisition of First National Bancshares, Inc. and its subsidiary, 1st National Bank & Trust. Subject to certain conditions and the receipt of approval from First National's shareholders, this acquisition is expected to be completed in the second quarter of 2006. Since early 1994, Whitney has acquired 18 separate banking operations involving over $3.0 billion of assets, with the more recent focus on banks in faster-growing markets such as those in certain parts of Florida and the Houston, Texas area. The Company continues to seek opportunities to leverage its operations through acquisitions that expand existing market share or provide access to new parts of its market area with attractive deposit bases and economic fundamentals.
The Company also owns Whitney Community Development Corporation (WCDC). WCDC was formed to provide financial support to corporations or projects that promote community welfare in areas with mainly low or moderate incomes. WCDC's main activity has been to provide financing for the development of affordable housing. Whitney Securities, L.L.C., a registered broker-dealer in securities, is a wholly-owned subsidiary of the Bank.
NATURE OF BUSINESS AND MARKETS
The Company, through the Bank, engages in community banking and serves a market area that covers the five-state Gulf Coast region stretching from Houston, Texas, across southern Louisiana and the coastal region of Mississippi, to central and south Alabama, the western panhandle of Florida, and to the Tampa Bay metropolitan area of Florida. The Bank also maintains a foreign branch on Grand Cayman in the British West Indies.
The Bank provides a broad range of community banking services to commercial, small business and retail customers, offering a variety of transaction and savings deposit products, cash management services, secured and unsecured loan products, including revolving credit facilities, and letters of credit and similar financial guarantees. The Bank also provides trust and investment management services to retirement plans, corporations and individuals and, together with Whitney Securities, L.L.C., offers investment brokerage services and annuity products. Southern Coastal Insurance Agency, Inc. offers personal and business lines of insurance to customers in northwest Florida.
THE BANK
All material funds of the Company are invested in the Bank. The Bank has a large number of customer relationships that have been developed over a period of many years. The loss of any single customer or a few customers would not have a material adverse effect on the Bank or the Company. The Bank has customers in a number of foreign countries, but the revenue derived from these foreign customers is not a material portion of its overall revenues.
COMPETITION
There is significant competition within the financial services industry in general as well as with respect to the particular financial services provided by the Company and the Bank. Within its market, the Bank competes directly with major banking institutions of comparable or larger size and resources, as well as with various other smaller banking organizations. The Bank also has numerous local and national nonbank competitors, including savings and loan associations, credit unions, mortgage companies, personal and commercial finance companies, investment brokerage and financial advisory firms, and mutual fund companies. Entities that deliver financial services and access to financial products and transactions exclusively through the Internet are another source of competition. Technological advances have also allowed the Bank and other financial institutions to provide electronic and Internet-based services that enhance the value of traditional financial products. Continued consolidation within the financial services industry will most likely change the nature and intensity of competition that Whitney faces, but can also create opportunities for Whitney to demonstrate and exploit competitive advantages.
The participants in the financial services industry are subject to varying degrees of regulation and governmental supervision. The following section summarizes certain important aspects of the supervision and regulation of banks and bank holding companies. Some of Whitney's competitors that are not banks or bank holding companies may be subject to less regulation than are the Company and the Bank, and this may give them a competitive advantage. The current system of laws and regulations can change over time and this would influence the competitive positions of the participants in the financial services industry. We cannot predict whether these changes will be favorable or unfavorable to the Company and the Bank.
SUPERVISION AND REGULATION
The Company and the Bank are subject to comprehensive supervision and regulation that affect virtually all aspects of their operations. The following summarizes certain of the more important statutory and regulatory provisions.
Supervisory Authorities
Whitney is a bank holding company, registered with and regulated by the
Federal Reserve Board (FRB). The Bank is a national bank and, as such, is
subject to supervision, regulation and examination by the Office of the
Comptroller of the Currency (OCC). Ongoing supervision is provided through
regular examinations and other means that allow the regulators to gauge
management's ability to identify, assess and control risk in all areas of
operations in a safe and sound manner and to ensure compliance with laws and
regulations. As a result, the scope of routine examinations of the Company and
the Bank is rather extensive. To facilitate supervision, the Company and the
Bank are required to file periodic reports with the regulatory agencies, and
much of this information is made available to the public by the agencies.
Capital
The FRB and the OCC require that the Company and the Bank meet certain
minimum ratios of capital to assets in order to conduct their activities. Two
measures of regulatory capital are used in calculating these ratios - Tier 1
Capital and Total Capital. Tier 1 Capital generally includes common equity,
retained earnings, a limited amount of qualifying preferred stock, and
qualifying minority interests in consolidated subsidiaries, reduced by goodwill
and certain other intangible assets, such as core deposit intangibles, and
certain other assets. Total Capital generally consists of Tier 1 Capital plus
the allowance for loan losses, preferred stock that did not qualify as Tier 1
Capital, certain types of subordinated debt and a limited amount of other items.
The Tier 1 Capital ratio and the Total Capital ratio are calculated against an asset total weighted for risk. Certain assets, such as cash and U. S. Treasury securities, have a zero risk weighting. Others, such as commercial and consumer loans, often have a 100% risk weighting. Assets also include amounts that represent the potential funding of off-balance sheet obligations such as loan commitments and letters of credit. These potential assets are assigned to risk categories in the same manner as funded assets. The total assets in each category are multiplied by the appropriate risk weighting to determine risk-adjusted assets for the capital calculations. The leverage ratio also
provides a measure of the adequacy of Tier 1 Capital, but assets are not risk-weighted for this calculation. Assets deducted from regulatory capital, such as goodwill and other intangible assets, are also excluded from the asset base used to calculate capital ratios. The minimum capital ratios for both the Company and the Bank are generally 8% for Total Capital, 4% for Tier 1 Capital and 4% for leverage.
To be eligible to be classified as "well-capitalized," the Bank must generally maintain a Total Capital ratio of 10% or greater, a Tier 1 Capital ratio of 6% or greater, and a leverage ratio of 5% or more. If an institution fails to remain well-capitalized, it will be subject to a series of restrictions that increase as the capital condition worsens. For instance, federal law generally prohibits a depository institution from making any capital distribution, including the payment of a dividend or paying any management fee to its holding company, if the depository institution would be undercapitalized as a result. Undercapitalized depository institutions may not accept brokered deposits absent a waiver from the Federal Deposit Insurance Corporation (FDIC), are subject to growth limitations, and must submit a capital restoration plan that is guaranteed by the institution's parent holding company. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator.
The capital ratios for both the Company and the Bank exceed the required minimums, and the capital ratios for the Bank make it eligible for classification as "well-capitalized" under current regulatory criteria.
Expansion and Activity Limitations
With prior regulatory approval, Whitney may acquire other banks or bank
holding companies and the Bank may merge with other banks. Acquisitions of banks
domiciled in states other than Louisiana may be subject to certain restrictions,
including restrictions related to the percentage of deposits that the resulting
bank may hold in that state and nationally and the number of years that the bank
to be acquired must have been operating. Whitney may also engage in or acquire
an interest in a company that engages in activities that the FRB has determined
by regulation or order to be so closely related to banking as to be a proper
incident to banking activities. The FRB normally requires some form of notice or
application to engage in or acquire companies engaged in such activities. Under
the BHCA, Whitney is generally prohibited from engaging in or acquiring direct
or indirect control of more than 5% of the voting shares of any company engaged
in activities other than those referred to above.
Under the Gramm-Leach-Bliley Act (GLB Act), adopted in 1999, bank holding companies that are well-capitalized and well-managed and meet other conditions can elect to become financial holding companies. As financial holding companies, they and their subsidiaries are permitted to acquire or engage in certain activities that were not previously permitted for bank holding companies. These activities include insurance underwriting, securities underwriting and distribution, travel agency activities, broad insurance agency activities, merchant banking, and other activities that the FRB determines to be financial in nature or complementary to these activities. Whitney has not elected to become a financial holding company, but may elect to do so in the future. The GLB Act also permits well-capitalized and well-managed banks to establish financial subsidiaries that may engage in activities not previously permitted for banks. In 2005, the Bank elected for the first time to establish a financial subsidiary to be able to continue to operate the insurance agency acquired with Destin Bancshares, Inc.
Support of Subsidiary Banks by Holding Companies Under current FRB policy, Whitney is expected to act as a source of financial strength for the Bank and to commit resources to support the Bank in circumstances where it might not do so absent such policy. In addition, any loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and certain other indebtedness of the subsidiary bank. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank at a certain level would be assumed by the bankruptcy trustee and entitled to priority of payment.
Limitations on Acquisitions of Bank Holding Companies As a general proposition, other companies seeking to acquire control of a bank holding company such as Whitney would require the approval of the Federal Reserve Board under the BHCA. In addition, individuals or groups of individuals seeking to acquire control of a bank holding company would need to file a prior notice with the FRB (which the FRB may disapprove under certain circumstances) under the Change in Bank Control Act. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control may exist under the Change in Bank Control Act if the individual or company acquires 10% or more of any class of voting securities of the bank holding company.
Deposit Insurance
The Bank is a member of the FDIC, and its deposits are insured by the
FDIC up to the amount permitted by law. The Bank is thus subject to FDIC deposit
insurance premium assessments. The FDIC uses a risk-based assessment system that
assigns insured depository institutions to different premium categories based
primarily on each institution's capital position and its overall risk rating as
determined by its primary regulator. Annual premium rates currently range from
none for institutions that are judged to pose the least risk to the insurance
fund to 27 cents per $100 of assessable deposits for the most risky
institutions, but the FDIC is authorized to set the top rate as high as 31 basis
points. Under the premium structure currently in effect and based on its current
capital position and regulatory risk rating, the Bank pays no deposit insurance
premium.
The FDIC also collects a deposit-based assessment from insured financial institutions on behalf of The Financing Corporation (FICO). The funds from these assessments are used to service debt issued by FICO in its capacity as a financial vehicle for the Federal Savings & Loan Insurance Corporation. The FICO assessment rate is set quarterly and in 2005 ranged from 1.44 cents to 1.34 cents per $100 of assessable deposits.
Congress passed deposit insurance reform legislation in February 2006. Among other provisions, this new law provides for increased coverage limits over time and adds flexibility to the determination of the target reserve ratio for the insurance fund and insurance premium assessments. There is no way to meaningfully project what impact this reform legislation will have on the level of future premium rates, although no significant near-term impact is expected.
Other Statutes and Regulations
The Company and the Bank are subject to a myriad of other statutes and
regulations affecting their activities. Some of the more important are:
Anti-Money Laundering. Financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. The Company and the Bank are also prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and "knowing your customer" in their dealings with foreign financial institutions and foreign customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions, and recent laws provide law enforcement authorities with increased access to financial information maintained by banks. Anti-money laundering obligations have been substantially strengthened as a result of the USA Patriot Act, enacted in 2001 and renewed in 2006. Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications. The regulatory authorities have been active in imposing "cease and desist" orders and money penalty sanctions against institutions found to be violating these obligations.
Sections 23A and 23B of the Federal Reserve Act. The Bank is limited in its ability to lend funds or engage in transactions with the Company or other nonbank affiliates of the Company, and all such transactions must be on an arms-length basis and on terms at least as favorable to the Bank as those prevailing at the time for transactions with unaffiliated companies. Outstanding loans from the Bank to the Company may not exceed 10% of the Bank's capital stock and surplus, and these loans must be fully collateralized.
Dividends. Whitney's principal source of cash flow, including cash flow to pay dividends to its shareholders, is the dividends that it receives from the Bank. Statutory and regulatory limitations apply to the Bank's payment of dividends to the Company as well as to the Company's payment of dividends to its shareholders. A depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. The federal banking agencies may prevent the payment of a dividend if they determine that the payment would be an unsafe and unsound banking practice. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings.
Community Reinvestment Act. The Bank is subject to the provisions of the Community Reinvestment Act of 1977, as amended (CRA), and the related regulations issued by federal banking agencies. The CRA states that all banks have a continuing and affirmative obligation, consistent with safe and sound operation, to help meet the credit needs for their entire communities, including low- and moderate-income neighborhoods. The CRA also charges a bank's primary federal regulator, in connection with the examination of the institution or the evaluation of certain regulatory applications filed by the institution, with the responsibility to assess the institution's record in fulfilling its obligations under the CRA. The regulatory agency's assessment of the institution's record is made available to the public. The Bank received an "outstanding" rating following its most recent CRA examination.
Consumer Regulation. Activities of the Bank are subject to a variety of
statutes and regulations designed to protect consumers. These laws and
regulations include provisions that:
o limit the interest and other charges collected or contracted for
by the Bank;
o govern the Bank's disclosures of credit terms to consumer
borrowers;
o require the Bank to provide information to enable the public and
public officials to determine whether it is fulfilling its
obligation to help meet the housing needs of the community it
serves;
o prohibit the Bank from discriminating on the basis of race, creed
or other prohibited factors when it makes decisions to extend
credit;
o require that the Bank safeguard the personal nonpublic information
of its customers, provide annual notices to consumers regarding
the usage and sharing of such information, and limit disclosure of
such information to third parties except under specific
circumstances; and
o govern the manner in which the Bank may collect consumer debts.
The deposit operations of the Bank are also subject to laws and
regulations that:
o require the Bank to adequately disclose the interest rates and
other terms of consumer deposit accounts;
o impose a duty on the Bank to maintain the confidentiality of
consumer financial records and prescribe procedures for complying
with administrative subpoenas of financial records; and
o govern automatic deposits to and withdrawals from deposit accounts
with the Bank and the rights and liabilities of customers who use
automated teller machines and other electronic banking services.
EMPLOYEES
At the end of 2005, the Company and the Bank had a total of 2,402 employees, or 2,340 employees on a full-time equivalent basis. Whitney affords its employees a variety of competitive benefit programs including retirement plans and group health, life and other insurance programs. The Company also supports training and educational programs designed to ensure that employees have the types and levels of skills needed to perform at their best in their current positions and to help them prepare for positions of increased responsibility.
EXECUTIVE OFFICERS OF THE COMPANY
Name and Age Position Held and Recent Business Experience
---------------------------------- --------------------------------------------
William L. Marks, 62 Chief Executive Officer and Chairman of the
Board of the Company and Whitney National
Bank since 1990
R. King Milling, 65 President of the Company and Whitney
National Bank since 1984; Director of the
Company and Whitney National Bank since 1979
Robert C. Baird, Jr., 55 Executive Vice President of the Company and
Whitney National Bank since 1995, Division
Executive of Louisiana Banking
Thomas L. Callicutt, Jr., 58 Executive Vice President and Chief Financial
Officer of the Company and Whitney National
Bank since 1999 and Treasurer of the Company
since 2001
Rodney D. Chard, 63 Executive Vice President of the Company and
Whitney National Bank since 1996, Division
Executive of Operations and Technology
Joseph S. Exnicios, 50 Executive Vice President of the Company and
Whitney National Bank since 2004, Senior
Vice President of Whitney National Bank from
1994 to 2004, Division Executive of New
Orleans Commercial Banking
John C. Hope III, 56 Executive Vice President of the Company
since 1994 and of Whitney National Bank
since 1998, Division Executive of Gulf Coast
Banking
Kevin P. Reed, 45 Executive Vice President of the Company and
Whitney National Bank since 2004, Senior
Vice President of Whitney National Bank from
1998 to 2004, Division Executive of Trust &
Wealth Management
Lewis P. Rogers, 53 Executive Vice President of the Company and
Whitney National Bank since 2004, Senior
Vice President of Whitney National Bank from
1998 to 2004, Division Executive of Credit
Administration
John M. Turner, Jr., 44 Executive Vice President of the Company and
Whitney National Bank since February 2005,
Senior Vice President of Whitney National
Bank from 1994 to 2005, Regional Executive -
Eastern Region
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AVAILABLE INFORMATION
The Company's filings with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are available on Whitney's website as soon as reasonably practicable after the Company files with the SEC. Copies can be obtained free of charge by visiting the Company's website at www.whitneybank.com. The Company's website is not incorporated into this annual report on Form 10-K.
Item 1A. RISK FACTORS
Whitney must recognize and attempt to manage a number of risks as it implements its strategies to successfully compete with other companies in the financial services industry. Some of the more important risks common to the industry and Whitney are:
o credit risk, which is the risk that borrowers will be unable to
meet their contractual obligations, leading to loan losses and
reduced interest income;
o market risk, which is the risk that changes in market rates and
prices will adversely affect the results of operations or
financial condition;
o liquidity risk, which is the risk that funds will not be available
at a reasonable cost to meet operating and strategic needs; and
o operational risk, which is the risk of loss resulting from
inadequate or failed internal processes, people and systems, or
external events, such as natural disasters.
Although Whitney generally is not significantly more susceptible to adverse effects from these or other common risk factors than other industry participants, there are certain aspects of Whitney's business model that may expose it to somewhat higher levels of risk and should be considered carefully in evaluating the Company's overall risk profile.
Whitney's profitability depends in substantial part on net interest income and on our ability to manage interest rate risk.
Whitney's net interest income represented more than 75% of total revenues in each of the last five years. Net interest income is the difference between the interest earned on loans, investment securities and other earning assets, and interest owed on deposits and borrowings. Numerous and often interrelated factors influence Whitney's ability to maintain and grow net interest income, and a number of these factors are addressed in Management's Discussion and Analysis of Financial Condition and Results of Operations located in Item 7. One of the most important factors is changes in market rates and in the relationship between these rates for different financial instruments and products and at different maturities. Such changes are generally outside the control of management and cannot be predicted with certainty. Although management applies significant resources to anticipating these changes and to developing and executing strategies for operating in an environment of change, they cannot eliminate the possibility that interest rate risk will negatively affect our net interest income and lead to earnings volatility.
Whitney's market area is susceptible to hurricanes and tropical storms, which may increase the Company's exposure to credit risk, operational risk and liquidity risk.
Most of Whitney's market area lies within the coastal region of the five states bordering the Gulf of Mexico. This is an area that is susceptible to hurricanes and tropical storms. Within its broader market area, the greater New Orleans area has traditionally been Whitney's most significant base of operations, holding the largest concentration of deposits and serving as home to relationship officers who manage a significant portion of the Bank's commercial loan portfolio. At the end of 2005, approximately 50% of both total deposits and total loans were serviced from the greater New Orleans area.
Hurricane Katrina hit the greater New Orleans area and the Mississippi coast in August 2005, with lesser impacts on coastal Alabama and the western panhandle of Florida. Hurricane Rita made landfall the following month at the border of Texas and Louisiana, with a major impact on southwest Louisiana, including the Lake Charles area. These two storms caused widespread property damage, required the relocation of an unprecedented number of residents and business operations, and severely disrupted normal economic activity in the impacted areas. The impact on the Company, both operationally and with respect to credit risk and liquidity, and the uncertainties that remain in the wake of these storms are covered in detail in Management's Discussion and Analysis of Financial Condition and Results of Operations located in Item 7.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
The Company owns no real estate in its own name. The Company's executive offices are located in downtown New Orleans in the main office facility owned by Whitney National Bank. The Bank also owns an operations center in the greater New Orleans area. The Bank makes portions of its main office facility and certain other facilities available for lease to third parties, although such incidental leasing activity is not material to Whitney's overall operations. The Bank maintains approximately 145 banking facilities in five states. The Bank owns approximately 70% of these facilities, and the remaining banking facilities are subject to leases, each of which management considers to be reasonable and appropriate to its location. Management ensures that all properties, whether owned or leased, are maintained in suitable condition. Management also evaluates its banking facilities on an ongoing basis to identify possible under-utilization and to determine the need for functional improvements, relocations or possible sales. Following the hurricanes that struck Whitney's market area in 2005, nine branch locations remain closed, and business is being conducted from temporary facilities or on a limited-access basis at seven other storm-damaged locations. These closures and service disruptions are not expected to have a significant effect on the Company's overall operations.
The Bank and a subsidiary hold a variety of property interests acquired through the years in settlement of loans. Note 9 to the consolidated financial statements included in Item 8 provides further information regarding such property interests and is incorporated here by reference.
Item 3: LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Company's business, to which the Company or its subsidiaries is a party or to which any of their property is subject.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's stock trades on the Nasdaq National Market under the symbol WTNY. The Summary of Quarterly Financial Information appearing in Item 8 of this Form 10-K shows the high and low sales prices of the Company's stock for each calendar quarter of 2005 and 2004 as reported on the Nasdaq National Market, and is incorporated here by reference.
The approximate number of shareholders of record of the Company, as of March 6, 2006, was as follows:
Dividends declared by the Company are listed in the Summary of Quarterly Financial Information appearing in Item 8 of this Form 10-K, which is incorporated here by reference. For a description of certain restrictions on the payment of dividends see the section entitled "Supervision and Regulation" that appears in Item 1 of this annual report.
The following table provides information with respect to purchases made by or on behalf of the Company or any "affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of the Company's common stock during the three months ended December 31, 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)
----------------------- --------------- -------------- ------------------------ ------------------------
October 2005 - - - -
----------------------- --------------- -------------- ------------------------ ------------------------
November 2005 306 (2) $28.60 - -
----------------------- --------------- -------------- ------------------------ ------------------------
December 2005 - - - -
----------------------- --------------- -------------- ------------------------ ------------------------
(1) In October 2004, the Board of Directors authorized the Company to
repurchase up to 2.625 million shares of its common stock (1.75
million shares before adjustment for the three-for-two stock split
in May 2005). The repurchase program was completed in September
2005.
(2) Represents shares that were tendered to the Company as
consideration for the exercise price of employee stock options.
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Item 6: SELECTED FINANCIAL DATA
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
Years Ended December 31
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(dollars in thousands, except per share data) 2005 2004 2003 2002 2001
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YEAR-END BALANCE SHEET DATA
Total assets $10,109,006 $8,222,624 $7,754,982 $7,097,881 $7,243,650
Earning assets 9,054,484 7,648,740 7,193,709 6,501,009 6,681,786
Loans 6,560,597 5,626,276 4,882,610 4,455,412 4,495,085
Investment securities 1,641,451 1,991,244 2,281,405 1,975,698 1,632,340
Deposits 8,604,836 6,612,607 6,158,582 5,782,879 5,950,160
Shareholders' equity 961,043 904,765 840,313 800,483 717,888
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AVERAGE BALANCE SHEET DATA
Total assets $8,903,321 $7,890,183 $7,238,022 $7,016,675 $6,831,564
Earning assets 8,098,998 7,327,233 6,717,863 6,492,791 6,303,445
Loans 6,137,676 5,179,734 4,595,868 4,372,194 4,475,149
Investment securities 1,836,228 2,120,594 2,004,245 1,816,216 1,525,254
Deposits 7,224,426 6,347,503 5,913,186 5,750,141 5,548,556
Shareholders' equity 935,362 881,477 823,698 760,725 698,099
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INCOME STATEMENT DATA
Interest income $468,085 $360,772 $338,069 $370,909 $441,145
Interest expense 80,986 40,682 43,509 75,701 161,349
Net interest income 387,099 320,090 294,560 295,208 279,796
Net interest income (TE) 392,979 326,237 300,115 300,134 285,161
Provision for loan losses 37,000 2,000 (3,500) 7,500 19,500
Noninterest income 82,235 82,523 89,504 85,185 91,209
Net securities gains in noninterest income 68 68 863 411 165
Noninterest expense 286,978 260,278 242,923 230,926 239,104
Net income 102,349 97,137 98,542 95,323 75,820
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KEY RATIOS
Return on average assets 1.15% 1.23% 1.36% 1.36% 1.11%
Return on average shareholders' equity 10.94 11.02 11.96 12.53 10.86
Net interest margin 4.85 4.45 4.47 4.62 4.52
Average loans to average deposits 84.96 81.60 77.72 76.04 80.65
Efficiency ratio 60.40 63.69 62.49 60.00 62.09
Allowance for loan losses to loans 1.37 .97 1.22 1.48 1.59
Nonperforming assets to loans plus foreclosed
and surplus property 1.03 .46 .62 .95 .77
Net charge-offs to average loans .08 .19 .07 .28 .21
Average shareholders' equity to average assets 10.51 11.17 11.38 10.84 10.22
Shareholders' equity to total assets 9.51 11.00 10.84 11.28 9.91
Leverage ratio 8.21 9.56 10.13 9.76 8.72
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COMMON SHARE DATA
Earnings Per Share
Basic $1.65 $1.59 $1.65 $1.59 $1.28
Diluted 1.63 1.56 1.63 1.58 1.27
Dividends
Cash dividends per share $.98 $.89 $.82 $.74 $.69
Dividend payout ratio 60.26% 56.99% 50.32% 46.50% 53.81%
Book Value Per Share $15.17 $14.57 $13.85 $13.32 $12.07
Trading Data
High price $33.69 $30.83 $27.55 $25.68 $21.71
Low price 24.14 26.35 20.50 18.73 16.00
End-of-period closing price 27.56 29.99 27.33 22.22 19.49
Trading volume 50,434,066 27,662,252 34,386,386 32,889,785 20,948,025
Average Shares Outstanding
Basic 62,008,004 61,122,581 59,894,147 59,773,322 59,326,085
Diluted 62,953,293 62,083,043 60,594,201 60,182,316 59,754,071
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Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
The efficiency ratio is noninterest expense to total net interest (TE) and
noninterest income (excluding securities transactions).
Share and per share data reflect the 3-for-2 stock split effective May 25, 2005.
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Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to focus on significant changes in the financial condition of Whitney Holding Corporation and its subsidiaries (the Company or Whitney) and on their results of operations during 2005, 2004 and 2003. Virtually all of the Company's operations are contained in its banking subsidiary, Whitney National Bank (the Bank). This discussion and analysis is intended to highlight and supplement information presented elsewhere in this annual report on Form 10-K, particularly the consolidated financial statements and related notes appearing in Item 8. All share and per share data in this annual report reflect the three-for-two split of Whitney's common stock that was effective May 25, 2005.
FORWARD-LOOKING STATEMENTS
This discussion includes "forward-looking statements" within the
meaning of section 27A of the Securities Act of 1933, as amended, and section
21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements provide projections of results of operations or of financial
condition or state other forward-looking information, such as expectations about
future conditions and descriptions of future plans and strategies.
Forward-looking statements often contain words such as "anticipate," "believe,"
"estimate," "expect," "forecast," "goal," "intend," "plan," "project" or other
words of similar meaning.
The forward-looking statements made in this discussion include, but may not be limited to (a) comments on the current and future financial repercussions of recent natural disasters, including the impact on the allowance for loan losses and related provisions, deposit balances, liquidity and on certain categories of noninterest income and expense; (b) expectations expressed about insurance recoveries of storm-related casualty losses, disaster-response costs and repair and rebuilding costs; (c) comments on conditions impacting certain sectors of the loan portfolio; (d) information about changes in the duration of the investment portfolio with changes in market rates; (e) statements of the results of net interest income simulations run by the Company to measure interest rate sensitivity; (f) 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; and (f) comments on expected changes or trends, unrelated to the natural disasters, in expense levels for retirement benefits, health benefits, amortization of intangibles, and advertising and promotion.
Whitney's ability to accurately project results or predict the effects of future plans or strategies is inherently limited. Although Whitney believes that the expectations reflected in forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements.
The natural disasters that affected portions of Whitney's service area during 2005 are discussed below in the "Overview" section and in various other sections. As described in the discussion, these events created significant uncertainties, the outcome of which may have a significant impact on the Company's future results. Additional factors that could cause actual results to differ from those expressed in the Company's forward-looking statements include, but are not limited to:
o Changes in economic and business conditions, including those
caused by natural disasters or by acts of war or terrorism, that
directly or indirectly affect the financial health of Whitney's
customer base.
o Changes in interest rates that affect the pricing of Whitney's
financial products, the demand for its financial services and the
valuation of its financial assets and liabilities.
o Changes in laws and regulations that significantly affect the
activities of the banking industry and the industry's competitive
position relative to other financial service providers.
o Technological changes affecting the nature or delivery of
financial products or services and the cost of providing them.
o The failure to capitalize on growth opportunities and realize cost
savings in connection with business acquisitions.
o Management's inability to develop and execute plans for Whitney to effectively respond to unexpected changes.
Whitney does not intend, and undertakes no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements.
OVERVIEW
NATURAL DISASTERS AFFECTING WHITNEY IN 2005
Two strong hurricanes affected portions of Whitney's service area during 2005. In late August, Hurricane Katrina hit the greater New Orleans area and the Mississippi gulf coast, with lesser impacts on coastal Alabama and the western panhandle of Florida. Hurricane Rita made landfall toward the end of September across the coastal area at the border of Texas and Louisiana, with a major impact on southwest Louisiana, including the Lake Charles area.
These two storms caused widespread property damage, required the relocation of an unprecedented number of residents and business operations, and severely disrupted normal economic activity in the impacted areas. Governmental, private and philanthropic agencies provided significant immediate and ongoing disaster relief, including various forms of financial assistance, and numerous legislative proposals, both local and national, have been adopted or are under consideration regarding repairs and improvement to the storm-protection system and long-term assistance to rebuild and revitalize the disaster areas. Such proposals will inevitably address whether and how rebuilding should take place in areas still vulnerable to devastation from future storms. This is particularly applicable both to New Orleans and certain contiguous parishes, where the existing levee system did not prevent storm surge from flooding sections of the area for extended periods, and also to coastal communities with direct exposure to the Gulf of Mexico.
The following summarizes the more significant financial repercussions of these natural disasters for the Company and the Bank.
Credit Quality and Allowance for Loan Losses Management has been confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the recent storms on credit quality and inherent losses. It was clear early on that the storms could have significant and long-term economic repercussions, both positive and negative, for businesses and individuals in the most severely affected parts of the broader storm-impact area, but it was impossible then and continues to be difficult to assess with precision the storms' ultimate effect on Whitney's loan collections.
To begin to address this uncertainty, loan officers completed an extensive review of the storms' immediate and near-term impact on individual borrowers by December 31, 2005. The section below on "Loans, Credit Risk Management and the Allowance for Loan Losses" describes this review process and management's overall approach to assessing the storms' impact on credit quality. This assessment is still subject to significant uncertainties, both those specific to individual customers, such as the resolution of insurance claims, and those applicable to the economic recovery of the storm-impact area as a whole. In addition, information to fully assess the performance of consumer credits that had been under payment deferral programs started to become available only after the end of 2005.
The allowance for loan losses at December 31, 2005 incorporated management's best estimate, based on available information, of inherent losses resulting from the impact of the recent storms. As management acquires additional information to resolve some of the remaining uncertainties and obtains results of ongoing reviews of individual borrowers, the loss estimate will be revised as needed.
Disaster Response Costs, Casualty Losses, Business Interruption and Related Insurance
To operate in disaster response mode, the Bank incurred expenses for, among other things, the use of pre-designated back-up data processing centers, the lease of temporary equipment and facilities, lodging and other expenses for relocated personnel, and emergency communications with customers regarding the status of Bank operations. Emergency changes to the Bank's normal processing and collection of cash items caused recurring delays in funds availability that had a negative impact on net interest income. In addition, a number of the Bank's facilities and their contents were damaged by the storms and the rental income from excess office space and a parking facility was temporarily disrupted. Sixteen banking facilities will require replacement, relocation or major renovation.
Whitney maintains insurance for casualty losses as well as for reasonable and necessary disaster response costs and certain revenue lost through business interruption. Management believes, based on its understanding of the coverage, that collection of receivables established for insurance claims is probable. Certain additional disaster response costs and the bulk of repair and replacement costs will be incurred in the early part of 2006 and beyond, and these will be included in the insurance claims as appropriate. Management projects that current and future claims will be within policy limits, and that gains will be recognized with respect to casualty claims in future periods, but this is contingent upon reaching agreement with the insurance carriers. Through the end of 2005, Whitney expensed $4.4 million of storm-related disaster response costs and casualty losses.
Deposit Growth and Liquidity Management
The Bank experienced a rapid accumulation of deposits in the months
following the storms. Total deposits at December 31, 2005 were up $1.44 billion,
or 20%, from June 30, 2005. The most significant increase was in
noninterest-bearing demand deposits, which grew 24%, or $632 million, during the
fourth quarter of 2005 following growth of 16%, or $367 million, in 2005's third
quarter. A number of storm-related factors contributed to this accumulation.
Customers avoided larger recurring expenditures through payment deferral
programs and service disruptions, and many customers likely took a more
conservative approach to discretionary spending and increased credit purchases
to conserve liquidity. At the same time, significant disaster-relief funds were
available to residents in the affected areas, and a large number either remained
employed or received salary continuation payments. Many residents and businesses
have also received insurance settlements, although use of these funds has often
been delayed because of fundamental uncertainties pertaining to the rebuilding
process and insufficient resources to meet demand, and government-sponsored
disaster-recovery contracts have provided additional liquidity to some
commercial accounts.
Although management expects the balances accumulated by deposit customers in the storm-affected areas to reduce over time, it is difficult to predict when and to what degree, and there may be some further growth as remaining insurance claims are resolved and additional disaster-recovery funds are distributed. Funds from the deposit build-up were first used to reduce short-term wholesale borrowings, with the remainder mainly invested in short-term liquidity management securities pending better information on the volatility of these funds. Short-term investments and federal funds sold totaled $806 million at December 31, 2005 compared to $22 million a year earlier. A portion of the deposit growth also helped fund the increase in the balances of cash and cash items that resulted from storm-forced changes to the Bank's normal processing and collection of cash items and to its strategies for managing cash on hand in these unusual circumstances. Balances of cash on hand, cash items in process of collection and balances at financial institutions increased to $555 million at year-end 2005 from $214 million at the end of 2004. Some of this increase will continue into 2006 as the Bank completes its response to certain permanent changes in its operating environment.
Tax Relief
Federal legislation passed in December 2005 provided for a tax credit
to businesses in the storm-affected areas based on salaries paid to dislocated
employees through the end of 2005. Application of this provision reduced
Whitney's income tax expense for 2005 by $1.9 million.
HIGHLIGHTS OF FINANCIAL RESULTS
Whitney earned $102.3 million in 2005, up 5% from the $97.1 million earned in 2004. Per share earnings in 2005 were $1.65 per basic share and $1.63 per diluted share, each approximately 4% higher than in 2004. The key components of 2005's earnings performance follow:
o Net interest income, on a taxable-equivalent (TE) basis, increased 20%, or $66.7 million, in 2005. Average earning assets were 11% higher in 2005 and the net interest margin (TE) widened by 40 basis points. The most important factors behind the increase in net interest income in 2005 were loan growth and an improved mix of earning assets, higher short-term market interest rates, continued liquidity in the deposit base, including the accumulation of deposits following the storms, and active management of the pricing structure for loans and deposits.
o Whitney provided $37 million for loan losses in 2005, and the balance of the allowance for loan losses increased during the year by $36 million compared to year-end 2004. In 2004, the Company recognized a $2.0 million provision for loan losses. The allowance at December 31, 2005 incorporated management's best assessment based on currently available information of the storms' impact on credit quality. During 2005, there was a $106 million increase in the total of loans criticized through the internal credit risk classification process, approximately half of which represented storm-impacted credits. The storms' impact was not yet evident in net charge-offs, which totaled $5.0 million in 2005 and $9.6 million in 2004.
o Noninterest income was little changed between 2004 and 2005. Deposit service charge income decreased 18%, or $6.6 million, in 2005. Higher deposit account balances maintained after the storms reduced charging opportunities for certain fees and rising short- term market rates led to an increase in the earnings credit allowed against service charges on certain business deposit accounts, among other factors. Fees from bank cards were up 16%, or $1.7 million, in 2005, on continued growth in transaction volumes. Credit-related fees also showed a volume-driven improvement of 28%, or $1.1 million. In 2005, Whitney recognized an additional $1.9 million in net gains from the disposition of foreclosed assets and surplus banking property and received a $1.1 million distribution for its membership in an electronic payment network that was sold during the year.
o Noninterest expense was 10%, or $26.7 million, higher in 2005. Incremental expenses associated with acquired operations, including the amortization of intangibles, totaled approximately $12.5 million in 2005. Employee compensation increased 11%, or $12.8 million, including $4.8 million associated with the staff of acquired operations and $3.5 million of additional compensation under management incentive programs. Employee benefits expense was also up 11%, or $3.4 million, mainly related to retiree pension and health benefits and to the cost of acquired staff. Noninterest expense in 2005 included $4.4 million in storm-related losses, while 2004 included a $1.6 million loss on the abandonment of certain facility leases and a $.6 million casualty loss for hurricane damage.
CRITICAL ACCOUNTING POLICIES
Whitney prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. A discussion of certain accounting principles and methods of applying those principles that are particularly important to this process is included in Note 2 to the consolidated financial statements located in Item 8. In applying these principles to determine the amounts and other disclosures that are presented in the financial statements and discussed in this section, the Company is required to make estimates and assumptions.
Whitney believes that the determination of its estimate of the allowance for loan losses involves a higher degree of judgment and complexity than its application of other significant accounting policies. Factors considered in this determination and management's process are discussed in Note 2 and in the following section on "Loans, Credit Risk Management and Allowance for Loan Losses." Although management believes it has identified appropriate factors for review and designed and implemented adequate procedures to support the estimation process that are consistently followed, the allowance remains an estimate about the effect of matters that are inherently uncertain. Over time, changes in economic conditions or the actual or perceived financial condition of Whitney's credit customers or other factors can materially impact the allowance estimate, potentially subjecting the Company to significant earnings volatility.
Management makes a variety of assumptions in applying principles that govern the accounting for retirement benefits under the Company's defined benefit pension plan. These assumptions are essential to the actuarial valuation that determines the amounts Whitney recognizes and certain disclosures it makes in the consolidated financial statements related to the operation of this plan (see Note 15 in Item 8). Two of the more significant assumptions concern the expected long-term rate of return on plan assets and the rate needed to discount projected benefits to their present value. Changes in these assumptions impact the cost of pension benefits recognized in earnings. Certain assumptions are closely tied to current conditions and are generally revised at each measurement date. For example, the discount rate is reset annually with reference to market yields on high quality fixed-income investments. Other assumptions, such as the rate of return on assets, are determined, in part, with reference to historical and expected conditions over time and are not as susceptible to frequent revision. Holding other factors constant, pension cost will move opposite to changes in either the discount rate or the rate of return on assets. Recent trends in pension costs are discussed in the section on "Noninterest Expense."
FINANCIAL CONDITION
LOANS, CREDIT RISK MANAGEMENT AND ALLOWANCE FOR LOAN LOSSES
Loan Portfolio Developments
Total loans increased 17%, or $934 million, during 2005. Although some recent growth can be attributed to disaster-recovery work in the storm-affected areas and increased economic activity in evacuee relocation areas served by Whitney, the most significant rebuilding efforts have not yet begun and associated demand for credit will likely be spread over a number of years. Whitney acquired a $390 million loan portfolio with Destin Bank in April 2005. Table 1 shows loan balances by type of loan at December 31, 2005 and at the end of the previous four years.
TABLE 1. LOANS OUTSTANDING BY TYPE
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December 31
------------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004 2003 2002 2001
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Commercial, financial and agricultural $2,685,894 $2,399,794 $2,213,207 $1,917,859 $1,852,497
Real estate - commercial, construction and
other 2,743,486 2,209,975 1,726,212 1,584,099 1,576,817
Real estate - residential mortgage 774,124 685,732 619,869 638,703 761,355
Individuals 357,093 330,775 323,322 314,751 304,416
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Total loans $6,560,597 $5,626,276 $4,882,610 $4,455,412 $4,495,085
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The portfolio of commercial loans, other than those secured by real property, grew 12%, or $286 million, in 2005, including approximately $35 million from the Destin Bank acquisition. Overall the portfolio remained diversified, with customers in a range of industries, including oil and gas exploration and production, marine transportation and maritime construction, 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. The rate of commercial loan growth at the Bank in 2006 will depend mainly on the economic fundamentals affecting its customers as well as on its ability to continue to develop customers in the newer parts of its market and take advantage of competitive circumstances to attract new business in its established market.
At December 31, 2005, outstanding loans to oil and gas industry customers represented approximately 9% of total loans, little changed from the percentage at year-end 2004. The major portion of Whitney's customer base in this industry provides transportation and other services and products to support exploration and production activities. The Bank seeks service and supply customers who are quality operators that can manage through volatile commodity price cycles. With expectations of sustained higher commodity prices, Whitney has increased its attention to lending opportunities in the exploration and production sector in recent years. Outstanding loans to exploration and production companies totaled nearly one third of the industry portfolio at the end of 2005, up from approximately one quarter at year-end 2004. The Bank has a petroleum engineer on staff who participates in the underwriting of loans to exploration and production customers. Management, through the Bank's Credit Policy Committee, monitors both industry fundamentals and portfolio performance and credit quality on a formal ongoing basis and establishes and adjusts internal exposure guidelines as a percent of capital both for the industry as a whole and for individual sectors within the industry. The level of activity in this industry continues to have an important impact on the economies of certain portions of Whitney's market area, particularly southern Louisiana and Houston.
Outstanding balances under participations in larger shared-credit loan commitments totaled approximately $351 million at December 31, 2005, including $107 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 24%, or $534 million, in 2005. The Destin Bank acquisition added approximately $250 million to this category in 2005, with construction and real estate development loans making up three quarters of the total. Whitney continues to develop new business in this highly competitive sector throughout its market area in addition to financing new projects for its established customer base. The more recent activity in this portfolio sector has been driven by condominium and apartment projects and single-family residential development, particularly in the eastern Gulf Coast region, and by the development of retail, office and industrial properties by customers throughout Whitney's market area. At the same time, financing activity for hotel and other hospitality industry projects, which have largely been concentrated in the New Orleans metropolitan area, has slowed. The future pace of new real estate project financing will reflect the level of confidence by Whitney and its customers in the sustainability of favorable economic conditions. The rate of portfolio growth in a given period will also be affected by the refinancing of seasoned income properties in the secondary market and payments on residential development loans as inventory is sold. The Bank's Credit Policy Committee has also set exposure guidelines for the overall portfolio of commercial real estate loans as well as for loans to developers or owner-users that are secured by various subcategories of property. As with lending to the oil and gas industry, management regularly monitors real estate industry fundamentals and portfolio credit quality.
The residential mortgage loan portfolio grew by 13%, or $88 million, from the end of 2004 to year-end 2005, with most of this growth from the Destin acquisition. In the last two years, Whitney has increased the promotion of tailored mortgage products that are held in the portfolio, although it continues to sell most conventional residential mortgage loan production in the secondary market. This portfolio sector had declined for several years through 2003 as many loans refinanced in a favorable rate environment while new production was sold. There was little change in the total of fixed-term home equity loans outstanding during 2004. Growth in this product slowed as borrowers increasingly tapped home equity when refinancing their primary home mortgages in recent years.
Loans to individuals include various consumer installment and credit line loan products other than fixed-term home equity loans. This portfolio sector has grown moderately for several years, mainly from the promotion of secured personal credit lines and acquisitions.
Table 2 reflects contractual loan maturities, unadjusted for scheduled principal reductions, prepayments or repricing opportunities. Approximately 60% of the value of loans with a maturity greater than one year carries a fixed rate of interest.
TABLE 2. LOAN MATURITIES BY TYPE
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December 31, 2005
-----------------------------------------------------------------------------------------------------------------
One year One through More than
(in thousands) or less five years five years Total
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Commercial, financial and agricultural $1,843,630 $ 793,677 $ 48,587 $2,685,894
Real estate - commercial, construction and
other 971,150 1,525,916 246,420 2,743,486
Real estate - residential mortgage 146,307 381,857 245,960 774,124
Individuals 172,278 174,869 9,946 357,093
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Total $3,133,365 $2,876,319 $550,913 $6,560,597
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Credit Risk Management and Allowance for Loan Losses
Commercial credits, including commercial real estate loans, are underwritten principally based upon cash flow coverage, but additional support is regularly obtained through collateralization and guarantees. Commercial loans are typically relationship-based rather than transaction-driven. Loan concentrations are monitored monthly by management and the Board of Directors. Consumer loans are centrally underwritten with the support of automated credit scoring tools, with appropriate secondary review procedures.
A strong monitoring process is the key to early identification of problem credits. Lending officers are responsible for ongoing monitoring and the assignment of risk ratings to individual loans based on established guidelines. An independent credit review function reporting to the Audit Committee of the Board of Directors assesses the accuracy of officer ratings and the timeliness of rating changes and performs concurrent reviews of the underwriting processes. Once a problem relationship over a certain size threshold is identified, a quarterly watch committee process is initiated. The watch committee, composed of senior lending and credit administration management, must approve any substantive changes to identified problem credits and assigns relationships to the special credits department when appropriate.
Management's ongoing evaluation of credit risk in the portfolio is reflected in the estimate of probable loan losses inherent in the portfolio that is reported in the Company's financial statements as the allowance for loan losses. Changes in this evaluation over time are reflected in the provision for loan losses charged to expense. The methodology for determining the allowance involves significant judgment and important factors that influence this judgment are re-evaluated quarterly to respond to changing conditions.
The recorded allowance encompasses three elements: (1) allowances established for losses on criticized loans; (2) allowances based on historical loss experience for loans with acceptable credit quality and groups of homogeneous loans not individually rated; and (3) allowances based on general economic conditions and other qualitative risk factors internal and external to the Company.
Criticized loans are credits with above-average weaknesses as identified through the internal risk-rating process. Criticized loans include those that are deemed to be impaired as defined by Statement of Financial Accounting Standards (SFAS) No. 114. Specific allowances are determined for impaired loans based on the present value of expected future cash flows discounted at the loan's contractual interest rate, the fair value of the collateral if the loan is collateral dependent, or, when available, the loan's observable market price. The allowance for the remainder of criticized loans is calculated by applying loss factors to loan balances aggregated by the severity of the internal risk rating. The loss factors applied to criticized loans are determined with reference to the results of migration analysis, which analyzes the charge-off experience over time for loans within each rating category.
For the second element, loans assessed as having average or better credit quality with similar risk ratings and homogeneous loans not subject to individual rating, such as residential mortgage loans, consumer installment loans and draws under consumer credit lines, are grouped together and individual loss factors are applied to each group. The loss factors for homogeneous loan groups are based on average historical charge-off information. Industry-based factors are applied to other portfolio segments for which migration analysis has not been implemented.
Determining the final element of the allowance involves assessing how other current factors, both internal and external, impact the accuracy of results obtained for the other two elements. Internally, management must consider whether trends have been identified in the quality of underwriting and loan administration as well as in the timely identification of credit quality issues. Management also monitors shifts in portfolio concentrations and other changes in portfolio characteristics that indicate levels of risk not fully captured in the loss factors. External factors include local and national economic trends, as well as changes in the economic fundamentals of specific industries that are well-represented in Whitney's customer base. Management has established procedures to help ensure a consistent approach to this inherently judgmental process over time.
Based on information as of December 31, 2005, management has estimated that loans to customers with some level of operations in or resident in the impacted areas totaled $2.5 billion. Further analysis showed that the composition of these loans generally reflects the composition of the entire portfolio, which is over 80% weighted toward commercial and commercial real estate loans. By the end of 2005, loan officers had made individual assessments of the immediate and near-term effect of the storms on a substantial number of the commercial and commercial real estate loan customers in the impact areas and had initiated risk rating changes as needed, with confirmation of the conclusions by the credit review function. Approximately three-fourths of this component of the storm-impacted portfolio consists of large relationships individually in excess of $1 million, although the cutoff for individual review was set much lower. The results from this large-scale review were extrapolated to the portion of the storm-impacted portfolio not reviewed, including those reviewed loans for which the officers' conclusions were not yet confirmed by credit review.
Whitney's commercial relationships include many larger corporate borrowers with significant resources who serve multiple market areas, have the ability to shift physical operations and are backed by strong guarantors. The loan officers' reviews generally confirmed management's expectation that most of these customers would show limited immediate or near-term adverse effects from the storms. Whitney's customers in heavy industry and manufacturing are mainly located in areas that did not suffer severe effects from the storms, although the ratings on two larger relationships did receive storm-related downgrades to criticized classifications, with one identified as nonperforming. There was serious disruption to oil and gas production in the Gulf of Mexico, mainly from Hurricane Rita. Although some damage and lost capacity was noted among Whitney's exploration and production customer base, no significant long-term business impact or reduction in the customers' ability to service the debt was indicated. Repair work to production facilities and pipelines has led to increased business for a number of Whitney's borrowers in the service sector of the oil and gas industry. Certain larger noncorporate commercial customers, including educational institutions and certain public entities, did experience substantial property damage and/or disruptions to operations, and risk ratings were updated after considering both the immediate financial stress and the likely success of steps taken to ensure long-term viability.
In the review of larger commercial real estate loans secured by income-producing properties, close attention was paid to loans financing hotel operations in the New Orleans area. Overall, the properties financed by Whitney received relatively little damage and their rooms have been filled with contractors, government workers and displaced residents since shortly after the storms. The reviews did identify one hotel property that has encountered delays in reopening and the related loan was rated as warranting special attention. Tourism is an important facet of the New Orleans economy, and the city's success in revitalizing this industry and hosting conventions will be important to hotel operators and others in the hospitality industry over the long term. Management is guardedly optimistic that this revitalization is on track and that the obstacles contributing to current labor shortages, such as the availability of affordable housing, can be overcome.
Loan officer reviews covered many middle market and small business loans, including those secured by smaller retail or office properties. These loans made up approximately one-fourth of the storm-impacted commercial and commercial real estate portfolio at year-end 2005. There is a diverse mix of customers in this portfolio segment, including a variety of retail and wholesale merchants, restaurants, and professional and other service providers, among others. The officer reviews did not reveal any immediately apparent storm-related concentrations of increased credit risk within the portfolio, and individual customers who were severely impacted are being closely monitored as they work through insurance claims, evaluate their continued viability, and develop strategies for recovery if feasible. Management recognizes that such smaller businesses and smaller real estate leasing operations tend to have more limited resources and operating flexibility than larger businesses, and are more susceptible to the risks posed by what could be a prolonged recovery period and eventual shrinkage in the economies of impacted markets. Loan officers will continue to watch closely for signs of additional stress in this portfolio segment.
The detailed review process applied to commercial and commercial real estate loans was not logistically feasible for the residential mortgage and consumer credit components of the storm-impacted portfolio, which was estimated to total $309 million as of December 31, 2005. In addition, payment deferral programs offered by the Bank and other lenders have temporarily impaired the usefulness of statistics traditionally used to monitor credit quality in these portfolios. These portfolios were segmented using pre-storm risk characteristics, such as credit scores, and the type of collateral securing the loans, if any. Management assumed different levels of storm-related credit deterioration for the various segments and applied incremental loss factors to loans totaling approximately $120 million out of the total identified for the storm-impacted portfolio. In developing its assumptions, management considered a number of factors, including the historically strong credit risk profile of the Bank's consumer loan customer base, the established criteria used to underwrite consumer credits, the limited information that was available from contact with borrowers since the storms, and knowledge that the storms' impact on the financial capacity of individual borrowers has varied dramatically.
Significant uncertainties remain regarding the performance of residential mortgage loans and other consumer credits. Instability in the job market and the possibility of additional relocations can undermine individual borrowers' financial well-being and their ability to repay debts. Although much progress has been made, a number of residential mortgage customers and other secured borrowers have yet to resolve outstanding insurance claims. More importantly, decisions to repair or rebuild damaged residences are being delayed pending the issuance of updated flood maps, the completion of deliberations that will help determine community redevelopment plans, and the finalization of rules governing the distribution of federal disaster-relief grants to homeowners.
Because the disaster-recovery process will be lengthy and the long-term economic impact will remain unclear for some time, management will continue its process for assessing the storms' impact on credit quality until the significant remaining uncertainties are resolved. With additional information from ongoing reviews by loan officers and the availability of meaningful consumer portfolio performance statistics, management's estimate of the storms' impact on loan losses will be refined, and any related revisions in the allowance calculation will be reflected in the provision for loan losses as they occur.
TABLE 3. NONPERFORMING ASSETS
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December 31
-----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2005 2004 2003 2002 2001
-----------------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $65,565 $23,597 $26,776 $37,959 $33,412
Restructured loans 30 49 114 336 383
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Total nonperforming loans 65,595 23,646 26,890 38,295 33,795
Foreclosed assets and surplus banking
property 1,708 2,454 3,490 3,854 991
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Total nonperforming assets $67,303 $26,100 $30,380 $42,149 $34,786
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Loans 90 days past due still accruing $13,728 $3,533 $3,385 $5,817 $6,916
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Ratios:
Nonperforming assets to loans plus foreclosed
assets and surplus property 1.03% .46% .62% .95% .77%
Allowance for loan losses to
nonperforming loans 137 230 221 173 212
Loans 90 days past due still accruing to loans .21 .06 .07 .13 .15
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During 2005, there was a $106 million increase in the total of loans criticized through the internal credit risk classification process, approximately half of which represents storm-impacted credits. Criticized loans at December 31, 2005 included $21 million of loans whose full repayment is in doubt, including one $12 million storm-impacted relationship. The total at the end of 2005 was up $6 million from year-end 2004. Loans identified as having well-defined weaknesses that would likely result in some loss if not corrected increased $52 million during 2005, to a total of $139 million at year end. The increase for 2005 included larger storm-impacted credits totaling approximately $15 million and the $22 million commercial relationship mentioned above in the discussion of nonperforming loans. Loans warranting special attention totaled $120 million at year-end 2005, up $48 million from the prior year end. Larger storm-impacted credits identified for special attention totaled approximately $26 million, and the Destin Bank acquisition added approximately $16 million to this rating category. The allowance determined for criticized loans at December 31, 2005, other than those separately evaluated for impairment, was approximately $4 million greater than that determined at year-end 2004. The allowance for impaired loans increased $12 million from the end of 2004 to year-end 2005. At December 31, 2005, management had also established a $4 million allowance with respect to unidentified criticized loans and other rating downgrades that were estimated by extrapolation from the results of the storm-impact reviews.
Before adjustment for management's assessment of the storms' impact, the allowance for loans with average or better credit quality ratings and loans not subject to individual rating increased $3 million from the end of 2004 to December 31, 2005, mainly driven by loan growth. Regular adjustments to loss factors for certain smaller portfolio segments also contributed to the increase in the allowance. Management's storm-impact assessment added approximately $8 million to the allowance for these components of the portfolio, mainly related to unsecured consumer loans.
The overall allowance determined as of December 31, 2005 was $36 million higher than the allowance at year-end 2004. This included approximately $5 million related to management's relative assessment of economic and other qualitative risk factors between these dates, mainly reflecting uncertainty about the longer-term economic impact of the storms and the continued appropriateness of historical loss factors.
Table 4 shows the activity in the allowance over the past five years, and the allocation of the allowance to loan categories is included in Table 5, together with the percentage of total loans in each category.
TABLE 4. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSES
-------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2005 2004 2003 2002 2001
-------------------------------------------------------------------------------------------------------------------
Balance at the beginning of year $54,345 $59,475 $66,115 $71,633 $61,017
Allowances of acquired banks 3,648 2,461 - - 1,196
Allowance on loans transferred to held for sale - - - (895) (651)
Provision for loan losses 37,000 2,000 (3,500) 7,500 19,500
Loans charged off:
Commercial, financial and agricultural (7,047) (9,680) (7,286) (6,894) (11,678)
Real estate - commercial, construction and
other (438) (932) (963) (5,148) (252)
Real estate - residential mortgage (295) (619) (1,176) (1,816) (552)
Individuals (2,876) (2,799) (3,509) (3,353) (3,020)
-------------------------------------------------------------------------------------------------------------------
Total charge-offs (10,656) (14,030) (12,934) (17,211) (15,502)
-------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 2,707 2,488 2,273 2,472 3,130
Real estate - commercial, construction and
other 932 223 3,666 463 965
Real estate - residential mortgage 571 246 1,873 509 348
Individuals 1,481 1,482 1,982 1,644 1,630
-------------------------------------------------------------------------------------------------------------------
Total recoveries 5,691 4,439 9,794 5,088 6,073
-------------------------------------------------------------------------------------------------------------------
Net charge-offs (4,965) (9,591) (3,140) (12,123) (9,429)
-------------------------------------------------------------------------------------------------------------------
Balance at the end of year $90,028 $54,345 $59,475 $66,115 $71,633
-------------------------------------------------------------------------------------------------------------------
Ratios
Net charge-offs to average loans .08% .19% .07% .28% .21%
Gross charge-offs to average loans .17 .27 .28 .39 .35
Recoveries to gross charge-offs 53.41 31.64 75.72 29.56 39.18
Allowance for loan losses to loans at end
of year 1.37 .97 1.22 1.48 1.59
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TABLE 5. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
-------------------------------------------------------------------------------------------------------------------
December 31
-------------------------------------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
-------------------------------------------------------------------------------------------------------------------
% % % % %
(dollars in millions) Balance Loans Balance Loans Balance Loans Balance Loans Balance Loans
-------------------------------------------------------------------------------------------------------------------
Commercial, financial
and agricultural $40.6 41% $24.3 43% $29.2 45% $32.0 43% $36.4 41%
Real estate - commercial,
construction and other 29.8 42 21.2 39 19.2 35 18.8 36 17.7 35
Real estate -
residential mortgage 7.3 12 4.2 12 5.0 13 5.5 14 7.6 17
Individuals 7.3 5 2.7 6 2.6 7 4.7 7 4.5 7
Unallocated 5.0 - 1.9 - 3.5 - 5.1 - 5.4 -
-------------------------------------------------------------------------------------------------------------------
Total $90.0 100% $54.3 100% $59.5 100% $66.1 100% $71.6 100%
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INVESTMENT SECURITIES
The investment securities portfolio balance of $1.64 billion at December 31, 2005 was down $350 million, or 18%, compared to December 31, 2004. Portfolio reductions, including the sale of securities with a carrying value of $183 million in the second quarter of 2005, were part of an overall strategy for funding loan growth during the year. As noted earlier in the "Overview" section, Whitney invested some of the funds from a rapid post-storm build-up of deposits into liquidity management securities. Average investment securities decreased $284 million, or 13%, between 2004 and 2005. The composition of the average portfolio of investment securities and effective yields are shown in Table 12.
Information about the contractual maturity structure of investment securities at December 31, 2005, including the weighted-average yield on such securities, is shown in Table 6. The carrying value of securities with explicit call options totaled $252 million at year-end 2005. These call options and the scheduled principal reductions and projected prepayments on mortgage-backed securities are not reflected in Table 6. Including expected principal reductions on mortgage-backed securities, the weighted-average maturity of the overall securities portfolio was approximately 47 months at December 31, 2005, compared to 48 months at year-end 2004.
TABLE 6. DISTRIBUTION OF INVESTMENT MATURITIES
-------------------------------------------------------------------------------------------------------------------------
December 31, 2005
-------------------------------------------------------------------------------------------------------------------------
Over one through Over five through
(dollars in thousands) One year and less five years ten years Over ten years Total
-------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale
-------------------------------------------------------------------------------------------------------------------------
Mortgage-backed
securities(a) $ 1,942 4.96% $108,017 4.15% $138,153 4.40% $785,122 4.41% $1,033,234 4.38%
U. S. agency securities 78,365 2.54 219,976 3.71 - - - - 298,341 3.40
U. S. Treasury securities 49,322 2.85 - - - - - - 49,322 2.85
Obligations of states and
political subdivisions (b) 102 7.70 - - - - - - 102 7.70
Other debt securities 100 7.50 2,496 5.71 2,250 6.30 - - 4,846 6.02
Equity securities(c) - - - - - - 27,918 5.42 27,918 5.42
-------------------------------------------------------------------------------------------------------------------------
Total $129,831 2.70% $330,489 3.87% $140,403 4.43% $813,040 4.44% $1,413,763 4.15%
-------------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
-------------------------------------------------------------------------------------------------------------------------
Obligations of states and
political subdivisions (b) $6,133 6.63% $45,385 6.30% $105,458 5.87% $70,712 6.24% $227,688 6.09%
------------------------------------------------------------------------------------------------------------------------
Total $6,133 6.63% $45,385 6.30% $105,458 5.87% $70,712 6.24% $227,688 6.09%
-------------------------------------------------------------------------------------------------------------------------
(a) Distributed by contractual maturity without regard to repayment schedules or
projected prepayments.
(b) Tax exempt yields are expressed on a fully taxable equivalent basis.
(c) These securities have no stated maturities or guaranteed dividends. Yield estimated based on expected
near-term returns.
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The weighted-average taxable-equivalent portfolio yield was approximately 4.42% at December 31, 2005, little changed from 4.40% at December 31, 2004. A substantial majority of the securities in the investment portfolio bear fixed interest rates. The investment in mortgage-backed securities with final contractual maturities beyond ten years shown in Table 6 included approximately $329 million of adjustable-rate issues with a weighted-average yield of 4.32%. The initial reset dates on these securities are predominantly within five years of year-end 2005.
The mix of investments in the portfolio did not change significantly during the last two years. The estimated duration of the overall investment portfolio was 3.0 years at December 31, 2005, and would extend to 3.7 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. At December 31, 2004, the portfolio's estimated duration was 3.1 years.
Securities available for sale made up the bulk of the total investment portfolio at December 31, 2005. There was a net unrealized loss on this portfolio segment of $31 million at year-end 2005. Gross losses totaled $32 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. Note 6 to the consolidated financial statements located in Item 8 provides information on the process followed by management to evaluate whether unrealized losses on securities, both those available for sale and those held to maturity, represent impairment that is other than temporary and that should be recognized with a charge to operations. Substantially all the unrealized losses at December 31, 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, and no value impairment was evaluated as other than temporary. At December 31, 2005, Whitney held no securities issued by local governmental units for areas significantly impacted by the storms.
The Company does not normally maintain a trading portfolio, other than holding trading account securities for short periods while buying and selling securities for customers. Such securities, if any, are included in other assets in the consolidated balance sheets.
Apart from securities issued or guaranteed by the U. S. government or its agencies, Whitney held no investment in the securities of a single issuer at December 31, 2005 that exceeded 10% of its shareholders' equity.
DEPOSITS AND BORROWINGS
Deposits at December 31, 2005 were up 30%, or $1.99 billion, from the level at year-end 2004. The Destin Bank locations acquired in 2005 held $354 million in deposits at December 31, 2005. As discussed earlier in the "Overview" section, there was a rapid accumulation of deposits in the months following the storms. On average, deposits increased 14%, or approximately $877 million, in 2005. Table 7 shows the composition of deposits at December 31, 2005 and the previous two year ends. The composition of average deposits and the effective yield on interest-bearing deposits for each of these years is presented in Table 12.
TABLE 7. DEPOSIT COMPOSITION
---------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2005 2004 2003
---------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits $3,301,227 38% $2,111,703 32% $1,943,248 32%
Interest-bearing deposits:
NOW account deposits 1,116,000 13 901,859 14 827,360 13
Money market deposits 1,103,510 13 1,270,479 19 1,396,420 23
Savings deposits 1,120,078 13 709,887 11 585,943 9
Other time deposits 717,938 8 694,458 10 745,478 12
Time deposits $100,000 and over 1,246,083 15 924,221 14 660,133 11
---------------------------------------------------------------------------------------------------------------
Total interest-bearing 5,303,609 62 4,500,904 68 4,215,334 68
---------------------------------------------------------------------------------------------------------------
Total $8,604,836 100% $6,612,607 100% $6,158,582 100%
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The post-storm influx of deposits was concentrated in noninterest-bearing and certain other lower-cost deposit products, which helped maintain the Company's favorable mix of deposit funds. Noninterest-bearing demand deposits increased 56%, or $1.19 billion, from the end of 2004, with approximately $1 billion of this growth coming since the second quarter of 2005. Lower-cost interest-bearing deposits, which exclude time deposits, grew 16%, or $457 million, in 2005, substantially all during the second half of the year. Noninterest-bearing demand deposits increased to 38% of total deposits at December 31, 2005 from 32% a year earlier, while total lower-cost deposits held relatively steady at a little over three-quarters of total deposits. Movement among the different lower-cost interest-bearing deposit categories since year-end 2004 partly reflected the management of the pricing structure for the different products. The Destin Bank locations acquired in 2005 held $236 million in lower-cost deposits at December 31, 2005.
Higher-cost time deposits at December 31, 2005 were up 21%, or $345 million, compared to year-end 2004. Time deposits at the acquired Destin Bank locations totaled $119 million at year-end 2005. Time deposits of $100,000 and over include competitively bid public funds and excess funds of certain 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. Customers held $504 million of funds in treasury-management deposit products at December 31, 2005, up $221 million from December 31, 2004. Public fund time deposits totaled $172 million at year-end 2005, which was $34 million higher than the previous year end.
TABLE 8. MATURITIES OF TIME DEPOSITS
-----------------------------------------------------------------------------------------------------
Deposits of Deposits of
$100,000 less than
(in thousands) or more $100,000 Total
-----------------------------------------------------------------------------------------------------
Three months or less $ 859,743 $215,759 $1,075,502
Over three months through six months 169,093 157,211 326,304
Over six months through twelve months 122,426 182,067 304,493
Over twelve months 94,821 162,901 257,722
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Total $1,246,083 $717,938 $1,964,021
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Short-term and other borrowings at December 31, 2005 were down 32%, or $201 million, from year-end 2004. The main source of short-term borrowings has been the sale of securities under repurchase agreements to customers using Whitney's treasury management sweep product. The total of borrowings from customers under repurchase agreements declined approximately 10%, or $30 million, from year-end 2004 to the end of 2005, but increased 17% on average in 2005. Because of the underlying customer relationship, these borrowings serve as a relatively stable source of funds. As noted earlier, funds from the post-storm accumulation of deposits were first used to reduce short-term wholesale borrowings. The Bank had eliminated its borrowings under short-term advances from the Federal Home Loan Bank (FHLB) by the end of 2005. In 2004, the Bank had begun using these advances as an additional source of short-term funds to support loan growth, and borrowings from the FHLB totaled $100 million at December 31, 2004. Other sources of wholesale short-term funding include federal funds purchased and brokered repurchase agreements. Additional information on borrowings, including yields and maximum amounts borrowed, is presented in Note 13 to the consolidated financial statements located in Item 8.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
Shareholders' equity totaled $961 million at December 31, 2005, which represented an increase of $56 million from the end of 2004. The 1.9 million shares issued in the Destin acquisition in May 2005 were valued at $57 million. Whitney repurchased 1.56 million of its common shares during 2005 at a cost of $47 million. The Company retained $41 million of earnings, net of dividends declared, but this was partly offset by an $18 million decrease in other comprehensive income representing an unrealized net holding loss on securities available for sale during 2005. Whitney recognized $21 million in additional equity during 2005 from activity in stock-based compensation plans for employees and directors, including option exercises. Total shareholders' equity grew $64 million in 2004, to $905 million at December 31, 2004. Net retained earnings of $42 million and $22 million in additional equity from stock-based compensation plan activity during 2004 were partly offset by an $11 million other comprehensive loss. Whitney issued 1.03 million shares in the Madison acquisition in August 2004 which were valued at $42 million. The Company repurchased 1.06 million shares in 2004 at a cost of $32 million. The Company declared dividends during 2005 that represented a payout totaling 60% of earnings for the year. The dividend payout ratio was 57% in 2004 and 50% in 2003.
The ratios in Table 9 indicate that the Company remained strongly capitalized at December 31, 2005. The decrease in the various ratios from year-end 2004 reflected both the planned reduction in absolute capital levels through the stock repurchase program that was completed in 2005 and an increase in both risk-weighted assets and average assets used to calculate the leverage ratio. The increase in assets resulted mainly from an increase in loans,
including those acquired with Destin, although storm-related additions to cash items in process of collection and short-term investments were other important factors. Goodwill and other intangible assets recognized in business acquisitions are excluded from risk-weighted assets. These intangible assets, however, are also deducted in determining regulatory capital and thereby serve to offset the addition to capital for the value of shares issued as consideration for the acquisition.
TABLE 9. RISK-BASED CAPITAL AND CAPITAL RATIOS
-------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2005 2004 2003 2002 2001
-------------------------------------------------------------------------------------------------------------------
Tier 1 regulatory capital $ 765,881 $767,717 $739,236 $672,408 $604,179
Tier 2 regulatory capital 90,608 54,345 59,475 66,115 63,878
-------------------------------------------------------------------------------------------------------------------
Total regulatory capital $ 856,489 $822,062 $798,711 $738,523 $668,057
-------------------------------------------------------------------------------------------------------------------
Risk-weighted assets $7,746,046 $6,527,821 $5,777,094 $5,301,764 $5,102,470
-------------------------------------------------------------------------------------------------------------------
Ratios
Leverage ratio (Tier 1 capital to average
assets) 8.21% 9.56% 10.13% 9.76% 8.72%
Tier 1 capital to risk-weighted assets 9.89 11.76 12.80 12.68 11.84
Total capital to risk-weighted assets 11.06 12.59 13.83 13.93 13.09
Shareholders' equity to total assets 9.51 11.00 10.84 11.28 9.91
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The regulatory capital ratios for the Bank exceed the minimum required ratios, and the Bank has been categorized as "well-capitalized" in the most recent notice received from its primary regulatory agency.
LIQUIDITY MANAGEMENT AND CONTRACTUAL OBLIGATIONS
Liquidity Management
The objective of liquidity management is to ensure that funds are
available to meet cash flow requirements of depositors and borrowers, while at
the same time meeting the operating, capital and strategic cash flow needs of
the Company and the Bank. Whitney develops its liquidity management strategies
and measures and monitors liquidity risk as part of its overall asset/liability
management process, making full use of quantitative modeling tools available to
project cash flows under a variety of possible scenarios. Projections are also
made assuming credit-stressed conditions, although such conditions are not
currently anticipated.
Liquidity management on the asset side primarily addresses the composition and maturity structure of the loan portfolio and the portfolio of investment securities and their ability to generate cash flows from scheduled payments, contractual maturities, and prepayments, through use as collateral for borrowings, and through possible sale or securitization. Table 2 above presents the contractual maturity structure of the loan portfolio and Table 6 presents contractual investment maturities.
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 earlier "Overview" section and the section above on "Deposits and Borrowings" discuss changes in these liability-funding sources in 2005. Whitney National Bank is a member of the Federal Home Loan Bank system. This membership provides access to a variety of FHLB advance products as an alternative source of funds, and the Bank increased its use of this funding source during 2004 and early parts of 2005. In addition, both the Company and the Bank have access to external funding sources in the financial markets, and the Bank has developed the ability to gather deposits at a nationwide level, although it has not used this ability to date.
As discussed in the earlier "Overview" section, the Bank experienced a rapid accumulation of deposits in the months following the storms. Funds from the deposit build-up were first used to reduce short-term wholesale borrowings, with the remainder mainly invested in short-term liquidity management securities pending better information on the volatility of these funds. A portion of the deposit growth also helped fund the increase in the balances of cash and cash items that resulted from storm-forced changes to the Bank's normal processing
and collection of cash items and to its strategies for managing cash on hand in these unusual circumstances. Some of the increase in cash items will continue into 2006 as the Bank completes its response to certain permanent changes in its operating environment. Although management expects the balances accumulated by deposit customers in the storm-affected areas to reduce over time, it is difficult to predict when and to what degree, and there may be some further growth as remaining insurance claims are resolved and additional disaster-recovery funds are distributed. Management is monitoring changes in this portion of the deposit base as part of its liquidity management process.
Cash generated from operations is another important source of funds to meet liquidity needs. The consolidated statements of cash flows located in Item 8 present operating cash flows and summarize all significant sources and uses of funds for each year in the three-year period ended December 31, 2005.
At December 31, 2005, Whitney Holding Corporation had approximately $86 million in cash and demand notes from the Bank available to provide liquidity for acquisitions, dividend payments to shareholders, stock repurchases or other corporate uses, before consideration of any future dividends that may be received from the Bank. During 2006, the Bank will have available an amount equal to approximately $47 million plus its current net income to declare as dividends to the Company without prior regulatory approval.
Whitney has announced an agreement to acquire First National Bancshares, Inc. for stock and cash in a transaction expected to close in the second quarter of 2006. The cash component of the purchase price will total up to approximately $42 million.
Contractual Obligations
The following table summarizes payments due from the Company under
specified long-term and certain other contractual obligations as of December 31,
2005. Obligations under deposit contracts are not included. The maturities of
time deposits are scheduled in Table 8 above in the section on "Deposits and
Borrowings." Purchase obligations represent legal and binding contracts to
purchase services or goods that cannot be settled or terminated without paying
substantially all of the contractual amounts. Not included are a number of
contracts entered into to support ongoing operations that either do not specify
fixed or minimum amounts of goods or services or are cancelable on short notice
without cause and without significant penalty. The consolidated statements of
cash flows provide a picture of Whitney's ability to fund these and other more
significant cash operating expenses, such as interest expense and compensation
and benefits, out of current operating cash flows.
TABLE 10. CONTRACTUAL OBLIGATIONS
-----------------------------------------------------------------------------------------------------------------
(dollars in thousands) Payments due by period from December 31, 2005
-----------------------------------------------------------------------------------------------------------------
Less than 1 - 3 3 - 5 More than
Total 1 year years years 5 years
-----------------------------------------------------------------------------------------------------------------
Operating lease obligations $44,835 $ 5,875 $ 9,882 $ 7,625 $21,453
Purchase obligations 31,401 8,632 10,948 7,571 4,250
Subordinated debentures (a) 15,465 - 9,279 - 6,186
Other long-term liabilities (b) (c) - - - - -
-----------------------------------------------------------------------------------------------------------------
Total $91,701 $14,507 $30,109 $15,196 $31,889
-----------------------------------------------------------------------------------------------------------------
(a) Subordinated debentures are included with short-term and other borrowings in the Company's consolidated
financial statements. Contractual payments are scheduled by expected call dates.
(b) Obligations under the qualified defined benefit pension plan are not included. The Company does not
anticipate making a pension contribution during 2006, and does not anticipate any significant near-term
payments under the unfunded nonqualified pension plan. A $7.6 million nonqualified plan obligation was
recorded at year-end 2005.
(c) The recorded obligation for postretirement benefits other than pensions was $11.9 million at December 31,
2005. The funding to purchase benefits for current retirees, net of retiree contributions, has not been
significant.
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OFF-BALANCE SHEET ARRANGEMENTS
As a normal part of its business, the Company enters into arrangements that create financial obligations that are not recognized, wholly or in part, in the consolidated financial statements. Certain of these arrangements, such as noncancelable operating leases, are reflected in Table 10 above. The most significant off-balance sheet obligations are the Bank's commitments under traditional credit-related financial instruments. Table 11 schedules these commitments as of December 31, 2005 by the periods in which they expire. Commitments under credit card and personal credit lines generally have no stated maturity.
TABLE 11. CREDIT-RELATED COMMITMENTS
-----------------------------------------------------------------------------------------------------------------
(dollars in thousands) Commitments expiring by period from December 31, 2005
-----------------------------------------------------------------------------------------------------------------
Less than 1 - 3 3 - 5 More than
Total 1 year years years 5 years
-----------------------------------------------------------------------------------------------------------------
Loan commitments - revolving $1,834,415 $1,362,761 $299,776 $162,196 $9,682
Loan commitments - nonrevolving 593,667 367,092 226,575 - -
Credit card and personal credit lines 507,733 507,733 - - -
Standby and other letters of credit 365,582 311,995 53,587 - -
-----------------------------------------------------------------------------------------------------------------
Total $3,301,397 $2,549,581 $579,938 $162,196 $9,682
-----------------------------------------------------------------------------------------------------------------
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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, in some cases, not at all before they expire. Credit card and personal credit lines are generally subject to cancellation if the borrower's credit quality deteriorates, and many lines remain partly or wholly unused. Unfunded balances on revolving loan commitments and credit lines should not be used to project actual future liquidity requirements. Nonrevolving loan commitments are issued mainly to provide financing for the acquisition and development or construction of real property, both commercial and residential, although many are not expected to lead to permanent financing by the Bank. Expectations about the level of draws under all credit-related commitments are incorporated into the Company's liquidity and asset/liability management models.
Substantially all of the letters of credit are standby agreements that obligate the Bank to fulfill a customer's financial commitments to a third party if the customer is unable to perform. The Bank issues standby letters of credit primarily to provide credit enhancement to its customers' other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors. The Company has historically had minimal calls to perform under standby agreements.
ASSET/LIABILITY MANAGEMENT
The objective of the Company's asset/liability management is to implement strategies for the funding and deployment of its financial resources that are expected to maximize soundness and profitability over time at acceptable levels of risk.
Interest rate sensitivity is the potential impact of changing rate environments on both net interest income and cash flows. The Company has developed a model to measure its interest rate sensitivity by running net interest income simulations and monitoring the economic value of equity. The model can be used to test the Company's sensitivity in various economic environments. The model incorporates management's assumptions and expectations regarding such factors as loan and deposit growth, pricing, prepayment speeds and spreads between interest rates. Assumptions can also be entered into the model to evaluate the impact of possible strategic responses to changes in the competitive environment. Management, through the Company's Asset & Liability Committee, monitors simulation results against rate sensitivity guidelines specified in Whitney's asset/liability management policy.
The net interest income simulations run at the end of 2005 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 $28.9 million, or 6.2%, and decrease $31.9 million, or 6.8%, 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%. At the end of each year, additional simulations were run applying instantaneous parallel rate shocks up to 300 basis points as well as gradual rate changes of up to 200 basis points.
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 and corresponding movement in interest rate spreads, and the level of success of asset/liability management strategies implemented.
The method used for measuring longer-term interest rate risk is the economic value of equity analysis. At year-end 2005, the simulated measure of the Company's sensitivity was acceptable under internal guidelines at all levels of rate shock.
Changes in interest rates affect the fair values of financial instruments. The earlier section on Investment Securities and Notes 6 and 19 to the consolidated financial statements located in Item 8 contain information regarding fair values.
The Bank has used interest rate swaps on a limited basis to bring the market risk associated with the longer-duration fixed-rate loans desired by some customers in line with Whitney's asset/liability management objectives. No interest rate swap agreements were in effect at December 31, 2005, and swap activity has had minimal impact on financial condition and results of operations.
Other than this swap activity, the Company has made no investments in financial instruments or participated in agreements with values that are linked to or derived from changes in the value of some underlying asset or index. These are commonly referred to as derivatives and include such instruments as futures, forward contracts, option contracts, and other financial arrangements with similar characteristics. Management continues to evaluate whether to make additional use of derivatives as part of its asset/liability and liquidity management processes.
RESULTS OF OPERATIONS
NET INTEREST INCOME (TE)
Whitney's net interest income (TE) increased $66.7 million, or 20%, in 2005 compared to 2004. Average earning assets were 11% higher in 2005 and the net interest margin (TE) widened 40 basis points. The net interest margin is net interest income (TE) as a percent of average earning assets. The most important factors behind the increase in net interest income in 2005 were loan growth, including growth through acquisitions, an improved mix of earning assets, higher short-term market interest rates, active management of the pricing structure for both loans and deposits, and continued liquidity in the deposit base. Tables 12 and 13 provide details on the components of the Company's net interest income (TE) and net interest margin (TE).
Average loans, which in Table 12 include loans held for sale, increased 19% in 2005 and comprised 76% of average earning assets for the year, up from 71% in 2004. Rising benchmark rates for the large variable-rate segment of Whitney's loan portfolio were evident in the 107-basis point improvement in loan yields (TE) between 2004 and 2005. After several years of sustained low market interest rates, short-term rates began to increase in mid-2004 prompting an increase in bank prime rates totaling 125 basis points by the end of 2004 and another 200 basis points by year-end 2005. Balances of loans with adjustable rates tied to short-term market rate indices or prime totaled close to 60% of the dollar value of the portfolio at the end of both 2005 and 2004. The yield (TE) on the largely fixed-rate investment portfolio is less responsive to changes in market rates and fluctuated within a narrow range during 2005 and 2004, declining 7 basis points between these periods. As discussed earlier, Whitney increased its investment in short-term liquidity-management instruments in response to the rapid build-up of the deposit base after the storms in 2005, although such investments comprised only 1% of average earning assets for the year. The overall yield (TE) on average earning assets was 5.85% in 2005 compared to 5.01% in 2004, an increase of 84 basis points.
The overall cost of funds increased 44 basis points between 2004 and 2005. Whitney continued to manage the rate structure for its different deposit products during 2005 in an effort to control the impact of upward pressure on funding rates that has continued to build with rising short-term market rates and pricing for competitive financial products. The overall rate on interest-bearing deposits other than time deposits increased 27 basis points in 2005 compared to 2004. Rates paid on time deposits, and in particular time deposits of $100,000 or more, increase 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 was up 123 basis points compared to 2004. The rate on short-term and other borrowings, which are most sensitive to market rate changes, increased 150 basis points between 2004 and 2005.
Changes in the mix of funding sources have a significant impact on the direction of the overall cost of funds. There was a small favorable shift in the overall funding mix in 2005 compared to 2004, mainly reflecting the rapid build-up of lower-cost deposits in 2005 after the late-summer storms. Average noninterest-bearing deposits funded 30% of average earning assets in 2005, up from 27% in 2004, and the percentage of funding from all noninterest-bearing sources increased to 33% in 2005 from 32% in the prior year. Within interest-bearing sources of funds, there has been some shift toward higher-cost sources, which include time deposits and short-term and other borrowings. Higher-cost sources of funds totaled 31% of average earning assets in 2005 and 29% in 2004, while funding from lower-cost interest-bearing deposits decreased to 36% of earning assets in 2005 from 39% in 2004. Whitney's ability to maintain a favorable mix and cost of funding sources over the long term will depend on, among other factors, its continued success in retaining and growing the deposit base in a highly competitive environment and in managing its deposit-pricing structure as rates rise on alternative financial products.
TABLE 12. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME(TE)(a) AND INTEREST RATES
---------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
(dollars in thousands) December 31, 2005 December 31, 2004 December 31, 2003
---------------------------------------------------------------------------------------------------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans (TE)(b) (c) $6,174,972 $390,835 6.33% $5,192,713 $273,125 5.26% $4,647,090 $253,555 5.46%
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Mortgage-backed securities 1,185,587 50,978 4.30 1,377,804 60,217 4.37 1,145,511 50,428 4.40
U.S. agency securities 314,031 10,295 3.28 343,502 11,366 3.31 422,331 16,547 3.92
U.S. Treasury securities 61,510 1,987 3.23 122,503 5,072 4.14 196,214 7,344 3.74
Obligations of states and
political subdivisions (TE) 236,782 14,579 6.16 242,058 15,663 6.47 196,410 13,175 6.71
Other securities 38,318 1,870 4.88 34,727 1,295 3.73 43,779 1,825 4.17
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Total investment in
securities 1,836,228 79,709 4.34 2,120,594 93,613 4.41 2,004,245 89,319 4.46
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Federal funds sold and
short-term investments 87,798 3,421 3.90 13,926 181 1.30 66,528 750 1.13
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Total earning assets 8,098,998 $473,965 5.85% 7,327,233 $366,919 5.01% 6,717,863 $343,624 5.12%
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NONEARNING ASSETS
Other assets 870,447 619,993 585,676
Allowance for loan losses (66,124) (57,043) (65,517)
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Total assets $8,903,321 $7,890,183 $7,238,022
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LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits $ 919,722 $ 4,769 .52% $ 810,074 $ 2,975 .37% $ 709,508 $ 2,838 .40%
Money market deposits 1,191,736 11,920 1.00 1,371,419 8,959 .65 1,409,491 11,407 .81
Savings deposits 829,777 5,986 .72 652,689 2,230 .34 557,178 2,180 .39
Other time deposits 723,396 12,742 1.76 726,482 9,487 1.31 798,626 14,085 1.76
Time deposits $100,000 and over 1,120,566 29,035 2.59 809,324 11,014 1.36 678,969 10,183 1.50
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Total interest-bearing
deposits 4,785,197 64,452 1.35 4,369,988 34,665 .79 4,153,772 40,693 .98
---------------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 661,682 16,534 2.50 601,427 6,017 1.00 439,869 2,816 .64
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Total interest-bearing
liabilities 5,446,879 $ 80,986 1.49% 4,971,415 $ 40,682 .82% 4,593,641 $ 43,509 .95%
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NONINTEREST-BEARING
LIABILITIES AND
SHAREHOLDERS' EQUITY
Demand deposits 2,439,229 1,977,515 1,759,414
Other liabilities 81,851 59,776 61,269
Shareholders' equity 935,362 881,477 823,698
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Total liabilities and
shareholders' equity $8,903,321 $7,890,183 $7,238,022
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Net interest income and
margin (TE) $392,979 4.85% $326,237 4.45% $300,115 4.47%
Net earning assets and spread $2,652,119 4.36% $2,355,818 4.19% $2,124,222 4.17%
Interest cost of funding earning
assets 1.00% .56% .65%
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(a) Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) Includes loans held for sale.
(c) Average balance includes nonaccruing loans of $26,848, $26,942 and $34,507, respectively, in 2005,
2004 and 2003.
|
TABLE 13. SUMMARY OF CHANGES IN NET INTEREST INCOME(TE)(a) (b)
-------------------------------------------------------------------------------------------------------------------
2005 Compared to 2004 2004 Compared to 2003
----------------------------------------------------------------------
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) $56,728 $60,982 $117,710 $28,950 $(9,380) $19,570
-------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities (8,279) (960) (9,239) 10,155 (366) 9,789
U.S. agency securities (967) (104) (1,071) (2,827) (2,354) (5,181)
U.S. Treasury securities (2,140) (945) (3,085) (2,987) 715 (2,272)
Obligations of states and political
subdivisions (TE) (336) (748) (1,084) 2,968 (480) 2,488
Other securities 144 431 575 (351) (179) (530)
-------------------------------------------------------------------------------------------------------------------
Total investment securities (11,578) (2,326) (13,904) 6,958 (2,664) 4,294
-------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 2,354 886 3,240 (669) 100 (569)
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Total interest income (TE) 47,504 59,542 107,046 35,239 (11,944) 23,295
-------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW account deposits 444 1,350 1,794 381 (244) 137
Money market deposits (1,297) 4,258 2,961 (301) (2,147) (2,448)
Savings deposits 737 3,019 3,756 346 (296) 50
Other time deposits (40) 3,295 3,255 (1,187) (3,411) (4,598)
Time deposits $100,000 and over 5,378 12,643 18,021 1,833 (1,002) 831
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Total interest-bearing deposits 5,222 24,565 29,787 1,072 (7,100) (6,028)
-------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 659 9,858 10,517 1,264 1,937 3,201
-------------------------------------------------------------------------------------------------------------------
Total interest expense 5,881 34,423 40,304 2,336 (5,163) (2,827)
-------------------------------------------------------------------------------------------------------------------
Change in net interest income (TE) $41,623 $25,119 $66,742 $32,903 $(6,781) $26,122
-------------------------------------------------------------------------------------------------------------------
(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.
|
Net interest income (TE) increased $26.1 million, or 9%, in 2004, consistent with the rate of growth in average earning assets from 2003. The net interest margin (TE) was essentially stable between these periods. The important factors behind this increase were substantially the same as those underlying the increase in net interest income in 2005 as noted earlier.
Average loans grew by 12% in 2004 and comprised 71% of average earning assets for the period, up from 69% in 2003. A further shift to variable pricing within the loan portfolio in 2004 and the concentration of loan growth in high-quality commercial credits contributed to a 20 basis point decline in annual yield (TE) on the loan portfolio between 2003 and 2004. This trend to variable pricing also positioned the portfolio for more rapid yield improvement with rising short-term market rates, as was evident in the 51-basis point increase in the loan portfolio yield (TE) from the second quarter to the fourth quarter of 2004. As noted earlier, adjustable-rate loans totaled close to 60% of the dollar value of the portfolio at year-end 2004. The adjustable-rate total at the end of 2003 was closer to 50% of the portfolio. The average yield (TE) on the investment portfolio was again relatively stable between 2003 and 2004, declining only 5 basis points. The overall yield (TE) on average earning assets was 5.01% in 2004 compared to 5.12% in 2003, a decrease of 11 basis points. With rising market rates, the overall earning asset yield increased 42 basis points during the second half of 2004 compared to the yield in 2004's second quarter.
The overall cost of funds decreased 9 basis points between 2003 and 2004. As with earning assets, however, the cost of funds increased in the latter part of 2004 with rising short-term market rates. Whitney's management of the deposit-pricing structure helped limit this increase between the second and fourth quarters of 2004 to 10 basis points. The cost of interest-bearing deposits declined 19 basis points in 2004, but increased 10 basis points during the second half of the year. Substantially all of this increase was from a 23 basis point increase in the rate paid on time deposits, which partly reflected a higher level of public funds in the deposit base as well as the cost structure of deposits acquired in a business combination in the third quarter of 2004. The overall interest cost on short-term and other borrowings was most sensitive to market rate changes, increasing 36 basis points between 2003 and 2004 and 61 basis points from the second quarter to the fourth quarter of 2004.
PROVISION FOR LOAN LOSSES
Whitney provided $37 million for loan losses in 2005, and the allowance for loan losses increased during the year by $36 million compared to year-end 2004. The allowance at December 31, 2005 incorporated management's best assessment based on currently available information of the impact of the recent storms on credit quality. In 2004, the Company recognized a $2.0 million provision for loan losses. The credit risk profile of Whitney's customer base improved in 2004, and Whitney was able to reduce its allowance for loan losses by $5.1 million compared to the end of 2003. Net charge-offs totaled $5.0 million in 2005 and $9.6 million in 2004.
For a more detailed discussion of changes in the allowance for loan losses, nonperforming assets and general credit quality, including management's approach to assessing the storms' impact on credit quality, see the earlier section on "Loans, Credit Risk Management and Allowance for Loan Losses." The future level of the allowance and provisions for loan losses will reflect management's ongoing evaluation of credit risk, based on established internal policies and practices.
NONINTEREST INCOME
Table 14 shows the components of noninterest income for each year in the three-year period ended December 31, 2005, along with the percent changes between years for each component. Noninterest income was essentially unchanged in 2005 after decreasing 8%, or $7.0 million, in 2004.
TABLE 14. NONINTEREST INCOME ----------------------------------------------------------------------------------------------------------------- (dollars in thousands) 2005 % change 2004 % change 2003 ----------------------------------------------------------------------------------------------------------------- Service charges on deposit accounts $30,579 (18)% $37,148 (3)% $38,309 Bank card fees 11,972 16 10,319 12 9,193 Trust service fees 9,483 6 8,959 10 8,126 Secondary mortgage market operations 5,022 2 4,925 (56) 11,248 ATM fees 4,085 (9) 4,497 (4) 4,691 Credit-related fees 5,029 28 3,923 5 3,740 Investment services income 3,655 4 3,508 (13) 4,010 Other fees and charges 3,745 20 3,125 (8) 3,405 Other operating income 4,536 17 3,880 (19) 4,764 Net gain on sales and other revenue from foreclosed assets 2,692 (a) 1,378 (a) 1,132 Net gains on disposals of surplus property 1,369 (a) 793 (a) 23 Securities transactions 68 (a) 68 (a) 863 ----------------------------------------------------------------------------------------------------------------- Total noninterest income $82,235 - % $82,523 (8)% $89,504 ----------------------------------------------------------------------------------------------------------------- (a) Not meaningful. |
Income from service charges on deposit accounts declined 18%, or $6.6 million, in 2005, following a 3% decline between 2004 and 2003. Service charges include periodic account maintenance fees, for both business and personal customers, charges for specific transactions or services, such as processing return items or wire transfers, and other revenue associated with deposit accounts, such as commissions on check sales.
Account maintenance fees for business customers were down 29%, or $2.9 million, in 2005, after decreasing 11%, or $1.2 million, in 2004. The fees charged on a large number of business accounts are based on an analysis of account activity, and these accounts are allowed to offset accumulated charges with an earnings credit based on balances maintained in the account. The rate used to calculate the earnings credit is based on short-term market rates. Analysis account fees declined 35%, or $3.0 million, in 2005, and 14%, or $1.3 million, in 2004, reflecting in large part the increase in the earnings credit rate beginning with the latter half of 2004. Analysis fee income in recent years has also been negatively impacted by higher levels of liquidity in the deposit base, some reduction in the volume of chargeable transactions, and the migration of customers with lower transaction volumes to fixed-fee business account products. Total fixed-fee account fees, though still small relative to total analysis fees, increased 5% in 2005 and 10% in 2004.
Personal account service charges were lower in both 2005 and 2004, by $.8 million and $.5 million, respectively. These reductions largely reflect the loss of lower-balance customers to competitive "no-fee" account products, which have been aggressively promoted in parts of Whitney's market area.
Charges earned on specific transactions and services in 2005 were down $2.9 million compared to 2004, substantially all related to fees for items returned for insufficient funds and for overdrafts. Although broad trends in how customers execute transactions have been reducing charging opportunities, the decrease in fees during 2005 was for the most part a function of the higher deposit account balances maintained after the storms by customers in the areas most impacted. The earlier section on "Deposits and Borrowings" discussed the factors behind this accumulation of deposit balances. This phenomenon and the reduction in deposit charges earned continued into
early 2006. In 2004, charges earned on specific transactions and services increased $.6 million compared to 2003, reflecting improved pricing and expanded services from the earlier period.
Bank card fees increased 16%, or $1.7 million, in 2005 and 12%, or $1.1 million, in 2004. This income category includes fees from activity on Bank-issued debit and credit cards. Debit card fee income was up 24%, or $1.3 million, in 2005, on a 26% increase in transaction volume compared to 2004. Over half of the volume increase came in the last quarter of 2005, indicating in part a change in payment behavior within the customer base dislocated by the late summer storms. Debit card fee income increased 11%, or $.5 million, in 2004 when transaction volume rose 13%. Fee income from credit card activity grew 14% in 2005, generally consistent with the growth in transaction volume, and was up 15% in 2004.
Trust service fees increased 6% in 2005, driven mainly by new business. This followed a 10% increase in 2004 compared to 2003 that reflected both new business and improved equity market valuations relative to the earlier period. During 2004, Whitney positioned additional relationship officers to attract and service trust and wealth management customers across its market area.
Fee income generated by Whitney's secondary mortgage market operations increased 2% in 2005. The addition of Destin Bank's mortgage operations and the allocation of additional resources to selected parts of Whitney's market helped generate an increase in overall home loan production in 2005. Production in storm-impacted areas was disrupted for a period, but the impact was not significant to overall operations. These disruptions did, however, delay the completion of a number of loan sales, caused the renegotiation of sales contracts and reduced profitability. Completed sales of home loans totaled approximately $300 million in 2005, $270 million in 2004 and $680 million in 2003. The fall-off in sales from 2003 to 2004 mainly reflected a decrease in production from refinancing activity, and fee income in 2004 decreased $6.3 million to a level less than half that generated in 2003. Although rates remained low during 2004 from a historical perspective, they could not stimulate refinancing activity by homeowners to the levels seen in 2003 when such activity made up 70% of the total dollar volume of Whitney's originations.
Credit-related fees include fees on letters of credit and unused commercial credit lines. The 28%, or $1.1 million, increase in this income category in 2005 was mainly a function of the increased volume of credit facilities granted and outstanding.
Investment services income increased 4% in 2005 following a 13% decrease in 2004 compared to 2003. Investment services include stock brokerage and annuity sales as well as fixed-income securities transactions for correspondent banks and other commercial and personal customers. The addition of Destin's operations fueled the income improvement in 2005. Market conditions in both 2005 and 2004 dampened the demand for fixed-income transactions among Whitney's customer base.
The Destin acquisition added $.6 million in fees from insurance services to the 2005 total for other fees and charges. The decline in this income category from 2003 to 2004 reflected the elimination of revenues from an outsourcing agreement that was cancelled.
In the first quarter of 2005, PULSE EFT Association was sold to Discover Financial Services. As a member of the PULSE electronic payment network, Whitney received distributions totaling approximately $1.1 million that were reported with other operating income for 2005. Other operating income for 2003 included a gain of $1.4 million recognized on the sale of a portfolio of seasoned loans originated under affordable-housing programs.
The net gain on sales and other revenue from foreclosed assets includes income from grandfathered assets that varies from year to year as opportunities for sales arise. Management evaluates its banking facilities on an ongoing basis to identify possible under-utilization and to determine the need for functional improvements, relocations or possible sales. The net gains recognized in each period from dispositions of surplus banking property are shown in Table 14.
NONINTEREST EXPENSE
Table 15 shows the components of noninterest expense for each year in the three-year period ended December 31, 2005, along with the percent changes between years for each component. Noninterest expense increased 10%, or $26.7 million, in 2005, following an increase of 7%, or $17.4 million, between 2003 and 2004. Incremental operating costs associated with acquired operations, including the amortization of acquired intangibles, totaled approximately $12.5 million in 2005 and $2.7 million in 2004.
Storm-related losses of $4.4 million were included in noninterest expense in 2005 representing in part the deductibles on Whitney's insurance policies. Certain categories of recurring noninterest expense were reduced in the period following the storms as a result of facility closings, service interruptions, and increased employee turnover during the relocation of New Orleans-based operations. The Company is working diligently to revise its disaster recovery plans and operating arrangements before the start of the 2006 hurricane season to address what shortcomings were exposed during this unprecedented crisis. In addition, management is developing longer-range plans designed to make Whitney's operations more resilient, with less exposure of critical operations to disasters of any type. These initiatives will lead to some recurring increase in operating expense, but they should also significantly reduce the direct and indirect costs associated with future natural disasters. Although management believes that adequate insurance coverage will continue to be available, the cost of coverage to the Company could increase sharply in the short-term.
TABLE 15. NONINTEREST EXPENSE ------------------------------------------------------------------------------------------------------------------- (dollars in thousands) 2005 % change 2004 % change 2003 ------------------------------------------------------------------------------------------------------------------- Employee compensation $132,488 11% $119,713 5% $113,994 Employee benefits 33,020 11 29,644 8 27,377 ------------------------------------------------------------------------------------------------------------------- Total personnel 165,508 11 149,357 6 141,371 Net occupancy 22,846 12 20,461 5 19,521 Equipment and data processing 17,344 (2) 17,636 2 17,264 Telecommunication and postage 9,154 3 8,846 3 8,614 Corporate value and franchise taxes 7,824 4 7,496 6 7,079 Legal and other professional services 6,091 2 5,943 (1) 6,029 Amortization of intangibles 8,261 46 5,657 6 5,332 Security and other outsourced services 10,493 16 9,045 2 8,846 Advertising and promotion 4,436 (22) 5,675 54 3,679 Operating supplies 3,853 3 3,727 5 3,546 Bank card processing services 3,036 16 2,612 14 2,293 Deposit insurance and regulatory fees 2,160 7 2,015 5 1,926 Miscellaneous operating losses 6,624 67 3,971 141 1,645 Other operating expense 19,348 8 17,837 13 15,778 ------------------------------------------------------------------------------------------------------------------- Total noninterest expense $286,978 10% $260,278 7% $242,923 ------------------------------------------------------------------------------------------------------------------- |
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 11%, or $12.8 million, in 2005, and was up 5%, or $5.7 million, in 2004. Employee compensation includes base pay, compensation earned under sales-based and other employee incentive programs, and compensation expense under management incentive plans.
Base pay rose 8%, or $7.8 million, in 2005, with a little more than half related to the staff of acquired operations. This followed a 5%, or $4.9 million, increase from 2003 to 2004, when acquired operations contributed 1% to the total percentage change. Whitney's full-time equivalent staff grew on average by approximately 3% in 2005 and 1% in 2004, substantially all related to acquisitions, through there was some branch expansion and
strategic placement of additional relationship officers. Most of the storm-related attrition toward the end of 2005 is expected to be restored in the early part of 2006.
Employees earned an additional $1.4 million under sales-based incentive plans during 2005 compared to 2004, of which approximately $.8 million was earned by the staff of acquired operations. In 2004, compensation earned under these incentive plans was $2.0 million less than in 2003. Incentive pay for residential mortgage loan production was the main factor, reflecting the significant decrease between these periods in loan origination volumes.
Compensation expense associated with management incentive programs increased by $3.5 million in 2005. This increase mainly related to the cash bonus incentive program and reflected Whitney's performance, as adjusted for certain storm-related items, in relation to its designated peer group, an increased emphasis on performance-based pay in the overall 2005 compensation packages for top management, and expanded management participation in the program. Between 2003 and 2004, there was a $2.8 million increase in the expense for management incentive programs, with stock-based compensation the main factor. Whitney has recognized stock-based compensation expense with respect to performance-based restricted stock grants. This expense fluctuates with changes in the Company's stock price, employee participation levels, and expectations about the extent to which performance objectives will be met.
As is discussed in Note 2 to the consolidated financial statements located in Item 8, new authoritative guidance has been issued that establishes the fair value-based method as the exclusive method of accounting for stock-based compensation and is effective for awards, including awards of stock options, which are granted, modified, repurchased, or cancelled after December 31, 2005. This new guidance also changes how Whitney will calculate compensation expense for unvested restricted stock awards starting with the first quarter of 2006, and the related compensation expense will differ from what would have been recognized under the prior accounting method. The difference in total compensation expense cannot be determined because the expense under the prior method would vary with future changes in Whitney's stock price. The impact of the revised standard on the accounting for future awards of stock-based compensation will depend on the terms of those awards.
Employee benefits expense increased 11%, or $3.4 million, in 2005, and was up 8%, or $2.3 million, in 2004. The major components of employee benefits expense, in addition to payroll taxes, are the cost of providing health benefits for active and retired employees and the cost of providing pension benefits through both the defined-benefit plans and a 401(k) employee savings plan.
The performance of the pension trust fund and trends in market yields on fixed-income securities in one period can cause fluctuations in the actuarially-determined periodic expense for the defined-benefit pension plan in future periods, holding other variables constant. The $1.4 million increase in pension expense in 2005 followed a relatively sharp drop during 2004 in the market yields referenced to determine the appropriate rate for discounting projected pension benefits. Investment performance in 2004 was in line with the long-term expected rate of return. Pension expense increased $.8 million in 2004. Although fixed-income market yields and the discount rate also declined in 2003, the trust fund posted better than assumed investment returns for the year. An $8 million employer contribution to the pension trust toward the end of 2003 also had a favorable impact on 2004 expense. Pension expense is expected to increase again in 2006, reflecting a further decrease in referenced market yields during 2005 and an investment performance below the long-term expected return. The rate of increase will be moderated by the impact of a $20 million contribution to the trust fund toward the end of 2005.
Trends in fixed-income market yields also impact the actuarial valuation results for postretirement health benefits as do trends in actual benefit outlays. Lower rates and unfavorable benefit experience in 2004 contributed to a $.6 million expense increase in 2005. A favorable comparison of postretirement health benefits costs in 2004 versus 2003 reflected the impact of legislation on prescription drug benefits under Medicare.
The cost of providing health coverage to active employees increased 4%, or $.4 million, in 2005, net of employee contributions. This followed an increase of 13%, or $1.0 million, in 2004 compared to 2003. Whitney's health coverage costs had been increasing at a pace well above the general rate of inflation for a number of years,
mirroring to a large extent broad trends in the consumption and cost of medical services, including prescription drugs. Whitney seeks to provide competitive benefits in a cost-efficient manner, and management reviews the structure of Whitney's health plans and the appropriate level of employee cost-sharing on a regular basis. Changes made to the plans for 2005 increased cost-sharing and encouraged employee participation in the most cost-effective coverage options. The trends that underlie increasing health benefit costs are expected to continue in the near term.
Net occupancy expense increased 12%, or $2.4 million, in 2005, including $1.6 million of incremental costs associated with acquired operations. There was also a net increase in occupancy expense from the addition of several new branches and the replacement or relocation of several other existing facilities. Although storm-related facility closures and asset retirements reduced certain recurring occupancy costs after the storms in 2005, these savings were for the most part offset by a corresponding loss of office rental revenue. Nine branch locations remain closed, and business is being conducted from temporary facilities or on a limited-access basis at seven other storm-damaged locations. Substantially all rental space is back in operation. In 2004, net occupancy expense increased 5%, or $.9 million, with expansion as the main factor. Whitney opened six new or replacement branches from late 2003 through the end of 2004, in addition to the locations acquired in Tampa and Ft. Walton in 2004. To reduce costs over the long term and enhance productivity, certain operations in Houston were moved to one of the new facilities in 2004 and out of office space that was subject to a noncancelable lease. Whitney recognized a loss of $1.6 million in 2004 related to its remaining obligation under the lease. This loss is included with miscellaneous operating losses in Table 15.
Equipment and data processing expense decreased 2%, or $.3 million, in 2005, although there was $.7 million in added costs for acquired operations. The phase-in of the ATM outsourcing contract during 2005, as discussed further below, gradually eliminated the expense of owning and maintaining these machines. Storm-related asset retirements and closures also served to reduce expense in 2005, although the impact was not significant. The Company's equipment and data processing expense has also benefited in recent years from aggressive contract management and close control over capital expenditures for both new projects and the replacement of fully-depreciated assets. Branch expansion and acquisitions were factors in the 2% increase in this expense category in 2004 compared to 2003.
The total expense for professional services, both legal and other services, has been relatively stable over the last three years. Legal expense, which covers services for both loan collection efforts and general corporate matters, was down 16%, or $.5 million, in 2005. The higher level of internally criticized loans accumulated during 2005 had not led to significant legal collection work through year end. Storm-related disruptions to law firm operations and judicial systems were also a factor. Legal expense also declined in 2004, by 12%, compared to 2003, partly reflecting improvements in loan credit quality in 2003 that continued through 2004. The expense for other professional services in 2005 was up 20%, or $.6 million, from 2004. Each of these years included approximately $.5 million for system-conversion services related to business acquisitions. The increase in 2005 came from consulting services on a variety of projects, such as new product development and the evaluation of compliance programs and optimal resource allocations, none of which were individually significant. In 2004, the expense for other professional services increased 12% over the prior year. In addition to the cost of converting acquired systems, the total in 2004 included additional audit and consulting fees associated with Whitney's compliance with the internal control provisions of the Sarbanes-Oxley Act of 2002.
Bank and branch acquisitions in 2005 and 2004 led to an increase in amortization of intangibles in each of these years, mainly associated with the value of deposit relationships acquired in these transactions. There were no acquisitions in 2003. Amortization expense of $8.7 million is scheduled for 2006. This amount does not include the impact of a pending business acquisition expected to be completed in the second quarter of 2006. Note 4 to the consolidated financial statements located in Item 8 reviews completed and pending acquisitions.
The expense for security and other outsourced services increased 16%, or $1.4 million, in 2005, mainly related to a new outsourcing agreement. Early in 2005, the Bank entered into a contract to outsource virtually all aspects of its ATM operations, including ownership of the equipment. This contract allowed Whitney to avoid significant costs to upgrade its ATMs to comply with new regulatory mandates. The contract calls for annual
payments in excess of $3 million for a seven-year period. Payments during the phase-in period in 2005 were substantially less than the scheduled annual outlay.
During 2004, management directed an additional $2.0 million to advertising and promotional activities compared to 2003. This mainly supported the execution of a campaign aimed at enhanced image awareness and brand differentiation throughout much of Whitney's market area. This campaign was largely completed by the end of 2004 and no comparable campaign was conducted in 2005. Increased advertising is planned for 2006, mainly to promote new and enhanced products.
Bank card processing services expense will vary mainly with changes in transaction volume on Bank-issued credit cards. Transaction volumes and bank card fee income are discussed in the earlier section on "Noninterest Income."
In addition to the $4.4 million of storm-related disaster response costs and casualty losses mentioned earlier, miscellaneous operating losses in 2005 included the accrual of a $.6 million loss contingency related to unfunded loan commitments. In 2004, operating losses included the $1.6 million lease abandonment charge mentioned above in the discussion of occupancy expense and a $.6 million casualty loss for property damage sustained when Hurricane Ivan struck the Florida-Alabama coastal border during that year.
The expense categories included in other operating expense were up 8%, or $1.5 million, on a combined basis in 2005, and 13%, or $2.1 million, in 2004. The total for 2005 included a $.5 million contribution to a disaster assistance fund for Whitney's employees. The required amortization of affordable housing projects increased in each year and was the main factor behind the increase in other operating expense in 2004 compared to 2003. Tax credits associated with the affordable housing investments reduced income tax expense and the effective tax rates as noted in the following section and Note 23 to the consolidated financial statements located in Item 8.
INCOME TAXES
The Company provided for income tax expense at an effective rate of 29.6% in 2005, 30.8% in 2004 and 31.9% in 2003. The effective tax rate has been lower than the 35% statutory federal tax rate primarily because of tax-exempt interest income from the financing of state and local governments and the availability of tax credits generated by investments in affordable housing projects. Federal disaster-relief legislation passed in December 2005 provided for a tax credit to businesses in the storm-affected areas based on salaries paid to dislocated employees through the end of 2005. The following reconciles reported income tax expense to that computed at the statutory federal tax rate for each year in the three-year period ended December 31, 2005:
TABLE 16. INCOME TAXES ------------------------------------------------------------------------------------------------------------------ (in thousands) 2005 2004 2003 ------------------------------------------------------------------------------------------------------------------ Income tax expense at 35% of pre-tax income $50,875 $49,117 $50,624 Increase (decrease) resulting from Tax exempt income (3,630) (3,880) (3,481) Low income housing credits (2,387) (1,929) (1,352) Disaster-relief credit (1,900) - - State income tax and miscellaneous items 49 (110) 308 ------------------------------------------------------------------------------------------------------------------ Income tax expense reported $43,007 $43,198 $46,099 ------------------------------------------------------------------------------------------------------------------ |
Louisiana-sourced income of commercial banks is not subject to state income taxes. Rather, banks in Louisiana pay a tax based on the value of their capital stock in lieu of income and franchise taxes, and this tax is allocated to parishes in which the banks maintain branches. Whitney's corporate value tax is included in noninterest expense. This expense will fluctuate in part based on the growth in the Bank's equity and earnings and in part based on market valuation trends for the banking industry.
FOURTH QUARTER RESULTS
Whitney earned $35.1 million for the quarter ended December 31, 2005, a 30% increase compared to net income of $27.0 million reported for the fourth quarter of 2004. Per share earnings were $.56 per basic share and $.55 per diluted share in 2005's fourth quarter, up 30% and 28%, respectively, from $.43 per share, both basic and diluted, in the year-earlier period.
Selected fourth quarter highlights follow:
o Whitney's net interest income (TE) increased $19.9 million, or
23%, compared to the fourth quarter of 2004, driven by a 13%
increase in average earning assets and a wider net interest
margin. The net interest margin (TE) was 5.03% for the fourth
quarter of 2005, up 40 basis points from the year-earlier period.
The overall yield on earning assets increased 92 basis points,
reflecting both higher benchmark rates for the large variable-rate
segment of Whitney's loan portfolio and an increased percentage of
loans in the earning asset mix. The rapid build-up of the deposit
base following the storms improved the funding mix during the
fourth quarter of 2005. This improvement was evident in the
one-basis point increase in the overall cost of funds between the
third and fourth quarters of 2005 and a 52-basis point increase
from the fourth quarter of 2004.
o Whitney made no provision for loan losses in the fourth quarter of 2005, compared to a $2 million provision in the fourth quarter of 2004. In 2005's third quarter, Whitney had provided $34 million for loan losses, mostly reflecting management's initial estimate of the storms' impact on credit quality. Extensive reviews of the storms' impact on borrowers performed during the fourth quarter of 2005 indicated a level of storm-related credit risk that was somewhat lower than initially estimated, and these findings were factored into the determination of the allowance at December 31, 2005. The total of loans criticized through the internal credit risk classification process increased by $35 million during the fourth quarter and the corresponding allowance increased $5.6 million. Net charge-offs totaled $.9 million in 2005's fourth quarter compared to $2.3 million in the fourth quarter of 2004.
o Noninterest income decreased 9%, or $1.8 million, from the fourth quarter of 2004. Deposit service charge income decreased 31%, or $2.8 million. Certain charging opportunities were reduced with the accumulation of deposit balances after the storms and the earnings credit allowed against service charges on certain business deposit accounts continued to grow with rising short-term market rates. Improvements were noted in a number of income categories, such as bank card fees and fees from secondary mortgage market operations, reflecting both internal growth and contributions from acquired operations. These and other improvements to noninterest income for the fourth quarter of 2005 were offset in part by storm-related fee waivers and the temporary disruption of certain rental operations.
o Noninterest expense in the fourth quarter of 2005 increased 17%, or $10.9 million, from 2004's fourth quarter. The incremental expense associated with acquired operations totaled $3.1 million in the fourth quarter of 2005, including amortization of acquired intangibles. Personnel expense increased 11%, or $4.3 million, in total, including $1.4 million for the staff of acquired operations and an additional $1.2 million in compensation under management incentive programs. Whitney expensed $3.3 million of storm-related disaster response costs and casualty losses in the fourth quarter of 2005 and contributed $.5 million during the period to a disaster assistance fund for its employees.
The Summary of Quarterly Financial Information appearing in Item 8 of this Form 10-K provides selected comparative financial information for each of the four quarters in 2005 and 2004.
Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required for this item is included in the section entitled "Asset/Liability Management" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" that appears in Item 7 of this Form 10-K and is incorporated here by reference.
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (Unaudited)
2005 Quarters
-------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
-------------------------------------------------------------------------------------------------------------
Net interest income $106,426 $97,685 $94,569 $88,419
Net interest income (TE) 107,907 99,116 96,023 89,933
Provision for loan losses - 34,000 1,500 1,500
Noninterest income 18,328 20,305 22,211 21,391
Net securities gains in noninterest income - - 68 -
Noninterest expense 76,657 71,678 72,382 66,261
Income tax expense 12,948 3,189 13,577 13,293
-------------------------------------------------------------------------------------------------------------
Net income $ 35,149 $ 9,123 $29,321 $28,756
-------------------------------------------------------------------------------------------------------------
Average balances
Total assets $9,539,789 $8,999,177 $8,833,445 $8,225,375
Earning assets 8,524,522 8,158,377 8,104,745 7,597,501
Loans 6,512,421 6,332,291 6,102,380 5,591,349
Deposits 7,973,830 7,229,462 7,086,179 6,593,001
Shareholders' equity 952,579 966,771 933,976 887,059
-------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.46% .40% 1.33% 1.42%
Return on average equity 14.64 3.74 12.59 13.15
Net interest margin 5.03 4.83 4.75 4.78
-------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.56 $.15 $.47 $.47
Diluted .55 .14 .46 .47
Cash dividends per share .25 .25 .25 .23
Trading data
High price $29.93 $33.69 $33.00 $31.09
Low price 24.14 26.60 28.65 28.44
End-of-period closing price 27.56 27.04 32.63 29.67
Trading volume 16,175,745 18,314,726 6,531,000 9,412,595
-------------------------------------------------------------------------------------------------------------
2004 Quarters
-------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
-------------------------------------------------------------------------------------------------------------
Net interest income $86,355 $80,186 $76,359 $77,190
Net interest income (TE) 87,972 81,725 77,869 78,671
Provision for loan losses 2,000 - 2,000 (2,000)
Noninterest income 20,172 20,053 21,391 20,907
Net securities gains in noninterest income - 68 - -
Noninterest expense 65,719 68,261 64,272 62,026
Income tax expense 11,810 9,900 9,575 11,913
-------------------------------------------------------------------------------------------------------------
Net income $26,998 $22,078 $21,903 $26,158
-------------------------------------------------------------------------------------------------------------
Average balances
Total assets $8,170,990 $7,882,497 $7,782,108 $7,722,135
Earning assets 7,568,194 7,309,316 7,253,932 7,175,034
Loans 5,506,923 5,231,828 5,069,304 4,906,710
Deposits 6,577,154 6,440,765 6,248,685 6,119,857
Shareholders' equity 925,176 882,744 862,016 855,476
-------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.31% 1.11% 1.13% 1.36%
Return on average equity 11.61 9.95 10.22 12.30
Net interest margin 4.63 4.46 4.31 4.40
-------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.43 $.36 $.36 $.43
Diluted .43 .35 .36 .43
Cash dividends per share .23 .22 .22 .22
Trading data
High price $30.83 $30.12 $29.86 $29.33
Low price 27.47 26.60 26.35 26.48
End-of-period closing price 29.99 28.00 29.78 27.83
Trading volume 10,193,418 7,243,113 4,992,822 5,232,899
-------------------------------------------------------------------------------------------------------------
All prices as reported on the Nasdaq National Market.
|
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Whitney Holding Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Management used the framework of criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission to conduct an evaluation of the effectiveness of internal control over financial reporting. Based on that evaluation, management concluded that internal control over financial reporting for the Company as of December 31, 2005 was effective.
Management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCooopers LLP, an independent registered public accounting firm, as stated in their report, which follows.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Shareholders and Board of Directors
of Whitney Holding Corporation:
We have completed integrated audits of Whitney Holding Corporation's 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005 and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/PricewaterhouseCoopers LLP New Orleans, Louisiana March 15, 2006. |
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
-------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2005 2004
-------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from financial institutions $ 554,827 $ 213,751
Federal funds sold and short-term investments 805,758 22,424
Loans held for sale 46,678 8,796
Investment securities
Securities available for sale 1,413,763 1,763,774
Securities held to maturity, fair values of $228,027 and
$232,225, respectively 227,688 227,470
-------------------------------------------------------------------------------------------------------------------
Total investment securities 1,641,451 1,991,244
Loans, net of unearned income 6,560,597 5,626,276
Allowance for loan losses (90,028) (54,345)
-------------------------------------------------------------------------------------------------------------------
Net loans 6,470,569 5,571,931
-------------------------------------------------------------------------------------------------------------------
Bank premises and equipment 151,978 156,602
Goodwill 204,089 115,771
Other intangible assets 26,304 24,240
Accrued interest receivable 52,808 28,985
Other assets 154,544 88,880
-------------------------------------------------------------------------------------------------------------------
Total assets $10,109,006 $8,222,624
-------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing demand deposits $3,301,227 $2,111,703
Interest-bearing deposits 5,303,609 4,500,904
-------------------------------------------------------------------------------------------------------------------
Total deposits 8,604,836 6,612,607
-------------------------------------------------------------------------------------------------------------------
Short-term and other borrowings 433,350 634,259
Accrued interest payable 10,538 5,032
Accrued expenses and other liabilities 99,239 65,961
-------------------------------------------------------------------------------------------------------------------
Total liabilities 9,147,963 7,317,859
-------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized - 100,000,000 shares
Issued - 63,657,059 and 63,163,398 shares, respectively 2,800 2,800
Capital surplus 261,318 250,793
Retained earnings 738,655 697,977
Accumulated other comprehensive loss (21,223) (2,963)
Treasury stock at cost - 316,575 and 1,061,817 shares, respectively (9,363) (31,475)
Unearned restricted stock compensation (11,144) (12,367)
-------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 961,043 904,765
-------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $10,109,006 $8,222,624
-------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Share data reflects the 3-for-2 stock split effective May 25, 2005.
|
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
-------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2005 2004 2003
-------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $390,058 $272,460 $252,611
Interest and dividends on investment securities
Taxable securities 65,130 77,950 76,144
Tax-exempt securities 9,476 10,181 8,564
Interest on federal funds sold and short-term investments 3,421 181 750
-------------------------------------------------------------------------------------------------------------------
Total interest income 468,085 360,772 338,069
-------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 64,452 34,665 40,693
Interest on short-term and other borrowings 16,534 6,017 2,816
-------------------------------------------------------------------------------------------------------------------
Total interest expense 80,986 40,682 43,509
-------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 387,099 320,090 294,560
PROVISION FOR LOAN LOSSES 37,000 2,000 (3,500)
-------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 350,099 318,090 298,060
-------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 30,579 37,148 38,309
Bank card fees 11,972 10,319 9,193
Trust service fees 9,483 8,959 8,126
Secondary mortgage market operations 5,022 4,925 11,248
Other noninterest income 25,111 21,104 21,765
Securities transactions 68 68 863
-------------------------------------------------------------------------------------------------------------------
Total noninterest income 82,235 82,523 89,504
-------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Employee compensation 132,488 119,713 113,994
Employee benefits 33,020 29,644 27,377
-------------------------------------------------------------------------------------------------------------------
Total personnel 165,508 149,357 141,371
Net occupancy 22,846 20,461 19,521
Equipment and data processing 17,344 17,636 17,264
Telecommunication and postage 9,154 8,846 8,614
Corporate value and franchise taxes 7,824 7,496 7,079
Legal and other professional services 6,091 5,943 6,029
Amortization of intangibles 8,261 5,657 5,332
Other noninterest expense 49,950 44,882 37,713
-------------------------------------------------------------------------------------------------------------------
Total noninterest expense 286,978 260,278 242,923
-------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 145,356 140,335 144,641
INCOME TAX EXPENSE 43,007 43,198 46,099
-------------------------------------------------------------------------------------------------------------------
NET INCOME $102,349 $ 97,137 $ 98,542
-------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $1.65 $1.59 $1.65
Diluted 1.63 1.56 1.63
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic 62,008,004 61,122,581 59,894,147
Diluted 62,953,293 62,083,043 60,594,201
CASH DIVIDENDS PER SHARE $ .98 $ .89 $ .82
-------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Share and per share data give effect to the 3-for-2 stock split effective May 25, 2005.
|
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------
Accumulated Unearned
Other Restricted
Common Capital Retained Comprehensive Treasury Stock
(dollars in thousand, except per share data) Stock Surplus Earnings Income (Loss) Stock Compensation Total
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 $2,800 $167,235 $607,235 $ 30,104 $ - $ (6,891) $800,483
-----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 98,542 - - - 98,542
Other comprehensive loss:
Unrealized net holding loss on
securities, net of reclassification
adjustments and taxes - - - (21,666) - - (21,666)
-----------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 98,542 (21,666) - - 76,876
-----------------------------------------------------------------------------------------------------------------------
Cash dividends, $.82 per share - - (49,582) - - - (49,582)
Stock issued to dividend reinvestment
plan - 1,303 - - 487 - 1,790
Long-term incentive plan stock activity:
Restricted grants and related activity - 9,630 - - (1,227) (3,823) 4,580
Options exercised - 5,023 - - 503 - 5,526
Directors' compensation plan
stock activity - 433 - - 207 - 640
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 $2,800 $183,624 $656,195 $ 8,438 $ (30) $(10,714) $840,313
-----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 97,137 - - - 97,137
Other comprehensive loss:
Unrealized net holding loss on
securities, net of reclassification
adjustments and taxes - - - (11,401) - - (11,401)
-----------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 97,137 (11,401) - - 85,736
-----------------------------------------------------------------------------------------------------------------------
Cash dividends, $.89 per share - - (55,355) - - - (55,355)
Stock acquired under repurchase program - - - - (31,475) - (31,475)
Stock issued in business combination - 41,932 - - - - 41,932
Stock issued to dividend reinvestment
plan - 1,445 - - 654 - 2,099
Long-term incentive plan stock activity:
Restricted grants and related activity - 9,860 - - (857) (1,653) 7,350
Options exercised - 13,034 - - 55 - 13,089
Directors' compensation plan
stock activity - 898 - - 178 - 1,076
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2004 $2,800 $250,793 $697,977 $ (2,963) $(31,475) $(12,367) $904,765
-----------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 102,349 - - - 102,349
Other comprehensive loss:
Unrealized net holding loss on
securities, net of reclassification
adjustments and taxes - - - (17,268) - - (17,268)
Additional minimum pension liability,
net of taxes - - - (992) - - (992)
-----------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 102,349 (18,260) - - 84,089
-----------------------------------------------------------------------------------------------------------------------
Cash dividends, $.98 per share - - (61,671) - - - (61,671)
Stock acquired under repurchase program - - - - (46,669) - (46,669)
Stock issued in business combination - (714) - - 57,838 - 57,124
Stock issued to dividend reinvestment
plan - (103) - - 2,521 - 2,418
Long-term incentive plan stock activity:
Restricted grants and related activity - 221 - - 5,727 1,223 7,171
Options exercised - 10,063 - - 2,363 - 12,426
Directors' compensation plan
stock activity - 1,058 - - 332 - 1,390
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2005 $2,800 $261,318 $738,655 $(21,223) $ (9,363) $(11,144) $961,043
-----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Per share data gives effect to the 3-for-2 stock split effective May 25, 2005.
|
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2005 2004 2003
----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $102,349 $ 97,137 $ 98,542
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment 13,589 13,458 13,242
Amortization of purchased intangibles 8,261 5,657 5,332
Restricted stock compensation earned 9,372 8,867 5,954
Premium amortization (discount accretion) on securities, net 1,060 4,139 8,221
Provision for losses on loans and foreclosed assets 37,114 2,099 (3,443)
Net gains on asset sales (2,601) (1,189) (1,410)
Deferred tax expense (benefit) (11,615) (3,399) 1,415
Net (increase) decrease in loans originated and held for sale (27,004) 6,513 22,802
Net (increase) decrease in interest and other income receivable and prepaid expenses (28,754) 4,693 (2,798)
Net increase (decrease) in interest payable and accrued expenses 37,812 11,343 (2,858)
Other, net (26,219) 100 986
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 113,364 149,418 145,985
----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 281,400 65,023 278,752
Proceeds from maturities of investment securities available for sale 361,784 542,947 785,351
Purchases of investment securities available for sale (232,122) (385,969) (1,321,413)
Proceeds from maturities of investment securities held to maturity 13,595 16,440 52,938
Purchases of investment securities held to maturity (14,901) (53,334) (40,898)
Net increase in loans (547,722) (564,403) (403,268)
Net increase in federal funds sold and short-term investments (756,131) (8,039) (10,058)
Proceeds from sales of foreclosed assets and surplus property 9,880 4,777 4,495
Purchases of bank premises and equipment (12,592) (15,928) (11,128)
Net cash (paid) received in business combinations (39,228) 7,364 -
Other, net (7,939) (2,504) (16,209)
----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (943,976) (393,626) (681,438)
----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in transaction account and savings account deposits 1,375,730 117,081 486,468
Net increase (decrease) in time deposits 177,608 133,654 (110,765)
Net increase (decrease) in short-term and other borrowings (281,761) 9,584 146,638
Proceeds from issuance of common stock 14,185 13,995 7,151
Purchases of common stock (52,924) (29,681) (1,528)
Cash dividends (61,150) (57,061) (48,248)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,171,688 187,572 479,716
----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 341,076 (56,636) (55,737)
Cash and cash equivalents at beginning of year 213,751 270,387 326,124
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $554,827 $213,751 $270,387
----------------------------------------------------------------------------------------------------------------------------
Cash received during the year for:
Interest income $442,647 $360,756 $339,413
Cash paid during the year for:
Interest expense $77,059 $40,777 $46,399
Income taxes 28,198 37,110 47,800
Noncash investing activities:
Foreclosed assets received in settlement of loans $2,754 $2,125 $2,574
----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
NATURE OF BUSINESS
Whitney Holding Corporation is a Louisiana bank holding company
headquartered in New Orleans, Louisiana. Its principal subsidiary is Whitney
National Bank (the Bank), which represents virtually all its operations and net
income.
The Bank, which has been in continuous operation since 1883, engages in community banking in its market area stretching across the five-state Gulf Coast region, including the Houston, Texas metropolitan area; southern Louisiana; the coastal region of Mississippi; central and south Alabama; the panhandle of Florida; and the Tampa Bay metropolitan area of Florida. The Bank, together with its wholly-owned subsidiary, Whitney Securities L.L.C., offers commercial and retail banking products and services, including trust products and investment services, to the customers in the communities it serves. Southern Coastal Insurance Agency, Inc., another wholly-owned Bank subsidiary, offers personal and business insurance products to customers in northwest Florida.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT PRONOUNCEMENTS
Whitney Holding Corporation and its subsidiaries (the Company or
Whitney) follow accounting and reporting policies that conform with accounting
principles generally accepted in the United States of America and those
generally practiced within the banking industry. The following is a summary of
the more significant accounting policies.
Basis of Presentation
The consolidated financial statements include the accounts of Whitney
Holding Corporation and its subsidiaries. All significant intercompany balances
and transactions have been eliminated. Whitney reports the balances and results
of operations from business combinations accounted for as purchases from the
respective dates of acquisition (see Note 4).
Use of Estimates
In preparing the consolidated financial statements, the Company is
required to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Investment Securities
Securities are classified as trading, held to maturity or available for
sale. Management determines the classification of securities when they are
purchased and reevaluates this classification periodically as conditions change
that could require reclassification.
Trading account securities are bought and held principally for resale in the near term. They are carried at fair value with realized and unrealized gains or losses reflected in noninterest income. Trading account securities are immaterial in each period presented and have been included in other assets on the consolidated balance sheets.
Securities which the Company both positively intends and has the ability to hold to maturity are classified as securities held to maturity and are carried at amortized cost. Intent and ability to hold are not considered satisfied when a security is available to be sold in response to changes in interest rates, prepayment rates, liquidity needs or other reasons as part of an overall asset/liability management strategy.
Securities not meeting the criteria to be classified as either trading securities or securities held to maturity are classified as available for sale and are carried at fair value. Unrealized holding losses, other than those determined to be other than temporary, and unrealized holding gains are excluded from net income and are recognized, net of tax, in other comprehensive income and in accumulated other comprehensive income, a separate component of shareholders' equity.
Premiums and discounts on securities, both those held to maturity and those available for sale, are amortized and accreted to income as an adjustment to the securities' yields using the interest method. Realized gains and losses on securities, including declines in value judged to be other than temporary, are reported net as a component of noninterest income. The cost of securities sold is specifically identified for use in calculating realized gains and losses.
Loans Held for Sale
Loans originated for sale are carried at the lower of either cost or
market value. At times, management may decide to sell loans that were not
originated for that purpose. These loans are reclassified as held for sale when
that decision is made and are also carried at the lower of cost or market.
Loans
Loans are carried at the principal amounts outstanding net of unearned
income. Interest on loans and accretion of unearned income, including deferred
loan fees, are computed in a manner that approximates a level rate of return on
recorded principal.
The Company stops accruing interest on a loan when the borrower's ability to meet contractual payments is in doubt. For commercial and real estate loans, a loan is placed on nonaccrual status generally when it is ninety days past due as to principal or interest, and the loan is not otherwise both well secured and in the process of collection. When a loan is moved to nonaccrual status, any accrued but uncollected interest is reversed against interest income. Interest payments on nonaccrual loans are used to reduce the reported loan principal under the cost recovery method if the collectibility of the remaining principal is not reasonably assured; otherwise, such payments are recognized as interest income when received. A loan on nonaccrual status may be reinstated to accrual status when full payment of contractual principal and interest is expected and this expectation is supported by current sustained performance.
A loan is considered impaired when it is probable that all amounts will not be collected as they become due according to the contractual terms of the loan agreement. Generally, impaired loans are accounted for on a nonaccrual basis. The extent of impairment is measured based upon a comparison of the recorded investment in the loan with either the expected cash flows discounted using the loan's original effective interest rate, the fair value of the underlying collateral if the loan is collateral dependent, or, when available, the loan's observable market price. The amount of impairment is included in the allowance for loan losses.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that, in the
opinion of management, is adequate to absorb probable losses inherent in the
loan portfolio as of the balance sheet date. The adequacy of the allowance is
evaluated on an ongoing basis. Management considers various sources of
information including analyses of specific loans reviewed for impairment,
statistics from the internal credit risk rating process, reports on the payment
performance of portfolio segments not subject to individual risk ratings,
historical loss experience, portfolio concentration statistics and reports on
general and local economic conditions and the economic fundamentals of specific
industries that are well-represented in the customer base. Management also forms
a judgment about the level of accuracy inherent in the evaluation process.
Changes in management's evaluation over time are reflected in the provision for
loan losses charged to operating expense.
As actual loan losses are incurred, they are charged against the allowance. Subsequent recoveries are added back to the allowance when collected.
Bank Premises and Equipment
Bank premises and equipment are carried at cost, less accumulated
depreciation. Depreciation is computed primarily using the straight-line method
over the estimated useful lives of the assets and over the shorter of the lease
terms or the estimated lives of leasehold improvements. Useful lives range
principally from fifteen to thirty years for buildings and improvements and from
three to ten years for furnishings and equipment, including data processing
equipment and software. Additions to bank premises and equipment and major
replacements or improvements are capitalized.
Foreclosed Assets and Surplus Property
Collateral acquired through foreclosure or in settlement of loans and
surplus property are both reported with other assets in the consolidated balance
sheets. With the exception of grandfathered property interests, which are
assigned a nominal book value, these assets are recorded at estimated fair
value, less estimated selling costs, if this value is lower than the carrying
value of the related loan or property asset. Any initial reduction in the
carrying amount of a loan to the fair value of the collateral received is
charged to the allowance for loan losses. Losses arising from the transfer of
bank premises and equipment to surplus property are charged to current earnings.
Subsequent valuation adjustments for either foreclosed assets or surplus
property are also included in current earnings, as are the revenues and expenses
associated with managing these assets before they are sold.
Goodwill and Other Intangible Assets
Whitney has recognized intangible assets in connection with its
purchase business combinations. Identifiable intangible assets acquired by the
Company have mainly represented the value of the deposit relationships purchased
in these transactions. Goodwill represents the purchase price premium over the
fair value of the net assets of an acquired business, including identifiable
intangible assets.
Goodwill must be assessed for impairment annually unless interim events or circumstances make it more likely than not that an impairment loss has occurred. Impairment is defined as the amount by which the implied fair value of the goodwill contained in any reporting unit within a company is less than the goodwill's carrying value. The Company has assigned all goodwill to one reporting unit that represents Whitney's overall banking operations. This reporting unit is the same as the operating segment identified below, and its operations constitute substantially all of the Company's consolidated operations. Impairment losses would be charged to operating expense.
Identifiable intangible assets with finite lives are amortized over the periods benefited and are evaluated for impairment similar to other long-lived assets. If the useful life of an identifiable intangible asset is indefinite, the recorded asset is not amortized but tested for impairment by comparison to its estimated fair value.
Stock-Based Compensation
At December 31, 2005, the Company had two incentive compensation plans
that incorporate stock-based compensation, as is more fully described in Note
16. Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, as amended by SFAS No. 148, established a fair
value-based method of accounting for stock-based compensation, among other
provisions. As provided for in SFAS No. 123, however, Whitney elected to
continue to follow Accounting Principles Board Opinion (APB) No. 25 and related
interpretations to measure and recognize stock-based compensation expense. Under
that Opinion, the Company recognized 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 the date used to
measure compensation expense 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:
-----------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 2005 2004 2003
-----------------------------------------------------------------------------------------------------------------
Net income $102,349 $97,137 $98,542
Stock-based compensation expense included in reported net income,
net of related tax effects 6,091 5,764 3,870
Stock-based compensation expense determined under fair value-based
method for all awards, net of related tax effects (7,696) (8,267) (5,935)
-----------------------------------------------------------------------------------------------------------------
Pro forma net income $100,744 $94,634 $96,477
-----------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic - as reported $1.65 $1.59 $1.65
Basic - pro forma 1.62 1.55 1.61
Diluted - as reported 1.63 1.56 1.63
Diluted - pro forma 1.60 1.52 1.59
-----------------------------------------------------------------------------------------------------------------
Weighted-average fair value of options awarded during the year $6.09 $6.64 $4.36
-----------------------------------------------------------------------------------------------------------------
|
The fair values of the stock options were estimated as of the grant dates using the Black-Sholes option-pricing model. The total estimated value for each year's option awards was $3.1 million in 2005, $4.9 million in 2004, and $3.0 million in 2003. The Company made the following significant assumptions in applying the option-pricing model: (a) a weighted-average expected annualized volatility for Whitney's common stock of 22.97% in 2005, 24.97% in 2004, and 25.55% in 2003; (b) a weighted-average option life of 5.60 years in 2005 and 6.86 years in 2004 and 7.00 years in 2003; (c) an expected annual dividend yield of 3.14% in 2005, 3.23% in 2004, and 3.56% in 2003; and (d) a weighted-average risk-free interest rate of 3.87% in 2005, 4.44% in 2004, and 3.01% in 2003.
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 election to follow APB No. 25. Under SFAS No. 123R, the grant-date fair value of equity instruments, including stock options, awarded to employees establishes the cost of the services received in exchange, and the cost associated with awards that are expected to vest is recognized over the required service period. The revised standard also clarified and expanded 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.
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. For outstanding awards whose 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 December 31, 2005, all stock options awarded by the Company were fully-exercisable and there were no continuing service requirements. The service requirements for certain restricted stock awards do 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. Although the initial difference is immaterial, the ongoing difference cannot be determined because the expense under APB No. 25 would vary with future changes in Whitney's stock price. The impact of the revised standard on the accounting for future awards of stock-based compensation will depend on the terms of those awards.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. Income taxes are accounted for using the asset and liability method.
Under this method the expected tax consequences of temporary differences that
arise between the tax bases of assets or liabilities and their reported amounts
in the financial statements represent either deferred tax liabilities to be
settled in the future or deferred tax assets that will be realized as a
reduction of future taxes payable. Currently enacted tax rates and laws are used
to calculate the expected tax consequences. Valuation allowances are established
against deferred tax assets if, based on all available evidence, it is more
likely than not that some or all of the assets will not be realized.
Earnings per Share
Basic earnings per share is computed by dividing income applicable to
common shares (net income in all periods presented) by the weighted-average
number of common shares outstanding for the applicable period. Shares
outstanding are adjusted for restricted shares issued to employees under the
long-term incentive compensation plan and for certain shares that will be issued
under the directors' compensation plan. Diluted earnings per share is computed
using the weighted-average number of shares outstanding increased by the number
of restricted shares in which employees would vest based on current performance
and by the number of additional shares that would have been issued if
potentially dilutive stock options were exercised, each as determined using the
treasury stock method.
Statements of Cash Flows
The Company considers only cash on hand and balances due from financial
institutions as cash and cash equivalents for purposes of the consolidated
statements of cash flows.
Operating Segment Disclosures
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," established standards for reporting information about a company's
operating segments using a "management approach." Reportable segments are
identified in this statement as those revenue-producing components for which
separate financial information is produced internally and which are subject to
evaluation by the chief operating decision maker in deciding how to allocate
resources to segments. Consistent with its stated strategy that is focused on
providing a consistent package of community banking products and services
throughout a coherent market area, Whitney has identified its overall banking
operations as its only reportable segment. Because the overall banking
operations comprise substantially all of the consolidated operations, no
separate segment disclosures are presented.
Other
Assets held by the Bank in a fiduciary capacity are not assets of the
Bank and are not included in the consolidated balance sheets. Generally, certain
minor sources of income are recorded on a cash basis, which does not differ
materially from the accrual basis.
Accounting Standard Developments
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
Share-Based Payment. This statement replaced 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 the earlier section on "Stock-Based
Compensation."
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 was effective for loans acquired in fiscal years beginning after December 31, 2004 and did not change the accounting for loans previously acquired. The impact of applying this SOP in accounting for the Destin Bancshares, Inc. acquisition in April 2005 was immaterial.
NOTE 3
IMPACT OF NATURAL DISASTERS
Two strong hurricanes affected portions of Whitney's service area
during 2005. In late August, Hurricane Katrina hit the greater New Orleans area
and the Mississippi gulf coast, with lesser impacts on coastal Alabama and the
western panhandle of Florida. Hurricane Rita made landfall toward the end of
September across the coastal area at the Texas and Louisiana border, with a
major impact on southwest Louisiana, including the Lake Charles area.
The following summarizes some of the more significant financial repercussions of these natural disasters for the Company and the Bank.
Credit Quality and Allowance for Loan Losses Management has been confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the 2005 storms on credit quality and inherent losses. It was clear early on that the storms could have significant and long-term economic repercussions, both positive and negative, for businesses and individuals in the most severely affected parts of the broader storm-impact area, but it was impossible then and continues to be difficult to assess with precision the storms' ultimate effect on Whitney's loan collections.
To begin to address this uncertainty, loan officers completed an extensive review of the storms' immediate and near-term effect on commercial and commercial real estate loan customers with some level of operations in the impacted areas by December 31, 2005. In addition, the portfolios of residential mortgage loans and other consumer credits to customers resident in the storm-impacted areas were segmented using pre-storm risk characteristics and type of available collateral to allow management to refine its estimate of potential credit deterioration among these borrowers. Management's assessment of the storms' impact is still subject to significant uncertainties, both those specific to individual customers, such as the resolution of insurance claims, and those applicable to the economic recovery of the storm-impact area as a whole. In addition, information to fully assess the performance of consumer credits that had been under payment deferral programs started to become available only after the end of 2005.
The allowance for loan losses at December 31, 2005 incorporated management's best estimate, based on available information, of inherent losses resulting from the impact of the 2005 storms. As management acquires additional information to resolve some of the remaining uncertainties and obtains further results of ongoing reviews of individual borrowers, the loss estimate will be revised as needed.
Disaster Response Costs, Casualty Losses, Business Interruption and
Related Insurance
To operate in disaster response mode, the Bank incurred
expenses for, among other things, the use of pre-designated back-up data
processing centers, the lease of temporary equipment and facilities, lodging and
other expenses for relocated personnel, and emergency communications with
customers regarding the status of Bank operations. Emergency changes to the
Bank's normal processing and collection of cash items caused recurring delays in
funds availability that had a negative impact on net interest income. In
addition, a number of the Bank's facilities and their contents were damaged by
the storms and the rental income from excess office space and a parking facility
was temporarily disrupted. Sixteen banking facilities will require replacement,
relocation or major renovation.
Whitney maintains insurance for casualty losses as well as for reasonable and necessary disaster response costs and certain revenue lost through business interruption. Management believes, based on its understanding of the coverage, that collection of receivables established for insurance claims is probable. Certain additional disaster response costs and the bulk of repair and replacement costs will be incurred in the early part of 2006 and beyond, and these will be included in the insurance claims as appropriate. Management projects that current and future claims will be within policy limits, and that gains will be recognized with respect to casualty claims in future periods, but this is contingent upon reaching agreement with the insurance carriers. A receivable of $22 million was included in other assets at December 31, 2005 for the expected recovery, and 2005 noninterest expense included a $4.4 million pre-tax charge.
NOTE 4
MERGERS AND ACQUISITIONS
On July 28, 2005, Whitney announced a definitive agreement to acquire
First National Bancshares, Inc. (First National) and its subsidiary, 1st
National Bank & Trust. 1st National Bank & Trust operates in the Tampa Bay
metropolitan area of Florida and had approximately $379 million in total assets
and $325 million in deposits at December 31, 2005. Shareholders of First
National will receive approximately $34.64 per share in cash and/or Whitney
stock, for a total transaction value of approximately $120 million. No more than
35% of the total consideration will be paid in cash. Subject to approval by
First National's shareholders and satisfaction of certain other customary
closing conditions, this acquisition is expected to be completed in the second
quarter of 2006.
On April 22, 2005, Whitney acquired 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 a loan portfolio of $390 million, and $440 million in deposits on the acquisition date. Destin Bank was merged into Whitney National Bank on the same date. The transaction was valued at $115 million, with $58 million paid to Destin shareholders in cash and the remainder in Whitney stock totaling approximately 1.9 million shares (1.3 million shares before adjustment for the three-for-two stock split in May 2005). Applying purchase accounting to this transaction, the Company recorded goodwill of $88 million and a $9 million intangible asset for the estimated value of deposit relationships with an estimated weighted-average life of approximately 3.0 years. No other significant adjustments were required to record Destin's assets and liabilities at fair value.
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 approximately 1.5 million Whitney shares (1.0 million shares before adjustment for the three-for-two stock split in May 2005) 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. Intangible assets acquired in this transaction included $46 million of goodwill and $4 million assigned to the value of deposit relationships with an estimated weighted-average life of approximately 3.5 years.
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 locations in Fort Walton Beach, Florida. Whitney recognized an intangible asset for the value of the deposit relationships acquired of $2.1 million that is being amortized over an estimated life of 8 years. No loans or other noncash financial assets were exchanged in this transaction.
Whitney's financial statements include the results from acquired operations since the acquisition dates.
NOTE 5
FEDERAL FUNDS SOLD AND SHORT-TERM INVESTMENTS
The balance of federal funds sold and short-term investments included the following:
December 31
----------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
----------------------------------------------------------------------------------------------------------------
Federal funds sold $304,500 $20,000
U. S. government agency discount notes 499,013 -
Other short-term interest-bearing investments 2,245 2,424
----------------------------------------------------------------------------------------------------------------
Total $805,758 $22,424
----------------------------------------------------------------------------------------------------------------
|
Federal funds were sold on an overnight basis. The U. S. government agency discount notes mature within approximately one month.
NOTE 6
INVESTMENT SECURITIES
Summary information about securities available for sale and securities
held to maturity follows:
------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
------------------------------------------------------------------------------------------------------------
Securities Available for Sale
------------------------------------------------------------------------------------------------------------
December 31, 2005
------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $1,057,759 $762 $25,287 $1,033,234
U. S. agency securities 304,389 21 6,069 298,341
U. S. Treasury securities 49,918 - 596 49,322
Obligations of states and political
subdivisions 100 2 - 102
Other securities 32,722 51 9 32,764
------------------------------------------------------------------------------------------------------------
Total $1,444,888 $836 $31,961 $1,413,763
------------------------------------------------------------------------------------------------------------
December 31, 2004
------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $1,340,222 $7,534 $ 6,844 $1,340,912
U. S. agency securities 289,816 326 6,558 283,584
U. S. Treasury securities 80,267 309 227 80,349
Obligations of states and political
subdivisions 21,318 853 - 22,171
Other securities 36,710 50 2 36,758
------------------------------------------------------------------------------------------------------------
Total $1,768,333 $9,072 $13,631 $1,763,774
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
------------------------------------------------------------------------------------------------------------
December 31, 2005
------------------------------------------------------------------------------------------------------------
Obligations of states and political
subdivisions $227,688 $3,035 $2,696 $228,027
------------------------------------------------------------------------------------------------------------
Total $227,688 $3,035 $2,696 $228,027
------------------------------------------------------------------------------------------------------------
December 31, 2004
------------------------------------------------------------------------------------------------------------
Obligations of states and political
subdivisions $227,470 $6,027 $1,272 $232,225
------------------------------------------------------------------------------------------------------------
Total $227,470 $6,027 $1,272 $232,225
------------------------------------------------------------------------------------------------------------
|
The following summarizes securities with unrealized losses at December 31, 2005 and 2004 by the period over which the security's fair value had been continuously less than its amortized cost as of each year end.
------------------------------------------------------------------------------------------------------------
December 31, 2005 Less than 12 Months 12 Months or Longer
------------------------------------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized
(in thousands) Value Losses Value Losses
------------------------------------------------------------------------------------------------------------
Securities Available for Sale
------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $574,748 $11,507 $415,469 $13,780
U.S. agency securities 98,953 1,059 170,102 5,010
U.S. Treasury securities 24,655 275 24,667 321
Other securities 1,041 9 - -
------------------------------------------------------------------------------------------------------------
Total $699,397 $12,850 $610,238 $19,111
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
------------------------------------------------------------------------------------------------------------
Obligations of states and political
subdivisions $66,424 $1,113 $32,154 $1,583
------------------------------------------------------------------------------------------------------------
Total $66,424 $1,113 $32,154 $1,583
------------------------------------------------------------------------------------------------------------
|
------------------------------------------------------------------------------------------------------------
December 31, 2004 Less than 12 Months 12 Months or Longer
------------------------------------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized
(in thousands) Value Losses Value Losses
------------------------------------------------------------------------------------------------------------
Securities Available for Sale
------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $664,513 $5,195 $ 87,376 $1,649
U.S. agency securities 148,219 1,635 120,734 4,923
U.S. Treasury securities 24,742 227 - -
Other securities 798 2 - -
------------------------------------------------------------------------------------------------------------
Total $838,272 $7,059 $208,110 $6,572
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
------------------------------------------------------------------------------------------------------------
Obligations of states and political
subdivisions $48,498 $499 $19,727 $773
------------------------------------------------------------------------------------------------------------
Total $48,498 $499 $19,727 $773
------------------------------------------------------------------------------------------------------------
|
Management evaluates whether unrealized losses on securities represent impairment that is other than temporary. If such impairment is identified, the carrying amount of the security is reduced with a charge to operations. In making this evaluation, management first considers the reasons for the indicated impairment. These could include changes in market rates relative to those available when the security was acquired, changes in market expectations about the timing of cash flows from securities that can be prepaid, and changes in the market's perception of the issuer's financial health and the security's credit quality. Management then considers the likelihood of a recovery in fair value sufficient to eliminate the indicated impairment and the length of time over which an anticipated recovery would occur, which could extend to the security's maturity. Finally, management determines whether there is both the ability and intent to hold the impaired security until an anticipated recovery, in which case the impairment would be considered temporary. In making this assessment, management considers whether a security continues to be a suitable holding from the perspective of the Company's overall portfolio and asset/liability management strategies.
Substantially all the unrealized losses at December 31, 2005 resulted from increases in market interest rates over the yields available at the time the underlying securities were purchased. Management identified no impairment related to credit quality. In all cases, the indicated impairment would be recovered by the security's maturity or repricing date or possibly earlier if the market price for the security increases with a reduction in the yield required by the market. All impaired securities were originally purchased for continuing investment purposes, and management continues to find them suitable for this purpose in light of current market conditions and Company strategies. At December 31, 2005, management had both the intent and ability to hold impaired securities until full recovery of cost is achieved and no impairment was determined to be other than temporary. No impairment losses were recognized in any of the three years ended December 31, 2005.
The following table shows the amortized cost and estimated fair value of securities available for sale and held to maturity grouped by contractual maturity as of December 31, 2005. Debt securities with scheduled repayments, such as mortgage-backed securities, and equity securities are presented in separate totals.
The expected maturity of a security, in particular certain U.S. agency securities and obligations of states and political subdivisions, may differ from its contractual maturity because of the exercise of call options.
-------------------------------------------------------------------------
Amortized Fair
(in thousands) Cost Value
-------------------------------------------------------------------------
Securities Available for Sale
-------------------------------------------------------------------------
Within one year $ 129,365 $ 127,789
One to five years 225,042 219,976
Five to ten years - -
After ten years - -
-------------------------------------------------------------------------
Debt securities with single maturities 354,407 347,765
Mortgage-backed securities 1,057,759 1,033,234
Equity and other debt securities 32,722 32,764
-------------------------------------------------------------------------
Total $1,444,888 $1,413,763
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Securities Held to Maturity
-------------------------------------------------------------------------
Within one year $ 6,133 $ 6,161
One to five years 45,385 45,955
Five to ten years 105,458 105,500
After ten years 70,712 70,411
-------------------------------------------------------------------------
Total $227,688 $228,027
-------------------------------------------------------------------------
|
Proceeds from sales of securities available for sale were $281 million in 2005, $65 million in 2004 and $279 million in 2003. Whitney realized gross gains of $2.2 million and gross losses of $2.1 million in 2005. A gross gain of $.1 million was realized in 2004. In 2003, gross realized gains and losses were $3.0 million and $2.1 million, respectively.
Securities with carrying values of $1.07 billion at December 31, 2005 and $1.32 billion at December 31, 2004 were sold under repurchase agreements, pledged to secure public deposits or pledged for other purposes. In these totals were $136 million in 2005 and $139 million in 2004 for securities pledged at the Federal Reserve discount window in connection with the Company's overall contingency funding plans.
NOTE 7
LOANS
The composition of the Company's loan portfolio follows:
December 31
----------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
----------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $2,685,894 41% $2,399,794 43%
Real estate - commercial, construction and other 2,743,486 42 2,209,975 39
Real estate - residential mortgage 774,124 12 685,732 12
Individuals 357,093 5 330,775 6
----------------------------------------------------------------------------------------------------------------
Total $6,560,597 100% $5,626,276 100%
----------------------------------------------------------------------------------------------------------------
|
The Bank makes loans in the normal course of business to directors and executive officers of the Company and the Bank and to their associates. Loans to such related parties carry substantially the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with unrelated parties and do not involve more than normal risks of collectibility when originated. An analysis of the changes in loans to related parties during 2005 follows:
-------------------------------------------------------------------------- (in thousands) 2005 -------------------------------------------------------------------------- Beginning balance $76,438 Additions 80,953 Repayments (79,323) Net decrease from changes in related parties (25,129) -------------------------------------------------------------------------- Ending balance $52,939 -------------------------------------------------------------------------- |
Outstanding unfunded commitments and letters of credit to related parties totaled $112 million and $117 million at December 31, 2005 and 2004, respectively.
NOTE 8
ALLOWANCE FOR LOAN LOSSES
A summary analysis of changes in the allowance for loan losses follows:
Years Ended December 31
-------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004 2003
-------------------------------------------------------------------------------------------------------------
Balance at beginning of year $54,345 $59,475 $66,115
Allowances of acquired banks 3,648 2,461 -
Provision for loan losses 37,000 2,000 (3,500)
Loans charged off (10,656) (14,030) (12,934)
Recoveries 5,691 4,439 9,794
-------------------------------------------------------------------------------------------------------------
Net charge-offs (4,965) (9,591) (3,140)
-------------------------------------------------------------------------------------------------------------
Balance at end of year $90,028 $54,345 $59,475
-------------------------------------------------------------------------------------------------------------
|
NOTE 9
IMPAIRED LOANS, NONPERFORMING LOANS, FORECLOSED ASSETS AND SURPLUS PROPERTY
Information on loans evaluated for possible impairment loss follows:
December 31
-------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
-------------------------------------------------------------------------------------------------------------
Impaired loans at year end
Requiring a loss allowance $54,994 $14,238
Not requiring a loss allowance 4,789 4,083
-------------------------------------------------------------------------------------------------------------
Total recorded investment in impaired loans $59,783 $18,321
-------------------------------------------------------------------------------------------------------------
Impairment loss allowance required at year end $17,334 $5,497
-------------------------------------------------------------------------------------------------------------
Average recorded investment in impaired loans during the year $29,971 $21,418
-------------------------------------------------------------------------------------------------------------
|
The following is a summary of nonperforming loans and foreclosed assets and surplus property:
December 31
-------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
-------------------------------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $65,565 $23,597
Restructured loans 30 49
-------------------------------------------------------------------------------------------------------------
Total nonperforming loans $65,595 $23,646
-------------------------------------------------------------------------------------------------------------
Foreclosed assets and surplus property $1,708 $2,454
-------------------------------------------------------------------------------------------------------------
|
Interest income is recognized on certain nonaccrual loans as payments are received. Interest payments on other nonaccrual loans are accounted for under the cost recovery method, but this interest may later be recognized in income when loan collections exceed expectations or when workout efforts result in fully rehabilitated credits. The following compares contractual interest income on nonaccrual loans and restructured loans with the cash-basis and cost-recovery interest actually recognized on these loans:
Years Ended December 31
-------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004 2003
-------------------------------------------------------------------------------------------------------------
Contractual interest $3,347 $2,671 $2,789
Interest recognized 2,223 1,615 1,237
-------------------------------------------------------------------------------------------------------------
Decrease in reported interest income $1,124 $1,056 $1,552
-------------------------------------------------------------------------------------------------------------
|
The Bank and a subsidiary own various property interests that were acquired in routine banking transactions generally before 1933. There was no ready market for these assets when they were initially acquired, and, as was general banking practice at the time, they were written down to a nominal value. The assets include direct and indirect ownership interests in scattered undeveloped acreage, various mineral interests, and a few commercial and residential sites primarily in southeast Louisiana.
The revenues and direct expenses related to these grandfathered property interests that are included in the statements of income follow:
Years Ended December 31
-------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004 2003
-------------------------------------------------------------------------------------------------------------
Revenues $2,207 $1,271 $1,067
Direct expenses 210 205 205
-------------------------------------------------------------------------------------------------------------
|
NOTE 10
BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment by asset classification
follows:
December 31
-------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
-------------------------------------------------------------------------------------------------------------
Land $ 38,170 $ 37,839
Buildings and improvements 177,319 186,801
Equipment and furnishings 106,998 112,475
-------------------------------------------------------------------------------------------------------------
322,487 337,115
Accumulated depreciation (170,509) (180,513)
-------------------------------------------------------------------------------------------------------------
Total bank premises and equipment $151,978 $156,602
-------------------------------------------------------------------------------------------------------------
|
Provisions for depreciation and amortization included in noninterest expense were as follows:
Years Ended December 31
-------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004 2003
-------------------------------------------------------------------------------------------------------------
Buildings and improvements $6,830 $6,679 $6,609
Equipment and furnishings 6,759 6,779 6,633
-------------------------------------------------------------------------------------------------------------
Total depreciation and amortization expense $13,589 $13,458 $13,242
-------------------------------------------------------------------------------------------------------------
|
At December 31, 2005, the Bank was obligated under a number of noncancelable operating leases, substantially all related to premises. Certain of these leases have escalation clauses and renewal options. Total rental expense was $5.1 million in 2005, $4.2 million in 2004 and $4.0 million in 2003.
As of December 31, 2005, the future minimum rentals under noncancelable operating leases having an initial lease term in excess of one year were as follows:
(in thousands)
------------------------------------------------ 2006 $ 5,875 2007 5,246 2008 4,636 2009 4,218 2010 3,407 Later years 21,453 ------------------------------------------------ Total $44,835 ------------------------------------------------ |
NOTE 11
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist of identifiable intangibles such as the value
of deposit relationships, goodwill acquired in business combinations accounted
for as purchases, and unidentifiable intangibles acquired in certain
banking-industry transactions that did not meet the criteria for business
combinations. Note 4 presents information on goodwill and other intangible
assets acquired in 2005. There were no dispositions of intangible assets during
2005.
Goodwill is tested for impairment at least annually. No indication of goodwill impairment was identified in the annual assessments as of September 30, 2005 and 2004. The balance of goodwill that will not generate future tax deductions was $195 million at December 31, 2005.
Identifiable intangible assets with finite lives are amortized over the periods benefited and are evaluated for impairment similar to other long-lived assets. The Company's only significant identifiable intangible assets reflect the value of deposit relationships, all of which have finite lives. Remaining lives ranged from approximately two to six years at December 31, 2005. The weighted-average remaining life of identifiable intangible assets was approximately three years. Unidentifiable intangible assets are being amortized over a remaining life of approximately two years.
The carrying value of intangible assets subject to amortization was as follows:
----------------------------------------------------------------------------------------------------------------
(in thousands) December 31, 2005 December 31, 2004
----------------------------------------------------------------------------------------------------------------
Purchase Accumulated Carrying Purchase Accumulated Carrying
Value Amortization Value Value Amortization Value
----------------------------------------------------------------------------------------------------------------
Deposit relationships and other
identifiable intangibles $46,817 $23,510 $23,307 $36,841 $17,312 $19,529
Unidentifiable intangibles 11,321 8,324 2,997 11,321 6,610 4,711
----------------------------------------------------------------------------------------------------------------
Total $58,138 $31,834 $26,304 $48,162 $23,922 $24,240
----------------------------------------------------------------------------------------------------------------
|
Amortization of intangible assets included in noninterest expense was as follows:
Years Ended December 31
----------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004 2003
----------------------------------------------------------------------------------------------------------------
Deposit relationships and other identifiable intangibles $6,548 $3,944 $3,619
Unidentifiable intangibles 1,713 1,713 1,713
----------------------------------------------------------------------------------------------------------------
Total amortization $8,261 $5,657 $5,332
----------------------------------------------------------------------------------------------------------------
|
The following shows estimated amortization expense for the five succeeding years, calculated based on current amortization schedules.
(in thousands)
------------------------------------ 2006 $8,677 2007 7,204 2008 4,516 2009 3,045 2010 1,185 ------------------------------------ |
NOTE 12
DEPOSITS
The composition of deposits was as follows:
December 31
----------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
----------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits $3,301,227 $2,111,703
Interest-bearing deposits:
NOW account deposits 1,116,000 901,859
Money market deposits 1,103,510 1,270,479
Savings deposits 1,120,078 709,887
Other time deposits 717,938 694,458
Time deposits $100,000 and over 1,246,083 924,221
----------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,303,609 4,500,904
----------------------------------------------------------------------------------------------------------------
Total deposits $8,604,836 $6,612,607
----------------------------------------------------------------------------------------------------------------
|
Deposits include funds of public entities, such as states and municipalities, and certain other deposits that are subject to collateral requirements. Public funds and other collateralized deposits totaled $384 million and $343 million at December 31, 2005 and 2004, respectively, including time deposits of $172 million at the end of 2005 and $138 million at the end of 2004.
Time deposits of $100,000 or more include balances in treasury-management deposit products for commercial and certain other larger deposit customers. Balances maintained in such products totaled $504 million and $283 million at December 31, 2005 and 2004, respectively, and most of these deposits mature on a daily basis. Scheduled maturities of all time deposits at December 31, 2005 were as follows:
------------------------------------------------ 2006 $1,706,299 2007 197,735 2008 43,662 2009 12,223 2010 and thereafter 4,102 ------------------------------------------------ Total $1,964,021 ------------------------------------------------ |
NOTE 13
SHORT-TERM AND OTHER BORROWINGS
Short-term and other borrowings consisted of the following:
December 31
----------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
----------------------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase $280,390 $309,827
Federal funds purchased 99,595 161,279
Federal Home Loan Bank advance - 100,000
Treasury Investment Program 36,042 40,000
Other borrowings 17,323 23,153
----------------------------------------------------------------------------------------------------------------
Total short-term and other borrowings $433,350 $634,259
----------------------------------------------------------------------------------------------------------------
|
The Bank borrows funds on a secured basis by selling securities under agreements to repurchase, mainly in connection with treasury-management services offered to its deposit customers. Repurchase agreements generally mature daily. The Bank has the ability to exercise legal authority over the underlying securities. Mortgage-backed securities issued or guaranteed by U.S. government agencies and other agency securities with a fair value of $286 million were sold under repurchase agreements at December 31, 2005.
Additional information about securities sold under repurchase agreements follows:
---------------------------------------------------------------------------------------------------------------- (dollars in thousands) 2005 2004 2003 ---------------------------------------------------------------------------------------------------------------- At December 31 Interest rate 2.73% .84% .50% Balance $280,390 $309,827 $296,580 ---------------------------------------------------------------------------------------------------------------- Average for the year Effective interest rate 1.91% .69% .47% Balance $373,501 $338,096 $325,213 ---------------------------------------------------------------------------------------------------------------- Maximum month-end outstanding $451,480 $412,839 $362,904 ---------------------------------------------------------------------------------------------------------------- |
Federal funds purchased represent unsecured borrowings from other banks, generally on an overnight basis. Additional information about federal funds purchased follows:
---------------------------------------------------------------------------------------------------------------- (dollars in thousands) 2005 2004 2003 ---------------------------------------------------------------------------------------------------------------- At December 31 Interest rate 4.01% 2.17% .97% Balance $99,595 $161,279 $257,084 ---------------------------------------------------------------------------------------------------------------- Average for the year Effective interest rate 3.20% 1.27% 1.00% Balance $165,813 $160,554 $99,382 ---------------------------------------------------------------------------------------------------------------- Maximum month-end outstanding $387,346 $294,878 $257,084 ---------------------------------------------------------------------------------------------------------------- |
From time to time, the Bank uses advances from the Federal Home Loan Bank (FHLB) as an additional source of short-term funds. The Bank borrowed $92 million on average under short-term FHLB advances during 2005 with an effective interest rate of 3.12%. During 2004, average short-term borrowings from the FHLB totaled $79 million with an effective rate of 1.40%. The maximum month-end balance was $150 million in 2005 and $100 million in 2004. There were no short-term borrowings from the FHLB during 2003. The balance of other borrowings at December 31, 2004 included $17 million of long-term FHLB advances that were assumed in a business combination. These borrowings were repaid during 2005. The FHLB makes advances on a secured basis.
Under the Treasury Investment Program, temporary excess U.S. Treasury receipts are loaned to participating financial institutions at 25 basis points under the federal funds rate. Repayment of these borrowed funds can be demanded at any time. The Bank limited its participation to $40 million and has pledged securities with a comparable value as collateral for borrowings under this program.
In connection with the acquisition of Destin in 2005, the Company assumed Destin's obligations under subordinated debentures payable to unconsolidated trusts which issued trust preferred securities. The carrying value of this mix of fixed-rate and variable-rate debentures was $17 million at December 31, 2005 and was included with other borrowings. The weighted-average yield was approximately 5.62% at year-end 2005. The debentures have maturities from 2031 through 2033, but they may be called with prior regulatory approval beginning at various dates from 2007 through 2011. Subject to certain adjustments, these debentures currently qualify as capital for the calculation of Whitney Holding Corporation's regulatory capital ratios (see Note 17).
NOTE 14
OTHER ASSETS AND OTHER LIABILITIES
The more significant components of other assets and other liabilities
at December 31, 2005 and 2004 were as follows:
Other Assets December 31 ---------------------------------------------------------------------------------------------------------------- (in thousands) 2005 2004 ---------------------------------------------------------------------------------------------------------------- Net deferred income tax asset $ 53,065 $31,796 Low-income housing tax credit fund investments 17,986 20,578 Insurance claim receivable 21,895 - Prepaid pension asset 15,271 1,865 Cash surrender value of life insurance 9,575 9,768 Prepaid expenses 4,713 4,872 Miscellaneous investments, receivables and other assets 32,039 20,001 ---------------------------------------------------------------------------------------------------------------- Total other assets $154,544 $88,880 ---------------------------------------------------------------------------------------------------------------- |
Other Liabilities December 31 ---------------------------------------------------------------------------------------------------------------- (in thousands) 2005 2004 ---------------------------------------------------------------------------------------------------------------- Accrued taxes and other expenses $57,538 $22,959 Dividend payable 12,159 11,638 Obligation for postretirement benefits other than pensions 11,877 10,344 Trade date obligations - 4,583 Miscellaneous payables, deferred income and other liabilities 17,665 16,437 ---------------------------------------------------------------------------------------------------------------- Total other liabilities $99,239 $65,961 ---------------------------------------------------------------------------------------------------------------- |
See Note 3 for information on the natural disasters that affected Whitney during 2005, including a discussion of related insurance matters. As part of its response to the disasters, the federal government allowed corporations to defer federal income tax payments otherwise due in 2005 until 2006.
NOTE 15
EMPLOYEE BENEFIT PLANS
Retirement Plans
Whitney has a noncontributory qualified defined benefit pension plan
covering substantially all of its employees, subject to minimum age and
service-related requirements. The benefits are based on an employee's total
years of service and his or her highest consecutive five-year level of
compensation during the final ten years of employment. Contributions are made in
amounts sufficient to meet funding requirements set forth in federal employee
benefit and tax laws plus such additional amounts as the Company may determine
to be appropriate. Based on currently available information, the Company does
not anticipate making a contribution during 2006.
The following table details the changes both in the actuarial present value of the pension benefit obligation and in the plan's assets for the years ended December 31, 2005 and 2004. The table also shows the funded status of the plan at each year end and identifies the related amounts recognized and not recognized in the Company's consolidated balance sheets. Whitney uses a December 31 measurement date for all of its defined benefit retirement plans and other postretirement benefit plans.
---------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
---------------------------------------------------------------------------------------------------------------
Changes in benefit obligation:
Benefit obligation, beginning of year $124,905 $109,758
Service cost for benefits 6,926 6,511
Interest cost on benefit obligation 7,208 6,556
Net actuarial loss 7,891 6,088
Benefits paid (4,287) (4,008)
---------------------------------------------------------------------------------------------------------------
Benefit obligation, end of year 142,643 124,905
---------------------------------------------------------------------------------------------------------------
Changes in plan assets:
Plan assets at fair value, beginning of year 106,605 102,345
Actual return on plan assets 3,390 8,600
Employer contribution 20,000 -
Benefits paid (4,287) (4,008)
Plan expenses (361) (332)
---------------------------------------------------------------------------------------------------------------
Plan assets at fair value, end of year 125,347 106,605
---------------------------------------------------------------------------------------------------------------
Funded status and amounts recognized and unrecognized:
Benefit obligation in excess of plan assets, end of year (17,296) (18,300)
Unrecognized net actuarial losses 32,874 20,580
Unrecognized prior service cost resulting
from plan amendments (307) (415)
---------------------------------------------------------------------------------------------------------------
Prepaid pension asset recognized $ 15,271 $ 1,865
---------------------------------------------------------------------------------------------------------------
|
The weighted-average assumptions used to determine the benefit obligation at December 31, 2005 and 2004 follow:
---------------------------------------------------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------------------------------------------------
Discount rate 5.50% 5.75%
Rate of future compensation increases 4.00 4.00
---------------------------------------------------------------------------------------------------------------
|
The accumulated benefit obligation was $121 million and $103 million at December 31, 2005 and 2004, respectively. The calculation of the accumulated benefit obligation ignores the assumption about future compensation levels.
The components of net pension expense were as follows:
--------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004 2003
--------------------------------------------------------------------------------------------------------------
Service cost for benefits during the period $6,926 $6,511 $5,311
Interest cost on benefit obligation 7,208 6,556 6,030
Expected return on plan assets (8,352) (8,026) (6,620)
Amortization of:
Unrecognized net actuarial losses 920 432 408
Unrecognized net implementation asset - - (283)
Unrecognized prior service cost (108) (108) (108)
--------------------------------------------------------------------------------------------------------------
Net pension expense $6,594 $5,365 $4,738
--------------------------------------------------------------------------------------------------------------
|
The Company used the following weighted-average assumptions in determining the net pension expense for each of the three years in the period ended December 31, 2005.
--------------------------------------------------------------------------------------------------------------
2005 2004 2003
--------------------------------------------------------------------------------------------------------------
Discount rate 5.75% 6.00% 6.50%
Rate of future compensation increases 4.00 4.00 4.00
Expected long-term return on plan assets 8.00 8.00 8.00
--------------------------------------------------------------------------------------------------------------
|
Benefit payments under the qualified pension plan and the nonqualified plan discussed below are expected to total $4.8 million in 2006, $5.2 million in 2007, $5.9 million in 2008, $6.6 million in 2009, $7.2 million in 2010, and $47 million for the next five years combined. These estimates were developed based on the same assumptions used in measuring benefit obligations as of December 31, 2005.
The following table shows the percentage allocation of plan assets by investment category at December 31, 2005 and 2004, as well as the most recent target allocation set by the investment manager and the target allocation ranges specified in the plan's investment policy.
--------------------------------------------------------------------------------------------------------------
Actual Allocation Current Policy
2005 2004 Target Range
--------------------------------------------------------------------------------------------------------------
Equity securities 69% 61% 60% 40-70%
Corporate debt securities 17 20
U. S. Treasury and government agency securities 12 16
--------------------------------------------------------------------------------------------------------------
Total debt securities 29 36 40 30-60
Cash investments 2 3 0-20
--------------------------------------------------------------------------------
Total 100% 100%
--------------------------------------------------------------------------------
|
Whitney determines its assumption regarding the expected long-term return on plan assets with reference to the plan's investment policy and practices, including the tolerance for market and credit risk, and historical returns for benchmark indices specified in the policy. The policy communicates risk tolerance in terms of diversification criteria and constraints on investment quality. The plan may not hold debt or equity securities of any single issuer, except the U.S. Treasury and U.S. government agencies, in excess of 10% of plan assets. In addition, all purchases for the debt portfolio are limited to investment grade securities of less than 10 years' maturity. The policy also calls for diversification of equity holdings across business segments and states a preference for holdings in companies that demonstrate consistent growth in earnings and dividends. Limited use of derivatives is authorized by the policy, but the investment manager has not employed these instruments.
The plan held 89,175 shares of Whitney common stock with a value of $2.5 million (2% of plan assets) at December 31, 2005, and 171,675 shares with a value of $5.1 million (5% of plan assets) at December 31, 2004.
Whitney also has an unfunded nonqualified defined benefit pension plan that provides retirement benefits to designated executive officers. These benefits are calculated using the qualified plan's formula, but without applying the restrictions imposed on qualified plans by certain provisions of the Internal Revenue Code. Benefits that become payable under the nonqualified plan would be reduced by amounts paid from the qualified plan. The actuarial present value of the nonqualified benefit plan obligation was $8.2 million at December 31, 2005 and $6.5 million at December 31, 2004. The accrued pension liability recorded at year end for the accumulated benefit obligation was $7.6 million in 2005 and $5.1 million in 2004. The accrued pension liability is reported with other liabilities in the consolidated balance sheets. The year-end 2005 balance included a $1.5 million additional minimum liability that was charged to other comprehensive income. The net pension expense for nonqualified plan benefits was approximately $1.0 million in 2005, $.8 million in 2004 and $.6 million in 2003. Benefit obligations and expense for the nonqualified pension plan were determined using, where applicable, the same assumptions that were employed for the qualified plan.
Whitney sponsors an employee savings plan under Section 401(k) of the Internal Revenue Code that covers substantially all full-time employees. The Company annually matches the savings of each participant up to 4% of his or her compensation. Tax law imposes limits on total annual participant savings. Participants are fully vested in their savings and in the matching Company contributions at all times. The expense of the Company's matching contributions was approximately $3.2 million in 2005, $3.0 million in 2004 and $2.8 million in 2003.
Health and Welfare Plans
Whitney maintains health care and life insurance benefit plans for
retirees and their eligible dependents. Participant contributions are required
under the health plan. All health care benefits are covered under contracts with
health maintenance or preferred provider organizations or insurance contracts.
The Company recognizes the expected cost of providing these postretirement
benefits during the period employees are actively working. The Company funds its
obligations under these plans as contractual payments come due.
The actuarial present value of the postretirement benefit obligation was $20.2 million at December 31, 2005 and $15.7 million at December 31, 2004. Adjusting for unrecognized actuarial gains and losses and unrecognized prior service cost, the net postretirement benefit liability reported with other liabilities in the consolidated balance sheets was $11.9 million at year-end 2005 and $10.3 million at the end of 2004. The net periodic postretirement benefit expense was approximately $2.3 million for 2005, $1.7 million for 2004 and $1.9 million for 2003. This expense includes components for the portion of the expected benefit obligation attributed to current service, for interest on the accumulated benefit obligation, and for amortization of unrecognized actuarial gains or losses. None of the individual components of either the change in the benefit obligation or the net periodic expense was individually significant for any period reported. Payments to provide benefits are expected to range from $.9 million to $1.5 million annually over the next five years and to total $10.3 million for the following five years combined. The federal subsidy provided for under the Medicare Drug Act of 2003 is not expected to be significant in any of these periods.
The discount rates used to determine the present value of the postretirement benefit obligation and the net periodic expense were the same as those shown above for the defined benefit pension plan. The Company also assumed the following trends in health care costs for the actuarial calculation of the benefit obligation at December 31, 2005 and 2004.
--------------------------------------------------------------------------------------------------------------
Pre-Medicare Age Post-Medicare Age
Cost Cost
2005 2004 2005 2004
--------------------------------------------------------------------------------------------------------------
Cost trend rate for next year 9% 10% 9% 10%
Ultimate rate to which the cost trend rate gradually
declines 5 5 5 5
Year in which the ultimate trend rate is reached 2010 2010 2010 2010
--------------------------------------------------------------------------------------------------------------
|
A 1% increase or decrease in the assumed health care cost trend rates would impact the calculation of the benefit obligation and net periodic expense as follows:
--------------------------------------------------------------------------------------------------------------- (in thousands) 1% Increase 1% Decrease --------------------------------------------------------------------------------------------------------------- Effect on total of service and interest components of expense $ 493 $ (400) Effect on postretirement benefit obligation 2,809 (2,317) --------------------------------------------------------------------------------------------------------------- |
NOTE 16
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. The most recent long-term incentive plan
for key employees was approved in 2004 (the 2004 plan).
The Compensation and Human Resources Committee of the Board of Directors administers the employee plans, designates who will participate and authorizes the awarding of grants. Under the 2004 plan, participants may be awarded stock options, restricted stock and restricted stock units, and stock appreciation rights. These are substantially the same as the awards that were available under prior plans. To date, the Committee has awarded only stock options and restricted stock.
The 2004 plan authorizes awards with respect to a maximum of 3,900,000 Whitney common shares, plus any unused authorized shares from the most recent prior plan. At December 31, 2005, the Committee could make future awards with respect to 2,454,737 shares.
The directors' plan provides for the annual award of stock grants and stock options to each nonemployee director. Under this plan, Whitney is authorized to issue an aggregate number of common shares not exceeding 3% of the Company's outstanding shares, but in no event more than 1,687,500 shares. At December 31, 2005, 1,268,817 shares remain available for future award and issuance under the directors' plan.
The stock options are fixed awards. The exercise price for options has been set at the market price for Whitney's stock on the grant date. All options are fully exercisable after six months from the grant date and expire after ten years. Unexercised options can expire earlier if a recipient terminates service with the Company. The following table summarizes stock option activity under the employee plans and under the directors' plan for each of the three years in the period ended December 31, 2005. All options outstanding at the end of each year were exercisable.
--------------------------------------------------------------------------------------------------------------
Employee Director
--------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Number Exercise Price Number Exercise Price
--------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2002 2,344,785 $19.41 317,250 $17.67
Options granted 616,500 22.45 67,500 21.33
Options exercised (312,291) 17.19 (20,250) 20.67
Options forfeited (59,813) 23.73 - -
--------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2003 2,589,181 20.30 364,500 18.19
Options granted 664,238 28.86 72,000 29.83
Options exercised (625,109) 19.11 (41,250) 13.95
Options forfeited (11,063) 25.71 - -
--------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2004 2,617,247 22.73 395,250 20.75
Options granted 438,825 31.59 67,500 32.62
Options exercised (539,966) 21.17 (51,250) 16.83
Options forfeited (19,562) 28.76 - -
--------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2005 2,496,544 $24.58 411,500 $23.18
--------------------------------------------------------------------------------------------------------------
|
The following table summarizes certain information about the stock options outstanding under these plans at December 31, 2005:
---------------------------------------------------------------------------------------------------------------
Weighted-
Number of Average Weighted-
Range of Shares Years to Average
Exercise Prices under Option Expiration Exercise Price
---------------------------------------------------------------------------------------------------------------
$13.33-$13.56 42,000 .5 $13.49
$15.31-$18.86 687,861 4.0 17.82
$20.52-$24.44 995,337 6.1 22.56
$28.86-$29.83 685,021 8.3 28.96
$31.59-$32.62 497,825 9.3 31.73
---------------------------------------------------------------------------------------------------------------
$13.33-$32.62 2,908,044 6.6 $24.38
---------------------------------------------------------------------------------------------------------------
|
The following schedule summarizes the employee restricted stock grants and director stock grants awarded under these plans during 2005, 2004 and 2003:
----------------------------------------------------------------
Initial Market Value
Shares of Award on
(dollars in thousands) Awarded Grant Date
----------------------------------------------------------------
2005 Employee 231,725 $7,320
Director 10,125 330
2004 Employee 245,625 7,089
Director 10,800 322
2003 Employee 223,688 5,020
Director 10,125 216
----------------------------------------------------------------
|
Employees forfeit their stock grants if they terminate employment within three years of the grant date, although certain exceptions in the case of death, disability or retirement apply to awards made in 2004 and after. During this period, they cannot transfer or otherwise dispose of the shares received. In addition, the employee stock grants can be adjusted based on Whitney's financial performance over the restriction period in relation to that of a designated peer group. Depending on the performance adjustment, the actual number of shares that vest can range from 0% to 200% of the initial grants. All restrictions on employee shares would lapse upon a change in control of the Company. The directors' shares are awarded without restrictions and are not subject to adjustment.
Total compensation expense for employee stock grants was initially measured based on the market value of Whitney's stock and the number of shares awarded on the grant date, as adjusted for expected performance, and has been recognized ratably over the restriction period. The total compensation expense was re-measured periodically to reflect changes in the expected performance adjustment and in the market value of the Company's stock, and any difference from the previous measurement has been recognized prospectively. Adjustments were made for forfeitures as they occurred. Whitney recognized compensation expense for stock grants of $9.7 million in 2005, $9.1 million in 2004, and $6.2 million in 2003.
SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, established a fair value-based method of accounting for stock-based compensation. As allowed for in SFAS No. 123, however, the Company elected to continue to follow APB Opinion No. 25 and related interpretations to measure and recognize stock-based incentive compensation expense. The impact of this election is discussed in Note 2, together with a pro forma presentation of net income and earnings per share if Whitney had applied the provisions of SFAS No. 123. A revision to SFAS No. 123 was issued in December 2004 that established the fair value-based method as the exclusive method of accounting for stock-based compensation. The provisions of the revised standard, which are effective beginning in 2006, are also discussed in Note 2.
NOTE 17
REGULATORY MATTERS
Regulatory Capital Requirements
Measures of regulatory capital are an important tool used by regulators
to monitor the financial health of insured financial institutions. The primary
quantitative measures used by regulators to gauge capital adequacy are the ratio
of Tier 1 regulatory capital to average total assets, also known as the leverage
ratio, and the ratios of Tier 1 and total regulatory capital to risk-weighted
assets. The regulators define the components and computation of each of these
ratios. The minimum capital ratios for both the Company and the Bank are
generally 4% leverage, 4% Tier 1 capital and 8% total capital. Regulators may,
however, set higher capital requirements for an individual institution when
particular circumstances warrant.
To evaluate capital adequacy, regulators compare an institution's regulatory capital ratios with their agency guidelines, as well as with the guidelines established as part of the uniform regulatory framework for prompt corrective supervisory action toward insured institutions. In reaching an overall conclusion on capital adequacy or assigning an appropriate classification under the uniform framework, regulators must also consider other subjective and quantitative assessments of risk associated with the institution. Regulators will take certain mandatory as well as possible additional discretionary actions against institutions they judge to be inadequately capitalized. These actions could materially impact the institution's financial position and results of operations.
Under the regulatory framework for prompt corrective action, the capital levels of banks are categorized into one of five classifications ranging from well-capitalized to critically under-capitalized. For an institution to qualify as well-capitalized, its leverage, Tier 1 and total capital ratios must be at least 5%, 6% and 10%, respectively. Maintaining capital ratios at the well-capitalized levels avoids certain restrictions that, for example, could impact the FDIC insurance premium rate. As of December 31, 2005 and 2004, the Bank was categorized as well-capitalized.
The actual capital amounts and ratios for the Company and the Bank are presented in the following tables, together with the corresponding capital amounts determined using regulatory guidelines:
-------------------------------------------------------------------------------------------------------------
(dollars in thousands) Actual Well-
December 31, 2005 Amount Ratio Minimum(a) Capitalized(b)
-------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company $765,881 8.21% $373,156 (c)
Bank 687,047 7.38 372,511 $465,639
-------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk-Weighted Assets):
Company 765,881 9.89 309,842 (c)
Bank 687,047 8.89 309,219 463,828
-------------------------------------------------------------------------------------------------------------
Total Capital (to Risk-Weighted Assets):
Company 856,489 11.06 619,684 (c)
Bank 777,655 10.06 618,437 773,047
-------------------------------------------------------------------------------------------------------------
December 31, 2004
-------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company $767,717 9.56% $321,275 (c)
Bank 607,396 7.57 320,799 $400,999
-------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk-Weighted Assets):
Company 767,717 11.76 261,113 (c)
Bank 607,396 9.32 260,623 390,934
-------------------------------------------------------------------------------------------------------------
Total Capital (to Risk-Weighted Assets):
Company 822,062 12.59 522,226 (c)
Bank 661,741 10.16 521,246 651,557
-------------------------------------------------------------------------------------------------------------
(a) Minimum capital required for capital adequacy purposes.
(b) Capital required for well-capitalized status under regulatory framework for
prompt corrective action.
(c) Not applicable.
|
Other Regulatory Matters
Dividends received from the Bank represent the primary source of funds
available to the Company for the declaration and payment of dividends to
Whitney's shareholders. There are various regulatory and statutory provisions
that limit the amount of dividends that the Bank can distribute to the Company.
During 2006, the Bank will have available an amount equal to approximately $47
million plus its current net income to declare as dividends to the Company
without prior regulatory approval. At December 31, 2005, the Company had
approximately $86 million in cash and demand notes from the Bank available to
provide liquidity for future dividend payments to its shareholders and other
corporate purposes.
Under current Federal Reserve regulations, the Bank is limited in the amounts it may lend to the Company to a maximum of 10% of its capital and surplus, as defined in the regulations. Any such loans must be collateralized from 100% to 130% of the loan amount, depending upon the nature of the underlying collateral. The Bank made no loans to the Company during 2005 and 2004.
Banks are required to maintain currency and coin or a noninterest-bearing balance with the Federal Reserve Bank to meet reserve requirements based on a percentage of deposits. During 2005 and 2004, the Bank covered its reserve maintenance requirement with balances of coin and currency.
NOTE 18
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
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, in some cases, not at all before they expire. Nonrevolving loan commitments are issued mainly to provide financing for the acquisition and development or construction of real property, both commercial and residential, although many are not expected to lead to permanent financing by the Bank. Loan commitments generally have fixed expiration dates and may require payment of a fee. Credit card and personal credit lines are generally subject to cancellation if the borrower's credit quality deteriorates, and many lines remain partly or wholly unused.
Substantially all of the letters of credit are standby agreements that obligate the Bank to fulfill a customer's financial commitments to a third party if the customer is unable to perform. The Bank issues standby letters of credit primarily to provide credit enhancement to its customers' other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors of essential goods and services. A substantial majority of standby letters of credit outstanding at year-end 2005 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:
December 31
-----------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
-----------------------------------------------------------------------------------------------------------------
Loan commitments - revolving $1,834,415 $1,652,600
Loan commitments - nonrevolving 593,667 415,173
Credit card and personal credit lines 507,733 437,386
Standby and other letters of credit 365,582 355,040
-----------------------------------------------------------------------------------------------------------------
|
NOTE 19
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of estimated fair value information about certain on-
and off-balance-sheet financial instruments where it is practicable to estimate
those values. If quoted market prices are not available, which is true for many
of Whitney's financial instruments, the Company estimates fair value using
present value or other valuation techniques. The assumptions used in applying
these techniques, such as those concerning appropriate discount rates and
estimates of future cash flows, require considerable judgment and significantly
affect the resulting fair value estimates. In addition, no value estimate is
assigned to future business opportunities from long-term customer relationships
underlying certain financial instruments. Accordingly, the derived fair value
estimates may not indicate the amount the Company could realize in a current
settlement of the financial instruments. Reasonable comparability of fair value
estimates between financial institutions may not be possible due to the wide
range of permitted valuation techniques and numerous assumptions involved. The
aggregate fair value amounts presented do not, and are not intended to,
represent an aggregate measure of the underlying fair value of the Company.
The following significant methods and assumptions were used by the
Company to estimate the fair value of financial instruments:
Cash and short-term investments - The carrying amount is a reasonable
estimate of the fair value of cash and due from financial institutions, federal
funds sold and short-term investments.
Investment in securities - Fair values of securities are based on
quoted market prices obtained from independent pricing services.
Loans - Loans with no significant change in credit risk and with rates
that are repriced in coordination with movements in market rates are valued at
carrying amounts. The fair values of other loans are estimated by discounting
scheduled cash flows to maturity using current rates at which loans with similar
terms would be made to borrowers of similar credit quality. Appropriate
adjustments are made to reflect probable credit losses.
Deposits - SFAS No. 107 requires that deposits without a stated
maturity, such as noninterest-bearing demand deposits, NOW account deposits,
money market deposits and savings deposits, be assigned fair values equal to the
amounts payable upon demand (carrying amounts). Deposits with a stated maturity
were valued by discounting contractual cash flows using a discount rate
approximating current market rates for deposits of similar remaining maturity.
Short-term and other borrowings - Short-term borrowings are valued
fairly at their carrying amounts. Other borrowings are valued by discounting
contractual cash flows at current market rates or with reference to relevant
market prices.
Off-balance-sheet financial instruments - Off-balance-sheet financial
instruments include commitments to extend credit and guarantees under standby
and other letters of credit. The fair values of such instruments are estimated
using fees currently charged for similar arrangements in the market, adjusted
for changes in terms and credit risk as appropriate. The estimated fair values
of these instruments are not material.
The estimated fair values of the Company's financial instruments follow:
December 31, 2005 December 31, 2004
-----------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
-----------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and short-term investments $1,360,585 $1,360,585 $ 236,175 $ 236,175
Investment securities 1,641,451 1,641,790 1,991,244 1,995,999
Loans held for sale 46,678 47,400 8,796 8,944
Loans, net 6,470,569 6,440,913 5,571,931 5,562,161
LIABILITIES:
Deposits 8,604,836 8,601,425 6,612,607 6,614,409
Short-term and other borrowings 433,350 433,305 634,259 633,949
-----------------------------------------------------------------------------------------------------------------
|
NOTE 20
CONTINGENCIES
The Company and its subsidiaries are parties to various legal
proceedings arising in the ordinary course of business. After reviewing pending
and threatened actions with legal counsel, management believes that the ultimate
resolution of these actions will not have a material effect on the Company's
financial condition, results of operations or cash flows.
See Note 3 for information on natural disasters affecting Whitney in 2005, including comments about contingencies surrounding the resolution of insurance claims.
NOTE 21
OTHER NONINTEREST INCOME
The components of other noninterest income were as follows:
Years Ended December 31
-----------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004 2003
-----------------------------------------------------------------------------------------------------------------
ATM fees $ 4,085 $ 4,497 $ 4,691
Credit-related fees 5,029 3,923 3,740
Investment services income 3,655 3,508 4,010
Other fees and charges 3,745 3,125 3,405
Other operating income 4,536 3,880 4,764
Net gains on sales and other revenue from foreclosed assets 2,692 1,378 1,132
Net gains on disposals of surplus property 1,369 793 23
-----------------------------------------------------------------------------------------------------------------
Total $25,111 $21,104 $21,765
-----------------------------------------------------------------------------------------------------------------
|
NOTE 22
OTHER NONINTEREST EXPENSE
The components of other noninterest expense were as follows:
Years Ended December 31
-----------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004 2003
-----------------------------------------------------------------------------------------------------------------
Security and other outsourced services $10,493 $ 9,045 $ 8,846
Advertising and promotion 4,436 5,675 3,679
Operating supplies 3,853 3,727 3,546
Bank card processing services 3,036 2,612 2,293
Deposit insurance and regulatory fees 2,160 2,015 1,926
Miscellaneous operating losses 6,624 3,971 1,645
Other operating expense 19,348 17,837 15,778
-----------------------------------------------------------------------------------------------------------------
Total $49,950 $44,882 $37,713
-----------------------------------------------------------------------------------------------------------------
|
NOTE 23
INCOME TAXES
The components of income tax expense (benefit) follow:
Years Ended December 31
------------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004 2003
------------------------------------------------------------------------------------------------------------------
Included in net income
Current
Federal $52,538 $45,560 $43,853
State 2,084 1,037 831
------------------------------------------------------------------------------------------------------------------
Total current 54,622 46,597 44,684
------------------------------------------------------------------------------------------------------------------
Deferred
Federal (11,030) (3,238) 1,328
State (585) (161) 87
------------------------------------------------------------------------------------------------------------------
Total deferred (11,615) (3,399) 1,415
------------------------------------------------------------------------------------------------------------------
Total included in net income $43,007 $43,198 $46,099
------------------------------------------------------------------------------------------------------------------
Included in shareholders' equity
Deferred tax related to the change in the
net unrealized loss on securities $(9,298) $(6,139) $(11,464)
Deferred tax related to the change in the
additional minimum pension liability (534) - -
Current tax related to nonqualified stock options
and restricted stock (2,107) (2,311) (751)
------------------------------------------------------------------------------------------------------------------
Total included in shareholders' equity $(11,939) $(8,450) $(12,215)
------------------------------------------------------------------------------------------------------------------
|
The effective rate of tax included in net income differed from the statutory federal income tax rate because of the following factors:
Years Ended December 31
------------------------------------------------------------------------------------------------------------------
(in percentages) 2005 2004 2003
------------------------------------------------------------------------------------------------------------------
Federal income tax rate 35.00% 35.00% 35.00%
Increase (decrease) resulting from
Tax exempt income (2.50) (2.77) (2.41)
Low income housing credits (1.64) (1.37) (.94)
Disaster-relief credit (1.31) - -
State income tax and miscellaneous items .04 (.08) .22
------------------------------------------------------------------------------------------------------------------
Effective tax rate 29.59% 30.78% 31.87%
------------------------------------------------------------------------------------------------------------------
|
Federal disaster-relief legislation passed in December 2005 provided for a tax credit to businesses in storm-affected areas based on salaries paid to dislocated employees through the end of 2005. Application of this provision reduced Whitney's income tax expense by $1.9 million in 2005.
Temporary differences arise between the tax bases of assets or liabilities and their reported amounts in the financial statements. The expected tax effects when these differences are resolved are recorded currently as deferred tax assets or liabilities. The components of the net deferred income tax asset, which is included in other assets on the consolidated balance sheets, follow:
December 31
----------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
----------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for losses on loans and foreclosed assets $31,414 $18,890
Employee compensation and benefits 11,307 12,323
Net unrealized loss on securities available for sale 10,894 1,596
Unrecognized interest income 3,716 3,454
Net operating loss carryforward - 512
Other 6,052 5,429
----------------------------------------------------------------------------------------------------------------
Total deferred tax assets 63,383 42,204
----------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation and amortization 7,283 7,634
Other 3,035 2,774
----------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 10,318 10,408
----------------------------------------------------------------------------------------------------------------
Net deferred tax asset $53,065 $31,796
----------------------------------------------------------------------------------------------------------------
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NOTE 24
STOCK REPURCHASE PROGRAM
In October 2004, the Board of Directors authorized the Company to
repurchase up to 2,625,000 shares of its common stock (1,750,000 shares before
adjustment for the three-for-two stock split in May 2005). Whitney repurchased
1,061,817 shares during 2004 and 1,563,183 shares during 2005. The average cost
per share was $29.77.
NOTE 25
STOCK SPLIT
On April 27, 2005, the Board of Directors authorized a three-for-two
split of the Company's common stock that was paid in the form of a 50% stock
dividend on May 25, 2005 to shareholders of record on May 11, 2005. All share
and per share data in this annual report reflect this split.
NOTE 26
EARNINGS PER SHARE
The components used to calculate basic and diluted earnings per share
were as follows:
Years Ended December 31
-----------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 2005 2004 2003
-----------------------------------------------------------------------------------------------------------------
Numerator:
Net income $102,349 $97,137 $98,542
Effect of dilutive securities - - -
-----------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $102,349 $97,137 $98,542
-----------------------------------------------------------------------------------------------------------------
Denominator:
Weighted-average shares outstanding 62,008,004 61,122,581 59,894,147
Effect of potentially dilutive securities
and contingently issuable shares 945,289 960,462 700,054
-----------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 62,953,293 62,083,043 60,594,201
-----------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $1.65 $1.59 $1.65
Diluted 1.63 1.56 1.63
-----------------------------------------------------------------------------------------------------------------
Antidilutive stock options 425,259 202,269 520,373
-----------------------------------------------------------------------------------------------------------------
|
NOTE 27
PARENT COMPANY FINANCIAL STATEMENTS
The following financial statements are for the parent company only. For
the statements of cash flows, cash and cash equivalents include noninterest-
bearing deposits in the Bank and the demand note receivable from the Bank.
BALANCE SHEETS December 31
-----------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004
-----------------------------------------------------------------------------------------------------------------
ASSETS
Investment in bank subsidiary $ 817,209 $664,444
Demand note receivable - bank subsidiary 84,850 167,563
Investments in nonbank subsidiaries 3,065 1,498
Notes receivable - nonbank subsidiaries 82,434 81,774
Other assets 15,057 15,088
-----------------------------------------------------------------------------------------------------------------
Total assets $1,002,615 $930,367
-----------------------------------------------------------------------------------------------------------------
LIABILITIES
Subordinated debentures $ 17,212 $ -
Dividends payable 12,159 11,638
Other liabilities 12,201 13,964
-----------------------------------------------------------------------------------------------------------------
Total liabilities 41,572 25,602
SHAREHOLDERS' EQUITY 961,043 904,765
-----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,002,615 $930,367
-----------------------------------------------------------------------------------------------------------------
|
See Note 13 for a discussion of the subordinated debentures assumed in connection with the acquisition of Destin Bancshares, Inc. in 2005.
STATEMENTS OF INCOME Years Ended December 31 ----------------------------------------------------------------------------------------------------------------- (in thousands) 2005 2004 2003 ----------------------------------------------------------------------------------------------------------------- Dividend income from bank subsidiary $ 65,000 $77,000 $93,300 Equity in undistributed earnings of subsidiaries Bank 32,510 14,891 574 Nonbanks 102 124 164 Other income, net of expenses 4,737 5,122 4,504 ----------------------------------------------------------------------------------------------------------------- Net income $102,349 $97,137 $98,542 ----------------------------------------------------------------------------------------------------------------- |
STATEMENTS OF CASH FLOWS Years Ended December 31
-----------------------------------------------------------------------------------------------------------------
(in thousands) 2005 2004 2003
-----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $102,349 $ 97,137 $98,542
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiaries (32,612) (15,015) (738)
Other, net 2,080 1,187 1,072
-----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 71,817 83,309 98,876
-----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investments in subsidiaries (55,458) (22,851) -
Loans to nonbank subsidiaries, net of repayments (660) (800) (580)
Other, net - - (16)
-----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (56,118) (23,651) (596)
-----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash dividends (61,150) (57,061) (48,248)
Proceeds from issuance of stock 14,185 13,995 7,151
Purchases of stock (52,924) (29,681) (1,528)
Other, net - (1,471) -
-----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (99,889) (74,218) (42,625)
-----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (84,190) (14,560) 55,655
Cash and cash equivalents at beginning of year 169,800 184,360 128,705
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 85,610 $169,800 $184,360
-----------------------------------------------------------------------------------------------------------------
|
The total for investments in subsidiaries includes net cash paid to acquire Destin Bancshares, Inc. in 2005 and Madison BancShares, Inc. in 2004. The bank subsidiaries acquired with these holding companies were merged into Whitney National Bank.
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. The Company's management, with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this annual report on Form 10-K. Based on that evaluation, the CEO and CFO have concluded that the disclosure controls and procedures as of the end of the period covered by this annual report were effective.
Management's Report on Internal Control over Financial Reporting and Report of Independent Registered Public Accounting Firm. "Management's Report on Internal Control over Financial Reporting," which appears in Item 8 on page 42 of this annual report, and "Report of Independent Registered Public Accounting Firm," which appears in Item 8 on pages 43 and 44 of this annual report are incorporated here by reference.
Changes in Internal Control over Financial Reporting. There were no changes in the Company's internal control over financial reporting during the last fiscal quarter in the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B: OTHER INFORMATION
None.
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Whitney has adopted a Code of Ethics and Conduct for Senior Financial Officers and Executive Officers that applies to its chief executive officer, chief financial officer, controller or principal accounting officer, as well as such other persons, including officers of its subsidiaries, identified by Board resolution from time to time as performing similar functions for the Company and any other persons the Board designates as executive officers. A copy of the code is available on the Company's website at www.whitneybank.com. Whitney will also post on its website at the same address any amendments to the code and any waivers from the code required to be disclosed by the rules of the SEC or the Nasdaq National Market.
In further response to this Item 10, registrant incorporates by reference the section entitled "Executive Officers of the Company" appearing in Item 1 of this Form 10-K and the following sections of its Proxy Statement for the 2006 Annual Meeting of Shareholders to be filed with the SEC:
o The section entitled "The Board of Directors."
o The first paragraph of the subsection entitled "Audit Committee"
of the section entitled "Board of Directors and Its Committees."
o The section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance."
Item 11: EXECUTIVE COMPENSATION
In response to this item, registrant incorporates by reference the following sections of its Proxy Statement for the Annual Meeting of Shareholders to be to be filed with the SEC:
o The section entitled "Executive Compensation."
o The first paragraph of the subsection entitled "Compensation of
Directors" of the section entitled "Board of Directors and Its
Committees."
o The section entitled "Compensation and Human Resources Committee
Interlocks and Insider Participation."
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
In partial response to this item, registrant incorporates by reference the sections entitled "Voting Securities and Principal Holders" and "Beneficial Ownership of Directors and Management" of its Proxy Statement for the 2006 Annual Meeting of Shareholders to be filed with the SEC.
The following table summarizes certain information regarding the registrant's equity compensation plans as of December 31, 2005. The underlying compensation plans, which are more fully described in Note 16 to the consolidated financial statements included in Item 8, have been previously approved by a vote of the shareholders.
Equity Compensation Plan Information
---------------------------------- -------------------------- ------------------------- -------------------------
(a) (b) (c)
---------------------------------- -------------------------- ------------------------- -------------------------
Plan category Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
---------------------------------- -------------------------- ------------------------- -------------------------
Equity compensation plans
approved by shareholders 2,991,560 (1) $24.38 (2) 3,723,554 (3)
Equity compensation plans
not approved by shareholders --- --- ---
---------------------------------- -------------------------- ------------------------- -------------------------
Total 2,991,560 $24.38 3,723,554
---------------------------------- -------------------------- ------------------------- -------------------------
(1) The total includes an aggregate of 2,496,544 shares that can be issued
on the exercise of options held by employees. 1,047,846 shares are
subject to options granted under the 2004 Long-Term Incentive Plan
(2004 LTIP), 1,435,948 shares are subject to options granted under the
1997 Long-Term Incentive Plan (1997 LTIP), and 12,750 shares are
subject to options granted under the Long-Term Incentive Program. The
total also includes an aggregate of 411,500 shares that can be issued
on the exercise of options held by nonemployee directors of the
Company. These options were granted under the Directors' Compensation
Plan, as amended and restated.
Also included in the total are 83,516 common stock equivalent units
held in deferred compensation accounts maintained for certain of the
Company's directors, which must eventually be distributed as common
shares of the Company. As allowed under the Directors' Compensation
Plan, certain nonemployee directors have deferred receipt of annual
stock awards and fees, and the value of these deferrals has been
credited to a bookkeeping account maintained for each director. The
value of an account is indexed to the performance of one or more
investment options specified in the plans. One of the investment
options is equivalent units of the Company's common stock. This option
is mandatory for deferred stock awards and was extended by the
Directors' Compensation Plan to deferred compensation account balances
maintained under a prior deferred compensation plan. The number of
common stock equivalent units allocated to a director's account for
each deferral is based on the fair market value of the Company's common
stock on the deferral date. The common stock equivalent units are
deemed to earn any dividends declared on the Company's common stock,
and additional units are allocated on the dividend payment date based
on the stock's fair market value.
(2) Represents the weighted-average exercise price of options granted under
the 2004 LTIP, the 1997 LTIP, the Long-Term Incentive Program, and the
Directors' Compensation Plan. It does not include the per share price
of common stock equivalent units held in deferred compensation accounts
for the benefit of nonemployee directors. These units are allocated to
accounts based on the fair market value of the Company's common stock
on the date of each account transaction.
(3) Under the 2004 LTIP, the Company is authorized to make awards with
respect to a maximum of 3,900,000 of its common shares, plus any
authorized but unused shares from the 1997 LTIP. The 2004 LTIP provides
for the award of options, stock appreciation rights, restricted stock
and restricted stock units that represent common shares. Of the total
shares authorized, the Company can award a maximum of 1,950,000 shares
in the form of restricted stock or restricted stock units. At December
31, 2005, the Company could make future awards under the 2004 LTIP with
respect to 2,454,737 shares of its common stock.
Under the Directors' Compensation Plan, the Company is authorized to
make awards of stock options or common stock and allocations of common
stock equivalent units with respect to the lesser of either 1,687,500
common shares or 3% of its issued and outstanding common shares, as
determined from time to time. At December 31, 2005, the Company could
make future awards or allocations of common stock equivalent units
under the plan with respect to 1,268,817 shares of its common stock.
|
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this item, registrant incorporates by reference the section entitled "Certain Transactions" of its Proxy Statement for the 2006 Annual Meeting of Shareholders to be filed with the SEC.
Item 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
In response to this item, registrant incorporates by reference the section entitled "Auditors" of its Proxy Statement for the 2006 Annual Meeting of Shareholders to be filed with the SEC.
PART IV
Item 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)The following consolidated financial statements and supplementary data of the Company and its subsidiaries are included in Part II Item 8 of this Form 10-K:
Page Number
-----------
Summary of Quarterly Financial Information 41
Report of Independent Registered Public Accounting Firm 43
Consolidated Balance Sheets --
December 31, 2005 and 2004 45
Consolidated Statements of Income --
Years Ended December 31, 2005, 2004 and 2003 46
Consolidated Statements of Changes in Shareholders' Equity --
Years Ended December 31, 2005, 2004 and 2003 47
Consolidated Statements of Cash Flows --
Years Ended December 31, 2005, 2004 and 2003 48
Notes to Consolidated Financial Statements 49
(a)(2)All schedules have been omitted because they are either not
applicable or the required information has been included in the
consolidated financial statements or notes to the consolidated
financial statements.
|
(a)(3)Exhibits:
To obtain a copy of any listed exhibit send your request to the address below. The copy will be furnished upon payment of a fee.
Mrs. Shirley Fremin, Manager
Investor Relations
Whitney Holding Corporation
P. O. Box 61260
New Orleans, LA 70161-1260
(504) 586-3627 or toll free (800) 347-7272, ext. 3627
E-mail:investor.relations@whitneybank.com
Exhibit 3.1 - Copy of the Company's Composite Charter (filed as Exhibit 3.1 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2000 (Commission file number 0-1026) and incorporated by reference).
Exhibit 3.2 - Copy of the Company's Bylaws (filed as Exhibit 3.2 to the Company's annual report on Form 10-K for the year ended December 31, 2003 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.1 *- Executive agreement between Whitney Holding Corporation, Whitney National Bank and William L. Marks (filed as Exhibit 10.3 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1993 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.2 *- Executive agreement between Whitney Holding Corporation, Whitney National Bank and R. King Milling (filed as Exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1993 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.3 *- Executive agreement between Whitney Holding Corporation, Whitney National Bank and John C. Hope III (filed as Exhibit 10.8 to the Company's annual report on Form 10-K for the year ended December 31, 1994 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.4 *- Executive agreement between Whitney Holding Corporation, Whitney National Bank and Robert C. Baird, Jr. (filed as Exhibit 10.9 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1995 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.5 *- Executive agreement between Whitney Holding Corporation, Whitney National Bank and Rodney D. Chard (filed as Exhibit 10.17 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.6 *- Form of amendment to the executive agreements filed as Exhibits 10.1 through 10.4 herein (filed as Exhibit 10.18 to the Company's annual report on Form 10-K for the year ended December 31, 1996 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.7 *- Form of amendment to the executive agreements filed as Exhibits 10.1 through 10.5 herein (filed as Exhibit 10.19 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1998 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.8 *- Executive agreement between Whitney Holding Corporation, Whitney National Bank and Thomas L. Callicutt, Jr. (filed as Exhibit 10.20 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1999 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.9 *- Executive agreement between Whitney Holding Corporation, Whitney National Bank and Joseph S. Exnicios (filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2004 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.10 *- Form of executive agreement between Whitney Holding Corporation, Whitney National Bank and each of Kevin P. Reed and Lewis P. Rogers (filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2004 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.11 *- Executive agreement between Whitney Holding Corporation, Whitney National Bank and John M. Turner (filed on February 28, 2005 as Exhibit 99.1 to the Company's current report on Form 8-K (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.12 *- Executive compensation plan (filed as Exhibit 10.8 to the Company's annual report on Form 10-K for the year ended December 31, 1991 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.13 *- Whitney Holding Corporation long-term incentive program (filed as Exhibit 10.7 to the Company's annual report on Form 10-K for the year ended December 31, 1991 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.14 *- Whitney Holding Corporation 1997 Long-Term Incentive Plan (filed as Exhibit A to the Company's Proxy Statement dated March 18, 1997 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.15 *- Whitney Holding Corporation 2004 Long-Term Incentive Plan (filed as Exhibit B to the Company's Proxy Statement for the Annual Meeting of Shareholders dated March 19, 2004 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.16 *- Form of restricted stock agreement between Whitney Holding Corporation and certain of its officers (filed as Exhibit 10.8c to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2002 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.17 *- Form of notice and acceptance of restricted stock award to certain of the Company's officers under the Company's 2004 Long-Term Incentive Plan (filed as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2004 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.18 *- Form of notice and acceptance of award of performance-based restricted stock to certain of the Company's non-director executive officers under the Company's 2004 Long-Term Incentive Plan (filed on June 17, 2005 as Exhibit 99.1 to the Company's current report on Form 8-K (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.19 *- Form of notice and acceptance of award of performance-based restricted stock to certain of the Company's director executive officers under the Company's 2004 Long-Term Incentive Plan (filed on June 17, 2005 as Exhibit 99.2 to the Company's current report on Form 8-K (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.20 *- Form of stock option agreement between Whitney Holding Corporation and certain of its officers (filed as Exhibit 19.2 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1992 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.21 *- Form of stock option agreement between Whitney Holding Corporation and certain of its officers (filed as Exhibit 10.10a to the Company's annual report of Form 10-K for the year ended December 31, 2000 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.22 *- Form of stock option agreement between Whitney Holding Corporation and certain of its officers (filed as Exhibit 10.9b to the Company's annual report of Form 10-K for the year ended December 31, 2001 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.23 *- Form of notice and acceptance of stock option grant to certain of the Company's officers under the Company's 2004 Long-Term Incentive Plan (filed as Exhibit 10.1 to the Company's quarterly report of Form 10-Q for the quarter ended September 30, 2004 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.24 *- Form of notice and acceptance of stock option grant to certain of the Company's officers under the Company's 2004 Long-Term Incentive Plan (filed on June 17, 2005 as Exhibit 99.3 to the Company's current report of Form 8-K (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.25 *- Directors' Compensation Plan (filed as Exhibit A to the Company's Proxy Statement dated March 24, 1994 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.26 *- Amendment No. 1 to the Whitney Holding Corporation Directors' Compensation Plan (filed as Exhibit A to the Company's Proxy Statement dated March 15, 1996 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.27 *- Whitney Holding Corporation 2001 Directors' Compensation Plan (filed as Appendix B to the Company's Proxy Statement dated March 15, 2001 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.28 *- Amendment to the Whitney Holding Corporation 2001 Directors' Compensation Plan effective July 27, 2005 (filed as Exhibit 10 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2005 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.29 *- Retirement Restoration Plan effective January 1, 1995 (filed as Exhibit 10.16 to the Company's annual report on Form 10-K for the year ended December 31, 1995 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.30 *- Summary of executive officer compensation (filed on June 17, 2005 in Item 1.01 of the Company's current report on Form 8-K (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.31 *- Summary of nonemployee director compensation (filed on June 23, 2005 in Item 1.01 of the Company's current report on Form 8-K (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.32 *- Summary of performance measurements to be used under the Company's Executive Compensation Plan to determine bonus awards to executive officers for fiscal year 2006 (filed on December 2, 2005 in Item 1.01 of the Company's current report on Form 8-K (Commission file number 0-1026) and incorporated by reference).
Exhibit 21 - Subsidiaries
Whitney Holding Corporation owns 100% of Whitney National Bank, a national banking association organized under the laws of the United States of America. All other subsidiaries considered in the aggregate would not constitute a significant subsidiary.
Exhibit 23 - Consent of PricewaterhouseCoopers LLP dated March 16, 2006.
Exhibit 31.1 - Certification of the Company's Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 - Certification of the Company's Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 - Certification by the Company's Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Management contract or compensatory plan or arrangement.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WHITNEY HOLDING CORPORATION
(Registrant)
By: /s/ William L. Marks
-------------------------------
William L. Marks
Chairman of the Board and
Chief Executive Officer
March 16, 2006
-------------------------------
Date
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------------------------------------------------------------------------------
/s/ William L. Marks Chairman of the Board, March 16, 2006
------------------------------ Chief Executive Officer --------------
William L. Marks and Director
/s/ R. King Milling President and Director March 16, 2006
------------------------------ --------------
R. King Milling
/s/ Thomas L. Callicutt, Jr. Executive Vice President and March 16, 2006
------------------------------ Chief Financial Officer --------------
Thomas L. Callicutt, Jr. (Principal Accounting Officer)
/s/ Joel B. Bullard, Jr. Director March 16, 2006
------------------------------ --------------
Joel B. Bullard, Jr.
Director
------------------------------ --------------
James M. Cain
/s/ Angus R. Cooper II Director March 16, 2006
------------------------------ --------------
Angus R. Cooper II
/s/ Richard B. Crowell Director March 16, 2006
------------------------------ --------------
Richard B. Crowell
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Signature Title Date
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/s/ William A. Hines Director March 16, 2006
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William A. Hines
/s/ E. James Kock, Jr. Director March 16, 2006
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E. James Kock, Jr.
/s/ Alfred S. Lippman Director March 16, 2006
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Alfred S. Lippman
Director
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Michael L. Lomax
/s/ Eric J. Nickelsen Director March 16, 2006
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Eric J. Nickelsen
/s/ John G. Phillips Director March 16, 2006
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John G. Phillips
/s/ Carroll W. Suggs Director March 16, 2006
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Carroll W. Suggs
/s/ Kathryn M. Sullivan Director March 16, 2006
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Kathryn M. Sullivan
/s/ Dean E. Taylor Director March 16, 2006
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Dean E. Taylor
/s/ Thomas D. Westfeldt Director March 16, 2006
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Thomas D. Westfeldt
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Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-3 (No. 33-52999, No. 33-55307, No. 333-56277, No. 333-75676 and No. 333-112501), on Form S-4 (No. 333-130690, as amended) and on Forms S-8 (No. 333-56024, as amended, No. 333-68506, No. 333-30257, No. 333-87050, No. 333-91358 and No. 333-116184) of Whitney Holding Corporation of our report dated March 15, 2006 relating to the financial statements, management's assessment of the effectiveness of internal accounting control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP New Orleans, Louisiana March 16, 2006 |
Exhibit 31.1
I, William L. Marks, certify that:
1. I have reviewed this annual report on Form 10-K for the year ended December 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 (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
/s/William L. Marks ---------------------------- William L. Marks Chief Executive Officer |
Exhibit 31.2
I, Thomas L. Callicutt, Jr., certify that:
1. I have reviewed this annual report on Form 10-K for the year ended December 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 (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
/s/Thomas L. Callicutt, Jr. ---------------------------- Thomas L. Callicutt, Jr. Chief Executive Officer |
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 Annual Report on Form 10-K for the period ended December 31, 2005 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 16, 2006 By:/s/William L. Marks
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William L. Marks
Chief Executive Officer
Dated: March 16, 2006 By:/s/Thomas L. Callicutt, Jr.
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Thomas L. Callicutt, Jr.
Chief Financial Officer
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