NOTE
1
BASIS
OF PRESENTATION
The
consolidated financial statements include the accounts of Whitney Holding
Corporation and its subsidiaries (the Company or Whitney). All significant
intercompany balances and transactions have been eliminated.
In
preparing the consolidated financial statements, the Company is required
to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ
from
those estimates. The consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of
the
financial condition, results of operations, changes in shareholders’ equity and
cash flows for the interim periods presented. These adjustments are of a
normal
recurring nature and include appropriate estimated provisions.
Certain
financial information for prior periods has been reclassified to conform
to the
current period’s presentation.
Pursuant
to rules and regulations of the Securities and Exchange Commission (SEC),
certain financial information and disclosures have been condensed or omitted
in
preparing the consolidated financial statements presented in this quarterly
report on Form 10-Q. These financial statements should be read in conjunction
with the Company’s 2005 annual report on Form 10-K. Financial information
reported in these financial statements is not necessarily indicative of the
financial condition, results of operations or cash flows of any other interim
or
annual periods.
NOTE
2
UPDATE
ON IMPACT OF NATURAL DISASTERS
Two
strong hurricanes struck portions of Whitney’s service area during the third
quarter of 2005. The following sections summarize the more significant
continuing financial repercussions of these natural disasters for the Company
and for its major subsidiary, Whitney National Bank (the Bank).
Credit
Quality and Credit-related Losses
Relationship
officers have closely monitored the performance of storm-impacted loan
customers. Information provided by these officers and statistics on the
performance of consumer credits were factored into management’s determination of
the allowance for loan losses at September 30, 2006. The significant overall
uncertainties that complicated management’s early assessments of storm-related
credit losses have largely been addressed in the year since the storms, and
the
storms’ impact on credit quality is primarily being reflected in the normal
process for determining the loan loss allowance and reserves for losses on
unfunded credit commitments. Some important uncertainties remain, however,
including those specific to some individual customers, such as the resolution
of
insurance claims, and those applicable to the economic prospects of the
storm-impacted area as a whole. Management will continue to monitor the
resolution of these uncertainties when determining future loss allowances
and
reserves.
Disaster
Response Costs, Casualty Losses, Business Interruption and Related
Insurance
The
Bank
incurred a variety of costs to operate in disaster response mode, and a number
of facilities and their contents were damaged by the storms, including sixteen
that 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. All significant
disaster response costs have been incurred and included where appropriate
in an
insurance claim receivable based on management’s understanding of the underlying
coverage. The bulk of costs to replace or renovate facilities will be incurred
in future periods, and these will be included in the insurance claims as
appropriate. Management projects that casualty claims arising from the 2005
storms will be within policy limits, and that gains will be recognized with
respect to these claims in future periods; however, this is contingent upon
reaching agreement with insurance carriers. An insurance claim receivable
of
$19.7 million was included in other assets at September 30, 2006. Whitney
has
expensed $9.3 million of storm-related disaster response costs and operating
and
casualty losses, of which $4.9 million was charged to operations during 2006,
including $.9 million in the third quarter.
NOTE
3
MERGERS
AND ACQUISITIONS
On
October 5, 2006, Whitney announced a definitive agreement to acquire Signature
Financial Holding, Inc. (Signature), headquartered in St. Petersburg, Florida.
Signature is the parent of Signature Bank, which operates seven banking centers
in the Tampa metropolitan area and had approximately $270 million in total
assets and $220 million in deposits at September 30, 2006. Signature’s
shareholders will receive approximately $62 million in cash and/or Whitney
common stock, but no more than 49% of the total consideration will be paid
in
cash. Subject to approval by Signature’s shareholders, receipt of appropriate
regulatory approvals and certain other closing conditions, this acquisition
is
expected to be completed in the first quarter of 2007.
On
April
13, 2006, Whitney acquired First National Bancshares, Inc. of Bradenton,
Florida
(First National) and its subsidiary, 1
st
National
Bank & Trust (1
st
National), which operates in the Tampa Bay area. 1
st
National
had approximately $380 million in total assets, including a loan portfolio
valued at $286 million, and $319 million in deposits at the acquisition date.
The Company merged 1
st
National
into Whitney National Bank in July 2006 upon completion of systems-integration
work. First National shareholders received 2.2 million shares of Whitney
common
stock and cash totaling $41 million, for a total transaction value of
approximately $116 million. Applying purchase accounting to this transaction,
the Company recorded goodwill of $88 million and a $7 million intangible
asset
for the estimated value of deposit relationships with a weighted-average
life of
2.3 years. No other material adjustments were required to record First
National’s assets and liabilities at fair value.
In
April
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 at the acquisition date. This 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).
Intangible assets acquired in
this
transaction included $88 million of goodwill and $9 million assigned to the
value of deposit relationships with an estimated weighted-average life of
3.0
years.
Whitney’s
financial statements include the results from acquired operations since the
acquisition dates.
NOTE
4
FEDERAL
FUNDS SOLD AND SHORT-TERM INVESTMENTS
The
balance of federal funds sold and short-term investments included the
following:
|
|
|
|
|
September
30
|
|
December 31
|
|
(in
thousands)
|
|
|
2006
|
|
2005
|
|
Federal
funds sold
|
|
$
143,000
|
$
304,500
|
|
|
Securities
purchased under resale agreements
|
|
|
200,000
|
|
|
-
|
|
|
U.
S. government agency discount notes
|
|
|
-
|
|
|
499,013
|
|
|
Other
short-term interest-bearing investments
|
|
|
3,322
|
|
|
2,245
|
|
|
Total
|
$
346,322
|
$
805,758
|
|
Federal
funds were sold on an overnight basis. The Company’s investment in U. S.
government agency securities purchased under resale agreements at September
30,
2006 matures in less than one month. It is Whitney’s policy to take possession
of securities purchased under resale agreements.
NOTE
5
LOANS
The
composition of the Company’s loan portfolio was as follows:
|
|
|
|
|
|
September 30
|
December 31
|
|
(in
thousands)
|
|
2006
|
2005
|
|
Commercial,
financial and agricultural
|
|
$
2,591,733
|
|
|
38
|
%
|
$
2,685,894
|
|
|
41
|
%
|
|
Real
estate - commercial, construction and other
|
|
|
3,053,927
|
|
|
44
|
|
|
2,743,486
|
|
|
42
|
|
|
Real
estate - residential mortgage
|
|
|
874,945
|
|
|
13
|
|
|
774,124
|
|
|
12
|
|
|
Individuals
|
|
|
332,035
|
|
|
5
|
|
|
357,093
|
|
|
5
|
|
|
Total
|
|
$
6,852,640
|
|
|
100
|
%
|
$
6,560,597
|
|
|
100
|
%
|
NOTE
6
ALLOWANCE
FOR LOAN LOSSES AND RESERVE FOR LOSSES ON UNFUNDED CREDIT COMMITMENTS, IMPAIRED
LOANS, AND NONPERFORMING LOANS
A
summary
analysis of changes in the allowance for loan losses follows:
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
|
|
September 30
|
September 30
|
|
(in
thousands)
|
|
2006
|
2005
|
2006
|
2005
|
|
Allowance
at beginning of period
|
|
$
80,715
|
$
58,647
|
|
$
90,028
|
|
$
54,345
|
|
|
Allowance
of acquired bank
|
|
|
-
|
|
|
-
|
|
|
2,908
|
|
|
3,648
|
|
|
Provision
for credit losses
|
|
|
(1,500
|
)
|
|
34,000
|
|
|
1,500
|
|
|
37,000
|
|
|
Loans
charged off
|
|
|
(5,263
|
)
|
|
(
2,850
|
)
|
|
(22,406
|
)
|
|
(
8,839
|
)
|
|
Recoveries
|
|
|
681
|
|
|
1,149
|
|
|
2,603
|
|
|
4,792
|
|
|
Net charge-offs
|
|
|
(4,582
|
)
|
|
(1,701
|
)
|
|
(19,803
|
)
|
|
(4,047
|
)
|
|
Allowance
at end of period
|
|
$
74,633
|
|
$
90,946
|
|
$
74,633
|
|
$
90,946
|
|
A
summary
analysis of changes in the reserve for losses on unfunded credit commitments
follows. The reserve is reported with accrued expenses and other liabilities
in
the consolidated balance sheets.
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
|
|
September 30
|
September 30
|
|
(in
thousands)
|
|
|
2006
|
|
|
2005
|
|
2006
|
|
|
2005
|
|
Reserve
at beginning of period
|
|
$
300
|
|
$
-
|
$
580
|
|
$
-
|
|
Provision
for credit losses
|
|
|
1,500
|
|
|
-
|
|
1,220
|
|
|
-
|
|
Reserve
at end of period
|
|
$
1,800
|
|
$
-
|
$
1,800
|
|
$
-
|
Information
on loans evaluated for possible impairment loss follows:
|
|
|
|
September
30
|
December
31
|
|
(in
thousands)
|
|
|
2006
|
|
|
2005
|
|
|
Impaired
loans
|
|
|
|
|
|
|
|
|
Requiring a loss allowance
|
$
37,722
|
|
$
54,994
|
|
|
Not requiring a loss allowance
|
|
|
10,985
|
|
|
4,789
|
|
|
Total recorded investment in impaired loans
|
|
$
48,707
|
|
$
59,783
|
|
|
Impairment
loss allowance required
|
|
$
9,338
|
|
$
17,334
|
|
The
following is a summary of nonperforming loans:
|
|
|
|
|
September 30
|
December 31
|
|
(in
thousands)
|
|
2006
|
2005
|
|
Loans
accounted for on a nonaccrual basis
|
|
$
54,277
|
|
$
65,565
|
|
|
Restructured
loans
|
|
|
-
|
|
|
30
|
|
|
Total nonperforming loans
|
|
$
54,277
|
|
$
65,595
|
|
NOTE
7
DEPOSITS
The
composition of deposits was as follows:
|
|
|
|
|
September 30
|
December 31
|
|
(in
thousands)
|
|
2006
|
2005
|
|
Noninterest-bearing
demand deposits
|
|
$
2,864,705
|
|
$
3,301,227
|
|
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
NOW account deposits
|
|
|
996,429
|
|
|
1,116,000
|
|
|
Money market deposits
|
|
|
1,172,037
|
|
|
1,103,510
|
|
|
Savings deposits
|
|
|
1,050,219
|
|
|
1,120,078
|
|
|
Other time deposits
|
|
|
757,424
|
|
|
717,938
|
|
|
Time deposits $100,000 and over
|
|
|
1,358,886
|
|
|
1,246,083
|
|
|
Total interest-bearing deposits
|
|
|
5,334,995
|
|
|
5,303,609
|
|
|
Total deposits
|
|
$
8,199,700
|
|
$
8,604,836
|
|
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 $498 million at September 30, 2006 and
$504
million at December 31, 2005. Most of these deposits mature on a daily
basis.
NOTE
8
OTHER
ASSETS AND ACCRUED EXPENSES AND OTHER LIABILITIES
The
more
significant components of other assets and accrued expenses and other
liabilities were as follows:
|
|
|
|
September
30
|
December 31
|
|
(in
thousands)
|
2006
|
2005
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Net
deferred income tax asset
|
|
$
54,278
|
|
$
53,065
|
|
|
Insurance
claim receivable
|
|
|
19,748
|
|
|
21,895
|
|
|
Low-income
housing tax credit fund investments
|
|
|
16,227
|
|
|
17,986
|
|
|
Prepaid
pension asset
|
|
|
9,875
|
|
|
15,271
|
|
|
Cash
surrender value of life insurance
|
|
|
9,689
|
|
|
9,575
|
|
|
Prepaid
expenses
|
|
|
10,118
|
|
|
4,713
|
|
|
Miscellaneous
investments, receivables and other assets
|
|
|
20,482
|
|
|
32,039
|
|
|
Total other assets
|
|
$
140,417
|
|
$
154,544
|
|
|
Accrued
Expenses and Other Liabilities
|
|
|
|
|
|
|
|
|
Trade
date obligations
|
|
$
50,000
|
|
$
-
|
|
|
Accrued
taxes and expenses
|
|
|
44,139
|
|
|
56,958
|
|
|
Dividend
payable
|
|
|
14,624
|
|
|
12,159
|
|
|
Liability
for postretirement benefits other than pensions
|
|
|
13,571
|
|
|
11,877
|
|
|
Reserve
for losses on unfunded credit commitments
|
|
|
1,800
|
|
|
580
|
|
|
Miscellaneous
payables, deferred income and other liabilities
|
|
|
18,736
|
|
|
17,665
|
|
|
Total accrued expenses and other liabilities
|
$
142,870
|
|
$
99,239
|
|
See
Note
2 for information on the natural disasters that affected Whitney during 2005,
including a discussion of related insurance matters.
NOTE
9
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. Based on currently available information, the Company does
not
anticipate making a contribution to the plan during 2006. The components
of net
pension expense were as follows:
|
|
|
|
|
|
Three
Months Ended
|
Nine Months Ended
|
|
|
|
September
30
|
September 30
|
|
(in
thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Service
cost for benefits during the period
|
$
1,899
|
|
$
1,706
|
|
$
5,698
|
$
5,221
|
|
|
Interest
cost on benefit obligation
|
|
|
1,948
|
|
|
1,814
|
|
|
5,827
|
|
|
5,394
|
|
|
Expected
return on plan assets
|
|
|
(2,458
|
)
|
|
(2,098
|
)
|
|
(7,380
|
)
|
|
(6,255
|
)
|
|
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial losses
|
|
|
451
|
|
|
244
|
|
|
1,312
|
|
|
675
|
|
|
Unrecognized prior service cost
|
|
|
(27
|
)
|
|
(27
|
)
|
|
(81
|
)
|
|
(81
|
)
|
|
Net
periodic benefit expense
|
$
1,813
|
|
$
1,639
|
|
$
5,376
|
|
$
4,954
|
|
Whitney
also has an unfunded nonqualified defined benefit pension plan that provides
retirement benefits to designated executive officers. The net pension expense
for nonqualified plan benefits was approximately $.3 million for the third
quarters of both 2006 and 2005. Year-to-date expense through September 30
was
approximately $.8 million in each year.
Health
and Welfare Plans
Whitney
maintains health care and life insurance benefit plans for retirees and their
eligible dependents. Participant contributions are required under the health
plan. The Company funds its obligations under these plans as contractual
payments come due to health care organizations and insurance
companies.
Whitney
recognized a net periodic expense for postretirement benefits of approximately
$.7 million in the third quarter of 2006 and $.6 million in the third quarter
of
2005. Year-to-date expense through September 30 was $2.3 million in 2006
and
$1.7 million in 2005. None of the individual components of the net periodic
expense was individually significant for any period.
NOTE
10
SHARE-BASED
COMPENSATION
Whitney
maintains incentive compensation plans that incorporate share-based
compensation. The plans for both employees and directors have been approved
by
the Company’s shareholders. Descriptions of these plans, including the terms of
awards and the number of Whitney shares authorized for issuance, were included
in the Company’s annual report on Form 10-K for the year ended December 31,
2005. At September 30, 2006, future awards with respect to 806,799 shares
of
Whitney common stock could be made under the employee plan and 1,198,676
shares
under the directors’ plan. The shares available under the employee plan have
been reduced by the maximum number of shares that could be issued with respect
to performance-based awards. The stock issued for awards may come from unissued
shares or shares held in treasury.
During
June 2006, annual share-based compensation awards were made under each of
these
plans as follows:
|
|
|
(dollars
in thousands, except per share data)
|
|
|
Number
Awarded
|
Grant
Date
Fair
Value
of
Option, Stock or
Stock
Unit
|
Total
Share-based
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
incentive plan for employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based restricted stock units
|
|
|
(a
)
|
$
35.01
|
|
$
20,284
|
(b)
|
|
Stock options
|
|
|
238,800
|
|
|
7.23
|
|
|
|
1,727
|
|
|
Directors'
compensation plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock grant
|
|
|
8,775
|
|
|
35.37
|
|
|
|
310
|
|
|
Stock options
|
|
|
58,500
|
|
|
8.10
|
|
|
474
|
|
(a)
Number
of shares that potentially could be issued ranges from 684,980 to none. As
of
September 30, 2006, 579,365 shares are expected to ultimately be
issued.
(b)
Based
on market price of Whitney common stock on the grant date and number of shares
that are ultimately expected to be issued, taking into consideration expected
performance factors and forfeitures.
Employees
forfeit their restricted stock units if they terminate employment within
three
years of the award date, although they can retain a prorated number of units
in
the case of retirement, death, disability and, in limited circumstances,
involuntary termination. During the three-year period, they cannot transfer
or
otherwise dispose of the units awarded. The restricted stock units that
ultimately vest will be determined with reference to Whitney’s financial
performance over a three-year period in relation to that of a designated
peer
group. The directors’ stock grant is fully vested upon award. Prior to 2006, the
Company had awarded performance-based restricted stock, but with substantially
the same terms as the restricted units.
The
Company has recognized compensation expense with respect to restricted stock
and
stock units of $9.9 million in 2006, including $3.7 million in the third
quarter. During 2005, Whitney recognized compensation expense with respect
to
restricted stock awards totaling $2.4 million for the third quarter and $7.6
million year-to-date through September 30, 2005. Unrecognized compensation
related to restricted stock and stock units totaled $28.2 million at September
30, 2006. This compensation will be recognized over an expected weighted-average
period of 2.3 years. At September 30, 2006, 1,333,744 shares with a
weighted-average grant-date fair value of $32.49 per share were expected
to
ultimately become vested and issued under performance-based stock and stock
unit
awards. At December 31, 2005, the total was 875,685 shares with a per share
value of $27.81. During the first nine months of 2006, updated performance
expectations added 172,819 shares with a weighted-average fair value of $30.70
per share to the total of shares expected to become vested. In the same period,
employees vested in 282,901 shares with a value per share of $22.44 and a
total
value of $6.3 million and forfeited their rights to 12,712 shares with a
weighted-average per share value of $29.16.
Employees
can first exercise their stock options from the 2006 award three years from
the
grant date, provided they are still employed. A prorated number of options
can
vest and become immediately exercisable upon an employee’s retirement, death or
disability within this three-year period. All employee options expire after
ten
years, although an earlier expiration applies in the case of retirement,
death
or disability. The exercise price for employee options is set at an amount
not
lower than the opening market price for Whitney’s stock on the grant date.
Before
2006,
employee stock options were awarded without the three-year service requirement,
but otherwise had substantially the same terms as the options awarded in
2006.
Directors’ stock options are immediately exercisable and expire no later than
ten years from the grant date. The exercise price for directors’ options is set
at the closing market price for the Company’s stock on the grant
date.
The
following table summarizes stock option activity for 2006.
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
Average
|
|
|
|
|
Average
|
Years
to
|
|
|
|
Number
|
Exercise
Price
|
Expiration
|
|
Outstanding
at December 31, 2005
|
|
2,908,044
|
$24.38
|
6.6
|
|
Options granted
|
|
297,300
|
35.40
|
|
|
Options exercised
|
|
(334,772)
|
21.03
|
|
|
Options forfeited
|
|
(6,000)
|
30.34
|
|
|
Outstanding
at September 30, 2006
|
|
2,864,572
|
$25.91
|
6.5
|
|
Exercisable
at September 30, 2006
|
|
2,625,772
|
$25.04
|
6.2
|
The
options held by employees and directors at September 30, 2006, both those
outstanding and those exercisable, had an intrinsic value of approximately
$28.2
million based on the closing market price for Whitney’s stock on that date. The
intrinsic value of options exercised during 2006 totaled $4.7 million as
of the
exercise dates. The Company received exercise proceeds totaling $6.6 million
and
realized a tax benefit of $1.4 million year-to-date through September 30,
2006.
During the first nine months of 2005, options to acquire 548,272 shares were
exercised with a total intrinsic value of $5.7 million. These exercises yielded
$10.9 million of cash proceeds and a realized tax benefit of $1.7 million
year-to-date through September 30, 2005. The tax benefit in each period was
credited to capital surplus. The impact of the tax benefit was reported as
a
cash flow from financing activities in the consolidated statement of cash
flows
for 2006 and as a cash flow from operations in 2005.
In
December 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 123 (revised 2004) (SFAS No. 123R),
Share-Based
Payment
.
SFAS
No. 123R replaced SFAS No. 123,
Accounting
for Stock-Based Compensation
,
as
amended by SFAS No. 148. 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 revised standard established the fair value-based method as
the
exclusive method of accounting for share-based compensation, with only limited
exceptions. Under SFAS No. 123R, the grant-date fair value of equity
instruments, including stock options, awarded to employees determines the
cost
of the services received in exchange, and the cost associated with awards
that
are expected to vest is recognized over the required service
period.
For
outstanding awards for which the required service period extends beyond
December 31, 2005, SFAS No. 123R requires Whitney to recognize compensation
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 vested and exercisable
and there were no continuing service requirements. The service requirements
for
certain performance-based restricted stock awards do extend beyond December
31,
2005. During 2005, Whitney recognized compensation expense with
respect
to restricted stock awards under Accounting Principles Board Opinion (APB)
No.
25 and related interpretations. The expense recognized under APB No. 25 was
also
based on fair value, but the timing of when fair value was determined and
the
method of allocating expense over time differed in certain respects from
what
was 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 share-based
compensation expense in 2005 for all awards, both options and restricted
stock.
|
|
|
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
(dollars
in thousands, except per share data)
|
|
September
30, 2005
|
September
30, 2005
|
|
Net
income
|
|
$
9,123
|
|
$
67,200
|
|
|
|
Share-based
compensation expense included
|
|
|
|
|
|
|
|
|
|
in reported net income, net of related tax effects
|
|
|
1,544
|
|
|
4,913
|
|
|
|
Share-based
compensation expense determined
|
|
|
|
|
|
|
|
|
|
under SFAS No. 123, net of related tax effects
|
|
|
(1,185
|
)
|
|
(6,424
|
)
|
|
Pro
forma net income
|
$
9,482
|
|
$
65,689
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
Basic - as reported
|
|
$
.15
|
|
$
1.09
|
|
|
|
Basic - pro forma
|
|
|
.15
|
|
|
1.06
|
|
|
|
Diluted - as reported
|
|
|
.14
|
|
|
1.07
|
|
|
|
Diluted - pro forma
|
|
|
.15
|
|
|
1.05
|
|
Weighted-average
fair value of options awarded
|
|
|
-
|
|
$
6.09
|
|
The
fair
values of the stock options were estimated as of the grant dates using the
Black-Scholes option-pricing model. The Company made the following significant
assumptions in applying the option-pricing model: (a) a weighted-average
expected annualized volatility for Whitney’s common stock of 22.85% for 2006 and
22.97% for 2005; (b) a weighted-average option life of 5.4 years for 2006
and
5.6 years for 2005; (c) an expected annual dividend yield of 3.25% for 2006
and
3.14% for 2005; and (d) a weighted-average risk-free interest rate of 5.14%
for
2006 and 3.87% for 2005. Both the volatility assumption and the weighted-average
option life assumption were based primarily on historical experience.
NOTE
11
CONTINGENCIES
The
Company and its subsidiaries are parties to various legal proceedings arising
in
the ordinary course of business. After reviewing pending and threatened actions
with legal counsel, management believes that the ultimate resolution of these
actions will not have a material effect on Whitney’s financial condition,
results of operations or cash flows.
See
Note
2 for information on the impact of natural disasters that struck Whitney’s
market area in 2005, including comments about contingencies surrounding the
resolution of insurance claims.
NOTE
12
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. A
number
of 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 September 30, 2006 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. See Note 6 for a summary
analysis of changes in the reserve for losses on unfunded credit
commitments.
A
summary
of off-balance-sheet financial instruments follows:
|
|
|
|
|
September
30
|
|
December
31
|
|
|
(in
thousands)
|
|
|
2006
|
|
|
2005
|
|
|
Commitments
to extend credit - revolving
|
|
$
2,099,993
|
|
$
1,834,415
|
|
|
Commitments
to extend credit - nonrevolving
|
|
|
504,420
|
|
|
593,667
|
|
|
Credit
card and personal credit lines
|
|
|
553,473
|
|
|
507,733
|
|
|
Standby
and other letters of credit
|
|
|
403,526
|
|
|
365,582
|
|
NOTE
13
EARNINGS
PER SHARE
The
components used to calculate basic and diluted earnings per share were as
follows:
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
|
|
September 30
|
September 30
|
|
(dollars
in thousands, except per share data)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
35,191
|
|
$
9,123
|
$
110,753
|
|
$
67,200
|
|
|
Effect of dilutive securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Numerator for diluted earnings per share
|
$
35,191
|
|
$
9,123
|
$
110,753
|
$
67,200
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
65,444,539
|
|
|
62,699,332
|
|
|
64,399,751
|
|
|
61,764,918
|
|
|
Effect of potentially dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and contingently issuable shares
|
|
|
1,146,991
|
|
|
879,791
|
|
|
1,189,659
|
|
|
992,838
|
|
|
Denominator for diluted earnings per share
|
|
|
66,591,530
|
|
|
63,579,123
|
|
|
65,589,410
|
|
|
62,757,756
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
.54
|
|
$
.15
|
|
$
1.72
|
|
$
1.09
|
|
|
Diluted
|
|
|
.53
|
|
|
.14
|
|
|
1.69
|
|
|
1.07
|
|
|
Antidilutive
stock options
|
|
|
238,800
|
|
|
502,825
|
|
|
83,099
|
|
|
169,450
|
|
NOTE
14
ACCOUNTING
PRONOUNCEMENTS
In
September 2006, the FASB issued SFAS No. 158,
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans - an
amendment of FASB Statements No. 87, 88, 106 and 132(R).
This
statement requires an employer to recognize the funded status of a benefit
plan
as an asset or liability in its statement of financial position. The funded
status is measured as the difference between plan assets at fair value and
the
plan’s specified benefit obligation, which would be the projected benefit
obligation for a pension plan and the accumulated benefit obligation for
other
postretirement plans. Under SFAS No. 158, the gains or losses and prior service
costs or credits that arise in a period but are not immediately recognized
as
components of net periodic benefit expense will now be recognized, net of
tax,
as a component of other comprehensive income. The amounts included in
accumulated other comprehensive income will be adjusted as they are recognized
as components of net periodic benefit expense in subsequent periods. Whitney
will initially recognize the funded status of its postretirement plans and
provide certain additional disclosures required by this statement in its
December 31, 2006 year-end financial statements. The amounts to be recognized
are not yet determinable. SFAS No. 158 also requires an employer to measure
plan
assets and obligations as of the date of the employer’s fiscal year-end. This
requirement is effective for the Company’s 2008 fiscal year.
Also
in
September 2006, the FASB issued SFAS No. 157,
Fair
Value Measurements,
to
increase consistency and comparability in fair value measurements and provide
for expanded disclosures about the development of such measurements and their
effect on earnings. Although the statement does not require any new fair
value
measurements, its definition of fair value and the framework it establishes
for
measuring fair value in generally accepted accounting principles will result
in
some changes from current practice. Whitney has not completed its evaluation
of
the potential impact of this statement.
In
June
2006, the FASB issued FASB Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes
.
This
interpretation clarifies that the benefit of a position taken or expected
to be
taken in a tax return should be recognized in a company’s financial statements
in accordance with SFAS No.109,
Accounting
for Income Taxes
,
when it
is more likely than not that the position will be sustained based on its
technical merits. The interpretation also prescribes how to measure the tax
benefit recognized and provides guidance on when a tax benefit should be
derecognized as well as various other accounting, presentation and disclosure
matters. This interpretation is effective for Whitney’s 2007 fiscal year.
Application of this interpretation is not expected to have a material impact
on
Whitney’s financial condition or results of operations.
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
.
Whitney
adopted the provisions of SFAS No. 123R beginning January 1, 2006. Information
about the more significant provisions of this standard is presented in Note
10.
|
WHITNEY
HOLDING CORPORATION AND SUBSIDIARIES
|
|
|
|
(Unaudited)
|
|
|
Third
Quarter
|
Second
Quarter
|
Third
Quarter
|
Nine
Months ended September 30
|
|
(dollars
in thousands, except per share data)
|
2006
|
2006
|
|
2005
|
|
2006
|
|
|
2005
|
|
|
QUARTER-END
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
10,098,175
|
|
$
10,427,716
|
|
$
9,431,253
|
$
10,098,175
|
|
$
9,431,253
|
|
|
Earning
assets
|
|
|
9,203,856
|
|
|
9,489,364
|
|
|
8,247,993
|
|
|
9,203,856
|
|
|
8,247,993
|
|
|
Loans
|
|
|
6,852,640
|
|
|
6,860,746
|
|
|
6,462,623
|
|
|
6,852,640
|
|
|
6,462,623
|
|
|
Investment
securities
|
|
|
1,980,664
|
|
|
1,822,119
|
|
|
1,719,026
|
|
|
1,980,664
|
|
|
1,719,026
|
|
|
Deposits
|
|
|
8,199,700
|
|
|
8,623,661
|
|
|
7,478,921
|
|
|
8,199,700
|
|
|
7,478,921
|
|
|
Shareholders'
equity
|
|
|
1,113,111
|
|
|
1,072,764
|
|
|
945,229
|
|
|
1,113,111
|
|
|
945,229
|
|
|
AVERAGE
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
10,218,601
|
$
10,552,631
|
|
$
8,999,177
|
|
$
10,311,510
|
|
$
8,688,833
|
|
|
Earning
assets
|
|
|
9,320,563
|
|
|
9,665,927
|
|
|
8,158,377
|
|
|
9,412,166
|
|
|
7,955,598
|
|
|
Loans
|
|
|
6,837,875
|
|
|
6,792,224
|
|
|
6,332,291
|
|
|
6,714,722
|
|
|
6,011,389
|
|
|
Investment
securities
|
|
|
1,893,125
|
|
|
1,787,210
|
|
|
1,752,317
|
|
|
1,794,635
|
|
|
1,892,291
|
|
|
Deposits
|
|
|
8,399,368
|
|
|
8,790,845
|
|
|
7,229,462
|
|
|
8,577,067
|
|
|
6,971,880
|
|
|
Shareholders'
equity
|
|
|
1,095,628
|
|
|
1,061,216
|
|
|
966,771
|
|
|
1,044,540
|
|
|
929,561
|
|
|
INCOME
STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
$
159,450
|
$
156,199
|
|
$
120,910
|
|
$
457,641
|
$
337,102
|
|
|
Interest
expense
|
|
|
39,679
|
|
|
34,950
|
|
|
23,225
|
|
|
103,384
|
|
|
56,429
|
|
|
Net
interest income
|
|
|
119,771
|
|
|
121,249
|
|
|
97,685
|
|
|
354,257
|
|
|
280,673
|
|
|
Net
interest income (TE)
|
|
|
121,344
|
|
|
122,804
|
|
|
99,116
|
|
|
358,892
|
|
|
285,072
|
|
|
Provision
for credit losses
|
|
|
-
|
|
|
760
|
|
|
34,000
|
|
|
2,720
|
|
|
37,000
|
|
|
Noninterest
income
|
|
|
21,348
|
|
|
21,243
|
|
|
20,305
|
|
|
63,767
|
|
|
63,907
|
|
|
Net securities gains in noninterest income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
68
|
|
|
Noninterest
expense
|
|
|
89,230
|
|
|
82,933
|
|
|
71,678
|
|
|
251,303
|
|
|
210,321
|
|
|
Net
income
|
|
|
35,191
|
|
|
39,413
|
|
|
9,123
|
|
|
110,753
|
|
|
67,200
|
|
|
KEY
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
1.37
|
%
|
|
1.50
|
%
|
|
.40
|
%
|
|
1.44
|
%
|
|
1.03
|
%
|
|
Return
on average shareholders' equity
|
|
|
12.74
|
|
|
14.90
|
|
|
3.74
|
|
|
14.18
|
|
|
9.67
|
|
|
Net
interest margin (TE)
|
|
|
5.17
|
|
|
5.09
|
|
|
4.83
|
|
|
5.10
|
|
|
4.79
|
|
|
Average
loans to average deposits
|
|
|
81.41
|
|
|
77.26
|
|
|
87.59
|
|
|
78.29
|
|
|
86.22
|
|
|
Efficiency
ratio
|
|
|
62.53
|
|
|
57.41
|
|
|
60.02
|
|
|
59.46
|
|
|
60.28
|
|
|
Allowance
for loan losses to loans
|
|
|
1.09
|
|
|
1.18
|
|
|
1.41
|
|
|
1.09
|
|
|
1.41
|
|
|
Nonperforming
assets to loans plus foreclosed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets and surplus property
|
|
|
.80
|
|
|
.83
|
|
|
.69
|
|
|
.80
|
|
|
.69
|
|
|
Annualized
net charge-offs to average loans
|
|
|
.27
|
|
|
.73
|
|
|
.11
|
|
|
.39
|
|
|
.09
|
|
|
Average
shareholders' equity to average assets
|
|
|
10.72
|
|
|
10.06
|
|
|
10.74
|
|
|
10.13
|
|
|
10.70
|
|
|
Shareholders'
equity to total assets
|
|
|
11.02
|
|
|
10.29
|
|
|
10.02
|
|
|
11.02
|
|
|
10.02
|
|
|
Leverage
ratio
|
|
|
8.35
|
|
|
7.82
|
|
|
8.45
|
|
|
8.35
|
|
|
8.45
|
|
|
COMMON
SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
.54
|
|
$
.61
|
|
$
.15
|
|
$
1.72
|
|
$
1.09
|
|
|
Diluted
|
|
|
.53
|
|
|
.60
|
|
|
.14
|
|
|
1.69
|
|
|
1.07
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
.27
|
$
.27
|
|
$
.25
|
$
.81
|
|
$
.73
|
|
|
Dividend payout ratio
|
|
|
50.79
|
%
|
|
45.04
|
%
|
|
173.41
|
%
|
|
47.64
|
%
|
|
68.21
|
%
|
|
Book
Value Per Share
|
|
$
16.90
|
$
16.31
|
|
$
14.94
|
|
$
16.90
|
|
$
14.94
|
|
|
Trading
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High sales price
|
|
$
37.00
|
|
$
37.26
|
|
$
33.69
|
|
$
37.26
|
|
$
33.69
|
|
|
Low sales price
|
|
|
34.42
|
|
|
33.80
|
|
|
26.60
|
|
|
27.27
|
|
|
26.60
|
|
|
End-of-period closing price
|
|
|
35.77
|
|
|
35.37
|
|
|
27.04
|
|
|
35.77
|
|
|
27.04
|
|
|
Trading volume
|
|
|
10,339,045
|
|
|
13,719,163
|
|
|
18,314,726
|
|
|
38,469,336
|
|
|
34,258,321
|
|
|
Average
Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
65,444,539
|
|
|
64,890,893
|
|
|
62,699,332
|
|
|
64,399,751
|
|
|
61,764,918
|
|
|
Diluted
|
|
|
66,591,530
|
|
|
66,197,108
|
|
|
63,579,123
|
|
|
65,589,410
|
|
|
62,757,756
|
|
|
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.
|
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
purpose of this discussion and analysis is to focus on significant changes
in
the financial condition of Whitney Holding Corporation and its subsidiaries
(the
Company or Whitney) from December 31, 2005 to September 30, 2006 and on their
results of operations during the third quarters of 2006 and 2005 and during
the
nine-month periods through September 30 in each year. Nearly all of the
Company’s operations are contained in its banking subsidiary, Whitney National
Bank (the Bank). This discussion and analysis is intended to highlight and
supplement information presented elsewhere in this quarterly report on Form
10-Q, particularly the consolidated financial statements and related notes
appearing in Item 1. This discussion and analysis should be read in conjunction
with the Company’s 2005 annual report on Form 10-K.
FORWARD-LOOKING
STATEMENTS
This
discussion contains “forward-looking statements” within the meaning of section
27A of the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements provide projections
of results of operations or of financial condition or state other
forward-looking information, such as expectations about future conditions
and
descriptions of plans and strategies for the future. Forward-looking statements
often contain words such as “anticipate,” “believe,” “could,” “continue,”
“estimate,” “expect,” “forecast,” “goal,” “intend,” “plan,” “predict,” “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 financial repercussions of natural disasters,
including the impact on the allowance for credit losses and related provision,
deposit balances, liquidity and on certain categories of noninterest expense;
(b) expectations expressed about insurance recoveries of storm-related casualty
losses and repair and rebuilding costs; (c) expectations about Whitney’s
operational resiliency in the event of natural disasters and projections
of
costs associated with disasters; (d) comments on conditions impacting certain
sectors of the loan portfolio; (e) information about changes in the duration
of
the investment portfolio with changes in market rates; (f) statements of
the
results of net interest income simulations run by the Company to measure
interest rate sensitivity; (g) discussion of the performance of Whitney’s net
interest income assuming certain conditions; and (h) comments on expected
trends
or changes in expense levels for share-based compensation and retirement
benefits.
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 its forward-looking statements are based on reasonable
assumptions, actual results and performance could differ materially from
those
set forth in the forward-looking statements.
Factors
that could cause actual results to differ from those expressed in the Company’s
forward-looking statements include, but are not limited to:
|
l
|
changes
in economic and business conditions, including those caused by
past or
future natural disasters or by acts of war or terrorism, that directly
or
indirectly affect the financial health of Whitney’s customer
base;
|
|
|
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;
|
|
|
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;
|
|
|
technological
changes affecting the nature or delivery of financial products
or services
and the cost of providing them;
|
|
l
|
Whitney's ability to effectively
expand into new markets;
|
|
l
|
the cost and other effects
of
material contingencies, including litigation contingencies and insurance
recoveries;
|
|
l
|
Whitney's ability
to effectively manage interest rate risk and other market risk,
credit risk and operational risk;
|
|
l
|
Whitney's ability to manage
fluctuations in the value of its assets and liabilities and off-balance
sheet exposure so as to maintain sufficient capital and liquidity
to
support its business;
|
|
|
the
failure to capitalize on growth opportunities and to realize cost
savings
in connection with business acquisitions;
|
|
|
management’s
inability to develop and execute plans for Whitney to effectively
respond
to unexpected changes.
|
You
are
cautioned not to place undue reliance on these forward-looking statements.
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, except as required by law.
OVERVIEW
UPDATE
ON IMPACT OF NATURAL DISASTERS
Two
strong hurricanes struck portions of Whitney’s service area during the third
quarter of 2005. The following sections summarize the more significant
continuing financial repercussions of these natural disasters for the Company
and the Bank.
Credit
Quality and Credit-related Losses
Relationship
officers have closely monitored the performance of storm-impacted loan
customers. Information provided by these officers and statistics on the
performance of consumer credits were factored into management’s determination of
the allowance for loan losses at September 30, 2006. The significant overall
uncertainties that complicated management’s early assessments of storm-related
credit losses have largely been addressed in the year since the storms, and
the
storms’ impact on credit quality is primarily being reflected in the normal
process for determining the loan loss allowance and reserves for losses on
unfunded credit commitments. Some important uncertainties remain, however,
including those specific to some individual customers, such as the resolution
of
insurance claims, and those applicable to the economic prospects of the
storm-impacted area as a whole. Management will continue to monitor the
resolution of these uncertainties when determining future loss allowances
and
reserves.
Disaster
Response Costs, Casualty Losses, Business Interruption and Related
Insurance
The
Bank
incurred a variety of costs to operate in disaster response mode, and a number
of facilities and their contents were damaged by the storms, including sixteen
that 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. All
significant disaster response costs have been incurred and included where
appropriate in an insurance claim receivable based on management’s understanding
of the underlying coverage. The bulk of costs to replace or renovate facilities
will be incurred in future periods, and these will be included in the insurance
claims as appropriate. Management projects that casualty claims arising from
the
2005 storms will be within policy limits, and that gains will be recognized
with
respect to these claims in future periods; however, this is contingent upon
reaching agreement with insurance carriers.
Deposit
Growth and Liquidity Management
The
Bank
experienced a rapid accumulation of deposits in the months following the
storms.
Although some of the factors that contributed to this accumulation were still
present during the third quarter of 2006, these funds have been experiencing
some anticipated run-off, and management is monitoring the ongoing stability
of
these deposits as part of the Company’s overall asset/liability management
process. Whitney invested a major portion of the funds from this post-storm
deposit influx into short-term liquidity-management securities. Significant
additional government funds to cover uninsured property losses and to support
the rebuilding process are becoming available in the storm-impacted markets,
but
only limited distributions had been made by the end of 2006’s third quarter.
Whitney does not expect significant near-term deposit growth related to these
funds.
HIGHLIGHTS
OF FINANCIAL RESULTS
Whitney
earned $35.2 million in the quarter ended September 30, 2006, compared to
net
income of $9.1 million reported for the third quarter of 2005. Per share
earnings were $.54 per basic share and $.53 per diluted share in 2006’s third
quarter, compared to $.15 and $.14, respectively, for the year-earlier
period.
Year-to-date
earnings were $111 million in 2006 and $67.2 million in 2005. Per share earnings
were $1.72 per basic share and $1.69 per diluted share in 2006, compared
to
$1.09 and $1.07, respectively in 2005. The results for the third quarter
of 2006
included approximately $6.4 million in expenses associated with the late-summer
hurricanes of 2005. This total included both the cost to implement initiatives
that reduced the exposure of the Company’s operations to future disasters and
improved operational resilience as well as certain increased operating costs
and
additional expenditures directly related to the 2005 storms. The components
of
these expenses are covered in more detail in the “Noninterest Expense” section
of the discussion of “Results of Operations” below. The storms’ impact on the
prior year’s quarterly earnings was mainly reflected in the $34 million
provision for credit losses for that period and $1.1 million in casualty
losses.
On
April
13, 2006, Whitney acquired First National Bancshares, Inc. of Bradenton,
Florida
(First National) and its subsidiary, 1
st
National
Bank & Trust (1
st
National), which operates in the Tampa Bay area. 1
st
National
had approximately $380 million in total assets, including a loan portfolio
valued at $286 million, and $319 million in deposits at the acquisition date.
First National shareholders received 2.2 million shares of Whitney common
stock
and cash totaling $41 million, for a total transaction value of approximately
$116 million. The Company merged 1
st
National
into the Bank in July 2006. Whitney’s financial information for 2006 includes
the results from these acquired operations since the acquisition
date.
Selected
third quarter highlights follow:
|
l
|
Whitney’s
net interest income (TE) for the third quarter of 2006 increased
$22.2
million, or 22%, compared to the third quarter of 2005, driven
by both the
14% increase in average earning assets and a wider net interest
margin.
The net interest margin (TE) was 5.17% for the third quarter of
2006, up
34 basis points from the year-earlier period. The net interest
margin for
the third quarter of 2006 was up 8 basis points from the 5.09%
margin in
2006’s second quarter, but a decline in average earning assets, prompted
by some recent run-off of deposits, led to a small decrease in
net
interest income between these
periods.
|
|
|
Average
total loans for the quarter, including loans held for sale, were
up 7%, or
$471 million, compared to the third quarter of 2005, with approximately
5%
associated with the 1
st
National acquisition. With the funding of some recent deposit losses,
short-term investments for the third quarter of 2006 decreased
on average
by $492 million from 2006’s second quarter, but were still $550 million
higher than in the third quarter of 2005. As noted earlier, total
average
earning assets for the quarter were up a net 14%, or $1.16 billion,
compared to the third quarter of 2005.
|
|
|
Whitney
made no overall provision for credit losses in the third quarter
of 2006.
The provision for credit losses includes both the provision for
loan
losses and the provision for loss reserves established against
unfunded
credit commitments. The Company recorded a $1.5 negative provision
for
loan losses in the current period, compared to a $34 million provision
in
the third quarter of 2005 that reflected management’s initial estimate of
the impact of the 2005 storms. Net charge-offs totaled $4.6 million
in
2006’s third quarter, compared to $1.7 million in the third quarter
of
2005. For the third quarter of 2006, Whitney provided $1.5 million
for
reserves on unfunded credit commitments, mainly related to a
storm-affected commercial customer. There was no loss provision
for
unfunded credit commitments in the third quarter of 2005.
|
|
|
Noninterest
income increased 5% from the third quarter of 2005. Improvements
were
noted in a number of income categories, reflecting both internal
growth
and contributions from acquired operations. Deposit service charge
income
was down 6% compared to the third quarter of 2005. The residual
additional
liquidity in the deposit base from the post-storm build-up continued
to
reduce comparative charging opportunities in the current period,
and fee
potential from business customers declined as the earnings credit
allowed
against account charges rose between these periods with short-term
market
rates.
|
|
|
Noninterest
expense increased 24%, or $17.6 million, from 2005’s third quarter. As
noted earlier, the third quarter of 2006 included approximately
$6.4
million in expenses associated directly and indirectly with the
late-summer hurricanes of 2005. Incremental operating costs associated
with 1
st
National totaled approximately $2.3 million in the third quarter
of 2006,
and the amortization of intangibles acquired in this transaction
added
another $.7 million to expense for the current year’s period. Whitney’s
personnel expense increased 13%, or $5.5 million, in total, including
approximately $1.4 million for the 1
st
National staff. Compensation expense under management incentive
programs
increased by $2.3 million in the third quarter of 2006 compared
to the
year-earlier period, mainly related to share-based compensation
earned
under Whitney’s long-term incentive
plan.
|
FINANCIAL
CONDITION
LOANS,
CREDIT RISK MANAGEMENT AND ALLOWANCE AND RESERVES FOR CREDIT
LOSSES
Loan
Portfolio Developments
Total
loans increased $292 million, or 4%, from year-end 2005 to the end of 2006’s
third quarter, and were up 6%, or $390 million, from the end of 2005’s third
quarter. Whitney acquired a $286 million loan portfolio with 1
st
National
in April 2006. Table 1 shows loan balances by type of loan at September 30,
2006
and at the end of the four prior quarters. The following discussion provides
a
brief overview of the composition of the different portfolio segments and
the
customers served in each as well as recent changes.
|
TABLE
1. LOANS
|
|
|
|
|
2006
|
|
2005
|
|
(dollars
in thousands)
|
|
September
30
|
June
30
|
March
31
|
December
31
|
September
30
|
|
Commercial,
financial and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agricultural
|
|
$
2,591,733
|
|
$
2,640,588
|
|
$
2,595,056
|
|
$
2,685,894
|
|
$
2,614,414
|
|
|
Real
estate - commercial,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
construction and other
|
|
|
3,053,927
|
|
|
3,025,366
|
|
|
2,780,340
|
|
|
2,743,486
|
|
|
2,684,353
|
|
|
Real
estate -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
residential mortgage
|
|
|
874,945
|
|
|
851,569
|
|
|
771,547
|
|
|
774,124
|
|
|
790,823
|
|
|
Individuals
|
|
|
332,035
|
|
|
343,223
|
|
|
341,696
|
|
|
357,093
|
|
|
373,033
|
|
|
Total loans
|
|
$
6,852,640
|
|
$
6,860,746
|
|
$
6,488,639
|
|
$
6,560,597
|
|
$
6,462,623
|
|
The
portfolio of commercial loans, other than those secured by real property,
decreased 4%, or $94 million, between year-end 2005 and September 30,
2006.
Advances
on existing credits and a steady pace of newly originated loans in certain
parts
of Whitney’s market area were offset by paydowns and payoffs, partly reflecting
strong cash flows to customers in certain industry segments such as oil and
gas
and construction contractors as well as the application of storm-related
insurance proceeds.
This
portfolio sector was relatively stable compared to the end of 2005’s third
quarter, and was little impacted by the 1
st
National
acquisition. Overall the portfolio has 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 2005.
Loans
outstanding to oil and gas industry customers represented approximately 9%
of
total loans at September 30, 2006, consistent with the percentage at year-end
2005.
The
major
portion of Whitney’s customer base in this industry provides transportation and
other services and products to support exploration and production activities.
With expectations of sustained higher commodity prices, Whitney has increased
its attention to lending opportunities in the exploration and production
sector
in recent years.
Outstanding
balances under participations in larger shared-credit loan commitments totaled
$375 million at the end of 2006’s third quarter, including approximately $54
million
related
to the oil and gas industry. This total is up $24 million from year-end 2005.
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 other income-producing properties, and loans secured
by properties used in commercial or industrial operations. This portfolio
sector
grew 11%, or $310 million, from December 31, 2005, and has increased 14%,
or
$370 million, since the end of the third quarter of 2005. The 1
st
National
acquisition added approximately $204 million to this category in 2006, mainly
related to commercial mortgages.
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. 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
residential mortgage loan portfolio increased 13%, or $101 million, from
the end
of 2005 to September 30, 2006, and was up 11% from a year earlier. Growth
in
this category has mostly come from acquisitions, with additional support
from
the promotion of targeted home loan products held in the portfolio. Whitney
continues to sell most conventional residential mortgage loan production
in the
secondary market.
Loans
to
individuals include various consumer installment and credit line products.
Some
storm-related factors are evident in the decrease in this portfolio category
since September 30, 2005, including the application of insurance proceeds
and
some reduction in credit demand associated with the ongoing disruption of
normal
routines for individuals from the most affected areas.
Credit
Risk Management and Allowance and Reserves for Credit
Losses
General
Discussion of Credit Risk Management and Determination of Credit Loss Allowance
and Loss Reserve
Whitney
manages credit risk mainly through adherence to underwriting and loan
administration standards established by its Credit Policy Committee and through
the efforts of the credit administration function to ensure consistent
application and monitoring of standards throughout the Company. Lending officers
are responsible for ongoing monitoring and the assignment of risk ratings
to
individual loans based on established guidelines. An independent credit review
function reporting to the Audit Committee of the Board of Directors assesses
the
accuracy of officer ratings and the timeliness of rating changes and performs
concurrent reviews of the underwriting process.
Management’s
evaluation of credit risk in the loan portfolio is ultimately reflected in
the
estimate of probable losses inherent in the portfolio that is reported in
the
Company’s financial statements as the allowance for loan losses. Changes in this
evaluation over time are reflected in the provision for loan losses charged
to
expense. The methodology for determining the allowance involves significant
judgment, and important factors that influence this judgment are re-evaluated
quarterly to respond to changing conditions.
The
recorded allowance encompasses three elements: (1) allowances established
for
losses on criticized loans; (2) allowances based on historical loss experience
for loans with acceptable credit quality and groups of homogeneous loans
not
individually rated; and (3) allowances based on general economic conditions
and
other qualitative risk factors internal and external to the Company. The
allowance for criticized loans includes any specific allowances determined
for
loans that are deemed impaired under the definition in Statement of Financial
Accounting Standards No. 114. The allowance for the remainder of criticized
loans is calculated by applying loss factors to loan balances aggregated
by
severity of the internal risk rating.
The
monitoring of credit risk also extends to unfunded credit commitments, such
as
unused commercial credit lines and letters of credit, and management establishes
reserves as needed for its estimate of probable losses on such commitments.
Management’s
Assessment of Storms’ Impact on Credit Quality
The
significant overall uncertainties that complicated management’s early
assessments of storm-related credit losses have largely been addressed in
the
year since the storms, and the storms’ impact on credit quality is primarily
being reflected in the normal process for managing credit risk and determining
the loan loss allowance and reserves for losses on unfunded credit commitments.
The detailed review process that was applied to commercial and commercial
real
estate loans in the year following the storms was not logistically feasible
for
the residential mortgage and consumer credit components of the storm-impacted
portfolio. Management has applied incremental loss factors to this portfolio
based on accumulated statistics on loss experience.
Credit
Quality Statistics and Components of Credit Loss Allowance and Loss
Reserve
Table
2
provides information on nonperforming loans and other nonperforming assets
at
September 30, 2006 and at the end of the previous four quarters. Nonperforming
loans are included in the criticized loan total discussed below and encompass
substantially all loans separately evaluated for impairment. There was a
$1.5
million decrease in the allowance for impaired loans between June 30, 2006
and
September 30, 2006, reflecting charge-off activity and other changes during
the
third quarter of 2006. Overall there have been no significant trends related
to
industries or markets underlying the changes in nonperforming
assets.
|
TABLE
2. NONPERFORMING ASSETS
|
|
|
|
|
2006
|
|
2005
|
|
|
(dollars
in thousands)
|
|
|
September
30
|
|
June
30
|
March
31
|
December
31
|
|
September
30
|
|
Loans
accounted for on a nonaccrual basis
|
$
54,277
|
|
$
56,188
|
|
$
65,494
|
|
$
65,565
|
|
$
43,763
|
|
|
Restructured
loans
|
|
|
-
|
|
|
-
|
|
|
28
|
|
|
30
|
|
|
30
|
|
|
Total nonperforming loans
|
|
$
54,277
|
|
|
56,188
|
|
|
65,522
|
|
|
65,595
|
|
|
43,793
|
|
|
Foreclosed
assets and surplus property
|
|
|
301
|
|
|
695
|
|
|
652
|
|
|
1,708
|
|
|
794
|
|
|
Total nonperforming assets
|
|
$
54,578
|
|
$
56,883
|
|
$
66,174
|
|
$
67,303
|
|
$
44,587
|
|
|
Loans
90 days past due still accruing
|
|
$
8,963
|
|
$
7,354
|
|
$
3,956
|
|
$
13,728
|
|
$
5,358
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
plus foreclosed assets and surplus property
|
|
|
.80
|
%
|
|
.83
|
%
|
|
1.02
|
%
|
|
1.03
|
%
|
|
.69
|
%
|
|
Allowance for loan losses to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nonperforming loans
|
|
|
138
|
|
|
144
|
|
|
136
|
|
|
137
|
|
|
208
|
|
|
Loans 90 days past due still accruing to loans
|
|
|
.13
|
|
|
.11
|
|
|
.06
|
|
|
.21
|
|
|
.08
|
|
During
the third quarter of 2006, there was an $18 million decrease in the total
of
loans criticized through the internal credit risk classification process.
Criticized loans at September 30, 2006 included $9 million of loans whose
full
repayment is in doubt, unchanged from June 30, 2006. Loans identified as
having
well-defined weaknesses that would likely result in some loss if not corrected
decreased a net of $10 million during the current quarter, to a total of
$137
million at September 30, 2006. Loans warranting special attention totaled
$75
million at September 30, 2006, down $8 million from June 30, 2006. The allowance
determined for criticized loans at September 30, 2006, other than those
separately evaluated for impairment, was $1.2 million lower than that determined
at the end of 2006’s second quarter.
Management
reduced its remaining special storm-related component of the allowance by
$2.5
million in the third quarter of 2006 to reflect a sustained, better than
anticipated performance by consumer credits and other loans from storm-affected
areas that are not subjected to individual credit reviews.
The
overall allowance determined as of September 30, 2006 was $6.1 million less
than
the allowance at June 30, 2006.
For
the
third quarter of 2006, Whitney increased its loss reserve on unfunded credit
commitments by $1.5 million, mainly related to letters of credit and unused
loan
facilities with a storm-affected commercial customer.
Table
3
compares third quarter and year-to-date activity in the allowance for loan
losses and in the reserve for losses on unfunded credit commitments for 2006
with the comparable periods of 2005.
|
TABLE
3. SUMMARY OF ACTIVITY - ALLOWANCE FOR LOAN LOSSES
AND
|
|
|
RESERVE FOR LOSSES ON UNFUNDED CREDIT COMMITMENTS
|
|
|
|
|
Three
Months Ended
September
30
|
Nine Months Ended
September 30
|
|
(dollars
in thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
ALLOWANCE
FOR LOAN LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
at beginning of period
|
|
$
80,715
|
|
$
58,647
|
|
$
90,028
|
$
54,345
|
|
|
Allowance
of acquired bank
|
|
|
-
|
|
|
-
|
|
|
2,908
|
|
|
3,648
|
|
|
Provision
for credit losses
|
|
|
(1,500
|
)
|
|
34,000
|
|
|
1,500
|
|
|
37,000
|
|
|
Loans
charged to the allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
|
(4,776
|
)
|
|
(2,064
|
)
|
|
(13,941
|
)
|
|
(6,200
|
)
|
|
Real estate - commercial, construction and other
|
|
|
-
|
|
|
-
|
|
|
(6,325
|
)
|
|
(318
|
)
|
|
Real estate - residential mortgage
|
|
|
(24
|
)
|
|
(68
|
)
|
|
(419
|
)
|
|
(249
|
)
|
|
Individuals
|
|
|
(463
|
)
|
|
(718
|
)
|
|
(1,721
|
)
|
|
(2,072
|
)
|
|
Total charge-offs
|
|
|
(5,263
|
)
|
|
(2,850
|
)
|
|
(22,406
|
)
|
|
(8,839
|
)
|
|
Recoveries
of loans previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
|
342
|
|
|
858
|
|
|
1,122
|
|
|
2,474
|
|
|
Real estate - commercial, construction and other
|
|
|
18
|
|
|
49
|
|
|
188
|
|
|
881
|
|
|
Real estate - residential mortgage
|
|
|
54
|
|
|
24
|
|
|
212
|
|
|
191
|
|
|
Individuals
|
|
|
267
|
|
|
218
|
|
|
1,081
|
|
|
1,246
|
|
|
Total recoveries
|
|
|
681
|
|
|
1,149
|
|
|
2,603
|
|
|
4,792
|
|
|
Net
charge-offs
|
|
|
(4,582
|
)
|
|
(1,701
|
)
|
|
(19,803
|
)
|
|
(4,047
|
)
|
|
Allowance
at end of period
|
|
$
74,633
|
|
$
90,946
|
|
$
74,633
|
|
$
90,946
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized net charge-offs to average loans
|
|
|
.27
|
%
|
|
.11
|
%
|
|
.39
|
%
|
|
.09
|
%
|
|
Annualized gross charge-offs to average loans
|
|
|
.31
|
|
|
.18
|
|
|
.44
|
|
|
.20
|
|
|
Recoveries to gross charge-offs
|
|
|
12.94
|
|
|
40.32
|
|
|
11.62
|
|
|
54.21
|
|
|
Allowance for loan losses to loans at period end
|
|
|
1.09
|
|
|
1.41
|
|
|
1.09
|
|
|
1.41
|
|
|
RESERVE
FOR LOSSES ON UNFUNDED CREDIT COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
at beginning of period
|
|
$
300
|
|
$
-
|
|
$
580
|
|
$
-
|
|
|
Provision
for credit losses
|
|
|
1,500
|
|
|
-
|
|
|
1,220
|
|
|
-
|
|
|
Reserve
at end of period
|
|
$
1,800
|
|
$
-
|
|
$
1,800
|
|
$
-
|
|
INVESTMENT
SECURITIES
The
investment securities portfolio balance increased by $339 million, or 21%,
from
year-end 2005 to September 30, 2006. Average investment securities have
increased 8%, or $141 million, from the third quarter of 2005 to 2006’s third
quarter. The composition of the average portfolio of investment securities
and
effective yields are shown in Table 7.
The
mix
of investments in the portfolio did not change significantly during the first
nine months of 2006. The duration of the overall investment portfolio was
2.5
years at September 30, 2006, and would extend to 3.4 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, 2005, the portfolio’s estimated duration was 3.0
years.
Securities
available for sale made up the bulk of the total investment portfolio at
September 30, 2006. Gross unrealized losses on securities available for sale
totaled $32 million at September 30, 2006 and were mainly related to
mortgage-backed securities and certain longer-maturity U. S. government agency
securities. The gross losses represented 2.3% of the total amortized cost
of the
underlying securities. Substantially all the unrealized losses at September
30,
2006 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. In addition,
management has the intent and ability to hold these securities until the
market-based impairment is recovered; therefore, no value impairment was
evaluated as other than temporary.
The
Company does not normally maintain a trading portfolio, other than holding
trading account securities for short periods while buying and selling securities
for customers. Such securities, if any, are included in other assets in the
consolidated balance sheets.
DEPOSITS
AND BORROWINGS
Deposits
at September 30, 2006, excluding the deposits acquired with 1
st
National
in April 2006, were lower by $608 million, or 7%, compared to the level at
year-end 2005, with $342 million of the total reduction coming in the current
year’s third quarter. Although the timing could not be predicted, some run-off
of the post-storm deposit accumulation had been expected as the recovery
process
continues, the inflows from insurance proceeds diminish and the initial
disaster-assistance programs are completed. Compared to September 30, 2005,
deposits at the end of the current quarter, also excluding deposits associated
with 1
st
National, were up 7%, or $518 million. Table 4 presents the composition of
deposits at September 30, 2006 and at the end of the previous four quarters.
The
composition of average deposits and the effective rates on interest-bearing
deposits for the third and second quarters of 2006 and the third quarter
of 2005
and for the nine-month period in each year are presented in Table
7.