NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE
1
BASIS
OF PRESENTATION
The
consolidated financial statements include the accounts of Whitney Holding
Corporation and its subsidiaries (the Company or Whitney). The
Company’s principal subsidiary is Whitney National Bank (the Bank), which
represents virtually all of the Company’s operations and net
income. All significant intercompany balances and transactions have
been eliminated.
In
preparing the consolidated financial statements, the Company is required to make
estimates, judgments 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 that are, in the opinion of management,
necessary for a fair statement of Whitney’s financial condition, results of
operations, changes in shareholders’ equity and cash flows for the interim
periods presented. These adjustments are of a normal recurring nature
and include appropriate estimated provisions.
Pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC),
some 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 annual report on Form 10-K for the year ended
December 31, 2007. Financial information reported in these financial
statements is not necessarily indicative of the Company’s financial condition,
results of operations or cash flows of any other interim or annual
periods.
NOTE
2
MERGERS
AND ACQUISITIONS
On
November 7, 2008, Whitney completed its acquisition of Parish National
Corporation (Parish), the parent of Parish National Bank. Parish
National Bank operates 16 banking centers, primarily on the north shore of Lake
Pontchartrain and other parts of the metropolitan New Orleans area, and had $771
million in total assets, including a loan portfolio of $606 million, and $636
million in deposits at the acquisition date. The Company expects to
merge Parish National Bank into Whitney National Bank before the end of 2008
upon the completion of systems-integration work and regulatory
approval. The transaction was valued at approximately $158 million,
with approximately $97 million paid to Parish’s shareholders in cash and the
remainder in Whitney stock totaling approximately 3.33 million
shares. The purchase price allocation for this transaction has not
yet been completed.
On March
2, 2007, Whitney completed its acquisition of Signature Financial Holdings, Inc.
(Signature), headquartered in St. Petersburg, Florida and the parent of
Signature Bank. Signature Bank operated seven banking centers in the
Tampa Bay metropolitan area and had approximately $270 million in total assets,
including $220 million of loans, and $210 million in deposits at
acquisition. The transaction was valued at approximately $61 million,
with $13 million paid to Signature’s shareholders in cash and the remainder in
Whitney common stock totaling approximately 1.49 million
shares. Applying purchase accounting to this transaction, the Company
recorded goodwill of $39 million and a $4 million intangible asset for the
estimated value of deposit relationships with a weighted-average life of 2.4
years. Signature Bank has been merged into the Bank.
Whitney’s
financial statements include the results from acquired operations since the
acquisition dates.
NOTE
3
LOANS
The
composition of the Company’s loan portfolio was as follows.
|
|
|
September
30
|
|
December
31
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
Commercial,
financial and agricultural
|
|
$
|
3,100,428
|
|
|
|
38
|
%
|
|
$
|
2,822,752
|
|
|
|
37
|
%
|
|
Real
estate – commercial, construction and other
|
|
|
3,612,038
|
|
|
|
45
|
|
|
|
3,477,558
|
|
|
|
46
|
|
|
Real
estate – residential mortgage
|
|
|
1,003,009
|
|
|
|
12
|
|
|
|
933,797
|
|
|
|
12
|
|
|
Individuals
|
|
|
362,300
|
|
|
|
5
|
|
|
|
351,594
|
|
|
|
5
|
|
|
Total
|
|
$
|
8,077,775
|
|
|
|
100
|
%
|
|
$
|
7,585,701
|
|
|
|
100
|
%
|
NOTE
4
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)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Allowance
at beginning of period
|
|
$
|
109,852
|
|
|
$
|
75,099
|
|
|
$
|
87,909
|
|
|
$
|
75,927
|
|
|
Allowance
of acquired bank
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,791
|
|
|
Provision
for credit losses
|
|
|
40,000
|
|
|
|
9,400
|
|
|
|
89,000
|
|
|
|
7,900
|
|
|
Loans
charged off
|
|
|
(27,325
|
)
|
|
|
(5,119
|
)
|
|
|
(56,659
|
)
|
|
|
(12,698
|
)
|
|
Recoveries
|
|
|
2,843
|
|
|
|
2,755
|
|
|
|
5,120
|
|
|
|
8,215
|
|
|
Net
charge-offs
|
|
|
(24,482
|
)
|
|
|
(2,364
|
)
|
|
|
(51,539
|
)
|
|
|
(4,483
|
)
|
|
Allowance
at end of period
|
|
$
|
125,370
|
|
|
$
|
82,135
|
|
|
$
|
125,370
|
|
|
$
|
82,135
|
|
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)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Reserve
at beginning of period
|
|
$
|
1,300
|
|
|
$
|
1,400
|
|
|
$
|
1,300
|
|
|
$
|
1,900
|
|
|
Provision
for credit losses
|
|
|
-
|
|
|
|
(400
|
)
|
|
|
-
|
|
|
|
(900
|
)
|
|
Reserve
at end of period
|
|
$
|
1,300
|
|
|
$
|
1,000
|
|
|
$
|
1,300
|
|
|
$
|
1,000
|
|
Information
on loans evaluated for possible impairment loss follows.
|
|
|
September
30
|
|
December
31
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
Impaired
loans
|
|
|
|
|
|
|
|
Requiring
a loss allowance
|
|
$
|
164,961
|
|
|
$
|
86,920
|
|
|
Not
requiring a loss allowance
|
|
|
48,177
|
|
|
|
22,412
|
|
|
Total
recorded investment in impaired loans
|
|
$
|
213,138
|
|
|
$
|
109,332
|
|
|
Impairment
loss allowance required
|
|
$
|
31,619
|
|
|
$
|
22,590
|
|
The
following is a summary of nonperforming loans. Substantially all of
the impaired loans summarized above are included in the nonperforming loan
totals.
|
|
|
September
30
|
|
December
31
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
Loans
accounted for on a nonaccrual basis
|
|
$
|
235,136
|
|
|
$
|
120,096
|
|
|
Restructured
loans accruing
|
|
|
-
|
|
|
|
-
|
|
|
Total
nonperforming loans
|
|
$
|
235,136
|
|
|
$
|
120,096
|
|
NOTE
5
DEPOSITS
The composition of deposits was as
follows.
|
|
|
September
30
|
|
December
31
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
Noninterest-bearing
demand deposits
|
|
$
|
2,809,923
|
|
|
$
|
2,740,019
|
|
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
|
NOW
account deposits
|
|
|
958,940
|
|
|
|
1,151,988
|
|
|
Money
market deposits
|
|
|
1,158,507
|
|
|
|
1,229,715
|
|
|
Savings
deposits
|
|
|
896,733
|
|
|
|
879,609
|
|
|
Other
time deposits
|
|
|
714,650
|
|
|
|
823,884
|
|
|
Time
deposits $100,000 and over
|
|
|
1,515,678
|
|
|
|
1,758,574
|
|
|
Total
interest-bearing deposits
|
|
|
5,244,508
|
|
|
|
5,843,770
|
|
|
Total
deposits
|
|
$
|
8,054,431
|
|
|
$
|
8,583,789
|
|
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 $447 million at September 30, 2008 and $705 million at December
31, 2007. Most of these deposits mature on a daily
basis.
NOTE
6
SHORT-TERM
BORROWINGS
Short-term
borrowings consisted of the following.
|
|
|
September
30
|
|
December
31
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
Securities
sold under agreements to repurchase
|
|
$
|
603,807
|
|
|
$
|
771,717
|
|
|
Federal
Home Loan Bank advances
|
|
|
500,000
|
|
|
|
-
|
|
|
Federal
funds purchased
|
|
|
322,057
|
|
|
|
98,302
|
|
|
Treasury
Investment Program
|
|
|
39,993
|
|
|
|
40,000
|
|
|
Total
short-term borrowings
|
|
$
|
1,465,857
|
|
|
$
|
910,019
|
|
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.
Advances
from the Federal Home Loan Bank (FHLB) mature within one month and are secured
by a blanket lien on Bank loans secured by real estate.
Federal
funds purchased are unsecured borrowings from other banks, generally on an
overnight basis.
Under the
Treasury Investment Program, 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 participates up to a maximum of $40 million and has
pledged securities with a comparable value as collateral.
NOTE
7
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)
|
|
2008
|
|
2007
|
|
Other
Assets
|
|
|
|
|
|
|
|
Cash
surrender value of life insurance
|
|
$
|
164,858
|
|
|
$
|
12,258
|
|
|
Net
deferred income tax asset
|
|
|
64,078
|
|
|
|
51,718
|
|
|
Low-income
housing tax credit fund investments
|
|
|
11,806
|
|
|
|
13,161
|
|
|
Foreclosed
assets and surplus property
|
|
|
19,597
|
|
|
|
4,624
|
|
|
Prepaid
expenses
|
|
|
9,721
|
|
|
|
7,736
|
|
|
Miscellaneous
investments, receivables and other assets
|
|
|
38,564
|
|
|
|
30,053
|
|
|
Total
other assets
|
|
$
|
308,624
|
|
|
$
|
119,550
|
|
|
Accrued
Expenses and Other Liabilities
|
|
|
|
|
|
|
|
|
|
Accrued
taxes and other expenses
|
|
$
|
25,316
|
|
|
$
|
27,969
|
|
|
Dividend
payable
|
|
|
16,748
|
|
|
|
15,913
|
|
|
Liability
for pension benefits
|
|
|
30,272
|
|
|
|
33,956
|
|
|
Obligation
for postretirement benefits other than pensions
|
|
|
14,198
|
|
|
|
15,196
|
|
|
Reserve
for losses on unfunded credit commitments
|
|
|
1,300
|
|
|
|
1,300
|
|
|
Miscellaneous
payables, deferred income and other liabilities
|
|
|
20,960
|
|
|
|
17,852
|
|
|
Total
accrued expenses and other liabilities
|
|
$
|
108,794
|
|
|
$
|
112,186
|
|
In late
May 2008, Whitney paid premiums of $150 million to purchase life insurance
policies under a newly-adopted bank-owned life insurance program. The
policies are carried at their cash surrender value, which represents the amount
that could be realized as of the reporting date. Earnings on these
policies are reported in noninterest income and are not taxable.
NOTE
8
OTHER
NONINTEREST INCOME
The
components of other noninterest income were as follows.
|
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30
|
|
September
30
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Investment
services income
|
|
$
|
1,458
|
|
|
$
|
1,444
|
|
|
$
|
4,663
|
|
|
$
|
4,335
|
|
|
Credit-related
fees
|
|
|
1,562
|
|
|
|
1,399
|
|
|
|
4,404
|
|
|
|
3,973
|
|
|
ATM
fees
|
|
|
1,363
|
|
|
|
1,338
|
|
|
|
4,202
|
|
|
|
3,974
|
|
|
Other
fees and charges
|
|
|
1,168
|
|
|
|
1,293
|
|
|
|
3,475
|
|
|
|
3,846
|
|
|
Earnings
from bank-owned life insurance program
|
|
|
1,610
|
|
|
|
-
|
|
|
|
2,283
|
|
|
|
-
|
|
|
Other
operating income
|
|
|
949
|
|
|
|
32,035
|
|
|
|
5,882
|
|
|
|
34,042
|
|
|
Net
gains on sales and other revenue from foreclosed assets
|
|
|
328
|
|
|
|
399
|
|
|
|
3,886
|
|
|
|
4,572
|
|
|
Net
gains (losses) on disposals of surplus property
|
|
|
11
|
|
|
|
(217
|
)
|
|
|
(180
|
)
|
|
|
(190
|
)
|
|
Total
|
|
$
|
8,449
|
|
|
$
|
37,691
|
|
|
$
|
28,615
|
|
|
$
|
54,552
|
|
In the first quarter of 2008, Whitney
recognized a $2.3 million gain from the mandatory redemption of Visa Inc. (Visa)
shares as discussed in Note 13. This gain is reflected in
year-to-date other operating income.
During
the third quarter of 2007, Whitney reached a final settlement on insurance
claims primarily arising from the hurricanes that struck portions of its market
area in the late summer of 2005. With this settlement, the Company
recognized a gain of $31.3 million, which is reported in other operating
income.
NOTE
9
OTHER
NONINTEREST EXPENSE
The
components of other noninterest expense were as follows.
|
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30
|
|
September
30
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Security
and other outsourced services
|
|
$
|
3,802
|
|
|
$
|
4,000
|
|
|
$
|
11,736
|
|
|
$
|
11,933
|
|
|
Deposit
insurance and regulatory fees
|
|
|
1,661
|
|
|
|
610
|
|
|
|
3,484
|
|
|
|
1,851
|
|
|
Advertising
and promotion
|
|
|
1,015
|
|
|
|
1,464
|
|
|
|
3,207
|
|
|
|
3,860
|
|
|
Bank
card processing services
|
|
|
1,099
|
|
|
|
1,068
|
|
|
|
3,222
|
|
|
|
3,000
|
|
|
Operating
supplies
|
|
|
1,002
|
|
|
|
1,049
|
|
|
|
2,951
|
|
|
|
3,234
|
|
|
Miscellaneous
operating losses
|
|
|
2,482
|
|
|
|
751
|
|
|
|
2,479
|
|
|
|
2,632
|
|
|
Other
operating expenses
|
|
|
5,660
|
|
|
|
4,900
|
|
|
|
16,379
|
|
|
|
15,598
|
|
|
Total
|
|
$
|
16,721
|
|
|
$
|
13,842
|
|
|
$
|
43,458
|
|
|
$
|
42,108
|
|
Miscellaneous operating losses for the
third quarter and first nine months of 2008 include $2.1 million of casualty
losses and expenses incurred during recent hurricanes. In the first
quarter of 2008, Whitney reversed a $1.0 million liability related to an
indemnification agreement with Visa as discussed in Note 13. The
impact is also reflected in year-to-date miscellaneous operating
losses.
NOTE
10
EMPLOYEE
RETIREMENT BENEFIT PLANS
Retirement
Income Plans
Whitney
has maintained a noncontributory qualified defined-benefit pension plan covering
substantially all of its employees, subject to minimum age and service-related
requirements. Whitney also has an unfunded nonqualified
defined-benefit pension plan that provides retirement benefits to designated
executive officers.
Subsequent
to September 30, 2008, Whitney’s Board of Directors approved amendments to the
qualified plan (a) to limit eligibility to those employees who are employed on
December 31, 2008 and (b) to freeze benefit accruals for all participants other
than those who are fully vested and whose age and years of benefit service
combined equal at least 50 as of December 31, 2008. The Company
anticipates recognizing a curtailment gain before year end as a result of these
amendments, but the amount of the gain is still being determined.
Concurrent
with these defined-benefit plan amendments, the Board also approved amendments
to Whitney’s employee savings plan. These amendments authorize the
Company to make discretionary profit sharing contributions, beginning in 2009,
on behalf of participants in the savings plan who are either (a) ineligible to
participate in the qualified defined-benefit plan or (b) subject to the freeze
in benefit accruals under the defined-benefit plan. The discretionary
profit sharing contribution for a plan year is 4% of the participants’ eligible
compensation for such year and is allocated only to participants who are
employed at year end. Participants must complete three years of
service to become vested in the Company’s contributions, subject to earlier
vesting in the case of retirement, death or disability.
The
Company made a $10 million contribution to the qualified plan during the third
quarter of 2008. The performance of the pension trust fund through
the end of the third quarter of 2008 was substantially below the long-term
expected rate of return, reflecting conditions in the equity and corporate debt
markets. Management is monitoring fund performance as it considers
whether it would be desirable to make an additional contribution before year
end. The components of net pension expense were as follows for the
combined qualified and nonqualified plans.
|
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30
|
|
September
30
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Service
cost for benefits in period
|
|
$
|
2,095
|
|
|
$
|
2,066
|
|
|
$
|
6,284
|
|
|
$
|
6,215
|
|
|
Interest
cost on benefit obligation
|
|
|
2,519
|
|
|
|
2,338
|
|
|
|
7,545
|
|
|
|
6,907
|
|
|
Expected
return on plan assets
|
|
|
(2,662
|
)
|
|
|
(2,672
|
)
|
|
|
(7,972
|
)
|
|
|
(8,023
|
)
|
|
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
|
269
|
|
|
|
342
|
|
|
|
808
|
|
|
|
848
|
|
|
Prior
service credit
|
|
|
(21
|
)
|
|
|
(29
|
)
|
|
|
(64
|
)
|
|
|
(87
|
)
|
|
Net periodic
pension expense
|
|
$
|
2,200
|
|
|
$
|
2,045
|
|
|
$
|
6,601
|
|
|
$
|
5,860
|
|
The
actuarial gains or losses and prior service costs or credits with respect to a
retirement benefit plan that arise in a period but are not immediately
recognized as components of net periodic benefit expense are recognized, net of
tax, as a component of other comprehensive income. The amounts
included in accumulated other comprehensive income are adjusted as they are
recognized as components of net periodic benefit expense in subsequent
periods.
Health
and Welfare Plans
Whitney
has offered health care and life insurance benefit plans for retirees and their
eligible dependents. The Company funds its obligations under these
plans as contractual payments come due to health care organizations and
insurance companies. In the first quarter of 2007, Whitney amended
these plans to eliminate postretirement health benefits for all participants
other than retirees already receiving benefits and those active participants who
were eligible to receive benefits by December 31, 2007 and to eliminate dental
benefits for all participants. The amendment also froze the Company’s
health care benefit subsidy level and eliminated the life insurance benefit for
employees who retire after December 31, 2007. The amounts recognized
as net periodic expense for postretirement benefits were insignificant in both
2008 and 2007.
NOTE
11
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 Note 16 to the consolidated financial statements in
the Company’s annual report on Form 10-K for the year ended December 31,
2007.
In June
2008, annual share-based compensation awards were made under the employee plan
as follows.
|
|
|
|
|
|
Grant
Date
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
Total
|
|
|
|
Number
|
|
of
Option or
|
|
Share-based
|
|
(dollars
in thousands, except per share data)
|
|
Awarded
|
|
Stock
Unit
|
|
Compensation
|
|
Performance-based
restricted stock units
|
|
|
(a)
|
|
|
|
(b)
|
|
|
$
|
4,221
|
(d)
|
|
Tenure-based
restricted stock units
|
|
|
137,958
|
|
|
$
|
18.77
|
(c)
|
|
|
2,384
|
(d)
|
|
Stock
options
|
|
|
217,437
|
|
|
|
3.48
|
|
|
|
757
|
|
|
|
(a)
A maximum of 434,874 shares
could be issued under performance-based awards. Under certain
levels of performance, no shares would be
issued.
|
|
|
(b)
Fair value of base award of
217,437 units was market price of Whitney common stock on the grant date,
or $18.77. Fair value of potential performance units that do
not participate in Whitney dividends during the restriction period was
$15.13.
|
|
|
(c)
Market price of Whitney
common stock on the grant
date.
|
|
|
(d)
Based on the grant date
fair value and number of shares that are ultimately expected to be issued,
taking into consideration expected performance factors, if applicable, 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
performance-based 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.
Employees
can first exercise their stock options from the 2008 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.
The
Company recognized share-based compensation expense with respect to awards under
the employee plan of $2.8 million ($1.8 million after-tax) in the third quarter
of 2008 and $3.3 million ($2.2 million after-tax) in the third quarter of
2007. Share-based compensation expense for the employee plan was $8.5
million ($5.5 million after-tax) for the first nine months of 2008 and $10.8
million ($7.0 million after-tax) for the comparable period in 2007.
During
June 2008, annual share-based compensation awards were made under the directors’
plan as follows.
|
|
|
|
|
|
Grant
Date
|
|
Total
|
|
|
|
Number
|
|
Fair
Value
|
|
Share-based
|
|
(dollars
in thousands, except per share data)
|
|
Awarded
|
|
of
Option or Stock
|
|
Compensation
|
|
Stock
grant
|
|
|
6,750
|
|
|
$
|
18.30
|
|
|
$
|
124
|
|
|
Stock
options
|
|
|
45,000
|
|
|
|
3.42
|
|
|
|
154
|
|
Directors’
stock grants are fully vested upon award, and their stock options are
immediately exercisable and expire no later than ten years from the grant
date. The exercise price for the directors’ options was set at
$18.30, the closing market price for the Company’s stock on the grant
date.
NOTE
12
GOODWILL
AND OTHER INTANGIBLE ASSETS
Goodwill
is tested for impairment at least annually. No indication of goodwill
impairment was identified in the annual assessment as of September 30,
2008.
NOTE
13
CONTINGENCIES
Legal
Proceedings
The
Company is party 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.
Indemnification
Obligation
In October 2007, Visa completed
restructuring transactions that modified the obligation of members of Visa USA,
including Whitney, to indemnify Visa against pending and possible settlements of
certain litigation matters. Whitney recorded a $1.0 million liability
in the fourth quarter of 2007 for the estimated value of its obligations under
the indemnification agreement. In the first quarter of 2008, Visa
completed an initial public offering of its shares and used the proceeds to
redeem a portion of Visa USA members’ equity interests and to establish an
escrow account that will fund any settlement of the members’ obligations under
the indemnification agreement. Whitney recognized a $2.3 million gain
from the redemption proceeds and reversed the $1.0 million liability for its
indemnification obligations. Although the Company remains obligated
to indemnify Visa for losses in connection with certain litigation matters whose
claims exceed amounts set aside in the escrow account, Whitney’s interest in the
escrow balance approximates management’s current estimate of the value of the
Company’s indemnification obligation.
The amount of offering proceeds
escrowed for litigation settlements will reduce the number of shares of Visa
stock to which Whitney will ultimately be entitled as a result of the
restructuring.
NOTE
14
STOCK
REPURCHASE PROGRAM
During
the first six months of 2008, Whitney repurchased 2,039,788 shares of its common
stock at an average cost of $24.75 per share. This completed the
repurchase program announced in November 2007. Under this program
Whitney repurchased a total of 3,934,879 shares at an average cost of $25.41 per
share.
NOTE
15
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)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
7,048
|
|
|
$
|
48,766
|
|
|
$
|
49,777
|
|
|
$
|
120,810
|
|
|
Effect
of dilutive securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Numerator
for diluted earnings per share
|
|
$
|
7,048
|
|
|
$
|
48,766
|
|
|
$
|
49,777
|
|
|
$
|
120,810
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding
|
|
|
64,057,895
|
|
|
|
67,526,329
|
|
|
|
64,324,441
|
|
|
|
66,957,065
|
|
|
Effect
of potentially dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
contingently issuable shares
|
|
|
683,036
|
|
|
|
711,156
|
|
|
|
788,822
|
|
|
|
939,585
|
|
|
Denominator
for diluted earnings per share
|
|
|
64,740,931
|
|
|
|
68,237,485
|
|
|
|
65,113,263
|
|
|
|
67,896,650
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.11
|
|
|
$
|
.72
|
|
|
$
|
.77
|
|
|
$
|
1.80
|
|
|
Diluted
|
|
|
.11
|
|
|
|
.71
|
|
|
|
.76
|
|
|
|
1.78
|
|
|
Antidilutive
stock options
|
|
|
3,129,524
|
|
|
|
1,562,080
|
|
|
|
2,200,076
|
|
|
|
892,962
|
|
NOTE
16
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, 2008 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 4 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)
|
|
2008
|
|
2007
|
|
Loan
commitments – revolving
|
|
$
|
2,527,502
|
|
|
$
|
2,475,656
|
|
|
Loan
commitments – nonrevolving
|
|
|
554,428
|
|
|
|
534,673
|
|
|
Credit
card and personal credit lines
|
|
|
519,624
|
|
|
|
551,748
|
|
|
Standby
and other letters of credit
|
|
|
467,966
|
|
|
|
391,922
|
|
NOTE
17
FAIR
VALUE DISCLOSURES
As discussed in Note 18, Statement of
Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements
,
became effective for Whitney’s 2008 fiscal year. SFAS No. 157
redefines fair value as the exchange price that would be received to sell an
asset or paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. Although the exchange price
concept is not new, the new definition focuses on the exit price as opposed
to
the entry price, or the price that
would be paid to acquire an asset or received to assume a
liability. The standard also emphasizes that fair value is a
market-based measurement and not an entity-specific measurement and establishes
a hierarchy to prioritize the inputs that can be used in the fair value
measurement process. The inputs in the three levels of this hierarchy
are described as follows:
|
Level
1
|
Quoted
prices in active markets for identical assets or
liabilities. An active market is one in which transactions
occur with sufficient frequency and volume to provide pricing information
on an ongoing basis.
|
|
Level
2
|
Observable
inputs other than Level 1 prices. This would include quoted
prices for similar assets or liabilities, quoted prices in markets that
are not active, or other inputs that are observable or can be corroborated
by observable market data.
|
|
Level
3
|
Unobservable
inputs, to the extent that observable inputs are
unavailable. This allows for situations in which there is
little or no market activity for the asset or liability at the measurement
date.
|
The
material assets or liabilities measured at fair value by Whitney on a recurring
basis are summarized below. Securities available for sale primarily
consist of U.S. government agency and agency mortgage-backed debt
securities. The total excludes $50.8 million of nonmarketable equity
securities (Federal Reserve Bank and Federal Home Loan Bank stock) that are
carried at cost.
|
|
|
September
30, 2008
|
|
|
|
Fair
Value Measurement Using
|
|
(in
thousands)
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Investment
securities available for sale
|
|
|
-
|
|
|
$
|
1,514,459
|
|
|
|
-
|
|
To
measure the extent to which a loan is impaired, the relevant accounting
principles permit or require the Company to compare the recorded investment in
the impaired loans with the fair value of the underlying collateral in certain
circumstances. The fair value measurement process uses
independent appraisals and other market-based information, but in many cases it
also requires significant input based on management’s knowledge of and judgment
about current market conditions, specific issues relating to the collateral, and
other matters. As a result, substantially all of these fair value
measurements fall within Level 3 of the hierarchy discussed
above. The net carrying value of impaired loans which reflected a
nonrecurring fair value measurement totaled $128 million at September 30,
2008. The portion of the allowance for loan losses allocated to these
loans totaled $29 million at the end of the third quarter of 2008, and the
recorded investment in such loans was written down by $19 million during the
third quarter and $30 million over the first nine months of 2008 with a charge
against the allowance for loan losses. The valuation allowance on
impaired loans and charge-offs factor into the determination of the provision
for credit losses.
NOTE
18
ACCOUNTING
STANDARDS DEVELOPMENTS
The
Financial Accounting Standards Board (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. The guidance in this statement was generally
effective for Whitney’s 2008 fiscal year. The effective date has been
deferred to 2009 for nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value on at least an annual
basis. The initial application of this standard did not have a
material impact on Whitney’s financial condition or results of
operations. Note 17 presents certain disclosures required by SFAS No.
157.
The FASB
issued SFAS No. 159,
The Fair
Value Option for Financial Assets and Financial Liabilities
, in February
2007. This statement permits entities to choose to measure many
financial instruments and certain other items at fair value, thereby reducing
the earnings volatility caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting
provisions. This statement is effective for Whitney’s 2008 fiscal
year. The Company has not elected the fair value option for any
specific financial instrument or other items.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business
Combinations
. This revised standard expands the types of
transactions or other events that will qualify as business combinations and
requires that all business combinations will result in all assets and
liabilities of the acquired business being recorded at their fair values, with
limited exceptions. The standard also requires, among other
provisions, that certain contingent assets and liabilities will be recognized at
their fair values on the acquisition date. An acquirer will also
recognize contingent consideration at its fair value on the acquisition date
and, for certain arrangements, changes in fair value will be recognized in
earnings until the contingency is settled. Under SFAS No. 141R,
acquisition-related transaction and restructuring costs will be expensed rather
than treated as part of the cost of the acquisition and included in the amount
recorded for assets acquired. These and the other provisions of SFAS
No. 141R are first effective for Whitney’s business combinations with
acquisition dates in 2009.
The FASB
issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities (an amendment of SFAS No. 133)
, in
March 2008. This standard calls for enhanced disclosures to help
users of financial statements better understand how and why an entity uses
derivative instruments, how derivative instruments and related hedged items are
accounted for, and how these instruments and hedged items affect the entity’s
financial position, financial performance, and cash flows. To meet
those objectives, SFAS No. 161 requires qualitative disclosures about objectives
and strategies for using derivatives, disclosures about the fair value of and
gains and losses on derivative instruments, and disclosures about credit-risk
contingent features in derivative agreements. This statement is
effective for Whitney’s 2009 fiscal year, with earlier application
encouraged. The Company currently makes minimal use of derivative
instruments.
FASB
Staff Position (FSP) EITF 03-6-1,
Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
,
was issued in June 2008. This FSP concluded that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents are participating securities and must be included in the computation
of earnings per share using the two-class method described in SFAS No. 128,
Earnings per
Share
. Whitney has awarded share-based payments that are
considered participating securities under this FSP. This guidance is
effective for financial statements issued for the Company’s 2009 fiscal year and
must be applied retrospectively to earnings per share data presented for all
prior periods. The Company is currently evaluating the impact of this
FSP on its reported earnings per share.
|
WHITNEY
HOLDING CORPORATION AND SUBSIDIARIES
|
|
SELECTED
FINANCIAL DATA
|
|
(Unaudited)
|
|
|
|
Third
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Nine
Months ended September 30
|
|
(dollars
in thousands, except per share data)
|
|
2008
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
QUARTER-END
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
10,987,447
|
|
|
$
|
11,016,323
|
|
|
$
|
10,604,834
|
|
|
$
|
10,987,447
|
|
|
$
|
10,604,834
|
|
|
Earning
assets
|
|
|
9,943,868
|
|
|
|
9,955,091
|
|
|
|
9,738,123
|
|
|
|
9,943,868
|
|
|
|
9,738,123
|
|
|
Loans
|
|
|
8,077,775
|
|
|
|
7,962,543
|
|
|
|
7,452,905
|
|
|
|
8,077,775
|
|
|
|
7,452,905
|
|
|
Investment
securities
|
|
|
1,812,025
|
|
|
|
1,955,692
|
|
|
|
1,875,096
|
|
|
|
1,812,025
|
|
|
|
1,875,096
|
|
|
Noninterest-bearing
deposits
|
|
|
2,809,923
|
|
|
|
2,773,086
|
|
|
|
2,639,020
|
|
|
|
2,809,923
|
|
|
|
2,639,020
|
|
|
Total
deposits
|
|
|
8,054,431
|
|
|
|
8,266,880
|
|
|
|
8,387,235
|
|
|
|
8,054,431
|
|
|
|
8,387,235
|
|
|
Shareholders'
equity
|
|
|
1,183,001
|
|
|
|
1,183,078
|
|
|
|
1,253,809
|
|
|
|
1,183,001
|
|
|
|
1,253,809
|
|
|
AVERAGE
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
10,902,329
|
|
|
$
|
10,838,912
|
|
|
$
|
10,633,674
|
|
|
$
|
10,846,118
|
|
|
$
|
10,443,686
|
|
|
Earning
assets
|
|
|
9,892,165
|
|
|
|
9,929,683
|
|
|
|
9,746,184
|
|
|
|
9,922,077
|
|
|
|
9,562,005
|
|
|
Loans
|
|
|
8,007,507
|
|
|
|
7,866,942
|
|
|
|
7,362,491
|
|
|
|
7,853,872
|
|
|
|
7,278,450
|
|
|
Investment
securities
|
|
|
1,853,581
|
|
|
|
2,025,397
|
|
|
|
1,916,927
|
|
|
|
1,997,942
|
|
|
|
1,865,161
|
|
|
Noninterest-bearing
deposits
|
|
|
2,771,101
|
|
|
|
2,747,125
|
|
|
|
2,686,189
|
|
|
|
2,722,253
|
|
|
|
2,718,156
|
|
|
Total
deposits
|
|
|
8,230,249
|
|
|
|
8,220,223
|
|
|
|
8,480,098
|
|
|
|
8,275,705
|
|
|
|
8,394,819
|
|
|
Shareholders'
equity
|
|
|
1,192,535
|
|
|
|
1,213,461
|
|
|
|
1,224,940
|
|
|
|
1,211,902
|
|
|
|
1,193,984
|
|
|
INCOME
STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
138,439
|
|
|
$
|
139,607
|
|
|
$
|
169,445
|
|
|
$
|
429,802
|
|
|
$
|
495,298
|
|
|
Interest
expense
|
|
|
27,004
|
|
|
|
28,482
|
|
|
|
52,727
|
|
|
|
93,697
|
|
|
|
146,843
|
|
|
Net
interest income
|
|
|
111,435
|
|
|
|
111,125
|
|
|
|
116,718
|
|
|
|
336,105
|
|
|
|
348,455
|
|
|
Net
interest income (TE)
|
|
|
112,601
|
|
|
|
112,344
|
|
|
|
118,245
|
|
|
|
339,760
|
|
|
|
353,086
|
|
|
Provision
for credit losses
|
|
|
40,000
|
|
|
|
35,000
|
|
|
|
9,000
|
|
|
|
89,000
|
|
|
|
7,000
|
|
|
Noninterest
income
|
|
|
25,472
|
|
|
|
26,174
|
|
|
|
54,455
|
|
|
|
80,122
|
|
|
|
102,601
|
|
|
Net
securities gains in noninterest income
|
|
|
67
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
67
|
|
|
|
(1
|
)
|
|
Noninterest
expense
|
|
|
89,549
|
|
|
|
85,590
|
|
|
|
88,229
|
|
|
|
259,068
|
|
|
|
263,334
|
|
|
Net
income
|
|
|
7,048
|
|
|
|
12,874
|
|
|
|
48,766
|
|
|
|
49,777
|
|
|
|
120,810
|
|
|
KEY
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
.26
|
%
|
|
|
.48
|
%
|
|
|
1.82
|
%
|
|
|
.61
|
%
|
|
|
1.55
|
%
|
|
Return
on average shareholders' equity
|
|
|
2.35
|
|
|
|
4.27
|
|
|
|
15.79
|
|
|
|
5.49
|
|
|
|
13.53
|
|
|
Net
interest margin (TE)
|
|
|
4.53
|
|
|
|
4.54
|
|
|
|
4.82
|
|
|
|
4.57
|
|
|
|
4.93
|
|
|
Average
loans to average deposits
|
|
|
97.29
|
|
|
|
95.70
|
|
|
|
86.82
|
|
|
|
94.90
|
|
|
|
86.70
|
|
|
Efficiency
ratio
|
|
|
64.89
|
|
|
|
61.79
|
|
|
|
51.09
|
|
|
|
61.71
|
|
|
|
57.79
|
|
|
Allowance
for loan losses to loans
|
|
|
1.55
|
|
|
|
1.38
|
|
|
|
1.10
|
|
|
|
1.55
|
|
|
|
1.10
|
|
|
Annualized
net charge-offs to average loans
|
|
|
1.22
|
|
|
|
.86
|
|
|