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SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Name of Exchange on Which Registered
Common Stock, no par value
Nasdaq Global Select Market
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form
10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,”“accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the
Exchange Act. (Check one):
Large
accelerated
filer þ
Accelerated
filer o
Non-accelerated
filer o
Smaller
reporting
company o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of December 31, 2008, the aggregate market value of the
registrant’s common stock (all shares are voting shares)
held by nonaffiliates was approximately $1.18 billion
(based on the closing price of the stock on June 30, 2008).
At February 27, 2009, 67,381,880 shares of the
registrant’s no par value common stock were outstanding.
Certain specifically identified parts of the registrant’s
Proxy Statement for the 2009 Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission are
incorporated by reference into Part III of this
Form 10-K.
Whitney Holding Corporation (the Company or Whitney) is a
Louisiana corporation that is registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended
(BHCA). The Company began operations in 1962 as the parent of
Whitney National Bank (the Bank). The Bank is a national banking
association headquartered in New Orleans, Louisiana, that has
been in continuous operation in the greater New Orleans area
since 1883. The Company has at times operated as a multi-bank
holding company when it established or acquired new entities in
connection with business acquisitions. To achieve the synergies
and efficiencies of operating as a single-bank holding company,
the Company has merged all banking operations into the Bank and
intends to continue merging the operations of any future
acquisitions at the earliest possible date.
On November 7, 2008, Whitney completed its acquisition of
Parish National Corporation (Parish), the parent of Parish
National Bank. Parish National Bank operated 16 banking centers,
primarily on the north shore of Lake Pontchartrain and other
parts of the metropolitan New Orleans area. While today’s
economic environment currently does not provide traditional
acquisition opportunities, the Company’s longer-term
strategy is to continue to seek opportunities to leverage its
current operations through acquisitions that expand existing
market share or provide it access to new markets with attractive
deposit bases and economic fundamentals.
NATURE OF
BUSINESS AND MARKETS
The Company, through the Bank, engages in community banking
activities and serves a market area that covers the five-state
Gulf Coast region stretching from Houston, Texas, across
southern Louisiana and the coastal region of Mississippi, to
central and south Alabama, the western panhandle of Florida, and
to the Tampa Bay metropolitan area of Florida. The Bank also
maintains a foreign branch on Grand Cayman in the British West
Indies.
The Bank provides a broad range of community banking services to
commercial, small business and retail customers, offering a
variety of transaction and savings deposit products, treasury
management services, secured and unsecured loan products,
including revolving credit facilities, and letters of credit and
similar financial guarantees. The Bank also provides trust and
investment management services to retirement plans, and offers
investment brokerage services and annuity products. Southern
Coastal Insurance Agency, Inc., a subsidiary of the Bank,
currently offers personal and business lines of insurance to
customers mainly in northwest Florida and the New Orleans
metropolitan area.
The Company also owns Whitney Community Development Corporation
(WCDC). WCDC was formed to provide financial support to
corporations or projects that promote community welfare in areas
with mainly low or moderate incomes. WCDC’s primary
activity has been to provide financing for the development of
affordable housing.
THE
BANK
All material funds of the Company are invested in the Bank. The
Bank has a large number of customer relationships that have been
developed over a period of many years. In 2008, the Bank
celebrated its 125th anniversary of continuous operations
in the greater New Orleans area. The loss of any single customer
or a few customers would not have a material adverse effect on
the Bank or the Company. The Bank has customers in a number of
foreign countries; however, the revenue derived from these
foreign customers is not a material portion of its overall
revenues.
There is significant competition within the financial services
industry in general as well as with respect to the particular
financial services provided by the Company and the Bank. Within
its market, the Bank competes directly with major banking
institutions of comparable or larger size and resources and with
various other smaller banking organizations. The Bank also has
numerous local and national nonbank competitors, including
savings and loan associations, credit unions, mortgage
companies, personal and commercial finance companies, investment
brokerage and financial advisory firms, and mutual fund
companies. Entities that deliver financial services and access
to financial products and transactions exclusively through the
Internet are another source of competition. Technological
advances have allowed the Bank and other financial institutions
to provide electronic and Internet-based services that enhance
the value of traditional financial products. Continued
consolidation within the financial services industry will most
likely change the nature and intensity of competition that
Whitney faces, but can also create opportunities for Whitney to
demonstrate and exploit competitive advantages.
The participants in the financial services industry are subject
to varying degrees of regulation and governmental supervision.
The following section summarizes certain important aspects of
the supervision and regulation of banks and bank holding
companies. Some of Whitney’s competitors that are neither
banks nor bank holding companies may be subject to less
regulation than the Company and the Bank, and this may give them
a competitive advantage. The system of laws and regulations
affecting the financial services industry has changed over the
last few months with the implementation of laws such as the
Emergency Economic Stabilization Act (EESA) and the American
Recovery and Reinvestment Act (ARRA) and will continue to change
as the government attempts to respond to the financial crises
affecting the banking system and financial markets. These
changes, as well as future changes, in the laws and regulations
governing the financial industry could and likely will influence
the competitive positions of the participants in this industry.
We cannot predict whether the changes will be favorable or
unfavorable to the Company and the Bank.
SUPERVISION
AND REGULATION
The Company and the Bank are subject to comprehensive
supervision and regulation that affect virtually all aspects of
their operations. This supervision and regulation is designed
primarily to protect depositors and the Deposit Insurance Fund
(DIF) of the Federal Deposit Insurance Corporation (FDIC), and
not the Company or its shareholders or creditors. The following
summarizes certain of the more important statutory and
regulatory provisions.
Supervisory
Authorities
Whitney is a bank holding company, registered with and regulated
by the Federal Reserve Board (FRB). The Bank is a national bank
and, as such, is subject to supervision, regulation and
examination by the Office of the Comptroller of the Currency
(OCC) as its chartering authority and secondarily by the FDIC as
its deposit insurer. Ongoing supervision is provided through
regular examinations by the OCC and FRB and other means that
allow the regulators to gauge management’s ability to
identify, assess and control risk in all areas of operations in
a safe and sound manner and to ensure compliance with laws and
regulations. As a result, the scope of routine examinations of
the Company and the Bank is rather extensive. To facilitate
supervision, the Company and the Bank are required to file
periodic reports with the regulatory agencies, and much of this
information is made available to the public by the agencies.
Capital
The FRB and the OCC require that the Company and the Bank meet
certain minimum ratios of capital to assets in order to conduct
their activities. Two measures of regulatory capital are used in
calculating these ratios — Tier 1 Capital and
Total Capital. Tier 1 Capital generally includes common
equity, retained earnings, a limited amount of qualifying
preferred stock, and qualifying minority interests in
consolidated subsidiaries, reduced by goodwill and certain other
intangible assets, such as core deposit intangibles, and certain
other
assets. Total Capital generally consists of Tier 1 Capital
plus the allowance for loan losses, preferred stock that did not
qualify as Tier 1 Capital, certain types of subordinated
debt and a limited amount of other items.
The Tier 1 Capital ratio and the Total Capital ratio are
calculated against an asset total weighted for risk. Certain
assets, such as cash and U.S. Treasury securities, have a
zero risk weighting. Others, such as commercial and consumer
loans, often have a 100% risk weighting. Assets also include
amounts that represent the potential funding of off-balance
sheet obligations such as loan commitments and letters of
credit. These potential assets are assigned to risk categories
in the same manner as funded assets. The total assets in each
category are multiplied by the appropriate risk weighting to
determine risk-adjusted assets for the capital calculations. The
leverage ratio also provides a measure of the adequacy of
Tier 1 Capital, but assets are not risk-weighted for this
calculation. Assets deducted from regulatory capital, such as
goodwill and other intangible assets, are also excluded from the
asset base used to calculate capital ratios. The minimum capital
ratios for both the Company and the Bank are generally 8% for
Total Capital, 4% for Tier 1 Capital and 4% for leverage.
To be eligible to be classified as “well-capitalized,”
the Bank must generally maintain a Total Capital ratio of 10% or
greater, a Tier 1 Capital ratio of 6% or greater, and a
leverage ratio of 5% or more. If an institution fails to remain
well-capitalized, it will be subject to a series of restrictions
that increase as the capital condition worsens. For instance,
federal law generally prohibits a depository institution from
making any capital distribution, including the payment of a
dividend to its shareholders or any management fee to its
holding company, if the depository institution would be
undercapitalized as a result. Undercapitalized depository
institutions may not accept brokered deposits absent a waiver
from the FDIC, are subject to growth limitations, and must
submit a capital restoration plan that is guaranteed by the
institution’s parent holding company. Significantly
undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to
sell sufficient voting stock to become adequately capitalized,
requirements to reduce total assets, and cessation of receipt of
deposits from correspondent banks. Critically undercapitalized
institutions are subject to the appointment of a receiver or
conservator.
The capital ratios for both the Company and the Bank exceed the
required minimums, and the capital ratios for the Bank make it
eligible for classification as “well-capitalized”
under current regulatory criteria.
In 2004, the Basel Committee on Banking Supervision published a
new set of risk-based capital standards (Basel II) in order
to update the original international capital standards that had
been put in place in 1988 (Basel I). Basel II adopts a
three-pillar framework comprised of minimum capital
requirements, supervisory assessment of capital adequacy and
market discipline. Basel II provides several options for
determining capital requirements for credit and operational
risk. In December 2007, the agencies adopted a final rule
implementing Basel II’s advanced approach. The final rule
became effective on April 1, 2008. Compliance with the
final rule is mandatory only for “core
banks” — U.S. banking organizations with
over $250 billion in banking assets or on-balance-sheet
foreign exposures of at least $10 billion. Other
U.S. banking organizations that meet applicable
qualification requirements may elect, but are not required, to
comply with the final rule. The final rule also allows a banking
organization’s primary federal regulator to determine that
application of the rule would not be appropriate in light of the
organization’s asset size, level of complexity, risk
profile or scope of operations. In July 2008, in order to
address the potential competitive inequalities resulting from
the now bifurcated risk-based capital system in the United
States, the agencies agreed to issue a proposed rule that would
provide noncore banks with the option to adopt an approach
consistent with Basel II’s standardized approach. This
proposed new rule would replace the agencies’ earlier
proposed amendments to existing Basel I risk-based capital rules
(referred to as the “Basel I-A” approach). Comments to
this proposed rule were due in October 2008, and there has been
no further action on the rule to date. At this time,
U.S. banking organizations not subject to the final rule
are required to continue to use the existing Basel I risk-based
capital rules. The Company is not required, and has not elected,
to comply with the final rule.
FDICIA
and Prompt Corrective Action
The Federal Deposit Insurance Improvement Act of 1991 (FDICIA),
among other things, identifies five capital categories for
insured depository institutions (well-capitalized, adequately
capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized)
and requires the federal banking agencies, including the FDIC,
to implement systems for “prompt corrective action”
for insured depository institutions that do not meet minimum
capital requirements within these categories. The FDICIA imposes
progressively more restrictive restraints on operations,
management and capital distributions, depending on the category
in which an institution is classified.
Failure to meet the capital guidelines also could subject a
depository institution to capital raising requirements. An
“undercapitalized” bank must develop a capital
restoration plan and its parent holding company must guarantee
the bank’s compliance with the plan. The liability of the
parent holding company under any such guarantee is limited to
the lesser of 5% of the bank’s assets at the time it became
“undercapitalized” or the amount needed to comply with
the plan. Furthermore, in the event of the bankruptcy of the
parent holding company, such guarantee would take priority over
the parent’s general unsecured creditors. The Bank
currently meets the criteria for “well-capitalized.”
Within the “prompt corrective action” regulations, the
federal banking agencies also have established procedures for
“downgrading” an institution to a lower capital
category based on supervisory factors other than capital.
Specifically, a federal banking agency may, after notice and an
opportunity for a hearing, reclassify a well-capitalized
institution as adequately capitalized and may require an
adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in
the next lower category if the institution is deemed to be
operating in an unsafe or unsound condition or engaging in an
unsafe or unsound practice. The FDIC may not, however,
reclassify a significantly undercapitalized institution as
critically undercapitalized.
In addition to the “prompt corrective action”
directives, failure to meet capital guidelines may subject a
banking organization to a variety of other enforcement remedies,
including additional substantial restrictions on its operations
and activities, termination of deposit insurance by the FDIC
and, under certain conditions, the appointment of a conservator
or receiver.
Expansion
and Activity Limitations
With prior regulatory approval, Whitney may acquire other banks
or bank holding companies and the Bank may merge with other
banks. Acquisitions of banks domiciled in states other than
Louisiana may be subject to certain restrictions, including
restrictions related to the percentage of deposits that the
resulting bank may hold in that state and nationally and the
number of years that the bank to be acquired must have been
operating. Whitney may also engage in or acquire an interest in
a company that engages in activities that the FRB has determined
by regulation or order to be so closely related to banking as to
be a proper incident to banking activities. The FRB normally
requires some form of notice or application to engage in or
acquire companies engaged in such activities. Under the BHCA,
Whitney is generally prohibited from engaging in or acquiring
direct or indirect control of more than 5% of the voting shares
of any company engaged in activities other than those referred
to above.
Under the Gramm-Leach-Bliley Act (GLB Act), adopted in 1999,
bank holding companies that are well-capitalized and
well-managed and meet other conditions can elect to become
financial holding companies. As financial holding companies,
they and their subsidiaries are permitted to acquire or engage
in certain financial activities that were not previously
permitted for bank holding companies. These activities include
insurance underwriting, securities underwriting and
distribution, travel agency activities, broad insurance agency
activities, merchant banking, and other activities that the FRB
determines to be financial in nature or complementary to these
activities. Whitney has not elected to become a financial
holding company, but may elect to do so in the future. The GLB
Act also permits well-capitalized and well-managed banks to
establish financial subsidiaries that may engage in certain
financial activities not previously permitted for banks. The
Bank has established two financial subsidiaries for insurance
agency activities.
Support
of Subsidiary Banks by Holding Companies
Under current FRB policy, Whitney is expected to act as a source
of financial strength for the Bank and to commit resources to
support the Bank in circumstances where it might not do so
absent such a policy. In
addition, any loans by a bank holding company to a subsidiary
bank are subordinate in right of payment to depositors and
certain other indebtedness of the subsidiary bank. In the event
of a bank holding company’s bankruptcy, any commitment by
the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank at a certain level
would be assumed by the bankruptcy trustee and entitled to
priority of payment.
Limitations
on Acquisitions of Banks and Bank Holding
Companies
As a general proposition, other companies seeking to acquire
control of a bank such as the Bank or a bank holding company
such as Whitney would require the approval of the FRB under the
BHCA. In addition, individuals or groups of individuals seeking
to acquire control of a bank or bank holding company would need
to file a prior notice with the FRB (which the FRB may
disapprove under certain circumstances) under the Change in Bank
Control Act. Control is conclusively presumed to exist if an
individual or company acquires 25% or more of any class of
voting securities of the bank holding company. Control may exist
under the Change in Bank Control Act if the individual or group
of individuals acquires 10% or more of any class of voting
securities of the bank or bank holding company. A company may be
presumed to have control under the BHCA if it acquires 5% or
more of any class of voting securities of the bank or bank
holding company.
Deposit
Insurance
The Bank is a member of the FDIC, and its deposits are insured
by the DIF of the FDIC up to the amount permitted by law. The
Bank is thus subject to FDIC deposit insurance premium
assessments. In November 2006, the FDIC adopted final
regulations that set deposit insurance assessment rates that
took effect in 2007. The FDIC uses a risk-based assessment
system that assigns insured depository institutions to one of
four risk categories based on three primary sources of
information — supervisory risk ratings for all
institutions, financial ratios for most institutions, including
Whitney, and long-term debt issuer ratings for large
institutions that have such ratings. The premium rate adopted in
2006 is still applicable and its structure imposes a minimum
assessment of from five to seven cents for every $100 of
domestic deposits on institutions that are assigned to the
lowest risk category. This category currently encompasses
substantially all insured institutions, including the Bank. For
institutions assigned to higher risk categories, the premiums
that took effect in 2007 ranged from ten cents to forty-three
cents per $100 of deposits. The FDIC is authorized to raise the
assessment rates as necessary to maintain the DIF’s
required reserve ratio of 1.25% and has done so effective
January 1, 2009.
The FDIC also collects a deposit-based assessment from insured
financial institutions on behalf of The Financing Corporation
(FICO). The funds from these assessments are used to service
debt issued by FICO in its capacity as a financial vehicle for
the Federal Savings & Loan Insurance Corporation. The
FICO assessment rate is set quarterly and in 2008 ranged from
1.14 cents to 1.10 cents per $100 of assessable deposits. These
assessments will continue until the debt matures in 2017 through
2019.
Effective November 21, 2008 and until December 31,2009, the FDIC expanded deposit insurance limits for certain
accounts under the FDIC’s Temporary Liquidity Guarantee
Program (TLG Program). Provided an institution has not opted out
of the Program, the FDIC will fully guarantee funds deposited in
noninterest-bearing transaction accounts, including
(i) interest on Lawyer Trust Accounts or IOLTA
accounts, and (ii) negotiable order of withdrawal or NOW
accounts with rates no higher than .50 percent if the
institution has committed to maintain the interest rate at or
below that rate. In conjunction with the increased deposit
insurance coverage, insurance assessments also increase. The
Bank has not opted out of the Program.
Other
Statutes and Regulations
The Company and the Bank are subject to a myriad of other
statutes and regulations affecting their activities. Some of the
more important include:
Anti-Money Laundering. Financial institutions
must maintain anti-money laundering programs that include
established internal policies, procedures and controls; a
designated compliance officer; an ongoing employee training
program; and testing of the program by an independent audit
function. The Company and
the Bank are also prohibited from entering into specified
financial transactions and account relationships and must meet
enhanced standards for due diligence and customer identification
in their dealings with foreign financial institutions and
foreign customers. Financial institutions must take reasonable
steps to conduct enhanced scrutiny of account relationships to
guard against money laundering and to report any suspicious
transactions, and law enforcement authorities have been granted
increased access to financial information maintained by banks.
Anti-money laundering obligations have been substantially
strengthened as a result of the USA Patriot Act, enacted in 2001
and renewed in 2006. Bank regulators routinely examine
institutions for compliance with these obligations and they must
consider an institution’s compliance in connection with the
regulatory review of applications. The regulatory authorities
have imposed “cease and desist” orders and money
penalty sanctions against institutions found to be violating
these obligations.
OFAC. The Office of Foreign Assets Control
(OFAC) is responsible for helping to insure that
U.S. entities do not engage in transactions with certain
prohibited parties, as defined by various Executive Orders and
Acts of Congress. OFAC has sent, and will continue to send, bank
regulatory agencies lists of persons and organizations suspected
of aiding, harboring or engaging in terrorist acts, known as
Specially Designated Nationals and Blocked Persons. If the
Company or the Bank find a name on any transaction, account or
wire transfer that is on an OFAC list, the Company or the Bank
must freeze such account, file a suspicious activity report and
notify the appropriate authorities.
Sections 23A and 23B of the Federal Reserve
Act. The Bank is limited in its ability to lend
funds or engage in transactions with the Company or other
nonbank affiliates of the Company, and all such transactions
must be on an arms-length basis and on terms at least as
favorable to the Bank as those prevailing at the time for
transactions with unaffiliated companies. The Bank is also
prohibited from purchasing low quality assets from the Company
or other nonbank affiliates of the Company. Outstanding loans
from the Bank to the Company or other nonbank affiliates of the
Company may not exceed 10% of the Bank’s capital stock and
surplus, and the total of such transactions between the Bank and
all of its nonsubsidiary affiliates may not exceed 20% of the
Bank’s capital stock and surplus. These loans must be fully
or over-collateralized.
Loans to Insiders. The Bank also is subject to
quantitative restrictions on extensions of credit to executive
officers, directors, principal shareholders and their related
interests. Such extensions of credit (i) must be made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with third parties, (ii) must not involve more
than the normal risk of repayment or present other unfavorable
terms and (iii) may require approval by the Bank’s
board of directors. Loans to executive officers are subject to
certain additional restrictions.
Dividends. Whitney’s principal source of
cash flow, including cash flow to pay dividends to its
shareholders, is the dividends that it receives from the Bank.
Statutory and regulatory limitations apply to the Bank’s
payment of dividends to the Company as well as to the
Company’s payment of dividends to its shareholders. The
Bank would need prior regulatory approval to pay the Company a
dividend that exceeded the Bank’s current net income and
retained net income from the two previous years. The Bank may
not pay any dividend that would cause it to become
undercapitalized or if it already is undercapitalized. The
federal banking agencies may prevent the payment of a dividend
if they determine that the payment would be an unsafe and
unsound banking practice. Moreover, the federal agencies have
issued policy statements that provide that generally bank
holding companies and insured banks should only pay dividends
out of current operating earnings.
Whitney’s ability to pay dividends is also limited by its
participation in the U.S. Department of Treasury’s
(Treasury) Capital Purchase Program (CPP) established under the
Troubled Asset Relief Program (TARP). Prior to December 19,2011, unless Whitney has redeemed the Series A preferred
stock issued to the Treasury in the CPP or the Treasury has
transferred the Series A preferred stock to a third party,
Whitney cannot increase its quarterly dividend above $.31 per
share of common stock. Furthermore, if Whitney is not current in
the payment of quarterly dividends on the Series A
preferred stock, it cannot pay dividends on its common stock.
Community Reinvestment Act. The Bank is
subject to the provisions of the Community Reinvestment Act of
1977, as amended (CRA), and the related regulations issued by
the OCC. The CRA states that all banks
have a continuing and affirmative obligation, consistent with
safe and sound operation, to help meet the credit needs for
their entire communities, including low- and moderate-income
neighborhoods. The CRA also charges a bank’s primary
federal regulator, in connection with the examination of the
institution or the evaluation of certain regulatory applications
filed by the institution, with the responsibility to assess the
institution’s record of fulfilling its obligations under
the CRA. The regulatory agency’s assessment of the
institution’s record is made available to the public. The
Bank received an “outstanding” rating following its
most recent CRA examination.
Privacy and Data Security. The GLB Act imposed
new requirements on financial institutions with respect to
consumer privacy. The GLB Act generally prohibits disclosure of
consumer information to nonaffiliated third parties unless the
consumer has been given the opportunity to object and has not
objected to such disclosure. Financial institutions are further
required to disclose their privacy policies to consumers
annually. Financial institutions, however, will be required to
comply with state law if it is more protective of consumer
privacy than the GLB Act. The GLB Act also directed federal
regulators, including the FDIC, to prescribe standards for the
security of consumer information. The Bank is subject to such
standards, as well as standards for notifying consumers in the
event of a security breach. Under federal law, the Company must
disclose its privacy policy to consumers, permit consumers to
“opt out” of having nonpublic customer information
disclosed to third parties, and allow customers to opt out of
receiving marketing solicitations based on information about the
customer received from another subsidiary. States may adopt more
extensive privacy protections. The Company is similarly required
to have an information security program to safeguard the
confidentiality and security of customer information and to
ensure proper disposal. Customers must be notified when
unauthorized disclosure involves sensitive customer information
that may be misused.
Consumer Regulation. Activities of the Bank
are subject to a variety of statutes and regulations designed to
protect consumers. These laws and regulations include provisions
that:
•
limit the interest and other charges collected or contracted for
by the Bank;
•
govern the Bank’s disclosures of credit terms to consumer
borrowers;
•
require the Bank to provide information to enable the public and
public officials to determine whether it is fulfilling its
obligation to help meet the housing needs of the community it
serves;
•
prohibit the Bank from discriminating on the basis of race,
creed or other prohibited factors when it makes decisions to
extend credit; and
•
govern the manner in which the Bank may collect consumer debts.
As a result of the turmoil in the residential real estate and
mortgage lending markets, there are several legislative and
regulatory initiatives currently under discussion at both the
federal and state levels that could, if adopted, alter the terms
of existing mortgage loans, impose restrictions on future
mortgage loan originations, diminish lenders’ rights
against delinquent borrowers or otherwise change the ways in
which lenders make and administer residential mortgage loans. If
made final, any or all of these proposals could have a negative
effect on the financial performance of Whitney’s mortgage
lending operations, by, among other things, reducing the volume
of mortgage loans that the Bank can originate and sell into the
secondary market and impairing the Bank’s ability to
proceed against certain delinquent borrowers with timely and
effective collection efforts.
The deposit operations of the Bank are also subject to laws and
regulations that:
•
require the Bank to adequately disclose the interest rates and
other terms of consumer deposit accounts;
•
impose a duty on the Bank to maintain the confidentiality of
consumer financial records and prescribe procedures for
complying with administrative subpoenas of financial records;
•
require escheatment of unclaimed funds to the appropriate state
agencies after the passage of certain statutory time
frames; and
•
govern automatic deposits to and withdrawals from deposit
accounts with the Bank and the rights and liabilities of
customers who use automated teller machines and other electronic
banking services.
Commercial Real Estate Lending. Lending
operations that involve concentrations of commercial real estate
loans are subject to enhanced scrutiny by federal banking
regulators. Regulators have issued guidance with respect to the
risks posed by commercial real estate lending concentrations.
Commercial real estate loans generally include land development,
construction loans and loans secured by multifamily property and
nonfarm, nonresidential real property where the primary source
of repayment is derived from rental income associated with the
property. The guidance prescribes the following guidelines for
examiners to help identify institutions that are potentially
exposed to concentration risk and may warrant greater
supervisory scrutiny:
•
total reported loans for construction, land development and
other land represent 100 percent or more of the
institution’s total capital, or
•
total commercial real estate loans represent 300 percent or
more of the institution’s total capital, and the
outstanding balance of the institution’s commercial real
estate loan portfolio has increased by 50 percent or more
during the prior 36 months.
Capital Purchase Program. Under Title I
of the EESA of 2008, the Treasury has established the TARP,
which includes the CPP. Under the CPP, Treasury will, upon
application by a bank holding company and approval by the FRB
and the primary federal regulator of the subsidiary bank,
purchase senior preferred stock of the company. This senior
preferred stock bears quarterly dividends at an annual rate of
five percent for the first five years and nine percent
thereafter. So long as this senior preferred stock is
outstanding, certain restrictions are placed on the
participant’s ability to pay other dividends or repurchase
stock. In addition, CPP participants are subject to certain
executive compensation limitations. Further, under the EESA,
Congress has the ability to impose “after-the-fact”
terms and conditions on participants in the CPP. As a
participant in the CPP, the Company may be subject to any such
retroactive terms and conditions. The Company cannot predict
whether, or in what form, additional terms or conditions may be
imposed or the extent to which the Company’s business may
be affected.
American Recovery and Reinvestment Act
(ARRA). On February 17, 2009, President
Obama signed into law the ARRA, more commonly known as the
economic stimulus or economic recovery package. The ARRA
includes a wide variety of programs intended to stimulate the
economy and provide for extensive infrastructure, energy, health
and education needs. In addition, the ARRA imposes certain new
executive compensation and corporate expenditure limits on all
current and future TARP recipients, including Whitney, that are
in addition to those previously announced by the Treasury, until
the institution has repaid the Treasury, which is now permitted
under the ARRA without penalty and without the need to raise new
capital, subject to the Treasury’s consultation with the
recipient’s appropriate regulatory agency.
Proposed Legislation and Regulatory
Action. New statutes and regulations are
regularly adopted that contain a wide-range of proposals for
altering the structure, regulation, and competitive
relationships of financial institutions. Included among current
proposals is the re-structuring of the regulatory framework
within which Whitney operates. Further, newly enacted
legislation, such as the EESA and the ARRA, direct Treasury and
the federal banking regulators to adopt and implement rules for
a wide-range of programs and initiatives that will significantly
impact the financial services industry. Whitney cannot predict
whether or in what form any proposed statute or regulation will
be adopted or the extent to which its business may be affected.
EMPLOYEES
At the end of 2008, the Company and the Bank had a total of
2,736 employees, or 2,665 employees on a full-time
equivalent basis. Whitney affords its employees a variety of
competitive benefit programs including retirement plans and
group health, life and other insurance programs. The Company
also supports training and educational programs designed to
ensure that employees have the types and levels of skills needed
to perform at their best in their current positions and to help
them prepare for positions of increased responsibility.
The Company’s filings with the Securities and Exchange
Commission (SEC), including annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports, are available on Whitney’s
website as soon as reasonably practicable after the Company
files the reports with the SEC. Copies can be obtained free of
charge by visiting the Investor Relations section of the
Company’s website at www.whitneybank.com.
These reports are also available on the SEC’s website at
www.sec.gov. The Company’s website is not
incorporated into this annual report on
Form 10-K
and it should not be considered part of this report.
Chairman of the Board and Chief Executive Officer of the Company
and the Bank since 2008, President and Chief Operating Officer
of the Company and the Bank from 2007 to 2008, Executive Vice
President of the Company from 1994 to 2007 and of the Bank from
1998 to 2007
John M. Turner, Jr., 47
President of the Company and the Bank since 2008, Executive Vice
President of the Company and the Bank from 2005 to 2008, Senior
Vice President of the Bank from 1994 to 2005
Robert C. Baird, Jr., 58
Senior Executive Vice President of the Company and the Bank
since 2009, Executive Vice President of the Company and the Bank
from 1995 to 2009 — Banking Services
Thomas L. Callicutt, Jr., 61
Senior Executive Vice President of the Company and the Bank
since 2009, Chief Financial Officer of the Company and the Bank
since 1999, Executive Vice President of the Company and the Bank
from 1999 to 2009, and Treasurer of the Company since 2001
Joseph S. Exnicios, 53
Senior Executive Vice President and Chief Risk Officer of the
Company and the Bank since 2009, Executive Vice President of the
Company and the Bank from 2004 to 2009, Senior Vice President of
the Bank from 1994 to 2004
Elizabeth L. Cowell, 50
Executive Vice President of the Company and the Bank since
2009 — Retail & Business Banking; Senior
Vice President and Director of De Novo
Execution — Retail & Small Business Bank
from 2007 to 2009, Director — Sales &
Service Execution from 2006 to 2007,
Director — Deposit & Access Services from
1999 to 2006, Wachovia Corporation
Francisco DeArmas, 48
Executive Vice President of the Company and the Bank since
2007 — Operations & Technology; Chief
Administrative Officer — Global Applications and
Architecture from 2003 to 2007, General Motors Acceptance
Corporation
C. Mark Duthu, 53
Executive Vice President of the Company and the Bank since
2008 — Trust & Wealth Management; Regional
Managing Director — Trust Division of Wachovia
Bank from 2005 to 2006; Executive Vice
President — Trust Division of SouthTrust Bank
from 1998 to 2005
Lewis P. Rogers, 56
Executive Vice President of the Company and the Bank since 2004,
Senior Vice President of the Bank from 1998 to
2004 — Credit Administration
Joseph S. Schwertz, Jr., 52
Executive Vice President of the Company and the Bank since 2009,
Corporate Secretary of the Company and the Bank since 1993,
Senior Vice President of the Bank from 1994 to
2009 — General Counsel
Whitney must recognize and attempt to manage a number of risks
as it implements its strategies to successfully compete with
other companies in the financial services industry. Some of the
more important risks common to the industry and Whitney are:
•
credit risk, which is the risk that borrowers will be unable to
meet their contractual obligations, leading to loan losses and
reduced interest income;
•
market risk, which is the risk that changes in market rates and
prices will adversely affect the results of operations or
financial condition;
•
liquidity risk, which is the risk that funds will not be
available at a reasonable cost to meet operating and strategic
needs; and
•
operational risk, which is the risk of loss resulting from
inadequate or failed internal processes, people and systems, or
external events, such as natural disasters.
Although Whitney generally is not significantly more susceptible
to adverse effects from these or other common risk factors than
other industry participants, there are certain aspects of
Whitney’s business model that may expose it to somewhat
higher levels of risk. In addition to the other information
contained in or incorporated by reference into this annual
report on
Form 10-K,
these risk factors should be considered carefully in evaluating
Whitney’s overall risk profile. Additional risks not
presently known, or that Whitney currently deems immaterial, may
also adversely affect Whitney’s business, financial
condition or results of operations.
Unusually
severe disruptions in the residential real estate market
nationwide and in Whitney’s market area may cause continued
higher provisions for credit losses and increase the uncertainty
inherent in management’s estimate of credit losses as
reflected in its financial condition and results of
operations.
The residential real estate market has been under severe stress
in the Florida and coastal Alabama markets served by Whitney and
throughout many other areas of the country. The underlying
imbalance of supply and demand will likely take some time to
resolve and has caused declines in the value of many
residential-related properties, including occupied residences,
investment properties, homebuilders’ inventories, developed
lots and land for future development. These conditions increase
the possibility of default on loans made by Whitney that are
secured by residential-related properties as well as the
probability that the realizable collateral value will not be
sufficient to satisfy the debt, resulting in a loss.
Whitney’s loans secured by residential-related real estate
in Florida and coastal Alabama comprised approximately 8% of the
loan portfolio at December 31, 2008.
In addition, the problems in the residential real estate market
have direct and indirect negative impacts on the broader economy
that may increase the credit risk inherent in Whitney’s
loans to customers in these and other parts of Whitney’s
market area unrelated to residential real estate.
The
recession in the broader economy, both nationally and
internationally, could have an adverse affect on Whitney’s
financial condition, results of operations and cash
flows.
Recessionary conditions in the broader economy could adversely
affect the financial capacity of businesses and individuals in
Whitney’s market area. For example, there are some
published reports that predict 2009 will be the most difficult
year for the commercial real estate market since the early
1990’s, although the level of difficulty could vary widely
among different market areas. These conditions could, among
other consequences, increase the credit risk inherent in the
current loan portfolio, restrain new loan demand from
creditworthy borrowers, prompt Whitney to tighten its
underwriting criteria, and reduce the liquidity in
Whitney’s customer base and the level of deposits that they
maintain. These economic conditions could also delay the
correction of the imbalance of supply and demand in certain
residential real estate markets as discussed above.
The impact on Whitney’s financial results could include
continued high levels of problem credits, provisions for credit
losses and expenses associated with loan collection efforts, the
need for Whitney to replace core deposits with higher-cost
sources of funds, and an inability to produce loan growth or
overall growth in earning assets. Noninterest income from
sources that are dependent on financial transactions and market
valuations could also be reduced.
Whitney
has credit exposure in the oil and gas industry.
At December 31, 2008, Whitney had approximately
$1.06 billion in loans to borrowers in the oil and gas
industry, representing approximately 12% of its total loans
outstanding as of that date. The majority of Whitney’s
customer base in this industry provides transportation and other
services and products to support exploration and production
activities. If there is a significant downturn in the oil and
gas industry generally, the cash flows of Whitney’s
customers’ in this industry would be adversely impacted.
This in turn could impair their ability to service their debt to
Whitney with adverse consequences to the Company’s earnings.
The
composition of Whitney’s loan portfolio could increase the
volatility of its credit quality metrics and provisions for
credit losses.
Whitney’s loan portfolio contains individual relationships,
primarily with commercial customers, with outstanding balances
that are relatively large in relation to its asset size. Changes
in the credit quality of one or a few of these relationships
could lead to increased volatility in the Company’s
reported totals of loans with above-normal credit risk and in
its provisions for credit losses over time.
Current
levels of market volatility are unprecedented, and may result in
disruptions in our ability to access sources of funds, which may
negatively affect our capital resources and
liquidity.
The Company depends on access to a variety of sources of funding
to provide the Company with sufficient capital resources and
liquidity to meet its commitments and business needs, and to
accommodate the transaction and cash management needs of its
customers. Sources of funding available to the Company, and upon
which the Company relies or may rely as regular components of
its liquidity and funding management strategy, include interbank
borrowings, FHLB advances, borrowings from the Federal Reserve
Discount Window and brokered deposits. The Company has also
historically enjoyed a solid reputation in the capital markets
and historically has been able to raise funds in the form of
either short or long-term borrowings or equity issuances.
The capital and credit markets have been experiencing extreme
volatility and periods of severe disruption that in recent
months have reached unprecedented levels. Among other factors,
these conditions reflect extreme uncertainty on the part of
market participants in response to the rapid evolution of the
credit crisis among major entities in the financial services
industry. In some cases, the markets have pressured stock prices
and limited credit availability for certain issuers seemingly
without regard to those issuers’ underlying business
fundamentals. If current levels of market disruption and
volatility continue or worsen, there can be no assurance that
the Company will not experience an adverse effect, which may be
material, on its ability to access the capital markets and
sources of liquidity.
There
can be no assurance that recently enacted legislation will
stabilize the U.S. financial system.
On October 3, 2008, President Bush signed into law the
EESA. The legislation was the result of a proposal by the
Treasury in response to the financial crises affecting the
banking system and financial markets and threats to investment
banks and other financial institutions. Pursuant to the EESA,
the Treasury has the authority to, among other things, purchase
up to $700 billion of mortgages, mortgage-backed securities
and certain other financial instruments from financial
institutions for the purpose of stabilizing and providing
liquidity to the U.S. financial markets. On
October 14, 2008, the Treasury announced the Capital
Purchase Program, a program under the EESA pursuant to which it
would purchase senior preferred stock and warrants to purchase
common stock from participating financial institutions. On
November 21, 2008, the FDIC adopted a Final Rule with
respect to its Temporary Liquidity Guarantee Program pursuant to
which the FDIC will
guarantee certain “newly-issued unsecured debt” of
banks and certain holding companies and also guarantee, on an
unlimited basis, noninterest-bearing bank transaction accounts.
On February 17, 2009, President Obama signed into law the
ARRA. The purposes of the legislation are to preserve and create
jobs, to assist those most impacted by the recession, to provide
investments to increase economic efficiency in health services,
to invest in transportation, environmental protection and other
infrastructure, and to stabilize local and state governments.
Each of these programs was implemented to help stabilize our
economy and financial system. There can be no assurance,
however, as to the actual impact that the EESA and its
implementing regulations, the Capital Purchase Program, the FDIC
programs, or any other governmental program will have on the
financial markets. The failure of the EESA, the ARRA or the
U.S. government to stabilize the financial markets and a
continuation or worsening of current financial market conditions
could materially and adversely affect the Company’s
business, financial condition, and results of operations, access
to credit or the trading price of the Company’s common
stock.
The
failure of other financial institutions could adversely affect
Whitney.
Whitney’s ability to engage in routine funding transactions
could be adversely affected by the actions and potential
failures of other financial institutions. Financial institutions
are interrelated as a result of trading, clearing, counterparty
and other relationships. As a result, defaults by, or even
rumors or concerns about, one or more financial institutions or
the financial services industry generally have led to
market-wide liquidity problems and could lead to losses or
defaults by the Company or by other institutions.
Concern
by customers over deposit insurance may cause a decrease in
deposits and changes in the mix of funding sources available to
Whitney.
With recent increased concerns about bank failures, customers
increasingly are concerned about the extent to which their
deposits are insured by the FDIC. Customers may withdraw
deposits in an effort to ensure that the amount they have on
deposit with their bank is fully insured and some may seek
deposit products or other bank savings and investment products
that are collateralized. Decreases in deposits and changes in
the mix of funding sources may adversely affect the
Company’s funding costs and net income.
Whitney’s
profitability depends in substantial part on net interest income
and on its ability to manage interest rate risk.
Whitney’s net interest income represented more than 75% of
total revenues in each of the last five years. Net interest
income is the difference between the interest earned on loans,
investment securities and other earning assets, and interest
owed on deposits and borrowings. Numerous and often interrelated
factors influence Whitney’s ability to maintain and grow
net interest income, and a number of these factors are addressed
in Management’s Discussion and Analysis of Financial
Condition and Results of Operations located in Item 7 of
this annual report on
Form 10-K.
One of the most important factors is changes in market interest
rates and in the relationship between these rates for different
financial instruments and products and at different maturities.
Such changes are generally outside the control of management and
cannot be predicted with certainty. Although management applies
significant resources to anticipating these changes and to
developing and executing strategies for operating in an
environment of change, they cannot eliminate the possibility
that interest rate risk will negatively affect the
Company’s net interest income and lead to earnings
volatility.
For several years, Whitney has been positioned to be moderately
asset sensitive over the near term, which would point to an
expected improvement in net interest income in a rising rate
environment and a reduction in net interest income as rates
declined, holding other factors constant. Recent economic
conditions have led to lower market rates during 2008. The
Federal Reserve reduced interest rates on three occasions in
2007 by a total of 100 basis points, to 4.25%, and by
another 400 basis points, to a range of 0% to 0.25%, during
2008. A significant portion of Whitney’s loans bear
interest at variable rates, and the corresponding market
benchmark rates have declined sharply over this same period.
These and possible further future rate reductions could have a
negative impact on Whitney’s net interest income and net
income.
Whitney
is heavily regulated by federal agencies and changes in laws and
regulations may affect its financial outlook.
Whitney is heavily regulated at the federal level. This
regulation is designed primarily to protect depositors, federal
deposit insurance funds and the banking system as a whole, not
shareholders. Congress and federal regulatory agencies
continually review banking laws, regulations and policies for
possible changes. Changes to statutes, regulations or regulatory
policies, including interpretation and implementation of
statutes, regulations or policies, could affect the Company in
substantial and unpredictable ways, including limiting the types
of financial services and products offered
and/or
increasing the ability of nonbanks to offer competing financial
services and products. Also, if the Company does not comply with
laws, regulations or policies, it could receive regulatory
sanctions, including monetary penalties that may have a material
impact on its financial condition and results of operations, and
suffer damage to its reputation.
In response to the recent crises affecting the banking system
and financial markets, Congress is likely to consider additional
proposals to substantially change the financial institution
regulatory system and to expand or contract the powers of
banking institutions and bank holding companies. Such
legislation may change existing banking statutes and
regulations, as well as the Company’s current operating
environment significantly. If enacted, such legislation could
increase or decrease the cost of doing business, limit or expand
the Company’s permissible activities, or affect the
competitive balance among banks, savings associations, credit
unions, and other financial institutions. The Company cannot
predict whether new legislation will be enacted and, if enacted,
the effect that it, or any regulations, would have on the
Company’s business, financial condition, or results of
operations.
As a
result of Whitney’s participation in the Capital Purchase
Program (CPP) , Whitney may face additional regulation and
cannot predict the cost or effects of compliance at this
time.
In connection with Whitney’s participation in the CPP, the
Company and the Bank may face additional regulations
and/or
reporting requirements, including, but not limited to, the
following:
•
Section 5.3 of the standardized Securities Purchase
Agreement that the Company entered into with the Treasury
provides, in part, that the Treasury “may unilaterally
amend any provision of this Agreement to the extent required to
comply with any changes after the Signing Date in applicable
federal statutes.” This provision could give Congress the
ability to impose “after-the-fact” terms and
conditions on participants in the CPP. As a participant in the
CPP, the Company would be subject to any such retroactive
legislation. The Company cannot predict whether or in what form
any proposed regulation or statute will be adopted or the extent
to which its business may be affected by any new regulation or
statute.
•
Most recently, the ARRA included additional restrictions on the
operations of bank holding companies and banks that participate
in the various TARP programs. Because some of these restrictions
are new and expected to apply retroactively, ARRA also provided
the opportunity for recipients of funds under the CPP to elect
to return the TARP proceeds to the Treasury and to not
participate in the CPP. At this time, because the terms and
conditions of its participation are not yet final and there are
additional regulatory actions needed to be taken in connection
with ARRA and the CPP, Whitney has not yet made a decision on
whether or not to continue its participation in the CPP.
The
senior preferred stock issued to the Treasury impacts net income
available to Whitney’s common shareholders and its earnings
per share.
On December 19, 2008, the Company issued senior preferred
stock (Series A preferred stock) to the Treasury in an
aggregate amount of $300 million, along with a warrant for
2,631,579 shares of common stock. As long as shares of the
Company’s Series A preferred stock issued under the
CPP are outstanding, no dividends may be paid on the
Company’s common stock unless all dividends on the
Series A preferred stock
have been paid in full. Additionally, for so long as the
Treasury owns shares of the Series A preferred stock, the
Company is not permitted to pay cash dividends in excess of $.31
per share per quarter on its common stock for three years
without the Treasury’s consent. The dividends declared on
shares of the Company’s Series A preferred stock will
reduce the net income available to common shareholders and the
Company’s earnings per common share. Additionally, warrants
to purchase the Company’s common stock issued to the
Treasury, in conjunction with the issuance of the Series A
Preferred Stock, may be dilutive to the Company’s earnings
per share. The shares of the Company’s Series A
preferred stock will also receive preferential treatment in the
event of liquidation, dissolution or winding up.
Holders
of the Series A preferred stock have rights that are senior
to those of Whitney’s common shareholders.
The Series A preferred stock that the Company has issued to
the Treasury is senior to its shares of common stock and holders
of the Series A preferred stock have certain rights and
preferences that are senior to holders of the Company’s
common stock. The restrictions on the Company’s ability to
declare and pay dividends to common shareholders are discussed
immediately above. In addition, the Company and its subsidiaries
may not purchase, redeem or otherwise acquire for consideration
any shares of the Company’s common stock unless the Company
has paid in full all accrued dividends on the Series A
preferred stock for all prior dividend periods, other than in
certain circumstances. Furthermore, the Series A preferred
stock is entitled to a liquidation preference over shares of the
Company’s common stock in the event of liquidation,
dissolution or winding up.
Holders
of the Series A preferred stock may, under certain
circumstances, have the right to elect two directors to
Whitney’s board of directors.
In the event that the Company fails to pay dividends on the
Series A preferred stock for an aggregate of six quarterly
dividend periods or more (whether or not consecutive), the
authorized number of directors then constituting the
Company’s board of directors will be increased by two.
Holders of the Series A preferred stock, together with the
holders of any outstanding parity stock with like voting rights
will be entitled to elect the two additional members of the
board of directors at the next annual meeting (or at a special
meeting called for this purpose) and at each subsequent annual
meeting until all accrued and unpaid dividends for all past
dividend periods have been paid in full.
Holders
of the Series A preferred stock have limited voting
rights.
Except in connection with the election of directors to the
Company’s board of directors as discussed immediately above
and as otherwise required by law, holders of the Series A
preferred stock have limited voting rights. In addition to any
other vote or consent of shareholders required by law or
Whitney’s amended and restated charter, the vote or consent
of holders owning at least
662/3%
of the shares of Series A preferred stock outstanding is
required for (1) any authorization or issuance of shares
ranking senior to the Series A preferred stock;
(2) any amendment to the rights of the Series A
preferred stock that adversely affects the rights, preferences,
privileges or voting power of the Series A preferred stock;
or (3) consummation of any merger, share exchange or
similar transaction unless the shares of Series A preferred
stock remain outstanding or are converted into or exchanged for
preference securities of the surviving entity other than the
Company and have such rights, preferences, privileges and voting
power as are not materially less favorable than those of the
holders the Series A preferred stock.
Whitney
may issue additional common stock or other equity securities in
the future which could dilute the ownership interest of existing
shareholders.
In order to maintain the Company’s or its Bank’s
capital at desired or regulatory-required levels or to replace
existing capital such as the Series A preferred stock, the
Company may be required to issue additional shares of common
stock, or securities convertible into, exchangeable for or
representing rights to acquire shares of common stock. The
Company may sell these shares at prices below the current market
price of
shares, and the sale of these shares may significantly dilute
shareholder ownership. The Company could also issue additional
shares in connection with acquisitions of other financial
institutions.
Whitney’s
market area is susceptible to hurricanes and tropical storms,
which may increase the Company’s exposure to credit risk,
operational risk and liquidity risk.
Most of Whitney’s market area lies within the coastal
region of the five states bordering the Gulf of Mexico. This is
a region that is susceptible to hurricanes and tropical storms.
The two strong hurricanes that struck in 2005 had a major impact
on the greater New Orleans area, southwest Louisiana and the
Mississippi coast, with lesser impacts on coastal Alabama and
the western panhandle of Florida. Within its broader market
area, the greater New Orleans area is Whitney’s primary
base of operations and is home to branches and relationship
officers that service approximately 40% of the Bank’s total
loans and 50% of total deposits at December 31, 2008. The
2005 storms caused widespread property damage, required
temporary or permanent relocations of a large number of
residents and business operations, and severely disrupted normal
economic activity in the impacted areas. Although the Bank was
able to operate successfully in the aftermath of these storms,
management carefully studied its risk posture and has taken a
number of steps to reduce the Bank’s exposure to future
natural disasters and make its disaster recovery plans and
operating arrangements more resilient. Details of the
storms’ impact on Whitney, both operationally and with
respect to credit risk and liquidity, has been chronicled in
Item 7 of the Company’s annual reports on
Forms 10-K
for 2007, 2006 and 2005 as well as in Item 2 of Part I
of quarterly reports on
Form 10-Q
filed since the storms struck.
Whitney cannot predict the extent to which future storms may
impact its exposure to credit risk, operational risk or
liquidity risk.
Item 1B:
UNRESOLVED
STAFF COMMENTS
None.
Item 2:
PROPERTIES
The Company does not directly own any real estate, but it does
own real estate indirectly through its subsidiaries. The
Company’s executive offices are located in downtown New
Orleans in the main office facility owned by the Bank. The Bank
also owns an operations center in the greater New Orleans area.
The Bank makes portions of its main office facility and certain
other facilities available for lease to third parties, although
such incidental leasing activity is not material to
Whitney’s overall operations. The Bank maintained
approximately 170 banking facilities in five states at
December 31, 2008. The Bank owns approximately 70% of these
facilities, and the remaining banking facilities are subject to
leases, each of which management considers to be reasonable and
appropriate for its location. Management ensures that all
properties, whether owned or leased, are maintained in suitable
condition. Management also evaluates its banking facilities on
an ongoing basis to identify possible under-utilization and to
determine the need for functional improvements, relocations or
possible sales.
The Bank and a subsidiary of the Bank hold a variety of property
interests acquired through the years in settlement of loans.
Note 8 to the consolidated financial statements included in
Item 8 of this annual report on
Form 10-K
provides further information regarding such property interests
and is incorporated here by reference.
Item 3:
LEGAL
PROCEEDINGS
There are no material pending legal proceedings to which the
Company or its subsidiaries is a party or to which any of their
property is subject, other than ordinary routine litigation
incidental to the Company’s business.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the shareholders of Whitney Holding
Corporation was held on December 17, 2008.
The proposal to amend the Company’s charter to authorize
the issuance of up to 20 million shares of preferred stock
was approved as follows:
For
Against
Abstain
39,373,812
5,242,040
121,494
The proposal to amend the Company’s charter to increase the
number of authorized shares of common stock from
100 million to 200 million was approved as follows:
MARKET
FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s stock trades on The Nasdaq Global Select
Market under the ticker symbol “WTNY.” The Summary of
Quarterly Financial Information appearing in Item 8 of this
annual report on
Form 10-K
shows the high and low sales prices of the Company’s stock
for each calendar quarter of 2008 and 2007, as reported on The
Nasdaq Global Select Market, and is incorporated here by
reference.
Dividends declared by the Company are listed in the Summary of
Quarterly Financial Information appearing in Item 8 of this
annual report on
Form 10-K,
which is incorporated here by reference. For a description of
certain restrictions on the payment of dividends see the section
entitled “Supervision and Regulation” that appears in
Item 1 of this annual report on
Form 10-K,
the section entitled “Shareholders Equity and Capital
Adequacy” located in Item 7, and Note 17 to the
consolidated financial statements located in Item 8.
The following table provides information with respect to
purchases made by or on behalf of the Company or any
“affiliated purchaser” (as defined in
Rule 10b-18(a)(3)
under the Securities Exchange Act of 1934, as amended) of the
Company’s common stock during the three months ended
December 31, 2008.
Total Number of
Total
Shares Purchased as
Maximum Number of
Number of
Average Price
Part of Publicly
Shares that May Yet
Shares
Paid
Announced Plans or
Be Purchased under the
Period
Purchased
per Share
Programs(1)
Plans or Programs(1)
October 2008
358
(2)
$
24.70
—
—
November 2008
—
—
—
—
December 2008
170
(2)
$
15.99
—
—
Total
528
$
21.90
—
—
(1)
No repurchase plans were in effect during the fourth quarter of
2008.
(2)
Represents shares that were tendered as consideration for
employee tax obligations arising from the vesting of restricted
stock unit awards.
There have been no recent sales of unregistered securities.
The following performance graph and related information shall
not be deemed “soliciting material” or to be
“filed” with the SEC, nor shall such information be
incorporated by reference into any future filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934,
each as amended, except to the extent the Company specifically
incorporates it by reference into such filing.
The performance graph compares the cumulative five-year
shareholder return on the Company’s common stock, assuming
an investment of $100 on December 31, 2003 and the
reinvestment of dividends thereafter, to that of the common
stocks of United States companies reported in the Nasdaq Total
Return Index and the common stocks of the KBW 50 Total Return
Index. The KBW 50 Total Return Index is a proprietary stock
index of Keefe, Bruyette & Woods, Inc., that tracks
the returns of 50 large banking companies throughout the United
States.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The purpose of this discussion and analysis is to focus on
significant changes in the financial condition of Whitney
Holding Corporation and its subsidiaries (the Company or
Whitney) and on their results of operations during 2008, 2007
and 2006. 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 annual report
on
Form 10-K,
particularly the consolidated financial statements and related
notes appearing in Item 8.
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 conditions
impacting certain sectors of the loan portfolio and
opportunities for loan growth; (b) information about
changes in the duration of the investment portfolio with changes
in market rates; (c) statements of the results of net
interest income simulations run by the Company to measure
interest rate sensitivity; (d) discussion of the
performance of Whitney’s net interest income assuming
certain conditions; (e) expectations about Whitney’s
operational resiliency in the event of natural disasters;
(f) comments on expected trends or changes in expense
levels for retirement benefits, loan collection costs and
deposit insurance; and (g) comments on economic conditions
and proposed legislation and regulatory action.
Whitney’s ability to accurately project results or predict
the effects of 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:
•
Whitney’s ability to effectively manage interest rate risk
and other market risk, credit risk and operational risk;
•
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;
•
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;
•
Whitney’s ability to manage negative developments and
disruptions in the credit and lending markets, including the
impact of the ongoing credit crisis on its business and on the
businesses of its customers as well as other financial
institutions with which Whitney has commercial relationships;
•
the continuation of the recent unprecedented volatility in the
credit markets;
•
the continued deterioration of general economic and business
conditions, including the real estate and financial markets, in
the United States and in the region and communities Whitney
serves;
•
the occurrence of natural disasters or acts of war or terrorism
that directly or indirectly affect the financial health of
Whitney’s customer base;
changes in laws and regulations, including legislative or
regulatory development arising out of the current unsettled
conditions in the economy, that significantly affect the
activities of the banking industry and its 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;
•
Whitney’s ability to develop competitive new products and
services in a timely manner and the acceptance of such products
and services by the Bank’s customers;
•
Whitney’s ability to effectively expand into new markets;
•
the cost and other effects of material contingencies, including
litigation contingencies;
•
the failure to attract or retain key personnel;
•
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; and
•
those other factors identified and discussed in this annual
report on
Form 10-K
and in Whitney’s other public filings with the SEC.
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
Whitney’s net income available to common shareholders
totaled $58.0 million for the year ended December 31,2008, or $.89 per diluted share, compared with earnings of
$151 million for 2007, or $2.23 per diluted share. During
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 in 2007 of
$31.3 million ($19.9 million after-tax, or $.29 per
diluted share).
U.S.
Treasury Department Capital Purchase Program
On December 19, 2008, Whitney issued 300,000 shares of
senior preferred stock to the U.S. Department of Treasury
(Treasury) under the Capital Purchase Program (CPP) that was
established as part of the Emergency Economic Stabilization Act
of 2008 (EESA). Treasury also received a ten-year warrant to
purchase 2,631,579 shares of common stock at an exercise
price of $17.10 per share. The aggregate proceeds were
$300 million, and the total capital raised qualifies as
Tier 1 regulatory capital and can be used in calculating
all regulatory capital ratios. The terms of the senior preferred
stock and warrant are more fully described in Note 17 to
the consolidated financial statements located in Item 8,
including certain restrictions on the Company’s ability to
pay common dividends or repurchase stock. Further, under the
EESA, Congress has the ability to impose
“after-the-fact”
terms and conditions on participants in the CPP. The Company
cannot predict whether, or in what form, additional terms or
conditions may be imposed or the extent to which the
Company’s business may be affected.
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 operated 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 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.
Loans
and Earning Assets
Organic loan growth, which excludes the Parish acquisition, was
12%, or $891 million, during 2008. The Parish acquisition
accounted for approximately $605 million of the total
$1.50 billion increase in loans from year-end 2007 to
December 31, 2008. Loan demand and customer development
activity in Whitney’s Texas and Louisiana markets were the
major contributors to organic loan growth over this period, with
additional support coming from the Alabama/Mississippi market.
The Florida-based portfolio was essentially unchanged year over
year, with market conditions continuing to restrain loan demand
in that state. Loans, including loans held for sale, comprised
80% of average earning assets in 2008 compared to 76% in 2007.
Economic conditions will likely restrain loan demand and the
rate of overall portfolio growth in 2009.
Deposits
and Funding
There was little overall organic deposit growth during 2008.
Deposits associated with Parish accounted for approximately
$635 million of the Company’s total deposit growth of
$678 million, or 8%, from December 31, 2007. Several
important factors have influenced the more recent trends in
deposits. Customers have become risk-averse in response to the
increasingly uncertain economic conditions. The federal
government has taken steps to support bank liquidity by
temporarily expanding deposit insurance coverage, including
unlimited coverage on certain accounts. Market rates have fallen
to minimal levels for savings or investment options perceived to
be safe.
Noninterest-bearing demand deposits grew 12%, or
$329 million, from year-end 2007, before considering the
$164 million added with Parish, and comprised 35% of total
deposits at December 31, 2008. This organic growth was
concentrated mainly in commercial accounts. Higher-cost time
deposits at December 31, 2008 were down approximately 8%,
or $213 million, compared to year-end 2007, again before
considering Parish’s $161 million of time deposits.
With limited net organic deposit growth during 2008, the Company
funded a portion of its organic loan growth with short-term
borrowings. The balance of short-term borrowings at
December 31, 2008 was up 40%, or $367 million, from
year-end 2007.
Net
Interest Income
Whitney’s net interest income (TE) for 2008 decreased 2%,
or $10.2 million, from 2007. Average earning assets
increased 5% in 2008, driven by the 10% growth in average loans
compared to 2007. The net interest margin (TE) of 4.55% in 2008
was down 34 basis points from 2007, mainly reflecting the
steep reduction in benchmark rates for the large variable-rate
segment of Whitney’s loan portfolio. The rates on
approximately 28% of the loan portfolio at December 31,2008 were tied to changes in LIBOR benchmarks, with another 28%
tied to prime. Declining market rates also led to a sharp
reduction in rates paid on interest-bearing deposits and
short-term borrowings. The benefit to Whitney’s cost of
funds was offset partially by the increased use of short-term
borrowings in the funding mix to support earning asset growth.
Provision
for Credit Losses and Credit Quality
Whitney provided $134 million for credit losses in 2008
compared to $17.0 million in 2007. Net loan charge-offs
were $71.3 million, or .88% of average loans, in 2008,
compared to $8.4 million, or .11% of average loans, in
2007. The allowance for loan losses increased $73.2 million
during 2008 and represented 1.77% of total loans at
December 31, 2008, up from 1.16% at the end of 2007.
Continuing weaknesses in residential-related real estate
markets, primarily in the Tampa, Florida area, accounted for
approximately half of both the provision and the
$82 million in gross charge-offs during 2008. Loans for
commercial real estate (CRE) development or investment with
identified weaknesses accounted for approximately
$13 million of the provision and $6 million of gross
charge-offs, again concentrated in the Tampa area. Problem
commercial and industrial (C&I) credits added approximately
$20 million to the provision for 2008 and were responsible
for approximately $28 million of gross charge-offs, with no
significant regional or industry concentration. Management also
added approximately $10 million to the allowance and
provision in 2008 based on its relative assessment of economic
and other qualitative risk factors since the end of 2007.
The total of loans criticized through the Company’s credit
risk-rating process was $770 million at December 31,2008, which represented 8% of total loans and a net increase of
$465 million from December 31, 2007. The increase in
criticized loans during 2008 was largely concentrated in
residential-related real estate loans which comprised
approximately 41% of the criticized loan total at year-end 2008,
with over half from Whitney’s Florida markets.
Noninterest
Income
Noninterest income in 2008 increased 11%, or $10.1 million,
over 2007, excluding the insurance settlement gain in 2007, a
$2.3 million gain recognized in 2008 from the mandatory
redemption of Visa shares, and income associated with foreclosed
assets and surplus property in each period. Deposit service
charge income grew by 11% compared to 2007, aided mainly by
reduced earnings credit allowed on certain commercial deposit
accounts. Most other recurring revenue sources showed
improvement or were stable compared to 2007 even under difficult
financial and housing market conditions. The results for 2008
also benefited from the earnings on a bank-owned life insurance
program implemented during the year.
Noninterest
Expense
Noninterest expense increased 1%, or $2.0 million, in 2008.
Incremental operating costs associated with acquired operations,
including amortization of intangibles, totaled approximately
$7.9 million for 2008. Whitney’s personnel expense
decreased 6%, or $12.3 million, before considering the cost
of acquired staff. Compensation associated with management
incentive programs was down $13.3 million in 2008, largely
as a result of tightened performance criteria coupled with the
difficult operating environment. The total of all other
noninterest expense unrelated to personnel increased a net
$6.4 million, or 4%, compared to 2007, again before
considering acquired operations.
CRITICAL
ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
Whitney prepares its financial statements in accordance with
accounting principles generally accepted in the United States of
America. A discussion of certain accounting principles and
methods of applying those principles that are particularly
important to this process is included in Note 2 to the
consolidated financial statements located in Item 8 of this
annual report on
Form 10-K.
The Company is required to make estimates, judgments and
assumptions in applying these principles to determine the
amounts and other disclosures that are presented in the
financial statements and discussed in this section.
Allowance
for Credit Losses
Whitney believes that the determination of its estimate of the
allowance for credit losses involves a higher degree of judgment
and complexity than its application of other significant
accounting policies. Factors considered in this determination
and management’s process are discussed in Note 2 and
in the section below entitled “Loans, Credit Risk
Management and Allowance and Reserve for Credit Losses.”
Although management believes it has identified appropriate
factors for review and designed and implemented adequate
procedures to support the estimation process that are
consistently followed, the allowance remains an estimate about
the effect of matters that are inherently uncertain. Over time,
changes in national and local economic conditions or the actual
or perceived financial condition of Whitney’s credit
customers or other factors can materially impact the allowance
estimate, potentially subjecting the Company to significant
earnings volatility.
Goodwill
Impairment Test
Goodwill is assessed for impairment both annually and when
events or circumstances occur that make it more likely than not
that impairment has occurred. The impairment test compares the
estimated fair value of a reporting unit with its net book
value. Whitney has assigned all goodwill to one reporting unit
that represents
the overall banking operations. The fair value of the reporting
unit is based on valuation techniques that market participants
would use in an acquisition of the whole unit, such as estimated
discounted cash flows, the quoted market price of Whitney’s
stock including an estimated control premium, and observable
average
price-to-earnings
and
price-to-book
multiples of our competitors. If the unit’s fair value is
less than its carrying value, an estimate of the implied fair
value of the goodwill is compared to the goodwill’s
carrying value. Given the current volatility in market prices
due in part to significant uncertainty about the financial
services industry as a whole and limited activity of healthy
bank acquisitions, management placed greater reliance on the
discounted cash flow analysis for the annual test. This analysis
requires significant assumptions about the economic environment,
expected net interest margins, growth rates and the rate at
which cash flows are discounted.
No impairment was indicated when the annual test was performed
on September 30, 2008. During the 2008 fourth quarter,
circumstances such as a decrease in Whitney’s market price
to a level below book value, further asset quality deterioration
and declining general economic conditions that reduced estimates
of growth and the net interest margin, led management to perform
a subsequent impairment test as of December 31, 2008. No
indication of goodwill impairment was indicated by this interim
test as the analysis resulted in a fair value estimate
approximately 10% higher than book value. Either a 15 basis
point reduction in the long-term expected net interest margin or
a 1% lower perpetual growth rate would reduce the estimated fair
value by 10%. Given the current economic environment and
potential for volatility in the fair value estimate, management
will reassess goodwill impairment quarterly.
Accounting
for Retirement Benefits
Management makes a variety of assumptions in applying principles
that govern the accounting for benefits under the Company’s
defined benefit pension plans and other postretirement benefit
plans. These assumptions are essential to the actuarial
valuation that determines the amounts Whitney recognizes and
certain disclosures it makes in the consolidated financial
statements related to the operation of these plans (see
Note 15 in Item 8). Two of the more significant
assumptions concern the expected long-term rate of return on
plan assets and the rate needed to discount projected benefits
to their present value. Changes in these assumptions impact the
cost of retirement benefits recognized in net income and
comprehensive income. Certain assumptions are closely tied to
current conditions and are generally revised at each measurement
date. For example, the discount rate is reset annually with
reference to market yields on high quality fixed-income
investments. Other assumptions, such as the rate of return on
assets, are determined, in part, with reference to historical
and expected conditions over time and are not as susceptible to
frequent revision. Holding other factors constant, the cost of
retirement benefits will move opposite to changes in either the
discount rate or the rate of return on assets. Recent trends in
the cost of retirement benefits are discussed below in the
section entitled “Noninterest Expense.”
FINANCIAL
CONDITION
LOANS,
CREDIT RISK MANAGEMENT AND ALLOWANCE AND RESERVE FOR CREDIT
LOSSES
Loan
Portfolio Developments
Organic loan growth was 12%, or $891 million, during 2008.
The Parish acquisition accounted for approximately
$605 million of the total $1.50 billion increase in
loans from year-end 2007 to December 31, 2008. Loan demand
and customer development activity in Whitney’s Texas and
Louisiana markets were the major contributors to organic loan
growth over this period, with additional support coming from the
Alabama/Mississippi market. Loans serviced from Whitney’s
operations in Houston, Texas grew by 36% year over year, those
serviced in Louisiana markets outside New Orleans were up 6%,
loans from the metropolitan New Orleans area grew 14%, and
the Alabama/Mississippi portfolio gained 9%. The Florida-based
portfolio was essentially unchanged year over year, with market
conditions continuing to restrain loan demand from the state.
Economic conditions will likely restrain loan demand and the
rate of overall portfolio growth in 2009.
Table 1 shows loan balances by type of loan at December 31,2008 and at the end of the previous four years. Table 2
distributes the loan portfolio as of December 31, 2008 by
the geographic region from which the
loans are serviced. The following discussion provides an
overview of the composition of the different portfolio sectors
and the customers served in each, as well as recent changes.
The portfolio of commercial and industrial (C&I) loans
increased 22%, or $614 million, between year-end 2007 and
2008, with only a limited contribution from the Parish
acquisition. This growth was concentrated in Whitney’s
Houston, Texas market and its Louisiana markets, including
strong growth from customers in the oil and gas (O&G)
industry. The recent disruptions in the credit markets have
restricted access by some of Whitney’s commercial customers
to traditional borrowing sources and led them to increase their
use of existing credit facilities with the Bank. Overall, the
C&I portfolio has remained diversified, with customers in a
range of industries, including O&G exploration and
production, wholesale and retail trade in various durable and
nondurable products and the manufacture of such products, marine
transportation and maritime construction, financial services and
professional services. The growth in market areas outside of
metropolitan New Orleans in recent years has increased the
geographic diversification of customers represented in the
C&I portfolio.
Loans outstanding to oil and gas (O&G) industry customers
represented approximately 12% of total loans at
December 31, 2008, up from approximately 10% at year-end
2007. The majority of Whitney’s customer base in this
industry provides transportation and other services and products
to support exploration and production activities. The Bank seeks
service and supply customers who are quality operators that can
manage through volatile commodity price cycles. Loans
outstanding to the exploration and production (E&P) sector
comprised close to one-third of the O&G industry portfolio
at December 31, 2008. Within the E&P sector,
approximately 60% of the portfolio is related to natural gas
production and 40% to oil production based on measures of
collateral support. Management monitors both industry
fundamentals and portfolio performance and credit quality on a
formal ongoing basis and establishes and adjusts internal
exposure guidelines as a percent of capital both for the
industry as a whole and for individual sectors within the
industry. The slowdown in global economic activity has led to a
sharp reduction in commodity prices in recent months and
management has made what it believes to be appropriate
adjustments to Whitney’s credit underwriting guidelines and
the management of existing relationships. The level of activity
in this industry continues to have an important impact on the
economies of certain portions of Whitney’s market area,
particularly Houston and southern Louisiana.
Outstanding balances under participations in larger
shared-credit loan commitments totaled $772 million at the
end of 2008, compared to $444 million outstanding at
year-end 2007. The total at December 31, 2008 included
approximately $326 million related to the O&G
industry. Substantially all of the shared credits are with
customers operating in Whitney’s market area.
The CRE portfolio includes loans for construction and land
development and investment, both commercial and residential,
loans secured by multi-family residential properties and other
income-producing properties, and loans secured by properties
used by the owner in C&I operations. Table 2 presents
information on the
components and geographic distribution of the CRE portfolio.
Management also sets exposure guidelines for the overall
portfolio of CRE loans as well as for loans to developers or
owner-users that are secured by various subcategories of
property. As with lending to the O&G industry, management
regularly monitors real estate industry fundamentals and
portfolio credit quality.
TABLE
2. GEOGRAPHIC DISTRIBUTION OF LOAN PORTFOLIO AT
DECEMBER 31, 2008
Total
Percent
Total
Percent
Alabama/
Dec. 31
of
Dec. 31
of
Louisiana
Texas
Florida
Mississippi
2008
total
2007
total
(Dollars in millions)
Commercial & industrial
$
2,369
$
673
$
103
$
291
$
3,436
38
%
$
2,823
37
%
Commercial real estate:
Residential construction
102
81
56
35
274
3
316
4
Commercial construction, land & land development
547
396
439
232
1,614
18
1,454
19
Other CRE — owner-user
658
106
181
70
1,015
11
741
10
Other CRE — nonowner-user
615
162
326
151
1,254
14
966
13
Total commercial real estate
1,922
745
1,002
488
4,157
46
3,477
46
Residential mortgage
608
132
212
127
1,079
12
934
12
Consumer
285
19
67
39
410
4
352
5
Total
$
5,184
$
1,569
$
1,384
$
945
$
9,082
100
%
$
7,586
100
%
Percent of total
57
%
17
%
15
%
11
%
100
%
Project financing is an important component of the activity in
the CRE portfolio sector, and sector growth is impacted by the
availability of new projects as well as the anticipated
refinancing of seasoned income properties in the secondary
market and payments on residential development loans as
inventory is sold. The CRE portfolio sector grew
$680 million during 2008, of which approximately
$454 million was from the Parish acquisition. The organic
growth of 6%, or $226 million, was mainly in the Houston,
Texas market, with smaller contributions from the Louisiana and
Alabama/Mississippi markets, and involved a variety of retail,
commercial and industrial facilities, as well as some
multi-family and single-family residential development. The lack
of growth in the Florida-based CRE portfolio reflected a limited
supply of new projects coupled with gradual paydowns on existing
project loans. The growing economic uncertainty during the
current recession will slow the availability of new creditworthy
CRE projects throughout Whitney’s market area and limit the
potential for any growth in this portfolio sector in 2009.
The residential mortgage loan portfolio increased 16%, or
$145 million, during 2008, of which approximately
$86 million was from Parish. The 6% organic growth in this
portfolio sector was mainly from Whitney’s Louisiana and
Texas markets. The Bank continues to sell most conventional
residential mortgage loan production in the secondary market.
Whitney’s lending strategy has not included
sub-prime
home mortgage loans.
Loans to individuals include various consumer installment and
credit line products. There was organic growth of approximately
6% in this portfolio sector during 2008 on top of the
$38 million added with Parish.
Table 3 reflects contractual loan maturities, unadjusted for
scheduled principal reductions, prepayments or repricing
opportunities. Approximately 60% of the value of loans with a
maturity greater than one year carries a fixed rate of interest.
Credit
Risk Management and Allowance and Reserve for Credit
Losses
General
Discussion of Credit Risk Management and Determination of Credit
Loss Allowance and Reserve
Whitney manages credit risk mainly through adherence to
underwriting and loan administration standards established by
the Bank’s Credit Policy Committee and through the efforts
of the credit administration function to ensure consistent
application and monitoring of standards throughout the Company.
Written credit policies define underwriting criteria,
concentration guidelines, and lending approval processes that
cover individual authority and the appropriate involvement of
regional loan committees and a senior loan committee. The senior
loan committee includes the Bank’s senior lenders, senior
officers in Credit Administration, the Chief Risk Officer, the
President and the Chief Executive Officer.
C&I credits and CRE loans, are underwritten principally
based upon cash flow coverage, but additional support is
regularly obtained through collateralization and guarantees.
C&I loans are typically relationship-based rather than
transaction-driven. Loan concentrations are monitored monthly by
management and the Board of Directors. Consumer loans are
centrally underwritten with reference to the customer’s
debt capacity and with the support of automated credit scoring
tools, including appropriate secondary review procedures.
Lending officers are responsible for ongoing monitoring and the
assignment of risk ratings to individual loans based on
established guidelines. An independent credit review function
reporting to the Audit Committee of the Board of Directors
assesses the accuracy of officer ratings and the timeliness of
rating changes and performs concurrent reviews of the
underwriting processes. Once a problem relationship over a
certain size threshold is identified, a monthly watch committee
process is initiated. The watch committee, composed of senior
lending and credit administration management as well as the
Chief Executive Officer and Chief Risk Officer, must approve any
substantive changes to identified problem credits and will
assign relationships to a special credits department when
appropriate.
Management’s evaluation of credit risk in the loan
portfolio is 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
credit 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. This methodology is
described in Note 2 to the consolidated financial
statements located in Item 8 of the annual report on
Form 10-K.
The recorded allowance encompasses three key 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 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.
Credit
Quality Statistics and Components of Credit Loss Allowance and
Reserve
The total of loans criticized through the Company’s credit
risk-rating process was $770 million at December 31,2008, which represented 8% of total loans and a net increase of
$465 million from December 31, 2007. Criticized loans
from the Parish acquisition accounted for approximately
$55 million of the increase. Table 4 shows the composition
of criticized loans at December 31, 2008, distributed by
the geographic region from which the loans are serviced.
The increase in criticized loans during 2008 was largely
concentrated in loans for residential development. Loans for
residential development, investment and other residential
purposes comprised approximately 41% of the criticized loan
total at year-end 2008, over half of which were from
Whitney’s Florida markets. CRE loans on nonresidential
investment or income-producing properties accounted for
approximately 30% of the criticized total, with the majority
again concentrated in the Florida market. Criticized CRE loans
secured by properties used in the borrower’s business
operations represented 13% of the criticized total at
December 31, 2008, and loans to C&I relationships
comprised 15%, with no significant concentrations related to
industries or markets. Although management has not identified
any systemic portfolio credit issues apart from the real estate
problems primarily concentrated in Florida and coastal Alabama,
as the recessionary conditions in the overall economy continue,
it is monitoring closely the impact on the performance of the
tourism and energy industries, given their importance to the
economies in Whitney’s market area.
Included in the total of criticized loans at December 31,2008 is $301 million of nonperforming loans, which is up a
net $181 million from year-end 2007. Approximately
two-thirds of the nonperforming total at December 31, 2008
was for residential-related loans that are heavily concentrated
in Whitney’s Florida markets. The Florida markets accounted
for 72% of total nonperforming loans at the end of 2008,
followed by 18% from Louisiana and 8% from Alabama. Table 5
provides information on nonperforming loans and other
nonperforming assets at the end of each of the five years in the
period ended December 31, 2008. Nonperforming loans
encompass substantially all loans that are evaluated separately
for impairment.
Nonperforming assets to loans plus foreclosed assets and surplus
property
3.61
%
1.64
%
.81
%
1.03
%
.46
%
Allowance for loan losses to nonperforming loans
54
73
136
137
230
Loans 90 days past due still accruing to loans
.18
.11
.11
.21
.06
A comparison of contractual interest income on nonperforming
loans with the cash-basis and cost-recovery interest actually
recognized on these loans for 2008, 2007 and 2006 is presented
in Note 8 to the consolidated financial statements located
in Item 8 of this annual report on
Form 10-K.
Whitney’s policy for placing loans on nonaccrual status is
presented in Note 2 to the consolidated financial
statements.
Table 6 recaps activity in the allowance for loan losses and in
the reserve for losses on unfunded credit commitments over the
past five years. The allocation of the allowance to loan
categories is included in Table 7, together with the percentage
of total loans in each category.
The overall allowance for loan losses increased $63 million
during 2008, net of the allowance added with Parish. The
component of the allowance for criticized loans increased a net
$47 million after charge-offs of approximately
$61 million during the year. The allowance for loans with
average or better credit quality ratings and loans not subject
to individual rating increased $6 million for the year,
mainly from the impact of recent charge-off experience on
historical loss factors. Management also added approximately
$10 million to the allowance based on its relative
assessment of economic and other qualitative risk factors since
the end of 2007.
Continuing weaknesses in the residential-related real estate
markets, primarily in the Tampa, Florida area, accounted for
approximately half of both the $134 million provision and
the $82 million in gross charge-offs during 2008, mainly
related to loans for residential development. Loans for CRE
development or investment with identified weaknesses accounted
for approximately $13 million of the provision and
$6 million of gross charge-offs, again concentrated in the
Tampa, Florida area. Problem C&I credits added
approximately $20 million to the provision for 2008 and
were responsible for approximately $28 million of gross
charge-offs, with no significant regional or industry
concentration.
It is uncertain when sufficient demand will return to depressed
residential real estate markets to establish a solid floor on
prices and stimulate renewed development. This, when coupled
with the uncertainties arising from the current national
recession and weak global economic conditions, makes it
difficult for management to predict when the level of criticized
loans will stabilize or retreat. In this environment, the
periodic estimate of inherent losses in the loan portfolio may
be volatile.
Allocation by subcategory for 2008 is not available for prior
years.
INVESTMENT
SECURITIES
The investment securities portfolio balance of
$1.94 billion at December 31, 2008 was down
$46 million, or 2%, compared to December 31, 2007.
Securities with carrying values of $1.69 billion at
December 31, 2008 were sold under repurchase agreements,
pledged to secure public deposits or pledged for other purposes.
Average investment securities increased $74 million, or 4%,
between 2007 and 2008. The composition of the average portfolio
in investment securities and effective yields are shown in Table
14.
Information about the contractual maturity structure of
investment securities at December 31, 2008, including the
weighed-average yield on such securities, is shown in Table 8.
The carrying value of securities with explicit call options
totaled $157 million at year-end 2008. These call options
and the scheduled principal reductions and projected prepayments
on mortgage-backed securities are not reflected in Table 8.
Including expected principal reductions on mortgage-backed
securities, the weighted-average maturity of the overall
securities portfolio was approximately 31 months at
December 31, 2008, compared to 32 months at year-end
2007.
The weighted-average taxable-equivalent portfolio yield was
approximately 4.84% at December 31, 2008, compared to 4.88%
at December 31, 2007. A substantial majority of the
securities in the investment portfolio bear fixed interest
rates. The investment in mortgage-backed securities with final
contractual maturities beyond ten years shown in Table 8
included approximately $176 million of adjustable-rate
issues with a weighted-average yield of 4.44%. The initial reset
dates on these securities are predominantly within three years
of year-end 2008.
During 2008, the mix of investments in the portfolio shifted
further toward mortgage-backed securities issued or guaranteed
by U.S. government agencies. The duration of the overall
investment portfolio was 1.6 years at December 31,2008, and would extend to 3.6 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 31,2007, the portfolio’s estimated duration was 2.1 years.
Obligations of states and political
subdivisions(b)
1,054
5.85
4,765
6.01
2,029
6.32
—
—
7,848
6.07
Other debt securities
900
2.19
3,000
5.78
—
—
—
—
3,900
4.95
Equity
securities(c)
—
—
—
—
—
—
58,851
3.21
58,851
3.21
Total
$
4,056
4.31
%
$
306,797
4.55
%
$
366,203
4.71
%
$
1,051,906
4.75
%
$
1,728,962
4.70
%
Securities Held to Maturity
Obligations of states and political
subdivisions(b)
$
6,790
6.62
%
$
89,069
5.68
%
$
73,854
5.97
%
$
40,680
6.50
%
$
210,393
5.97
%
Total
$
6,790
6.62
%
$
89,069
5.68
%
$
73,854
5.97
%
$
40,680
6.50
%
$
210,393
5.97
%
(a)
Distributed by contractual maturity without regard to
repayment schedules or projected prepayments.
(b)
Tax exempt yields are expressed on a fully taxable-equivalent
basis.
(c)
These securities have no stated maturities or guaranteed
dividends. Yield estimated based on expected near-term
returns.
Securities available for sale made up the bulk of the total
investment portfolio at December 31, 2008.
Available-for-sale
securities are carried at fair value, and the balance reported
at December 31, 2008 reflected gross unrealized gains of
$31.9 million and gross unrealized losses of
$1.2 million. The unrealized losses were related mainly to
mortgage-backed securities and represented less than 1% of the
total amortized cost of the underlying securities. Note 5
to the consolidated financial statements located in Item 8
of this annual report on
Form 10-K
provides information on the process followed by management to
evaluate whether unrealized losses on securities, both those
available for sale and those held to maturity, represent
impairment that is other than temporary and that should be
recognized with a charge to operations. Substantially all the
unrealized losses at December 31, 2008 resulted from
changes in market interest rates from the yields available on
the underlying securities when they were purchased and other
factors unrelated to credit quality. There were no securities in
the investment portfolio tied to
sub-prime
home mortgage loans. 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.
Apart from securities issued or guaranteed by the
U.S. government or its agencies, at December 31, 2008,
Whitney held no investment in the securities of a single issuer
that exceeded 10% of its shareholders’ equity.
DEPOSITS
AND BORROWINGS
There was little overall organic deposit growth during 2008.
Deposits associated with Parish accounted for approximately
$635 million of the Company’s total deposit growth of
$678 million, or 8%, from December 31, 2007. Several
important factors have influenced the more recent trends in
deposits. Customers have become risk-averse in response to the
increasingly uncertain economic conditions. The federal
government has taken steps to support bank liquidity by
temporarily expanding deposit insurance coverage, including
unlimited coverage on certain accounts. Market rates have fallen
to minimal levels for savings or investment options perceived to
be safe.
Table 9 shows the composition of deposits at December 31,2008 and at the end of the two previous years. Table 14 presents
the composition of average deposits and borrowings and the
effective rates on interest-bearing funding sources for each of
these years.
TABLE 9.
DEPOSIT
COMPOSITION
2008
2007
2006
(Dollars in thousands)
Noninterest-bearing demand deposits
$
3,233,550
35
%
$
2,740,019
32
%
$
2,947,997
35
%
Interest-bearing deposits:
NOW account deposits
1,281,137
14
1,151,988
13
1,099,408
13
Money market deposits
1,306,937
14
1,229,715
14
1,185,610
14
Savings deposits
909,197
10
879,609
10
965,652
11
Other time deposits
875,999
9
823,884
10
750,165
9
Time deposits $100,000 and over
1,654,774
18
1,758,574
21
1,484,476
18
Total interest-bearing
6,028,044
65
5,843,770
68
5,485,311
65
Total
$
9,261,594
100
%
$
8,583,789
100
%
$
8,433,308
100
%
Noninterest-bearing demand deposits grew 12%, or
$329 million, from year-end 2007, before considering the
$164 million added with Parish, and comprised 35% of total
deposits at December 31, 2008. This organic growth was
concentrated mainly in commercial accounts. Demand deposits and
savings deposits at the end of 2006 reflected the lingering
impact of the substantial influx of deposit funds in the
aftermath of 2005’s catastrophic hurricane season. As
anticipated, these deposits continued to be worked down during
2007, with some migration to higher-yielding products.
Higher-cost time deposits at December 31, 2008 were down
approximately 8%, or $213 million, compared to year-end
2007, again before considering Parish’s $161 million
of time deposits. Customers held $397 million of funds in
treasury-management time deposit products at December 31,2008, down $308 million from the total held at
December 31, 2007. These products are used mainly by
commercial customers with excess liquidity pending redeployment
for corporate or investment purposes, and, while they provide a
recurring source of funds, the amounts available over time can
be volatile. Strong liquidity among Whitney’s commercial
customers, particularly those in the O&G industry and in
heavy construction, had been reflected in the 2007 balance.
Competitively bid public funds time deposits, which require
collateralization, totaled $260 million at year-end 2008,
which was $55 million higher than the end of 2007.
Treasury-management deposits and public funds deposits serve
partly as an alternative to Whitney’s short-term borrowings.
TABLE 10.
MATURITIES
OF TIME DEPOSITS
Deposits of
Deposits of
$100,000
Less than
or More
$100,000
Total
(In thousands)
Three months or less
$
897,305
$
277,514
$
1,174,819
Over three months through six months
365,921
240,811
606,732
Over six months through twelve months
363,488
258,579
622,067
Over twelve months
28,060
99,095
127,155
Total
$
1,654,774
$
875,999
$
2,530,773
With limited net organic deposit growth during 2008, the Company
funded a portion of its organic loan growth with short-term
borrowings. The balance of short-term borrowings at
December 31, 2008 was up 40%, or $367 million, from
year-end 2007. The main source of short-term borrowings
continued to be the sale of
securities under repurchase agreements to customers using
Whitney’s treasury management sweep product. Total
borrowings from customers under repurchase agreements totaled
$780 million at December 31, 2008 and
$772 million at December 31, 2007. At the end of 2008,
the Bank had purchased $480 million of federal funds
compared to $98 million at the end of 2007. During 2008,
the Bank also borrowed an average of $286 million under
short-term Federal Home Loan Bank (FHLB) advances. Such
borrowings had been minimal in prior years. Additional
information on short-term borrowings, including yields and
maximum amounts borrowed, is presented in Note 12 to the
consolidated financial statements located in Item 8 of this
annual report on
Form 10-K.
In late March 2007, the Bank issued $150 million in
ten-year subordinated notes as described in Note 13 to the
consolidated financial statements located in Item 8.
Whitney has no other significant long-term borrowings.
SHAREHOLDERS’
EQUITY AND CAPITAL ADEQUACY
Shareholders’ equity totaled $1.53 billion at
December 31, 2008, which represented an increase of
$297 million from the end of 2007. On December 19,2008, Whitney issued to the Treasury cumulative perpetual
preferred stock and a warrant to purchase shares of the
Company’s common stock for aggregate proceeds of
$300 million. The terms of the preferred stock and warrant
and certain other aspects of this transaction are described in
Note 17 to the consolidated financial statements located in
Item 8. The 3.33 million shares issued in the
acquisition of Parish in November 2008 were valued at
$61 million. During 2008, Whitney repurchased
2.04 million of its common shares at a cost of
$50 million. This completed the program announced in
November 2007 under which the Company repurchased a total of
3.93 million shares. Whitney recognized $9 million in
additional equity during 2008 from activity in share-based
compensation plans for employees and directors, but this was
largely offset by a $7 million other comprehensive loss.
The total common stock dividends declared during 2008 exceeded
earnings available to common shareholders by $16 million
and represented a payout ratio of 127%. Paying dividends in
excess of earnings cannot be sustained over the long term. The
quarterly dividend rate was reduced in the fourth quarter of
2008 from $.31 to $.20 in order to protect the Company’s
capital position. The dividend rate will be reassessed quarterly
in light of credit quality trends and expected earnings. The
dividend payout ratio was 52% in 2007 and 49% in 2006.
Whitney’s ability to pay dividends is also limited by its
participation in the Treasury’s CPP. Prior to
December 19, 2011, unless Whitney has redeemed the
preferred stock issued to the Treasury in the CPP or the
Treasury has transferred the preferred stock to a third party,
Whitney cannot increase its quarterly dividend above $.31 per
share of common stock. Furthermore, if Whitney is not current in
the payment of quarterly dividends on the preferred stock, it
cannot pay dividends on its common stock.
The ratios in Table 11 indicate that Whitney remained well
capitalized at December 31, 2008. The capital raised
through Treasury’s investment in the preferred stock and
common stock warrants qualifies as Tier 1 capital.
Tier 2 regulatory capital at December 31, 2008 and
2007 includes $150 million in subordinated debt issued by
the Bank in the first quarter of 2007. The increase in
risk-weighted assets from the end of 2007 mainly reflected the
impact of the Parish acquisition and organic loan growth.
Goodwill and other intangible assets recognized in business
acquisitions are excluded from risk-weighted assets. These
intangible assets, however, are also deducted in determining
regulatory capital and thereby serve to offset the addition to
capital for the value of shares issued as consideration for the
acquisition.
Both the Company and the Bank satisfied the capital criteria to
be categorized as “well-capitalized” at
December 31, 2008. The Bank has been categorized as
“well-capitalized” in the most recent notice received
from its primary regulatory agency.
In February 2009, amendments were made to the EESA that changed
some of the terms and conditions associated with the CPP,
including that TARP recipients may be allowed to redeem the
preferred stock without regard to whether the company has
replaced such funds from any other source. The Company will
monitor the development of regulations regarding these
amendments and any other changes in the TARP program that may
alter its previous conclusions regarding the benefits of
participating in TARP.
LIQUIDITY
MANAGEMENT AND CONTRACTUAL OBLIGATIONS
Liquidity
Management
The objective of liquidity management is to ensure that funds
are available to meet the cash flow requirements of depositors
and borrowers, while at the same time meeting the operating,
capital and strategic cash flow needs of the Company and the
Bank. Whitney develops its liquidity management strategies and
measures and monitors liquidity risk as part of its overall
asset/liability management process, making full use of
quantitative modeling tools available to project cash flows
under a variety of possible scenarios, including credit-stressed
conditions.
Liquidity management on the asset side primarily addresses the
composition and maturity structure of the loan portfolio and the
portfolio of investment securities and their impact on the
Company’s ability to generate cash flows from scheduled
payments, contractual maturities, and prepayments, through use
as collateral for borrowings, and through possible sale or
securitization. Table 3 above presents the contractual maturity
structure of the loan portfolio and Table 8 presents contractual
investment maturities. At December 31, 2008, securities
available for sale with a carrying value of $1.48 billion,
out of a total portfolio of $1.73 billion, were sold under
repurchase agreements, pledged to secure public deposits or
pledged for other purposes.
On the liability side, liquidity management focuses on growing
the base of core deposits at competitive rates, including the
use of treasury-management products for commercial customers,
while at the same time ensuring access to economical wholesale
funding sources. The section above entitled “Deposits and
Borrowings” discusses changes in these liability-funding
sources in 2008.
In October 2008, the FDIC temporarily increased deposit
insurance coverage limits for all deposit accounts from $100,000
to $250,000 per depositor through December 31, 2009 and
offered to provide unlimited deposit insurance coverage for
noninterest-bearing transaction accounts and certain other
specified deposits over the same period. Whitney elected to
participate in the unlimited coverage program. These steps were
taken as part of the federal government’s response to the
recent severe disruption in the credit markets
and were designed to support deposit retention and enhance the
liquidity of the nation’s insured depository institutions
and thereby assist in stabilizing the overall economy; however,
there is no assurance these steps will be successful.
Wholesale funding currently used by the Bank includes FHLB
advances and federal funds purchased from upstream
correspondents. The unused borrowing capacity from the FHLB at
December 31, 2008 totaled approximately $1.8 billion
and is secured by a blanket lien on loans secured by real
estate. The Bank may also borrow from the Federal Reserve
Discount Window and had a borrowing capacity at
December 31, 2008 of approximately $117 million, based
on collateral pledged. In addition, both the Company and the
Bank have access to external funding sources in the financial
markets, and the Bank has developed the ability to gather
deposits at a nationwide level, although it has not used this
ability to date.
The Company elected to participate in the Treasury’s TLG
Program that provides an FDIC guarantee for all senior unsecured
debt with stated maturities in excess of 30 days which is
issued between October 14, 2008 and June 30, 2009. The
guarantees will expire no later than June 30, 2012. Whitney
is eligible to issue up to approximately $200 million of
guaranteed debt under the program, but none had been issued as
of December 31, 2008.
Cash generated from operations is another important source of
funds to meet liquidity needs. The consolidated statements of
cash flows located in Item 8 of this annual report on
Form 10-K
present operating cash flows and summarize all significant
sources and uses of funds for each year in the three-year period
ended December 31, 2008.
Dividends received from the Bank represent the primary source of
funds available to the Company for the declaration and payment
of dividends to Whitney’s shareholders, both common and
preferred. There are various regulatory and statutory provisions
that limit the amount of dividends that the Bank can distribute
to the Company. During 2009, the Bank will have available an
amount equal to approximately $11.4 million plus its
current net income to declare as dividends to the Company
without prior regulatory approval. At December 31, 2008,
the Company had approximately $45.3 million in cash and
demand notes from the Bank available to provide liquidity for
future dividend payments to its common and preferred
shareholders and for other corporate purposes.
Contractual
Obligations
Table 12 summarizes payments due from the Company and the Bank
under specified long-term and certain other contractual
obligations as of December 31, 2008. Obligations under
deposit contracts and short-term borrowings are not included.
The maturities of time deposits are scheduled in Table 10 above
in the section entitled “Deposits and Borrowings.”
Purchase obligations represent legal and binding contracts to
purchase services or goods that cannot be settled or terminated
without paying substantially all of the contractual amounts. Not
included are a number of contracts entered into to support
ongoing operations that either do not specify fixed or minimum
amounts of goods or services or are cancelable on short notice
without cause and without significant penalty. The consolidated
statements of cash flows provide a picture of Whitney’s
ability to fund these and other more significant cash operating
expenses, such as interest expense and compensation and
benefits, out of current operating cash flows.
Principal payments on callable subordinated debentures are
scheduled by expected call dates.
(b)
Obligations under the qualified defined benefit pension plan
are not included. Whitney anticipates making a pension
contribution of approximately $8 million during 2009;
however, decreases in the fair value of pension trust assets
during 2009 could lead to additional contributions. No material
near-term payments are expected under the unfunded nonqualified
pension plan. An $11.9 million nonqualified plan obligation
was recorded at year-end 2008.
(c)
The recorded obligation for postretirement benefits other
than pensions was $18.0 million at December 31, 2008.
The funding to purchase benefits for current retirees, net of
retiree contributions, has not been significant.
OFF-BALANCE
SHEET ARRANGEMENTS
As a normal part of its business, the Company enters into
arrangements that create financial obligations that are not
recognized, wholly or in part, in the consolidated financial
statements. Certain of these arrangements, such as noncancelable
operating leases, are reflected in Table 12 above. The most
significant off-balance sheet obligations are the Bank’s
commitments under traditional credit-related financial
instruments. Table 13 schedules these commitments as of
December 31, 2008 by the periods in which they expire.
Commitments under credit card and personal credit lines
generally have no stated maturity.
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. Credit card and personal
credit lines are generally subject to cancellation if the
borrower’s credit quality deteriorates, and many lines
remain partly or wholly unused. Unfunded balances on revolving
loan commitments and credit lines should not be used to project
actual future liquidity requirements. Nonrevolving loan
commitments are issued mainly to provide financing for the
acquisition and development or construction of real property,
both commercial and residential, although many are not expected
to lead to permanent financing by the Bank. Expectations about
the level of draws under all credit-related commitments,
including the prospect of
temporarily increased levels of draws on
back-up
commercial facilities during this period of disruption in the
credit markets, are incorporated into the Company’s
liquidity and asset/liability management models.
Substantially all of the letters of credit are standby
agreements that obligate the Bank to fulfill a customer’s
financial commitments to a third party if the customer is unable
to perform. The Bank issues standby letters of credit primarily
to provide credit enhancement to its customers’ other
commercial or public financing arrangements and to help them
demonstrate financial capacity to vendors. Historically, the
Bank has had minimal calls to perform under standby agreements.
Certain public financing arrangements supported by letters of
credit from the Bank are structured as variable-rate demand
notes that are periodically remarketed to reset the interest
rate. The recent disruption in credit markets has led to
unsuccessful remarketing efforts for some of these public
financings. To assist its customers, the Bank has purchased the
underlying instruments until credit market conditions improve
sufficiently to restart remarketing efforts or the instruments
are refinanced under new arrangements. Such purchases totaled
approximately $33 million as of December 31, 2008, and
outstanding letters of credit supporting variable-rate demand
notes totaled approximately $98 million.
ASSET/LIABILITY
MANAGEMENT
The objective of the Company’s asset/liability management
is to implement strategies for the funding and deployment of its
financial resources that are expected to maximize soundness and
profitability over time at acceptable levels of risk.
Interest rate sensitivity is the potential impact of changing
rate environments on both net interest income and cash flows.
The Company has developed a model to measure its interest rate
sensitivity over the near term primarily by running net interest
income simulations. Management also monitors longer-term
interest rate risk by modeling the sensitivity of its economic
value of equity. The model can be used to test the
Company’s sensitivity in various economic environments. The
model incorporates management’s assumptions and
expectations regarding such factors as loan and deposit growth,
pricing, prepayment speeds and spreads between interest rates.
Assumptions can also be entered into the model to evaluate the
impact of possible strategic responses to changes in the
competitive environment. Management, through the Company’s
Investment and Asset and Liability Committee, monitors
simulation results against rate sensitivity guidelines specified
in Whitney’s asset/liability management policy.
The net interest income simulations run at the end of 2008
indicated that Whitney was moderately asset sensitive over the
near term, which is similar to its position at year-end 2007.
Based on these simulations, annual net interest income (TE)
would be expected to increase $26.3 million, or 5.9%, if
interest rates instantaneously increased from current rates by
100 basis points. The simulation assuming a 100 basis
point decrease from current rates was suspended at year-end 2008
in light of the current rate environment. These changes are
measured against the results of a base simulation run that uses
growth forecasts as of the measurement date and that assumes a
stable rate environment and structure. The comparable simulation
run at year-end 2007 produced results that ranged from a
positive impact on net interest income (TE) of
$24.3 million, or 5.2%, to a negative impact of
$26.5 million, or 5.6%.
The actual impact that changes in interest rates have on net
interest income will depend on many factors. These factors
include Whitney’s ability to achieve expected growth in
earning assets and to maintain a desired mix of earning assets
and interest-bearing liabilities, the actual timing when assets
and liabilities reprice, the magnitude of interest rate changes
and corresponding movement in interest rate spreads, and the
level of success of asset/liability management strategies that
are implemented.
Changes in interest rates affect the fair values of financial
instruments. The earlier section entitled “Investment
Securities” and Notes 5 and 19 to the consolidated
financial statements located in Item 8 of this annual
report on
Form 10-K
contain information regarding fair values.
The Company has made minimal use of investments in financial
instruments or participations in agreements with values that are
linked to or derived from changes in the value of some
underlying asset or index. These are commonly referred to as
derivatives and include such instruments as interest rate swaps,
futures, forward contracts, option contracts, and other
financial arrangements with similar characteristics. Management
continues to evaluate whether to make additional use of
derivatives as part of its ongoing asset/liability and liquidity
management processes.
RESULTS
OF OPERATIONS
NET
INTEREST INCOME (TE)
Whitney’s net interest income (TE) decreased
$10.2 million, or 2%, in 2008 compared to 2007. Average
earning assets were 5%, or $486 million, higher in 2008,
while the net interest margin (TE) contracted 34 basis
points to 4.55%. The net interest margin is net interest income
(TE) as a percent of average earning assets. Tables 14 and 15
provide details on the components of the Company’s net
interest income (TE) and net interest margin (TE).
The overall yield on earning assets decreased 118 basis
points to 5.74% in 2008, mainly reflecting the steep reduction
in benchmark rates for the large variable-rate segment of
Whitney’s loan portfolio. The higher level of nonaccruing
loans in 2008 lowered the effective yield by approximately
10 basis points. Loan yields (TE) for 2008 declined
157 basis points compared to 2007. The rates on
approximately 28%, or $2.6 billion, of the loan portfolio
at year-end 2008 were tied to changes in LIBOR benchmarks, with
another 28% tied to prime. At December 31, 2008,
approximately 31% of these variable-rate loan agreements
contained floor rates that would prevent further rate
reductions. The recent disruption in credit markets has been
reflected in wider than normal spreads for LIBOR rates, which
benefited Whitney’s net interest income and margin.
Management estimates that the wider than normal LIBOR spreads
added 30 basis points to the fourth quarter’s net
interest margin and 10 basis points to 2008’s annual
margin. This benefit is being reduced as the LIBOR spreads
return to levels closer to normal historical relationships in
the early part of 2009. There was a favorable shift in the
earning asset mix between these periods, with loans comprising
80% of average earning assets for 2008 compared to 76% in 2007.
In Table 14, loans include loans held for sale. The yield (TE)
on the largely fixed-rate investment portfolio was stable
between 2007 and 2008.
The cost of funds decreased 84 basis points from 2007 to
1.19% in 2008. Noninterest-bearing demand deposits funded a
favorable 28% of average earning assets in both 2008 and 2007,
although the benefit to the net interest margin was somewhat
muted by the lower rate environment in the current period. Rates
on interest-bearing deposits and short-term borrowings during
2008 were down sharply from 2007, consistent with general market
rate movements that were driven by the slowing economy and the
trend toward liquidity and safety by investors and savers. The
reduction in funding costs from declining rates was partially
offset by the impact of a shift between these years toward
higher-cost sources, which includes time deposits and
borrowings. This shift mainly reflected the increased use of
short-term borrowings to support earning asset growth.
Overall, Whitney continues to be moderately asset sensitive over
the near term. In the current economic climate and low rate
environment, Whitney continues to aggressively manage its loan
and deposit rates to maintain a favorable net interest margin,
although the ability to further reduce certain deposit and
borrowing costs is becoming limited.
Obligations of states and political subdivisions (TE)
(991
)
(130
)
(1,121
)
2,166
(308
)
1,858
Other securities
648
(745
)
(97
)
83
84
167
Total investment securities
4,513
(524
)
3,989
3,912
3,434
7,346
Federal funds sold and short-term investments
(10,468
)
(7,022
)
(17,490
)
(17,299
)
2,544
(14,755
)
Total interest income (TE)
44,526
(130,825
)
(86,299
)
28,871
15,728
44,599
INTEREST EXPENSE
NOW account deposits
381
(5,932
)
(5,551
)
(168
)
4,032
3,864
Money market deposits
(59
)
(21,654
)
(21,713
)
1,158
7,756
8,914
Savings deposits
(24
)
(4,929
)
(4,953
)
(1,985
)
(520
)
(2,505
)
Other time deposits
(1,994
)
(5,520
)
(7,514
)
2,523
6,863
9,386
Time deposits $100,000 and over
(3,443
)
(28,230
)
(31,673
)
14,795
6,471
21,266
Total interest-bearing deposits
(5,139
)
(66,265
)
(71,404
)
16,323
24,602
40,925
Short-term borrowings
14,058
(20,139
)
(6,081
)
3,003
130
3,133
Long-term debt
1,466
(74
)
1,392
7,174
(78
)
7,096
Total interest expense
10,385
(86,478
)
(76,093
)
26,500
24,654
51,154
Change in net interest income (TE)
$
34,141
$
(44,347
)
$
(10,206
)
$
2,371
$
(8,926
)
$
(6,555
)
(a)
Tax-equivalent (TE) amounts are calculated using a marginal
federal income tax rate of 35%.
(b)
The change in interest shown as due to changes in either
volume or rate includes an allocation of the amount that
reflects the interaction of volume and rate changes. This
allocation is based on the absolute dollar amounts of change due
solely to changes in volume or rate.
Net interest income (TE) decreased $6.6 million, or 1%, in
2007 compared to 2006. Average earning assets were up 3%, or
$287 million, in 2007, while the net interest margin (TE)
contracted 22 basis points to 4.89%. The overall yield on
earning assets increased 26 basis points to 6.92% in 2007,
mainly reflecting an increasing percentage of loans in the asset
mix. Loan yields (TE) for 2007 were up 14 basis points
compared to 2006. The benchmark rates underlying the
variable-rate segment of Whitney’s loan portfolio were
relatively stable on average compared to 2006, with declines
noted only toward the end of 2007. The yield (TE) on the
investment portfolio improved 22 basis points between 2006
and 2007.
The overall cost of funds for 2007 increased 48 basis
points from 2006, mainly in response to the shift in the funding
mix toward higher-cost sources coupled with pressure from
competitive market rates. Average noninterest-bearing deposits
funded approximately 28% of average earning assets in 2007, but
this was down from 32% in 2006 when the impact of the excess
liquidity in the deposit base following the 2005 hurricanes was
still clearly evident. Higher-cost interest-bearing sources
funded 34% of average earning assets in 2007, compared to 29% in
2006, with the increase reflecting the relative attractiveness
of rates on the underlying deposit products in response to
market rates, increased use of the Company’s
treasury-management deposit products by commercial customers
with excess liquidity, and the issuance of $150 million in
long-term subordinated Bank debt in late March 2007.
PROVISION
FOR CREDIT LOSSES
Whitney provided $134 million for credit losses in 2008
compared to $17.0 million in 2007. Net loan charge-offs
were $71.3 million, or .88% of average loans, in 2008,
compared to $8.4 million, or .11% of average loans, in
2007. The allowance for loan losses increased $73.2 million
during 2008 and represented 1.77% of total loans at
December 31, 2008, up from 1.16% at the end of 2007.
Continuing weaknesses in the residential-related real estate
markets, primarily in the Tampa, Florida area, accounted for
approximately half of both the $134 million provision and
the $82 million in gross charge-offs during 2008, mainly
related to loans for residential development. Loans for CRE
development or investment with identified weaknesses accounted
for approximately $13 million of the provision and
$6 million of gross charge-offs, again concentrated in the
Tampa area. Problem C&I credits added approximately
$20 million to the provision for 2008 and were responsible
for approximately $28 million of gross charge-offs, with no
significant regional or industry concentration. Management also
added approximately $10 million to the allowance and
provision in 2008 based on its relative assessment of economic
and other qualitative risk factors since the end of 2007. The
provision for 2008 also included approximately $6 million
associated with changes in the mix of noncriticized loans and
historical loss factors.
For a more detailed discussion of changes in the allowance for
loan losses, the reserve for unfunded credit commitments,
nonperforming assets and general credit quality, see the earlier
section entitled “Loans, Credit Risk Management and
Allowance and Reserve for Credit Losses.” The future level
of the allowance and reserve and the provisions for credit
losses will reflect management’s ongoing evaluation of
credit risk, based on established internal policies and
practices.
Table 16 shows the components of noninterest income for each
year in the three-year period ended December 31, 2008,
along with the percent changes between years for each component.
In 2008, Whitney recognized a $2.3 million gain from the
mandatory redemption of a portion of its Visa shares in
connection with Visa’s restructuring and initial public
offering. The 2007 noninterest income total included a
$31.3 million gain recognized on the settlement of
insurance claims arising from hurricanes that struck portions of
Whitney’s market area in 2005. Excluding these unusual
gains and income associated with foreclosed assets and surplus
property, noninterest income grew 11%, or $10.1 million, in
2008 and 9%, or $7.6 million, in 2007.
Net gain on sales and other revenue from foreclosed assets
4,302
(a
)
5,109
(a
)
2,102
Net gain (loss) on disposals of surplus property
72
(a
)
(100
)
(a
)
(57
)
Securities transactions
67
(a
)
(1
)
(a
)
—
Total noninterest income
$
107,172
(15
)%
$
126,681
49
%
$
84,791
(a)
Percentage change not meaningful.
Income from service charges on deposit accounts increased 11%,
or $3.4 million, in 2008, following a 9%, or
$2.6 million, increase between 2007 and 2006. Service
charges include periodic account maintenance fees for both
commercial and personal customers, charges for specific
transactions or services, such as processing return items or
wire transfers, and other revenue associated with deposit
accounts, such as commissions on check sales.
Account maintenance fees for commercial customers were up 67%,
or $4.0 million, in 2008, mainly driven by a reduction in
the earnings credit allowance in response to the sharp drop in
benchmark interest rates. Commercial account fees increased 9%,
or $.5 million, in 2007. The fees charged on a large number
of Whitney’s commercial accounts are based on an analysis
of account activity, and these customers are allowed to offset
accumulated charges with an earnings credit based on balances
maintained in the account. Trends in processing business
transactions have led to reduced volumes of chargeable account
activity in recent years.
Personal account service charges have been relatively stable,
with aggressive competition holding down the pricing for fees
charged to service these deposit accounts.
Charges earned on specific transactions and services in 2008
were down 3%, or $.6 million, compared to 2007. Broad
trends in how customers execute transactions have been reducing
charging opportunities in recent years. Charges had increased
12%, or $2.1 million, in 2007 compared to 2006. The main
component of this income category is fees earned on items
returned for insufficient funds and for overdrafts. The higher
deposit account balances maintained after the 2005 storms by
customers in the areas most impacted had reduced
charging opportunities through much of the first half of 2006.
The increase in income in 2007 reflected a return to more normal
levels of fees charged as well as some improved pricing.
Bank card fees increased 7%, or $1.1 million, in 2008 and
10%, or $1.5 million, in 2007. This income category
includes fees from activity on Bank-issued debit and credit
cards as well as from merchant processing services. Transaction
volume on Bank-issued cards was up approximately 5% in 2008 and
4% in 2007. The introduction of a rewards program for credit
card customers has contributed to an increasing proportion of
higher fee credit transactions in the overall transaction volume.
Trust service fees in 2008 were essentially unchanged from 2007
under difficult financial market conditions. In 2007, customer
development efforts and improved market conditions for much of
that year had helped grow trust service fees by 15%, or
$1.7 million, compared to 2006. Whitney has positioned
relationship officers to attract and service trust and wealth
management customers across its market area.
Fee income generated by Whitney’s secondary mortgage market
operations was stable between 2008 and 2007 after decreasing 6%
in 2007. Relatively broad weakness in the overall housing market
was apparent in the latter part of 2007 and has continued
throughout 2008 and into 2009. Whitney has positioned resources
in those parts of its market area with the best potential for
loan production and the current low market rate environment
should stimulate refinancing activity, but the difficult housing
market and overall economic conditions may restrain any fee
income growth from mortgage operations in 2009.
Investment services income increased 3%, or $.2 million, in
2008, following a 17%, or $.8 million, increase in 2007
compared to 2006. Investment services include stock brokerage
and annuity sales as well as fixed-income securities
transactions for correspondent banks and other commercial and
personal customers. The 2008 results were impacted by the
difficult financial market conditions.
Whitney implemented a bank-owned life insurance program in May
2008 and earned $3.9 million during 2008 on the
$150 million used to purchase policies under this program.
The Visa share redemption gain and the insurance settlement gain
mentioned above are included in the totals for other operating
income for 2008 and 2007, respectively.
The net gain on sales and other revenue from foreclosed assets
includes income from grandfathered assets carried at a nominal
value. Such income totaled $3.8 million in 2008,
$4.3 million in 2007 and $1.9 million in 2006, with
the fluctuations mainly reflecting opportunities for asset sales.
Table 17 shows the components of noninterest expense for each
year in the three-year period ended December 31, 2008,
along with the percent changes between years for each component.
Noninterest expense increased 1%, or $2.0 million, in 2008,
following an increase of 3%, or $10.6 million, from 2006 to
2007. Incremental operating costs associated with acquired
operations, including the amortization of acquired intangibles,
totaled approximately $7.9 million in 2008 and
$8.5 million in 2007.
Employee compensation decreased 6%, or $9.2 million, in
2008, after being up 10%, or $14.7 million, in 2007.
Employee compensation includes base pay and contract labor
costs, compensation earned under sales-based and other employee
incentive programs, and compensation expense under management
incentive plans.
Compensation other than that earned under management incentive
plans increased 3%, or $4.0 million, in 2008, with
approximately $2.1 million of the total increase related to
the staff of acquired operations. This followed an increase of
10%, or $12.0 million, from 2006 to 2007, when acquired
operations contributed approximately $3.1 million to the
total change. The compensation added for normal salary
adjustments in 2008 was partly offset by the favorable impact of
a 2% reduction in the average full-time equivalent staff level
compared to 2007, excluding the acquired staff. Sales-based
incentive-program compensation increased only slightly in 2008,
consistent with the level of growth in fee-based income
categories discussed earlier, after rising $1.7 million in
2007. Compensation expense in both 2007 and 2006 had been
adversely affected by salary scale adjustments needed to address
changes in the cost of living and increased competition for
limited labor resources in areas impacted by the catastrophic
hurricanes in 2005.
Compensation expense associated with management incentive
programs decreased by $13.3 million in 2008, largely as a
result of tightened performance criteria coupled with the
current difficult operating environment. No bonus was earned
under the cash bonus incentive program for 2008 and the related
compensation expense was down $7.2 million. Share-based
compensation under management incentive programs decreased
$6.1 million from 2007. Management incentive program
expense increased $2.7 million in 2007 compared to 2006,
with $1.8 million related to share-based compensation and
the remainder to the cash bonus incentive program. Share-based
incentives currently include restricted stock units, both
performance-
based and tenure-based, and stock options. See Notes 2 and
16 to the consolidated financial statements located in
Item 8 of this annual report on
Form 10-K
for more information on share-based compensation.
Employee benefits expense decreased 3%, or $.9 million, in
2008, and was down 4%, or $1.3 million, in 2007. The major
components of employee benefits expense, in addition to payroll
taxes, are the cost of providing health benefits for active and
retired employees and the cost of providing pension benefits
through both the defined-benefit plans and a 401(k) employee
savings plan. In early 2007, the Company amended its
postretirement health and life insurance benefit plans to
eliminate the benefits for most employees and freeze benefit
levels for remaining participants. The related postretirement
benefit expense decreased $2.2 million in 2007 and an
additional $.4 million in 2008.
As described more fully in Note 15 to the consolidated
financial statements, Whitney amended its qualified
defined-benefit pension plan in late 2008 to limit future
eligibility and to freeze benefit accruals for certain current
participants. At the same time, the employee savings plan was
amended to authorize the Company to make discretionary profit
sharing contributions, beginning in 2009, on behalf of
participants in the savings plan who are ineligible to
participate in the qualified defined-benefit plan or subject to
the freeze in benefit accruals. The discretionary profit sharing
contributions are expected to add approximately
$1.9 million to 2009 expense.
The performance of the pension trust fund for 2008 was
substantially below the long-term expected rate of return,
reflecting conditions in the equity and corporate debt markets.
This level of fund performance will lead to an estimated
increase of approximately $5 million in the actuarially
determined periodic expense for the defined-benefit pension plan
in 2009, holding other variables constant.
Net occupancy expense increased 7%, or $2.3 million, in
2008, following a 13%, or $3.7 million, increase in 2007
compared to 2006. The incremental impact of acquired operations
totaled approximately $.6 million in 2008 and
$1.3 million in 2007. Increased expenses related to de novo
branch expansion and higher energy costs drove most of the
remaining increase for 2008. A sharp increase in the cost of
casualty insurance following the 2005 storms had added
$.9 million of expense to 2007, but these higher costs
began to moderate in 2008. Recurring costs associated with
improving Whitney’s disaster-risk posture also added
approximately $.9 million to 2007.
Equipment and data processing expense increased 9%, or
$2.1 million, in 2008, driven in large part by the cost of
new customer-oriented applications associated with strategic
initiatives and by branch expansion. The incremental costs for
acquired operations totaled $.4 million in 2008. Equipment
and data processing expense in 2007 was also up 9% over 2006.
Approximately $1 million of the $1.8 million total
increase came from initiatives to improve operational resiliency
in the event of a natural disaster. Acquired operations
contributed $.3 million to the 2007 increase.
The total expense for professional services, both legal and
other services, increased $3.0 million in 2008, following a
decrease of $1.0 million in 2007. Legal expense increased
$1.7 million in 2008 on higher costs associated with
problem loan collection efforts. This category also includes the
cost of services for general corporate matters. Given the
current economic environment and the elevated level of
criticized loans at the end of 2008, increased demand for loan
collection legal services is expected to continue throughout
2009. The expense for nonlegal professional services was up
$1.3 million in 2008, after decreasing $1.1 million in
2007 compared to 2006. Consultants have been engaged over these
years to assist in strategic planning and in upgrading major
customer interface tools and core application systems and
developing and implementing product enhancements and process
improvements. Each year also included approximately
$1.0 million for assistance integrating the systems of
acquired operations. Included in 2006 was $2.0 million for
work on initiatives to improve the Company’s disaster-risk
profile in response to the 2005 storms.
The $1.3 million reduction in telecommunications and
postage expense in 2008 mainly reflected the elimination of some
redundant communication services used during an upgrade project
in 2007. This was part of the overall efforts to improve
operational resiliency in the event of a natural disaster.
Amortization of intangibles is associated mainly with the value
of deposit relationships acquired in bank and branch
acquisitions. Amortization expense of $8.8 million is
scheduled for 2009. Note 3 to the
consolidated financial statements located in Item 8 of this
annual report on
Form 10-K
reviews recently completed acquisitions and Note 10
presents additional information on intangible assets subject to
amortization.
The expense for security and other outsourced services was
stable in 2008. This followed a 7%, or $1.0 million,
increase in 2007 compared to 2006. Acquired operations had
little impact on 2008, but added $.5 million to 2007
expense.
Management directed additional resources to advertising and
promotional activities in 2006 to support major campaigns to
introduce new and improved products. Whitney focused on more
targeted marketing efforts in both 2008 and 2007, with no
comparable major campaigns executed in either year.
Bank card processing services expense will vary mainly with
changes in transaction volume on Bank-issued credit cards.
Transaction volumes and bank card fee income are discussed in
the earlier section entitled “Noninterest Income.”
Beginning in 2007, the FDIC adopted a new rate structure for
deposit insurance premiums that imposed a minimum annual
assessment on those institutions assigned to the lowest risk
category under the FDIC’s risk-based assessment system.
Under the previous rate structure, this group of institutions,
which includes the Bank, had been charged no assessment for a
number of years. The assessment imposed on the Bank for 2007 was
fully offset by a one-time assessment credit. The
$1.6 million credit remaining at December 31, 2007 was
used to offset a portion of the Bank’s $4.4 million
assessment for 2008. Recent bank failures and economic
conditions have put pressure on deposit insurance reserve ratios
and have led the FDIC to introduce a new, higher rate structure
beginning in 2009. Although the specific assessments will vary
based on a number of institution-specific factors, the new rate
structure is expected to more than double the actual assessment
from the 2008 level, assuming no change in deposit volumes.
Whitney has also elected to participate in the part of the
FDIC’s Temporary Liquidity Guarantee Program that provides
for full deposit insurance coverage for specified deposit
categories. The separate assessment for this expanded coverage,
which began October 14, 2008 and ends December 31,2009, will cost an estimated $1.2 million annually based on
year-end 2008 deposit levels.
Miscellaneous operating losses included uninsured casualty
losses and certain expenses associated with tropical storms that
struck parts of the Company’s market area totaling
approximately $2.1 million in 2008, $1.0 million in
2007 and $6.0 million in 2006. Whitney also took a
$1.9 million charge in 2008 related to the planned closure
of certain branch facilities in early 2009. In 2007, the Company
recorded a charge of $1.0 million to establish a liability
with respect to an indemnification agreement with Visa. As
discussed in Note 20 to the consolidated financial
statements located in Item 8 of this annual report on
Form 10-K,
this liability was reversed in 2008.
The other operating expense category increased 23%, or
$4.8 million, on a combined basis in 2008, following a
decrease of 19%, or $4.7 million, in 2007 compared to 2006.
The cost of problem loan collections and foreclosed asset
management was up approximately $3.3 million in 2008 and is
expected to remain at an elevated level throughout 2009.
Expenses associated with investments in projects that generate
tax credits increased $1.5 million in 2008 on expanded
activities. In 2006, the other operating expense category
included $2.2 million for disaster contingency housing and
certain other storm-related items that were substantially
eliminated for 2007 and 2008.
The Company provided for income tax expense at an effective rate
of 24.6% in 2008, 33.0% in 2007 and 32.3% in 2006. Because of
the reduced level of pre-tax income, tax-exempt income and tax
credits had a more pronounced impact on the effective rate for
2008. Interest income from the financing of state and local
governments has been the main component of Whitney’s
tax-exempt income, although tax-exempt earnings from the
bank-owned life insurance program also became a significant
factor in 2008. The main source of tax credits has been
investments in affordable housing projects and in projects that
primarily benefit low-income communities or help the recovery
and redevelopment of communities in the Gulf Opportunity Zone.
Table 18 reconciles reported income tax expense to that computed
at the statutory federal tax rate for each year in the
three-year period ended December 31, 2008.
TABLE
18. INCOME TAXES
2008
2007
2006
(In thousands)
Income tax expense at 35% of pre-tax income
$
27,203
$
78,877
$
74,833
Increase (decrease) resulting from
Tax exempt income
(4,411
)
(3,432
)
(3,626
)
Tax credits
(4,358
)
(2,785
)
(3,046
)
State income tax and miscellaneous items
704
1,650
1,003
Income tax expense reported
$
19,138
$
74,310
$
69,164
Louisiana-sourced income of commercial banks is not subject to
state income taxes. Rather, banks in Louisiana pay a tax based
on the value of their capital stock in lieu of income and
franchise taxes, and this tax is allocated to parishes in which
the banks maintain branches. Whitney’s corporate value tax
is included in noninterest expense. This expense will fluctuate
in part based on the growth in the Bank’s equity and
earnings and in part based on market valuation trends for the
banking industry.
FOURTH
QUARTER RESULTS
Whitney’s net income available to common shareholders
totaled $8.2 million in the quarter ended December 31,2008, compared with $7.0 million for the third quarter of
2008 and $30.2 million for 2007’s fourth quarter.
Earnings were $.12 per diluted common share for the fourth
quarter of 2008, $.11 for the current year’s third quarter
and $.45 for the fourth quarter of 2007.
The following discussion highlights factors impacting recent
trends in Whitney’s operating results:
•
Net interest income (TE) for the fourth quarter increased 7%, or
$8.3 million, compared to the third quarter of 2008.
Average earning assets increased 8% between these periods,
including the impact of the Parish acquisition, while the net
interest margin (TE) compressed by only 4 basis points to
4.49%. Net interest income for the fourth quarter of 2008
benefited from abnormally wide spreads between LIBOR rates and
other benchmarks used to reset variable-rate loans.
•
Whitney provided $45.0 million for credit losses in the
fourth quarter of 2008, compared to $40.0 million in
2008’s third quarter. Net loan charge-offs were
$19.7 million or .91% of average loans on an annualized
basis, compared to $24.5 million in the third quarter of
2008. The allowance for loan losses increased $35.7 million
during the quarter and represented 1.77% of total loans at
December 31, 2008, up from 1.55% at the end of 2008’s
third quarter. The total of loans criticized through the
Company’s credit risk-rating process increased
$184 million from September 30, 2008. Criticized loans
from the Parish acquisition accounted for approximately
$55 million of the increase. Over half of the remaining
increase came from loans for residential development or
investment, the majority of which were from Whitney’s Tampa
market.
•
Noninterest income for 2008’s fourth quarter increased 6%,
or $1.6 million, from the third quarter of 2008, with
approximately $1.2 million from Parish’s operations.
Deposit service charge income in the
fourth quarter of 2008 was up 11%, or $.9 million,
including approximately $.4 million from Parish. The
remaining increase reflected higher commercial account fees
mainly driven by a reduction in the earnings credit allowance in
response to a sharp drop in benchmark market interest rates. Fee
income from Whitney’s secondary mortgage market operations
increased 26% from 2008’s third quarter, but would have
been flat without Parish’s contribution, reflecting
difficult financial and housing market conditions.
•
The Parish acquisition added approximately $6.8 million to
noninterest expense for the fourth quarter of 2008, including
approximately $1.8 million to integrate Parish’s
customers, employees and operating systems. Excluding the costs
associated with Parish, total noninterest expense decreased
approximately $4.3 million, or 5%, from the third quarter
of 2008. Personnel expense was down $9.5 million, excluding
$2.5 million associated with Parish. Much of this decrease
was associated with updated performance estimates under
management and sales-based incentive plans. The total of all
other noninterest expense unrelated to personnel increased a net
$5.3 million compared to the third quarter of 2008,
excluding approximately $4.2 million for Parish. Factors
contributing to this increase included higher costs for problem
loan collections and foreclosed asset management, charges
arising from expanded participation in projects that generate
tax credits, and a $1.9 million charge related to the
planned closure of certain branch facilities.
The Summary of Quarterly Financial Information appearing in
Item 8 of this annual report on
Form 10-K
provides selected comparative financial information for each of
the four quarters in 2008 and 2007.
Item 7A:
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required for this item is included in the
section entitled “Asset/Liability Management” in
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” that appears in
Item 7 of this annual report on
Form 10-K
and is incorporated here by reference.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Whitney Holding Corporation is responsible for
establishing and maintaining adequate internal control over
financial reporting for the Company. Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the
financial statements.
Management used the framework of criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission to conduct an evaluation of the effectiveness of
internal control over financial reporting. Based on that
evaluation, management concluded that internal control over
financial reporting for the Company as of December 31, 2008
was effective.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The effectiveness of the Company’s internal control over
financial reporting as of December 31, 2008 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report, which follows.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, changes in
shareholders’ equity and cash flows present fairly, in all
material respects, the financial position of Whitney Holding
Corporation and its subsidiaries (the “Company”) at
December 31, 2008 and 2007, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2008 in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying “Management’s Report on Internal Control
Over Financial Reporting.” Our responsibility is to express
opinions on these financial statements and on the Company’s
internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Whitney Holding Corporation is a Louisiana bank holding company
headquartered in New Orleans, Louisiana. Its principal
subsidiary is Whitney National Bank (the Bank), which represents
virtually all its operations and net income.
The Bank, which has been in continuous operation since 1883,
engages in community banking in its market area stretching
across the five-state Gulf Coast region, including the Houston,
Texas metropolitan area, southern Louisiana, the coastal region
of Mississippi, central and south Alabama, the panhandle of
Florida, and the Tampa Bay metropolitan area of Florida. The
Bank offers commercial and retail banking products and services,
including trust products and investment services, to the
customers in the communities it serves. Southern Coastal
Insurance Agency, Inc., a wholly owned Bank subsidiary, offers
personal and business insurance products to customers primarily
in northwest Florida and the New Orleans metropolitan area.
NOTE 2
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT
PRONOUNCEMENTS
Whitney Holding Corporation and its subsidiaries (the Company or
Whitney) follow accounting and reporting policies that conform
with accounting principles generally accepted in the United
States of America and those generally practiced within the
banking industry. The following is a summary of the more
significant accounting policies.
Basis
of Presentation
The consolidated financial statements include the accounts of
Whitney Holding Corporation and its subsidiaries. All
significant intercompany balances and transactions have been
eliminated. Whitney reports the balances and results of
operations from business combinations accounted for as purchases
from the respective dates of acquisition (see Note 3).
Use of
Estimates
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.
Investment
Securities
Securities are classified as trading, held to maturity or
available for sale. Management determines the classification of
securities when they are purchased and reevaluates this
classification periodically as conditions change that could
require reclassification.
Trading account securities are bought and held principally for
resale in the near term. They are carried at fair value with
realized and unrealized gains or losses reflected in noninterest
income. Trading account securities are immaterial in each period
presented and have been included in other assets on the
consolidated balance sheets.
Securities that the Company both positively intends and has the
ability to hold to maturity are classified as securities held to
maturity and are carried at amortized cost. The intent and
ability to hold are not considered satisfied when a security is
available to be sold in response to changes in interest rates,
prepayment rates, liquidity needs or other reasons as part of an
overall asset/liability management strategy.
Securities not meeting the criteria to be classified as either
trading securities or securities held to maturity are classified
as available for sale and are carried at fair value. Unrealized
holding losses, other than those determined to be other than
temporary, and unrealized holding gains are excluded from net
income and are
recognized, net of tax, in other comprehensive income and in
accumulated other comprehensive income, a separate component of
shareholders’ equity.
Premiums and discounts on securities, both those held to
maturity and those available for sale, are amortized and
accreted to income as an adjustment to the securities’
yields using the interest method. Realized gains and losses on
securities, including declines in value judged to be other than
temporary, are reported net as a component of noninterest
income. The cost of securities sold is specifically identified
for use in calculating realized gains and losses.
Loans
Held for Sale
Loans originated for sale are carried at the lower of either
cost or market value. At times, management may decide to sell
loans that were not originated for that purpose. These loans are
reclassified as held for sale when that decision is made and are
also carried at the lower of cost or market.
Loans
Loans are carried at the principal amounts outstanding net of
unearned income. Interest on loans and accretion of unearned
income, including deferred loan fees, are computed in a manner
that approximates a level rate of return on recorded principal.
The Company stops accruing interest on a loan when the
borrower’s ability to meet contractual payments is in
doubt. For commercial and real estate loans, a loan is placed on
nonaccrual status generally when it is ninety days past due as
to principal or interest, and the loan is not otherwise both
well secured and in the process of collection. When a loan is
moved to nonaccrual status, any accrued but uncollected interest
is reversed against interest income. Interest payments on
nonaccrual loans are used to reduce the reported loan principal
under the cost recovery method if the collectibility of the
remaining principal is not reasonably assured; otherwise, such
payments are recognized as interest income when received. A loan
on nonaccrual status may be reinstated to accrual status when
full payment of contractual principal and interest is expected
and this expectation is supported by current sustained
performance.
A loan is considered impaired when it is probable that all
amounts will not be collected as they become due according to
the contractual terms of the loan agreement. Generally, impaired
loans are accounted for on a nonaccrual basis. The extent of
impairment is measured as discussed below in the section below
entitled “Allowance for Loan Losses.”
Allowance
for Loan Losses
Management’s evaluation of credit risk in the loan
portfolio is 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
credit losses charged to expense. As actual loan losses are
incurred, they are charged against the allowance. Subsequent
recoveries are added back to the allowance when collected. 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 key 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
both internal and external to the Company.
Criticized loans are credits with above-average weaknesses as
identified through the internal risk-rating process. Criticized
loans include those that are deemed to be impaired because all
contractual amounts probably will not be collected as they
become due. Specific allowances are determined for impaired
loans based on the present value of expected future cash flows
discounted at the loan’s contractual interest rate, the
fair value of the collateral if the loan is collateral
dependent, or, when available, the loan’s observable market
price. The allowance for the remainder of criticized loans is
calculated by applying loss factors to loan
balances aggregated by the severity of the internal risk rating.
The loss factors applied to criticized loans are determined with
reference to the results of migration analysis, which analyzes
the charge-off experience over time for loans within each rating
category.
For the second element of the allowance, loans assessed as
having average or better credit quality with similar risk
ratings and homogeneous loans not subject to individual rating,
such as residential mortgage loans, consumer installment loans
and draws under consumer credit lines, are grouped together and
individual loss factors are applied to each group. The loss
factors for homogeneous loan groups are based on average
historical charge-off information. Industry-based factors are
applied to other portfolio segments for which a migration
analysis has not been implemented.
Determining the final element of the allowance involves
assessing how other current factors, both internal and external,
impact the accuracy of results obtained for the other two
elements. Internally, management must consider whether trends
have been identified in the quality of underwriting and loan
administration as well as in the timely identification of credit
quality issues. Management also monitors shifts in portfolio
concentrations and other changes in portfolio characteristics
that indicate levels of risk not fully captured in the loss
factors. External factors include local and national economic
trends, as well as changes in the economic fundamentals of
specific industries that are well-represented in Whitney’s
customer base. Management has established procedures to help
ensure a consistent approach to this inherently judgmental
process.
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.
Bank
Premises and Equipment
Bank premises and equipment are carried at cost, less
accumulated depreciation. Depreciation is computed primarily
using the straight-line method over the estimated useful lives
of the assets and over the shorter of the lease terms or the
estimated lives of leasehold improvements. Useful lives range
principally from fifteen to thirty years for buildings and
improvements and from three to ten years for furnishings and
equipment, including data processing equipment and software.
Additions to bank premises and equipment and major replacements
or improvements are capitalized.
Foreclosed
Assets and Surplus Property
Both collateral acquired through foreclosure or in settlement of
loans and surplus property are reported with other assets in the
consolidated balance sheets. With the exception of grandfathered
property interests, which are assigned a nominal book value,
these assets are recorded at estimated fair value, less
estimated selling costs, if this value is lower than the
carrying value of the related loan or property asset. Any
initial reduction in the carrying amount of a loan to the fair
value of the collateral received is charged to the allowance for
loan losses. Losses arising from the transfer of bank premises
and equipment to surplus property are charged to current
earnings. Subsequent valuation adjustments for either foreclosed
assets or surplus property are also included in current
earnings, as are the revenues and expenses associated with
managing these assets before they are sold.
Goodwill
and Other Intangible Assets
Whitney has recognized intangible assets in connection with its
purchase business combinations. Identifiable intangible assets
acquired by the Company have represented mainly the value of the
deposit relationships purchased in these transactions. Goodwill
represents the purchase price premium over the fair value of the
net assets of an acquired business, including identifiable
intangible assets.
Goodwill must be assessed for impairment annually unless interim
events or circumstances make it more likely than not that an
impairment loss has occurred. Impairment is defined as the
amount by which the implied fair value of the goodwill contained
in any reporting unit within a company is less than the
goodwill’s carrying value. The Company has assigned all
goodwill to one reporting unit that represents Whitney’s
overall
banking operations. This reporting unit is the same as the
operating segment identified below, and its operations
constitute substantially all of the Company’s consolidated
operations. Impairment losses would be charged to operating
expense.
Identifiable intangible assets with finite lives are amortized
over the periods benefited and are evaluated for impairment
similar to other long-lived assets. If the useful life of an
identifiable intangible asset is indefinite, the recorded asset
is not amortized but is tested for impairment annually by
comparison to its estimated fair value.
Share-Based
Compensation
Whitney follows Statement of Financial Accounting Standards
(SFAS) No. 123 (revised 2004), Share-Based Payment,
to account for share-based compensation awards granted after
December 31, 2005 and awards modified, repurchased, or
cancelled after that date. Under SFAS No. 123R, the
grant-date fair value of equity instruments awarded to employees
establishes the cost of the services received in exchange, and
the cost associated with awards that are expected to vest is
recognized over the required service period.
For outstanding awards for which the required service period
extended beyond December 31, 2005, SFAS No. 123R
required 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.
Income
Taxes
The Company and its subsidiaries file a consolidated federal
income tax return. Income taxes are accounted for using the
asset and liability method. Under this method, the expected tax
consequences of temporary differences that arise between the tax
bases of assets or liabilities and their reported amounts in the
financial statements represent either deferred tax liabilities
to be settled in the future or deferred tax assets that will be
realized as a reduction of future taxes payable. Currently
enacted tax rates and laws are used to calculate the expected
tax consequences. Valuation allowances are established against
deferred tax assets if, based on all available evidence, it is
more likely than not that some or all of the assets will not be
realized.
The Company adopted the provisions of Financial Accounting
Standards Board (FASB) Interpretation No. 48
(FIN No. 48), Accounting for Uncertainty in Income
Taxes, on January 1, 2007. 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 when it is more likely than not that the
position will be sustained based on its technical merits.
Earnings
per Common Share
Basic earnings per common share is computed by dividing income
applicable to common shareholders by the weighted-average number
of common shares outstanding for the applicable period. Shares
outstanding are adjusted for restricted shares issued to
employees under the long-term incentive compensation plan and
for certain shares that will be issued under the directors’
compensation plan. Diluted earnings per common share is computed
using the weighted-average number of common shares outstanding
increased by the number of shares in which employees would vest
under performance-based restricted stock and stock unit awards
based on expected performance factors and by the number of
additional shares that would have been issued if potentially
dilutive stock options were exercised, each as determined using
the treasury stock method.
Statements
of Cash Flows
The Company considers only cash on hand, cash items in process
of collection and balances due from financial institutions as
cash and cash equivalents for purposes of the consolidated
statements of cash flows.
Operating
Segment Disclosures
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, established standards
for reporting information about a company’s operating
segments using a “management approach.”
Reportable segments are identified in this statement as those
revenue-producing components for which separate financial
information is produced internally and which are subject to
evaluation by the chief operating decision maker in deciding how
to allocate resources to segments. Consistent with its stated
strategy that is focused on providing a consistent package of
community banking products and services throughout a coherent
market area, Whitney has identified its overall banking
operations as its only reportable segment. Because the overall
banking operations comprise substantially all of the
consolidated operations, no separate segment disclosures are
presented.
Other
Assets held by the Bank in a fiduciary capacity are not assets
of the Bank and are not included in the consolidated balance
sheets. Generally, certain minor sources of income are recorded
on a cash basis, which does not differ materially from the
accrual basis.
Accounting
Standard Developments
SFAS No. 157, Fair Value Measurements, was
issued in 2006 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. In October 2008, FASB Staff Position (FSP)
No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active, clarified the
application of SFAS No. 157 in an inactive market. The
initial application of this standard and the related FSP 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 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 was
effective for Whitney’s 2008 fiscal year. The Company has
not elected the fair value option for any specific financial
instrument or other items.
Also in 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. 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.
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 does not expect adoption of this FSP
to have a material impact of its reported earnings per share.
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.
NOTE 3
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 operated 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 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. Applying
purchase accounting to this transaction, the Company recorded
goodwill of $104 million and a $13 million intangible
asset for the estimated value of deposit relationships with a
weighted-average life of approximately three years. No other
material adjustments were required to record Parish’s
assets and liabilities at fair value.
In March 2007, Whitney acquired Signature Financial Holdings,
Inc. (Signature), headquartered in St. Petersburg, Florida,
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. Signature’s shareholders received
1.49 million shares of Whitney common stock and cash
totaling $13 million, for a total transaction value of
approximately $61 million. Intangible assets acquired in
this transaction included $39 million of goodwill and
$4 million assigned to the value of deposit relationships
with a weighted-average life of 2.4 years.
The acquired banking operations have been merged into the Bank.
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.
December 31
2008
2007
(In thousands)
Federal funds sold
$
43,430
$
231,175
U. S. government agency discount notes
—
199,540
Securities purchased under resale agreements
100,000
100,000
Other short-term interest-bearing investments and deposits
23,838
3,843
Total
$
167,268
$
534,558
Federal funds at December 31, 2008 were sold on an
overnight basis. The Company’s investments in
U.S. government agency securities under resale agreements
at December 31, 2008 mature in less than one month.
The following summarizes securities with unrealized losses at
December 31, 2008 and 2007 by the period over which the
security’s fair value had been continuously less than its
amortized cost as of each year end.
Management evaluates whether unrealized losses on securities
represent impairment that is other than temporary. If such
impairment is identified, the carrying amount of the security is
reduced with a charge to operations. In making this evaluation,
management first considers the reasons for the indicated
impairment. These could include changes in market rates relative
to those available when the security was acquired, changes in
market expectations about the timing of cash flows from
securities that can be prepaid, and changes in the market’s
perception of the issuer’s financial health and the
security’s credit quality. Management then considers the
likelihood of a recovery in fair value sufficient to eliminate
the indicated impairment and the length of time over which an
anticipated recovery would occur, which could extend to the
security’s maturity. Finally, management determines whether
there is both the ability and the intent to hold the impaired
security until an anticipated recovery, in which case the
impairment would be considered temporary. In making this
assessment, management considers whether a security continues to
be a suitable holding from the perspective of the Company’s
overall portfolio and asset/liability management strategies.
Substantially all of the unrealized losses at December 31,2008 resulted from increases in market interest rates over the
yields available on the underlying securities when they were
purchased and other factors unrelated to credit quality. There
were no securities in the investment portfolio tied to sub-prime
home mortgage loans. In all cases, the indicated impairment
would be recovered by the security’s maturity or repricing
date or possibly earlier if the market price for the security
increases with a reduction in the yield required by the market.
All impaired securities were originally purchased for continuing
investment purposes, and management believes that they remain
suitable for this purpose in light of current market conditions
and Company strategies. At December 31, 2008, management
had both the intent and ability to hold these securities until
the market-based impairment is recovered. No losses for
other-than-temporary impairment were recognized in any of the
three years ended December 31, 2008.
The following table shows the amortized cost and estimated fair
value of securities available for sale and held to maturity
grouped by contractual maturity as of December 31, 2008.
Debt securities with scheduled repayments, such as
mortgage-backed securities, and equity securities are presented
in separate totals. The expected maturity of a security, in
particular certain U.S. agency securities and obligations
of states and political subdivisions, may differ from its
contractual maturity because of the exercise of call options.
Amortized
Fair
Cost
Value
(In thousands)
Securities Available for Sale
Within one year
$
1,950
$
1,954
One to five years
107,930
113,343
Five to ten years
1,924
2,029
After ten years
—
—
Debt securities with single maturities
111,804
117,326
Mortgage-backed securities
1,527,632
1,552,785
Equity and other debt securities
58,851
58,851
Total
$
1,698,287
$
1,728,962
Securities Held to Maturity
Within one year
$
6,790
$
6,877
One to five years
89,069
90,948
Five to ten years
73,854
75,540
After ten years
40,680
40,555
Total
$
210,393
$
213,920
Proceeds from sales of securities available for sale were
$92 million in 2008, $39 million in 2007 and
$46 million in 2006. Substantially all of the proceeds in
each of these years came from the sale of portfolios acquired in
business combinations. Realized gross gains and losses were
insignificant.
Securities with carrying values of $1.69 billion at
December 31, 2008 and $1.63 billion at
December 31, 2007 were sold under repurchase agreements,
pledged to secure public deposits or pledged for other purposes.
In these totals were $118 million in 2008 and
$123 million in 2007 for securities pledged at the Federal
Reserve discount window in connection with the Company’s
overall contingency funding plans.
NOTE 6
LOANS
The composition of the Company’s loan portfolio follows.
The Bank makes loans in the normal course of business to
directors and executive officers of the Company and the Bank and
to their associates. Loans to such related parties carry
substantially the same terms, including interest rates and
collateral requirements, as those prevailing at the time for
comparable transactions with unrelated parties and do not
involve more than normal risks of collectibility when
originated. An analysis of the changes in loans to related
parties during 2008 follows.
2008
(In thousands)
Beginning balance
$
24,775
Additions
43,605
Repayments
(37,584
)
Net increase from changes in related parties
986
Ending balance
$
31,782
Outstanding unfunded commitments and letters of credit to
related parties totaled $125 million and $94 million
at December 31, 2008 and 2007, respectively.
NOTE 7
ALLOWANCE
FOR LOAN LOSSES AND RESERVE FOR LOSSES ON UNFUNDED CREDIT
COMMITMENTS
A summary analysis of changes in the allowance for loan losses
follows.
Years Ended December 31
2008
2007
2006
(In thousands)
Allowance at beginning of year
$
87,909
$
75,927
$
90,028
Allowance of acquired bank
9,971
2,791
2,908
Provision for credit losses
134,500
17,600
2,400
Loans charged off
(82,226
)
(17,956
)
(25,228
)
Recoveries
10,955
9,547
5,819
Net charge-offs
(71,271
)
(8,409
)
(19,409
)
Allowance at end of year
$
161,109
$
87,909
$
75,927
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.
IMPAIRED
LOANS, NONPERFORMING LOANS, FORECLOSED ASSETS AND SURPLUS
PROPERTY
Information on loans evaluated for possible impairment loss
follows.
December 31
2008
2007
(In thousands)
Impaired loans at year end:
Requiring a loss allowance
$
218,376
$
86,920
Not requiring a loss allowance
54,492
22,412
Total recorded investment in impaired loans
$
272,868
$
109,332
Impairment loss allowance required at year end
$
39,288
$
22,590
Average recorded investment in impaired loans during the year
$
169,308
$
65,751
The following is a summary of nonperforming loans and foreclosed
assets and surplus property.
December 31
2008
2007
(In thousands)
Loans accounted for on a nonaccrual basis
$
301,095
$
120,096
Restructured loans accruing
—
—
Total nonperforming loans
$
301,095
$
120,096
Foreclosed assets and surplus property
$
28,067
$
4,624
Interest income is recognized on certain nonaccrual loans as
payments are received. Interest payments on other nonaccrual
loans are accounted for under the cost recovery method, but this
interest may later be recognized in income when loan collections
exceed expectations or when workout efforts result in fully
rehabilitated credits. The following compares estimated
contractual interest income on nonaccrual loans and restructured
loans with the cash-basis and cost-recovery interest actually
recognized on these loans.
Years Ended December 31
2008
2007
2006
(In thousands)
Contractual interest
$
15,773
$
7,967
$
5,903
Interest recognized
903
1,345
1,249
Decrease in reported interest income
$
14,870
$
6,622
$
4,654
The Bank and one of its subsidiaries own various property
interests that were acquired in routine banking transactions
generally before 1933. There was no ready market for these
assets when they were initially acquired, and, as was general
banking practice at the time, they were written down to a
nominal value. The assets include direct and indirect ownership
interests in scattered undeveloped acreage, various mineral
interests, and a few commercial and residential sites primarily
in southeast Louisiana.
The revenues and direct expenses related to these grandfathered
property interests that are included in the statements of income
follow.
A summary of bank premises and equipment by asset classification
follows.
December 31
2008
2007
(In thousands)
Land
$
60,861
$
50,262
Buildings and improvements
220,784
203,093
Equipment and furnishings
135,455
125,412
417,100
378,767
Accumulated depreciation
(204,599
)
(188,672
)
Total bank premises and equipment
$
212,501
$
190,095
Provisions for depreciation and amortization included in
noninterest expense were as follows.
Years Ended December 31
2008
2007
2006
(In thousands)
Buildings and improvements
$
8,599
$
8,062
$
7,298
Equipment and furnishings
10,434
9,375
8,412
Total depreciation and amortization expense
$
19,033
$
17,437
$
15,710
At December 31, 2008, the Bank was obligated under a number
of noncancelable operating leases, substantially all related to
premises. Certain of these leases have escalation clauses and
renewal options. Total rental expense was $11.0 million in
2008, $9.8 million in 2007 and $7.5 million in 2006.
As of December 31, 2008, the future minimum rentals under
noncancelable operating leases having an initial lease term in
excess of one year were as follows.
(In thousands)
2009
$
10,363
2010
9,438
2011
7,523
2012
6,380
2013
6,092
Later years
45,730
Total
$
85,526
NOTE 10
GOODWILL
AND OTHER INTANGIBLE ASSETS
Intangible assets consist mainly of identifiable intangibles,
such as the value of deposit relationships, and goodwill
acquired in business combinations accounted for as purchases.
Note 3 presents information on goodwill and other
intangible assets acquired in 2008. There were no dispositions
of intangible assets during 2008.
Goodwill is tested for impairment at least annually. The
impairment test compares the estimated fair value of a reporting
unit with its net book value. Whitney has assigned all goodwill
to one reporting unit that represents the overall banking
operations. The fair value of the reporting unit is based on
valuation techniques that market participants would use in the
acquisition of the whole unit, such as estimated discounted cash
flows, the quoted market price of Whitney’s common stock
including an estimated control premium, and observable average
price-to-earnings and price-to-book multiples of our
competitors. No indication of goodwill impairment was identified
in the annual assessments as of September 30, 2008 and
2007. During the fourth quarter of 2008, circumstances such as a
decrease in the market price of Whitney’s common stock
below book
value, further asset quality deterioration and declining general
economic conditions that impacted assumptions used in the
impairment test, led management to perform an interim test as of
December 31, 2008. No goodwill impairment was indicated by
this interim test. The balance of goodwill that will not
generate future tax deductions was $427 million at
December 31, 2008.
Identifiable intangible assets with finite lives are amortized
over the periods benefited and are evaluated for impairment
similar to other long-lived assets. The Company’s only
significant identifiable intangible assets reflect the value of
deposit relationships, all of which have finite lives. The
weighted-average remaining life of identifiable intangible
assets was approximately 2.5 years at December 31,2008.
The carrying value of intangible assets subject to amortization
was as follows.
December 31
2008
2007
(In thousands)
Purchase value
$
61,910
$
49,318
Accumulated amortization
(39,027
)
(32,215
)
Carrying value of intangible assets subject to amortization
$
22,883
$
17,103
Amortization of intangible assets included in noninterest
expense was as follows.
Years Ended December 31
2008
2007
2006
(In thousands)
Deposit relationships and other identifiable intangibles
$
7,785
$
9,595
$
8,713
Unidentifiable intangibles
—
1,284
1,713
Total amortization
$
7,785
$
10,879
$
10,426
The following shows estimated amortization expense for the five
succeeding years, calculated based on current amortization
schedules.
Deposits include funds of public entities, such as states and
municipalities, and certain other deposits that are subject to
collateral requirements. Public funds and other collateralized
deposits totaled $683 million and $457 million at
December 31, 2008 and 2007.
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 $397 million and $705 million at
December 31, 2008 and 2007, respectively, and most of these
deposits mature on a daily basis. Scheduled maturities of all
time deposits at December 31, 2008 were as follows.
(In thousands)
2009
$
2,403,618
2010
94,638
2011
29,456
2012
1,954
2013 and thereafter
1,107
Total
$
2,530,773
NOTE 12
SHORT-TERM
BORROWINGS
Short-term borrowings consisted of the following.
December 31
2008
2007
(In thousands)
Securities sold under agreements to repurchase
$
780,059
$
771,717
Federal funds purchased
479,837
98,302
Treasury Investment Program
16,740
40,000
Total short-term borrowings
$
1,276,636
$
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. The Bank has the
ability to exercise legal authority over the underlying
securities. Mortgage-backed securities issued or guaranteed by
U.S. government agencies and other agency securities with a
fair value of $782 million were sold under repurchase
agreements at December 31, 2008.
Additional information about securities sold under repurchase
agreements follows.
2008
2007
2006
(Dollars in thousands)
At December 31
Interest rate
.15
%
3.15
%
3.91
%
Balance
$
780,059
$
771,717
$
438,643
Average for the year
Effective interest rate
1.31
%
3.80
%
3.76
%
Balance
$
637,164
$
583,754
$
491,619
Maximum month-end outstanding
$
780,059
$
771,717
$
592,685
Federal funds purchased represent unsecured borrowings from
other banks, generally on an overnight basis. Additional
information about federal funds purchased follows.
2008
2007
2006
(Dollars in thousands)
At December 31
Interest rate
.27
%
3.76
%
4.94
%
Balance
$
479,837
$
98,302
$
38,012
Average for the year
Effective interest rate
1.71
%
4.94
%
4.80
%
Balance
$
261,289
$
48,128
$
61,560
Maximum month-end outstanding
$
661,076
$
98,302
$
161,869
From time to time, the Bank uses advances from the Federal Home
Loan Bank (FHLB) as an additional source of short-term funds.
During 2008, the Bank borrowed $286 million on average
under short-term FHLB advances with an effective interest rate
of 2.08%, and the maximum month-end balance was
$502 million. The Bank made no use of short-term FHLB
advances during 2007 and 2006. The FHLB advances were secured by
a blanket lien on Bank loans secured by real estate.
Under the Treasury Investment Program, temporary excess
U.S. Treasury receipts are loaned to participating
financial institutions at 25 basis points under the federal
funds rate. Repayment of these borrowed funds can be demanded at
any time, and the Bank pledges securities as collateral. The
maximum month-end borrowings under this program during 2008
totaled $40 million.
NOTE 13
LONG-TERM
DEBT
Long-term debt consisted of the following.
December 31
2008
2007
(In thousands)
Subordinated notes payable
$
149,784
$
149,758
Other long-term debt
29,452
15,697
Total long-term debt
$
179,236
$
165,455
The Bank’s $150 million par value subordinated notes
carry an interest rate of 5.875% and mature April 1, 2017.
These notes qualify as capital for the calculation of the
regulatory ratio of total capital to risk-weighted assets,
subject to certain limitations as they approach maturity.
In connection with bank acquisitions, the Company assumed
obligations under subordinated debentures payable to
unconsolidated trusts which issued trust preferred securities.
The carrying value of this mix of fixed-rate and variable-rate
debentures was $17.3 million at December 31, 2008 and
$13.4 million at December 31, 2007 and is included
with other long-term debt above. The weighted-average yield was
approximately 4.18% at year-end 2008. The debentures have
maturities from 2031 through 2034, but they may be called with
prior regulatory approval beginning at various dates from 2009
through 2011. Subject to certain adjustments, these debentures
currently qualify as capital for the calculation of regulatory
capital ratios.
NOTE 14
OTHER
ASSETS AND ACCRUED EXPENSES AND OTHER LIABILITIES
The more significant components of other assets and accrued
expenses and other liabilities at December 31, 2008 and
2007 were as follows.
Miscellaneous investments, receivables and other assets
33,936
30,053
Total other assets
$
321,884
$
119,550
Accrued Expenses and Other Liabilities
Accrued taxes and other expenses
$
24,672
$
27,969
Dividend payable
11,647
15,913
Liability for pension benefits
38,747
33,956
Obligation for postretirement benefits other than pensions
18,045
15,196
Reserve for losses on unfunded credit commitments
800
1,300
Miscellaneous payables, deferred income and other liabilities
23,857
17,852
Total accrued expenses and other liabilities
$
117,768
$
112,186
NOTE 15
EMPLOYEE
BENEFIT PLANS
Retirement
Plans
Whitney has a noncontributory qualified defined benefit pension
plan. The benefits are based on an employee’s total years
of service and his or her highest consecutive five-year level of
compensation during the final ten years of employment.
Contributions are made in amounts sufficient to meet funding
requirements set forth in federal employee benefit and tax laws
plus such additional amounts as the Company may determine to be
appropriate. Based on currently available information, the
Company anticipates making a contribution of approximately
$8 million during 2009; however, decreases in the fair
value of pension trust assets during 2009 could lead to
additional contributions.
During the fourth quarter of 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
fifty as of December 31, 2008.
Whitney also has an unfunded nonqualified defined benefit
pension plan that provides retirement benefits to designated
executive officers. These benefits are calculated using the
qualified plan’s formula, but without applying the
restrictions imposed on qualified plans by certain provisions of
the Internal Revenue Code. Benefits that become payable under
the nonqualified plan would be reduced by amounts paid from the
qualified plan.
The following table details the changes in the actuarial present
value of the qualified and nonqualified pension benefit
obligations and in the plans’ assets for the years ended
December 31, 2008 and 2007. The table also shows the funded
status of each plan at each year end and the amounts recognized
in the Company’s consolidated balance sheets. Whitney uses
a December 31 measurement date for all of its defined benefit
retirement plans and other postretirement benefit plans.
2008
2007
Qualified
Nonqualified
Qualified
Nonqualified
(In thousands)
Changes in benefit obligation
Benefit obligation, beginning of year
$
158,966
$
10,763
$
148,366
$
9,227
Service cost for benefits
8,128
251
7,862
420
Interest cost on benefit obligation
9,381
683
8,669
577
Plan amendments
(4,332
)
—
—
—
Net actuarial (gain) loss
1,243
620
(599
)
587
Benefits paid
(6,477
)
(382
)
(5,332
)
(48
)
Benefit obligation, end of year
166,909
11,935
158,966
10,763
Changes in plan assets
Plan assets at fair value, beginning of year
135,773
—
136,275
—
Actual return on plan assets
(28,531
)
—
5,356
—
Employer contribution
40,000
382
—
48
Benefits paid
(6,477
)
(382
)
(5,332
)
(48
)
Plan expenses
(668
)
—
(526
)
—
Plan assets at fair value, end of year
140,097
—
135,773
—
Funded status and pension liability recognized
$
(26,812
)
$
(11,935
)
$
(23,193
)
$
(10,763
)
The weighted-average assumptions used to determine the benefit
obligation for both the qualified and nonqualified plans at
December 31, 2008 and 2007 follow.
2008
2007
Discount rate
6.00
%
6.00
%
Rate of future compensation increases
3.58
3.58
The accumulated benefit obligation was $148 million and
$137 million, respectively, for the qualified plan at
December 31, 2008 and 2007, and $11.0 million and
$10.2 million, respectively, for the nonqualified plan. The
calculation of the accumulated benefit obligation ignores the
assumption about future compensation levels.
Benefit payments under the qualified and nonqualified plans are
expected to total $7.0 million in 2009, $7.5 million
in 2010, $8.0 million in 2011, $8.7 million in 2012,
$9.3 million in 2013, and $54.3 million for the next
five years combined. These estimates were developed based on the
same assumptions used in measuring benefit obligations as of
December 31, 2008.
The components of net periodic pension expense were as follows
for the qualified and nonqualified plans.
2008
2007
2006
Qualified
Nonqualified
Qualified
Nonqualified
Qualified
Nonqualified
(In thousands)
Service cost for benefits in period
$
8,128
$
251
$
7,862
$
420
$
7,597
$
391
Interest cost on benefit obligation
9,381
683
8,669
577
7,774
474
Expected return on plan assets
(10,877
)
—
(10,695
)
—
(9,838
)
—
Amortization of:
Net actuarial loss
822
257
906
284
1,763
227
Prior service credit
(93
)
7
(108
)
(8
)
(107
)
(9
)
Transition obligation
—
—
—
—
—
53
Net periodic pension expense
$
7,361
$
1,198
$
6,634
$
1,273
$
7,189
$
1,136
The Company used the following weighted-average assumptions in
determining the net pension expense for both the qualified and
nonqualified plans for each of the three years in the period
ended December 31, 2008.
2008
2007
2006
Discount rate
6.00
%
5.75
%
5.50
%
Rate of future compensation increases
3.58
3.58
3.58
Expected long-term return on plan assets
8.00
8.00
8.00
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), was effective as of the end of 2006.
This statement requires that an employer recognize the funded
status of a benefit plan as an asset or liability in its
statement of financial position. To recognize the funded status
of the plans upon initial adoption as of December 31, 2006,
the Company eliminated the remaining prepaid pension asset for
the qualified plan of $8.1 million and increased the
pension liability by $12.6 million. The corresponding
charge, representing the remaining unrecognized net actuarial
loss of $22.4 million and an unrecognized net prior service
credit of $.2 million at adoption, was reported, net of
tax, as a $13.5 million adjustment of accumulated other
comprehensive loss at year-end 2006. Beginning in 2007, the
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.
The following table shows changes in the amounts recognized in
accumulated other comprehensive income or loss during 2008 and
2007 for both the qualified and nonqualified plans.
The Company expects to recognize $5.9 million of the net
actuarial loss included in accumulated other comprehensive loss
at the end of 2008 as a component of net pension expense in 2009.
The following table shows the percentage allocation of plan
assets by investment category at December 31, 2008 and
2007, as well as the long-range average target allocation
currently set by the investment manager and the target
allocation ranges specified in the plan’s investment
policy. The allocation to cash investments at the end of 2008
reflects the pending investment of a $30 million employer
contribution made in late December.
Long-range
Actual Allocation
Average
Policy
2008
2007
Target
Range
Equity securities
41
%
67
%
55
%
40-70
%
Corporate debt securities
15
13
U. S. Treasury and government agency securities
14
18
Total debt securities
29
31
40
30-50
Cash investments
30
2
5
0-10
Total
100
%
100
%
Whitney determines its assumption regarding the expected
long-term return on plan assets with reference to the
plan’s investment policy and practices, including the
tolerance for market and credit risk, and historical returns for
benchmark indices specified in the policy. The policy
communicates risk tolerance in terms of diversification criteria
and constraints on investment quality. The plan may not hold
debt securities of any single issuer, except the
U.S. Treasury and U.S. government agencies, in excess
of 10% of plan assets. In addition, all purchases for the debt
portfolio are limited to investment grade securities of less
than 10 years’ of average life. The policy also calls
for diversification of equity holdings across business segments
and states a preference for holdings in companies that
demonstrate consistent growth in earnings and dividends. No
company’s equity securities shall comprise more than 5% of
the plan’s total market value. Limited use of derivatives
is authorized by the policy, but the investment manager has not
employed these instruments.
Plan assets included 39,175 shares of Whitney common stock
with a value of $.6 million (.5% of plan assets) at
December 31, 2008 and $1.0 million (.8% of plan
assets) at December 31, 2007.
Whitney sponsors an employee savings plan under
Section 401(k) of the Internal Revenue Code that covers
substantially all full-time employees. The Company annually
matches the savings of each participant up to 4% of his or her
compensation. Tax law imposes limits on total annual participant
savings. Participants are fully vested in their savings and in
the matching Company contributions at all times. The expense of
the Company’s matching contributions was approximately
$3.8 million in 2008, $3.7 million in 2007 and
$3.4 million in 2006.
Concurrent with the 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.
Health
and Welfare Plans
Whitney has offered health care and life insurance benefit plans
for retirees and their eligible dependents. Participant
contributions are required under the health plan. All health
care benefits are covered under contracts with health
maintenance or preferred provider organizations or insurance
contracts. The Company funds its obligations under these plans
as contractual payments come due to health care organizations
and insurance companies.
In early 2007, Whitney amended these plans to eliminate
postretirement health benefits for all participants other than
retirees already receiving benefits and those active
participants who would be 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 at current levels and eliminated the life
insurance benefit for employees who retire after
December 31, 2007.
The following table presents changes in the actuarial present
value of the benefit obligation, the funded status of the plan,
and the related amounts recognized and not recognized in the
Company’s consolidated balance sheets.
2008
2007
(In thousands)
Changes in benefit obligation
Benefit obligation, beginning of year
$
15,196
$
27,128
Service cost for benefits
—
434
Interest cost on benefit obligation
830
999
Participant contributions
834
724
Net actuarial (gain) loss
3,086
(691
)
Plan amendment
—
(11,777
)
Benefits paid, net of Medicare subsidy received
(1,902
)
(1,621
)
Benefit obligation, end of year
18,044
15,196
Changes in plan assets
Plan assets, beginning of year
—
—
Employer contributions
1,068
897
Participant contributions
834
724
Benefits paid, net of Medicare subsidy received
(1,902
)
(1,621
)
Plan assets, end of year
—
—
Funded status and postretirement benefit liability
recognized
Annual benefit payments, net of Medicare subsidies, are expected
to range from $1.3 million to $1.6 million over the
next ten years. These estimates were developed based on the same
assumptions used in measuring benefit obligations as of
December 31, 2008.
The discount rates used to determine the present value of the
postretirement benefit obligation and the net periodic expense
were the same as those shown above for the defined benefit
pension plan. The Company also assumed the following trends in
health care costs for the actuarial calculation of the benefit
obligation at December 31, 2008 and 2007.
Pre- and Post-
Medicare Age Cost
2008
2007
Cost trend rate for next year
9
%
8
%
Ultimate rate to which the cost trend rate gradually declines
5
5
Year in which the ultimate trend rate is reached
2024
2011
The net periodic expense recognized for postretirement benefits
was immaterial in 2008, 2007 and 2006.
The following shows changes in the amounts recognized in
accumulated other comprehensive income or loss during 2008.
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.
The most recent long-term incentive plan for key employees was
approved in 2007 (the 2007 plan).
The Compensation and Human Resources Committee (the Committee)
of the Board of Directors administers the employee plans,
designates who will participate and authorizes the awarding of
grants. Under the 2007 plan, participants may be awarded stock
options, restricted stock and stock units, including those
subject to the attainment of performance goals, and stock
appreciation rights, as well as other stock-based awards that
the Committee deems consistent with the plan’s purposes.
These are substantially the same as the awards that were
available under prior plans. To date, the Committee has awarded
both stock options as well as performance-based and tenure-based
restricted stock and restricted stock units under the 2007 plan
or prior plans.
The 2007 plan authorizes awards with respect to a maximum of
3,200,000 Whitney common shares. Shares subject to awards that
have been settled in cash are not counted against the maximum
authorization. At December 31, 2008, the Committee could
make future awards with respect to 1,882,702 shares. This
remaining authorization reflects a reduction for the maximum
number of shares that could be issued with respect to
performance-based awards under this plan until the performance
measurement periods have been completed and the final
performance adjustments are known. The stock issued for employee
or director awards may come from unissued shares or shares held
in treasury.
The directors’ plan as originally implemented provided for
an annual award of common stock and stock options to nonemployee
directors. It also limited the aggregate number of common shares
issued to 3% of the Company’s outstanding shares, but in no
event more than 1,687,500 shares. The Board of Directors
subsequently amended the plan to eliminate the annual award of
stock options beginning in 2009 and to reduce the aggregate
authorized shares to no more than 937,500. At December 31,2008, 341,457 shares remain available for future award and
issuance under the directors’ plan.
Employees forfeit the restricted stock units first granted in
2006 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. Prior to 2006, the
Company had awarded performance-based restricted stock, but with
substantially the same terms as the performance-based restricted
units. All employee restricted stock and stock units would vest
and the restrictions on their shares would lapse upon a change
in control of the Company. The directors’ stock grants are
fully vested upon award.
The following table recaps changes during 2008 in the number of
shares that are expected to ultimately be issued with respect to
employees’ performance-based and tenure-based restricted
stock and stock units, taking into consideration expected
performance factors but not expected forfeitures.
Performance-based total includes 416,791 shares that
could be issued with respect to awards whose performance
measurement periods were not completed by December 31,2008. The maximum shares that potentially could be issued with
respect to these awards total approximately 691,000. Under
certain levels of performance, no shares would be issued.
The Company recognized compensation expense with respect to
employee restricted stock and stock units of $6.9 million
in 2008, $13.3 million in 2007 and $12.0 million in
2006. The income tax benefits associated with this compensation
were approximately $2.4 million, $4.7 million and
$4.2 million, respectively, in 2008, 2007 and 2006.
Unrecognized compensation related to restricted stock units
expected to vest totaled $10.9 million at December 31,2008. This compensation will be recognized over an expected
weighted-average period of 1.8 years. The total fair value
of the restricted stock and stock units that vested during 2008
was $6.6 million, based on the closing market price of
Whitney’s common stock on the vesting dates. The fair value
of vested restricted stock totaled $10.4 million in 2007
and $10.3 million in 2006.
Directors’ stock grants totaled 6,750 shares in 2008,
8,100 shares in 2007 and 8,775 shares in 2006. The
aggregate grant date fair value of these awards was $124,000 in
2008, $244,000 in 2007 and $310,000 in 2006.
The following table summarizes combined stock option activity
under the employee and director plans.
For awards during or after 2006, employees can first exercise
their stock options beginning 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, and all options would vest upon a change in
control of the Company. 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 during or after 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 presents certain additional information
about stock options as of December 31, 2008. The intrinsic
value of an option is the excess of the closing market price of
Whitney’s common stock over its exercise price.
The following table provides information on total cash proceeds
received on option exercises, the intrinsic value of options
exercised by employees and directors based on the Company’s
closing stock price as of the exercise dates, and related tax
benefits realized by Whitney. The tax benefit in each year 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. The Company recognized
compensation expense with respect to employee and director stock
options of $.9 million in 2008, $.7 million in 2007
and $.3 million in 2006.
Years Ended December 31
2008
2007
2006
(In thousands)
Proceeds from option exercises
$
884
$
3,813
$
7,323
Intrinsic value of option exercised
228
1,703
5,068
Tax benefit realized
77
475
1,503
The fair values of the stock options were estimated as of the
grant dates using the Black-Scholes option-pricing model. The
significant assumptions made in applying the option-pricing
model are shown in the following table. Both the volatility
assumption and the weighted-average life assumption were based
primarily on historical experience.
2008
2007
2006
Weighted-average expected annualized volatility
24.38
%
21.17
%
22.85
%
Weighted-average option life (in years)
6.59
6.61
5.40
Expected annual dividend yield
4.00
%
3.50
%
3.25
%
Weighted-average risk-free interest rate
3.85
%
4.96
%
5.14
%
Weighted-average grant date fair value of options awarded
$
3.47
$
5.83
$
7.40
NOTE 17
SHAREHOLDERS’
EQUITY, CAPITAL REQUIREMENTS AND OTHER REGULATORY
MATTERS
Senior
Preferred Stock
On December 19, 2008, under the U.S. Department of
Treasury’s (Treasury) Capital Purchase Program (CPP)
established under the Troubled Asset Relief Program (TARP) that
was created as part of the Emergency Economic Stabilization Act
of 2008 (EESA), Whitney issued to Treasury 300,000 shares
of Fixed Rate Cumulative Perpetual Preferred Stock,
Series A, no par value, having a liquidation amount of
$1,000 per share, and a ten-year warrant to purchase
2,631,579 shares of common stock at an exercise price of
$17.10 per share, for aggregate proceeds of $300 million.
Approximately $294 million was allocated to the initial
carrying value of the preferred stock and $6 million to the
warrant based on their relative estimated fair values on the
issue date. The difference between the initial carrying value of
the preferred stock and the $300 million full redemption
value will be accreted over five years and reported as preferred
dividends. The total capital raised through this issue qualifies
as Tier 1 regulatory capital and can be used in calculating
all regulatory capital ratios.
Cumulative preferred stock dividends are payable quarterly at a
5% annual rate on the per share liquidation amount for the first
five years and 9% thereafter. Under the original terms of the
CPP, Whitney may not redeem the preferred stock for three years
unless it finances the redemption with the net cash proceeds
from sales of common or preferred stock that qualify as
Tier 1 regulatory capital (qualified equity offering), and
only once such proceeds total at least $75 million. All
redemptions, whether before of after the first three years,
would be at the liquidation amount per share plus accrued and
unpaid dividends and are subject to prior regulatory approval.
Whitney may not declare or pay dividends on its common stock or,
with certain exceptions, repurchase common stock without first
having paid all accrued cumulative preferred dividends that are
due. For three years from the issue date, the Company also may
not increase its common stock dividend rate above a quarterly
rate of $.31 per share or repurchase its common shares without
Treasury’s consent, unless Treasury has transferred all the
preferred shares to third parties or the preferred stock has
been redeemed.
Treasury may only transfer or exercise an aggregate of one-half
of the original number of shares underlying the warrant before
December 31, 2009. If, before that date, Whitney receives
aggregate gross cash proceeds of not less than $300 million
from a qualified equity offering, then the remaining number of
shares issuable to Treasury upon exercise of the warrant will be
reduced by one-half of the original number of shares under
warrant. Both the number of shares of common stock underlying
the warrant and the exercise price are subject to adjustment in
accordance with customary anti-dilution provisions and upon
certain issuances of Whitney common stock or stock rights at
less than 90% of market value.
To be eligible for the CPP, Whitney has also agreed to comply
with certain executive compensation and corporate governance
requirements of the EESA, including a limit on the tax
deductibility of executive compensation above $500,000. The
specific rules covering these requirements are being developed
by Treasury and other government agencies. Additionally, under
the EESA, Congress has the ability to impose
“after-the-fact” terms and conditions on participants
in the CPP. As a participant in the CPP, the Company may be
subject to any such retroactive terms and conditions. The
Company cannot predict whether, or in what form, additional
terms or conditions may be imposed.
The American Recovery and Reinvestment Act (ARRA) became law on
February 17, 2009. Among its many provisions, the ARRA
imposes certain new executive compensation and corporate
expenditure limits on all current and future TARP recipients,
including Whitney, that are in addition to those previously
announced by the Treasury. These limits are effective until the
institution has repaid the Treasury, which is now permitted
under the ARRA without penalty and without the need to raise new
capital, subject to the Treasury’s consultation with the
recipient’s appropriate regulatory agency.
Stock
Repurchase Program
Whitney repurchased 3,934,879 shares of its common stock at
an average cost of $25.41 per share under a program announced in
November 2007 and completed in May 2008. The Company repurchased
2,039,788 shares at an average cost of $24.75 per share
during 2008 and 1,895,091 shares at an average cost of
$26.13 per share during 2007.
Regulatory
Capital Requirements
Measures of regulatory capital are an important tool used by
regulators to monitor the financial health of financial
institutions. The primary quantitative measures used by
regulators to gauge capital adequacy are the ratio of
Tier 1 regulatory capital to average total assets, also
known as the leverage ratio, and the ratios of Tier 1 and
total regulatory capital to risk-weighted assets. The regulators
define the components and computation of each of these ratios.
The minimum capital ratios for both the Company and the Bank are
generally 4% leverage, 4% Tier 1 capital and 8% total
capital. Regulators may, however, set higher capital
requirements for an individual institution when particular
circumstances warrant.
To evaluate capital adequacy, regulators compare an
institution’s regulatory capital ratios with their agency
guidelines, as well as with the guidelines established as part
of the uniform regulatory framework for prompt corrective
supervisory action toward insured institutions. In reaching an
overall conclusion on capital adequacy or assigning an
appropriate classification under the uniform framework,
regulators must also consider other subjective and quantitative
assessments of risk associated with the institution. Regulators
will take certain mandatory as well as possible additional
discretionary actions against institutions that they judge to be
inadequately capitalized. These actions could materially impact
the institution’s financial position and results of
operations.
Under the regulatory framework for prompt corrective action, the
capital levels of banks are categorized into one of five
classifications ranging from well-capitalized to critically
under-capitalized. For an institution to qualify as
well-capitalized, its leverage, Tier 1 and total capital
ratios must be at least 5%, 6% and 10%, respectively. If an
institution fails to remain well-capitalized, it will be subject
to a series of operating restrictions that increase as the
capital condition worsens. An institution’s capital level
is also an important factor in determining the deposit insurance
premium it pays under the FDIC’s risk-based assessment
system. As of December 31, 2008, the Bank was categorized
as well-capitalized.
The actual capital amounts and ratios for the Company and the
Bank are presented in the following tables, together with the
corresponding capital amounts determined using regulatory
guidelines.
Minimum capital required for capital adequacy purposes.
(b)
Capital required for well-capitalized status under regulatory
framework for prompt corrective action.
(c)
Not applicable.
Regulatory
Restrictions on Dividends from Subsidiaries
Dividends received from the Bank represent the primary source of
funds available to the Company for the declaration and payment
of dividends to Whitney’s shareholders, both common and
preferred. There are various regulatory and statutory provisions
that limit the amount of dividends that the Bank can distribute
to the Company. During 2009, the Bank will have available an
amount equal to approximately $11.4 million plus its
current net income to declare as dividends to the Company
without prior regulatory approval. At December 31, 2008,
the Company had approximately $45.3 million in cash and
demand notes from the Bank available to provide liquidity for
future dividend payments to its common and preferred
shareholders and other corporate purposes.
Other
Regulatory Matters
Under current Federal Reserve regulations, the Bank is limited
in the amounts it may lend to the Company to a maximum of 10% of
its capital and surplus, as defined in the regulations. Any such
loans must be collateralized from 100% to 130% of the loan
amount, depending upon the nature of the underlying collateral.
The Bank made no loans to the Company during 2008 and 2007.
Banks are required to maintain currency and coin or a
noninterest-bearing balance with the Federal Reserve Bank to
meet reserve requirements based on a percentage of deposits.
During 2008 and 2007, the Bank covered substantially all its
reserve maintenance requirement with balances of coin and
currency.
NOTE 18
OFF-BALANCE
SHEET FINANCIAL INSTRUMENTS
To meet the financing needs of its customers, the Bank issues
financial instruments which represent conditional obligations
that are not recognized, wholly or in part, in the consolidated
balance sheets. These financial instruments include commitments
to extend credit under loan facilities and guarantees under
standby and other letters of credit. Such instruments expose the
Bank to varying degrees of credit and interest rate risk in much
the same way as funded loans.
Revolving loan commitments are issued primarily to support
commercial activities. The availability of funds under revolving
loan commitments generally depends on whether the borrower
continues to meet credit standards established in the underlying
contract and has not violated other contractual conditions. 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. Approximately 95% of the letters of credit outstanding
at December 31, 2008 were rated as having average or better
credit risk under the Bank’s credit risk rating guidelines.
A substantial majority of standby letters of credit outstanding
at year-end 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 7 for a summary analysis of
changes in the reserve for losses on unfunded credit commitments.
A summary of off-balance sheet financial instruments follows.
December 31
2008
2007
(In thousands)
Loan commitments — revolving
$
2,529,987
$
2,475,656
Loan commitments — nonrevolving
519,695
534,673
Credit card and personal credit lines
508,398
551,748
Standby and other letters of credit
417,053
391,922
NOTE 19
FAIR
VALUE DISCLOSURES
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 and reported 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 $58.8 million of
nonmarketable equity securities (Federal Reserve Bank and
Federal Home Loan Bank stock) that are carried at cost. The
Level 2 fair value measurement shown below was obtained
from a third-party pricing service that uses industry-standard
pricing models. Substantially all of the model inputs are
observable in the marketplace or can be supported by observable
market data.
Certain financial assets and liabilities may be measured at fair
value on a nonrecurring basis; that is, the instruments are not
measured and reported at fair value on an ongoing basis but are
subject to fair value adjustments in certain circumstances. 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 $163 million at December 31,2008. The portion of the allowance for loan losses allocated to
these loans totaled $34 million at the end of 2008, and the
recorded investment in such loans was written down by
$45 million during the year 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.
SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, requires the disclosure of estimated
fair value information about certain on- and off-balance sheet
financial instruments, including those financial instruments
that are not measured and reported at fair value on a recurring
basis or nonrecurring basis. The significant methods and
assumptions used by the Company to estimate the fair value of
financial instruments are discussed below. The aggregate fair
value amounts presented do not, and are not intended to,
represent an aggregate measure of the underlying fair value of
the Company.
Cash, federal funds sold and short-term investments and
short-term borrowings — The carrying amounts of
these highly liquid or short maturity financial instruments were
considered a reasonable estimate of fair value.
Investment in securities available for sale and held to
maturity — The fair value measurement for
securities available for sale was discussed earlier. The same
measurement approach was used for securities held to maturity,
which consist of obligations of states and political
subdivisions.
Loans — The fair value measurement for certain
impaired loans was discussed earlier. For the remaining
portfolio, loans with no significant change in credit risk and
with rates that are repriced in coordination with movements in
market rates were valued at carrying amounts. The fair value of
other loans was estimated by discounting scheduled cash flows to
maturity using current rates at which loans with similar terms
would be made to borrowers of similar credit quality. An overall
valuation adjustment was made for specific credit risks as well
as general portfolio credit risk.
Deposits — SFAS No. 107 requires that
deposits without a stated maturity, such as noninterest-bearing
demand deposits, NOW account deposits, money market deposits and
savings deposits, be assigned fair values equal to the amounts
payable upon demand (carrying amounts). Deposits with a stated
maturity were valued by discounting contractual cash flows using
a discount rate approximating current market rates for deposits
of similar remaining maturity.
Long-term debt — The fair value of long-term
debt was estimated by discounting contractual payments at
current market interest rates for similar instruments.
Off-balance sheet financial instruments —
Off-balance sheet financial instruments include commitments to
extend credit and guarantees under standby and other letters of
credit. The fair values of such instruments were estimated using
fees currently charged for similar arrangements in the market,
adjusted for changes in terms and credit risk as appropriate.
The estimated fair values of these instruments were not material.
The estimated fair values of the Company’s financial
instruments follow.
Excludes nonmarketable equity securities carried at cost.
NOTE 20
CONTINGENCIES
Legal
Proceedings
The Company and its subsidiaries are parties to various legal
proceedings arising in the ordinary course of business. After
reviewing all pending and threatened actions with legal counsel,
management believes that the ultimate resolution of these
actions will not have a material effect on the Company’s
financial condition, results of operations or cash flows.
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. In the fourth quarter of 2008, Visa
made an additional cash contribution to the escrow account.
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 and other cash contributions to the escrow
account 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.
Insurance
Matters Related to Natural Disaster
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 late
summer of 2005. With this settlement, the Company recognized a
gain of $31.3 million. This gain mainly related to insured
costs to replace or restore banking premises and equipment that
are capitalized and that exceed the carrying value of the
damaged properties.
NOTE 21
OTHER
NONINTEREST INCOME
The components of other noninterest income were as follows.
Years Ended December 31
2008
2007
2006
(In thousands)
Investment services income
$
6,035
$
5,836
$
4,994
Credit-related fees
5,921
5,417
5,307
ATM fees
5,693
5,374
5,154
Other fees and charges
4,628
4,818
4,511
Earnings from bank-owned life insurance program
3,908
—
—
Other operating income
6,979
35,181
3,201
Net gains on sales and other revenue from foreclosed assets
4,302
5,109
2,102
Net gains (losses) on disposals of surplus property
72
(100
)
(57
)
Total
$
37,538
$
61,635
$
25,212
Other operating income in 2007 includes a $31.3 million
gain related to an insurance settlement as discussed in
Note 20.
NOTE 22
OTHER
NONINTEREST EXPENSE
The components of other noninterest expense were as follows.
The components of income tax expense (benefit) follow.
Years Ended December 31
2008
2007
2006
(In thousands)
Included in net income
Current
Federal
$
31,314
$
67,692
$
68,799
State
1,946
3,297
2,366
Total current
33,260
70,989
71,165
Deferred
Federal
(13,639
)
3,445
(2,121
)
State
(483
)
(124
)
120
Total deferred
(14,122
)
3,321
(2,001
)
Total included in net income
$
19,138
$
74,310
$
69,164
Included in shareholders’ equity
Deferred tax related to the change in the net unrealized gain on
securities
$
10,978
$
9,497
$
1,154
Deferred tax related to the change in the pension and other
post-retirement benefits liabilities
(14,827
)
2,463
46
Current tax related to stock options and restricted stock and
units
1,144
(998
)
(2,582
)
Total included in shareholders’ equity
$
(2,705
)
$
10,962
$
(1,382
)
Deferred income tax expense included in shareholders’
equity for 2006 does not include the tax effect associated with
the additional liabilities for pension and other postretirement
benefits that were recorded as of December 31, 2006 on the
adoption of SFAS No. 158. The charge for these
additional liabilities was shown, net of the tax effect of
$11.8 million, as an adjustment to ending accumulated other
comprehensive loss in the consolidated statements of changes in
shareholders’ equity for 2006. See Note 15 for
additional information on the adoption of SFAS No. 158.
The effective rate of tax included in net income differed from
the statutory federal income tax rate because of the following
factors.
Years Ended December 31
2008
2007
2006
(In percentages)
Federal income tax rate
35.00
%
35.00
%
35.00
%
Increase (decrease) resulting from
Tax-exempt income
(5.68
)
(1.52
)
(1.69
)
Tax credits
(5.61
)
(1.23
)
(1.43
)
State income tax and miscellaneous items
.91
.72
.47
Effective tax rate
24.62
%
32.97
%
32.35
%
Interest income from the financing of state and local
governments has been the main component of Whitney’s
tax-exempt income, although tax-exempt earnings from the
bank-owned life insurance program also became a significant
factor in 2008. The main source of tax credits has been
investments in affordable housing projects and in projects that
primarily benefit low-income communities or help the recovery
and redevelopment of communities in the Gulf Opportunity Zone.
Temporary differences arise between the tax bases of assets or
liabilities and their reported amounts in the financial
statements. The expected tax effects when these differences are
resolved are recorded currently as deferred tax assets or
liabilities. The components of the net deferred income tax
asset, which is included in other assets on the consolidated
balance sheets, follow.
December 31
2008
2007
(In thousands)
Deferred tax assets:
Allowance for credit losses and losses on foreclosed assets
$
56,917
$
31,041
Employee compensation and benefits
36,045
31,323
Net unrealized loss on securities available for sale
—
242
Unrecognized interest income
6,413
4,848
Other
8,685
7,485
Total deferred tax assets
108,060
74,939
Deferred tax liabilities:
Depreciable and amortizable assets
19,883
14,274
Gain recognized on casualty insurance settlement
2,273
7,262
Net unrealized gain on securities available for sale
As discussed in Note 2, the Company adopted the provisions
of FIN 48, Accounting for Uncertainty in Income
Taxes, on January 1, 2007. At adoption, Whitney reduced
its liability for unrecognized tax benefits from uncertain tax
positions by $.7 million with a corresponding increase to
beginning retained earnings for 2007. The liability for
unrecognized tax benefits was immaterial at December 31,2008 and December 31, 2007, and changes in the liability
were insignificant during both 2008 and 2007. The Company does
not expect the liability for unrecognized tax benefits to change
significantly during 2009. Whitney recognizes interest and
penalties, if any, related to income tax matters in income tax
expense, and the amounts recognized during 2008 and 2007 were
insignificant.
The Company and its subsidiaries file a consolidated federal
income tax return and various separate company state returns.
With few exceptions, the returns for years before 2004 are not
open for examination by federal or state taxing authorities.
The components used to calculate basic and diluted earnings per
common share were as follows.
Years Ended December 31
2008
2007
2006
(Dollars in thousands, except per share data)
Numerator:
Net income
$
58,585
$
151,054
$
144,645
Preferred stock dividends
588
—
—
Net income available to common shareholders
57,997
151,054
144,645
Effect of dilutive securities
—
—
—
Numerator for diluted earnings per share
$
57,997
$
151,054
$
144,645
Denominator:
Weighted-average common shares outstanding
64,767,708
66,953,343
64,687,363
Effect of potentially dilutive securities and contingently
issuable shares
748,934
904,964
1,165,786
Denominator for diluted earnings per share
65,516,642
67,858,307
65,853,149
Earnings per common share:
Basic
$
.90
$
2.26
$
2.24
Diluted
.89
2.23
2.20
Weighted-average antidilutive stock options and warrants
2,355,029
1,060,741
137,090
The 2,631,579 warrants issued on December 19, 2008 in
connection with Whitney’s participation in the
Treasury’s Capital Purchase Program did not enter into the
calculation of earnings per common share for 2008 because the
impact was antidilutive. Whitney’s participation in this
program is discussed in Note 17.
The following financial statements are for the parent company
only. Cash and cash equivalents include noninterest-bearing
deposits in the Bank and the demand note receivable from the
Bank.
Net cash provided by (used in) investing activities
(368,916
)
65,459
(41,667
)
FINANCING ACTIVITIES
Cash dividends
(78,590
)
(77,340
)
(68,111
)
Proceeds from issuance of common stock
4,279
6,932
10,113
Purchases of common stock
(52,588
)
(52,782
)
(3,165
)
Proceeds from issuance of preferred stock, with common stock
warrant
300,000
—
—
Share-based compensation reimbursed by bank subsidiary
6,929
13,329
5,817
Repayment of long-term debt
(6,186
)
(3,093
)
—
Other, net
63
124
457
Net cash provided by (used in) financing activities
173,907
(112,830
)
(54,889
)
Increase (decrease) in cash and cash equivalents
(80,201
)
38,572
1,358
Cash and cash equivalents at beginning of year
125,540
86,968
85,610
Cash and cash equivalents at end of year
$
45,339
$
125,540
$
86,968
The total for cash used to invest in subsidiaries in 2008
included a $275 million capital contribution to the Bank
following the preferred stock issue under the Treasury’s
Capital Purchase Program. Cash for subsidiary investments also
included the net cash paid to acquire Parish in 2008, Signature
in 2007, and First National Bancshares, Inc. in 2006. The bank
subsidiaries acquired with these holding companies were merged
into the Bank.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A:
CONTROLS
AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures.The Company’s management, with
the participation of the Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), has evaluated the effectiveness of the
Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this annual report on
Form 10-K.
Based on that evaluation, the CEO and CFO have concluded that
the disclosure controls and procedures as of the end of the
period covered by this annual report were effective.
Management’s Report on Internal Control over Financial
Reporting and Report of Independent Registered Public Accounting
Firm.“Management’s Report on Internal
Control over Financial Reporting,” which appears in
Item 8 on page 52 of this annual report on
Form 10-K,
and “Report of Independent Registered Public Accounting
Firm,” which appears in Item 8 on page 53 of this
annual report on
Form 10-K
are incorporated here by reference.
Changes in Internal Control over Financial
Reporting. There were no changes in the
Company’s internal control over financial reporting during
the last fiscal quarter in the period covered by this annual
report on
Form 10-K
that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over
financial reporting.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Whitney has adopted a Code of Ethics and Conduct for Senior
Financial Officers and Executive Officers that applies to its
chief executive officer, chief financial officer, controller or
principal accounting officer, as well as such other persons,
including officers of its subsidiaries, identified by resolution
of the Board of Directors from time to time as performing
similar functions for the Company and any other persons the
Board of Directors designates as executive officers. A copy of
the code is available on the Company’s website at
www.whitneybank.com. Whitney will also post on its
website at the same address any amendments to the code and any
waivers from the code required to be disclosed by the rules of
the SEC or the Nasdaq Global Select Market.
In further response to this Item 10, Whitney incorporates
by reference the section entitled “Executive Officers of
the Company” appearing in Item 1 of this
Form 10-K
and the following sections of its Proxy Statement for the 2009
Annual Meeting of Shareholders to be filed with the SEC:
•
The subsections entitled “Board of Directors,”“Nominating and Corporate Governance Committee,” and
“Audit Committee” of the section entitled “Board
of Directors and Its Committees.”
•
The section entitled “Section 16(a) Beneficial
Ownership Reporting Compliance.”
•
The section entitled “Transactions with Related
Persons.”
Item 11:
EXECUTIVE
COMPENSATION
In response to this item, Whitney incorporates by reference the
following sections of its Proxy Statement for the 2009 Annual
Meeting of Shareholders to be to be filed with the SEC:
•
The section entitled “Executive Compensation.”
•
The subsections entitled “Board Committees” and
“Compensation and Human Resources Committee” of the
section entitled “Board of Directors and Its
Committees.”
•
The section entitled “Compensation and Human Resources
Committee Interlocks and Insider Participation.”
•
The section entitled “Compensation Discussion and
Analysis.”
•
The section entitled “Compensation and Human Resources
Committee Report.”
Item 12:
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
In partial response to this item, Whitney incorporates by
reference the section entitled “Security Ownership of
Certain Beneficial Owners and Management” of its Proxy
Statement for the 2009 Annual Meeting of Shareholders to be
filed with the SEC.
The following table summarizes certain information regarding the
Company’s equity compensation plans as of December 31,2008. The underlying compensation plans, which are more fully
described in Note 16 to
the consolidated financial statements included in Item 8 of
this annual report on
Form 10-K,
have been previously approved by a vote of the shareholders.
Equity
Compensation Plan Information
(a)
(b)
(c)
Number of Securities
Remaining Available for
Number of Securities to be
Weighted-Average
Future Issuance under
Issued upon Exercise of
Exercise Price of
Equity Compensation Plans
Outstanding Options,
Outstanding Options,
(Excluding Securities
Plan Category
Warrants and Rights
Warrants and Rights
Reflected in Column(a))
Equity compensation plans approved by shareholders
2,650,288
(1)
$
25.55
(2)
2,224,159
(3)
Equity compensation plans not approved by shareholders
—
—
—
Total
2,650,288
$
25.55
2,224,159
(1)
The total includes an aggregate of 2,198,288 shares that
can be issued on the exercise of options held by employees.
392,788 shares are subject to options granted under the
2007 Long-Term Compensation Plan (2007 LTCP),
913,031 shares are subject to options granted under the
2004 Long-Term Incentive Plan (2004 LTIP), and
892,469 shares are subject to options granted under the
1997 Long-Term Incentive Plan (1997 LTIP). The total also
includes an aggregate of 369,000 shares that can be issued
on the exercise of options held by nonemployee directors of the
Company. These options were granted under the Directors’
Compensation Plan, as amended and restated.
Also included in the total are 83,000 common stock equivalent
units held in deferred compensation accounts maintained for
certain of the Company’s directors, which must eventually
be distributed as common shares of the Company. As allowed under
the Directors’ Compensation Plan, certain nonemployee
directors have deferred receipt of annual stock awards and fees,
and the value of these deferrals has been credited to a
bookkeeping account maintained for each director. The value of
an account is indexed to the performance of one or more
investment options specified in the plans. One of the investment
options is equivalent units of the Company’s common stock.
This option is mandatory for deferred stock awards and was
extended by the Directors’ Compensation Plan to deferred
compensation account balances maintained under a prior deferred
compensation plan. The number of common stock equivalent units
allocated to a director’s account for each deferral is
based on the fair market value of the Company’s common
stock on the deferral date. The common stock equivalent units
are deemed to earn any dividends declared on the Company’s
common stock, and additional units are allocated on the dividend
payment date based on the stock’s fair market value.
(2)
Represents the weighted-average exercise price of options
granted under the 2007 LTCP, the 2004 LTIP, the 1997 LTIP, and
the Directors’ Compensation Plan. It does not include the
per share price of common stock equivalent units held in
deferred compensation accounts for the benefit of nonemployee
directors. These units are allocated to accounts based on the
fair market value of the Company’s common stock on the date
of each account transaction.
(3)
Under the 2007 LTCP, the Company is authorized to make awards
with respect to a maximum of 3,200,000 of its common shares. The
2007 LTCP provides for the award of options, stock appreciation
rights, restricted stock and restricted stock units that
represent common shares, as well as other stock-based awards
that the Compensation and Human Resources Committee of the
Company’s Board of Directors deems consistent with the
plan’s purposes. Of the total shares authorized, the
Company can make awards with respect to a maximum of
2,400,000 shares in a form of full-value awards, i.e.,
awards other than in the form of stock options or stock
appreciations rights and which are settled in stock. A maximum
of 1,000,000 shares may be issued upon exercise of
incentive stock options awarded under the 2007 LTCP. At
December 31, 2008, the Company could make future awards
under the 2007 LTCP with respect to 1,882,702 shares of its
common stock, of which 1,475,490 can be under full-value awards.
No incentive
stock options had been awarded under the 2007 LTCP as of
December 31, 2008. The total shares available for award has
been reduced by the maximum number of shares that could be
issued with respect to performance-based awards under the 2007
LTCP for which the performance measurement period was not
completed by December 31, 2008.
Under the Directors’ Compensation Plan as originally
implemented, the Company is authorized to make awards of stock
options or common stock and allocations of common stock
equivalent units with respect to the lesser of either 1,687,500
common shares or 3% of its issued and outstanding common shares,
as determined from time to time. The Board of Directors
subsequently amended the plan to reduce the authorized shares to
no more than 937,500 and to eliminate the annual award of stock
options beginning in 2009. At December 31, 2008, the
Company could make future awards or allocations of common stock
equivalent units under the plan with respect to
341,457 shares of its common stock.
Item 13:
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
In response to this item, the Company incorporates by reference
the following sections of its Proxy Statement for the 2009
Annual Meeting of Shareholders to be filed with the SEC:
•
The section entitled “Transactions with Related
Persons.”
•
The first paragraph of the subsection entitled “Board of
Directors” in the section entitled “Board of Directors
and Its Committees.”
•
The first paragraph of the subsection entitled “Nominating
and Corporate Governance Committee” in the section entitled
“Board of Directors and Its Committees.”
•
The first paragraph of the subsection entitled “Audit
Committee” in the section entitled “Board of Directors
and Its Committees.”
•
The first paragraph of the subsection entitled “Role of the
Compensation and Human Resources Committee” in the section
entitled “Compensation Discussion and Analysis.”
Item 14:
PRINCIPAL
ACCOUNTING FEES AND SERVICES
In response to this item, the Company incorporates by reference
the section entitled “Auditors” of its Proxy Statement
for the 2009 Annual Meeting of Shareholders to be filed with the
SEC.
(a)(1) The following consolidated financial statements and
supplementary data of the Company and its subsidiaries are
included in Part II Item 8 of this
Form 10-K:
(a)(2) All schedules have been omitted because they are either
not applicable or the required information has been included in
the consolidated financial statements or notes to the
consolidated financial statements.
(a)(3) Exhibits:
To obtain a copy of any listed exhibit send your request to
the address below. The copy will be furnished upon payment of a
fee.
Mrs. Shirley Fremin, Manager
Shareholder Services
Whitney Holding Corporation
P. O. Box 61260
New Orleans, LA
70161-1260
(504) 586-3627
or toll free
(800) 347-7272,
ext. 3627
E-mail:
investor.relations@whitneybank.com
Form of Amended and Restated Executive Agreement between the
Company, the Bank and certain executive officers (filed as
Exhibit 10.1 to the Company’s annual report on
Form 10-K
for the year ended December 31, 2007 (Commission file
number 0-1026) and incorporated by reference).
Exhibit 10
.2*
—
Form of Amended and Restated Officer Agreement between the
Company, the Bank and an executive officer (filed as
Exhibit 10.2 to the Company’s annual report on
Form 10-K
for the year ended December 31, 2007 (Commission file
number 0-1026) and incorporated by reference).
Whitney Holding Corporation 2004 Long-Term Incentive Plan (filed
as Exhibit B to the Company’s Proxy Statement for the
Annual Meeting of Shareholders dated March 19, 2004
(Commission file number 0-1026) and incorporated by reference).
Exhibit 10
.5*
—
Whitney Holding Corporation 2007 Long-Term Compensation Plan
(filed as Exhibit A of the Definitive Additional Materials
to the Company’s Definitive Proxy Statement on
Schedule 14A dated March 29, 2007 (Commission file
number 0-1026) and incorporated by reference).
Form of performance-based restricted stock unit agreement for
executive officers under the Company’s 2007 Long-Term
Compensation Plan (filed as Exhibit 10.1 to the
Company’s quarterly report for the quarter ended
June 30, 2007 (Commission file number 0-1026) and
incorporated by reference.)
Exhibit 10
.8*
—
Form of performance-based restricted stock unit agreement for
executive officers under the Company’s 2004 Long-Term
Incentive Plan (filed on July 6, 2006 as Exhibit 99.1
to the Company’s current report on
Form 8-K
(Commission file number 0-1026) and incorporated by reference).
Exhibit 10
.9*
—
Form of performance-based restricted stock unit agreement for
executive officers under the Company’s 2007 Long-Term
Compensation Plan (filed as Exhibit 10.10 to the
Company’s annual report on
Form 10-K
for the year ended December 31, 2007 (Commission
file number 0-1026)
and incorporated by reference).
Exhibit 10
.10*
—
Form of stock option agreement between the Company and certain
of its officers (filed as Exhibit 10.9b to the
Company’s annual report on
Form 10-K
for the year ended December 31, 2001 (Commission file
number 0-1026) and incorporated by reference).
Form of notice and acceptance of stock option grant under the
Company’s 2004 Long-Term Incentive Plan (filed on
July 6, 2006 as Exhibit 99.2 to the Company’s
current report on
Form 8-K
(Commission file number 0-1026) and incorporated by reference).
Exhibit 10
.13*
—
Form of notice and acceptance of stock option grant under the
Company’s 2007 Long-Term Compensation Plan (filed as
Exhibit 10.14 to the Company’s annual report on
Form 10-K
for the year ended December 31, 2007 (Commission file
number 0-1026) and incorporated by reference).
Whitney Holding Corporation 2001 Directors’
Compensation Plan as amended and restated effective as of
January 1, 2008 (filed as Exhibit 10.17 to the
Company’s annual report on
Form 10-K
for the year ended December 31, 2007 (Commission file
number 0-1026) and incorporated by reference).
Exhibit 10
.17*
—
Amendment to the Whitney Holding Corporation Amended and
Restated 2001 Directors’ Compensation Plan effective
as of July 23, 2008 (filed as Exhibit 10.1 of the
Company’s quarterly report on
Form 10-Q
for the quarter ended September 30, 2008 (Commission file
number 0-1026) and incorporated by reference).
Summary of performance goals to be used to determine cash bonus
awards to the Company’s executive officers for fiscal year
2008 under the Company’s Executive Compensation Plan and
the maximum bonus opportunities that can be earned by named
executive officers for fiscal year 2008 (filed on
January 28, 2008 under Item 5.02 of the Company’s
current report on
Form 8-K
(Commission file number 0-1026) and incorporated by reference).
Whitney Holding Corporation owns 100% of Whitney National Bank,
a national banking association organized under the laws of the
United States of America. All other subsidiaries considered in
the aggregate would not constitute a significant subsidiary.
Consent of PricewaterhouseCoopers LLP dated March 2, 2009.
Exhibit 31
.1
—
Certification of the Company’s Chief Executive Officer
pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Exhibit 31
.2
—
Certification of the Company’s Chief Financial Officer
pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification by the Company’s Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
*
Management contract or compensatory plan or arrangement.
**
Pursuant to Item 601(b)(4)(iii) of
Regulation S-K,
copies of instruments defining the rights of certain holders of
long-term debt are not filed. The Company will furnish copies
thereof to the SEC upon request.
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature
Title
Date
/s/ John
C. Hope, III
John
C. Hope, III
Chairman of the Board,
Chief Executive Officer and Director