<PAGE>
March 27, 2000
Securities and Exchange Commission
450 Fifth St., N.W.
Judiciary Plaza
Washington, D.C. 20549-1004
Via Edgar Electronic Filing System
In Re: File Number 0-1026
------------------
Gentlemen:
Pursuant to regulations of the Securities and Exchange Commission,
submitted herewith for filing on behalf of Whitney Holding Corporation (the
"Company") is the Company's Report on Form 10-K for the period ended December
31, 1999.
This filing is being effected by direct transmission to the
Commission's EDGAR System.
Sincerely,
/s/ Thomas L. Callicutt, Jr.
---------------------------------
Thomas L. Callicutt, Jr.
Executive Vice President &
Chief Financial Officer
(504) 552-4591
TLC/drm
<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
- --------------------------------------------------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file number 0-1026
WHITNEY HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 72-6017893
(State of incorporation) (I.R.S. Employer Identification No.)
228 St. Charles Avenue
New Orleans, Louisiana 70130
(Address of principal executive offices)
(504) 586-7272
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
---------------------
Title of each class on which registered
------------------- -------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
----- -----
Indicate by check mark 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.
-----
As of February 29, 2000, the aggregate market value of the voting stock held by
non-affiliates was approximately $652,842,000.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 29, 2000
-------------------------- --------------------------------
Common Stock, no par value 22,597,848
Documents Incorporated by Reference Part of 10-K in which incorporated
- ----------------------------------- ----------------------------------
Proxy Statement for 2000 annual meeting Part III
except for information referred to in
Item 402(a)(8) of Regulation S-K
================================================================================
<PAGE>
<TABLE>
<CAPTION>
WHITNEY HOLDING CORPORATION
TABLE OF CONTENTS
Page
- ------------------------------------------------------------------------------------------------------------------------------------
PART I
<S> <C> <C>
Item 1: Business 3
Item 2: Properties 4
Item 3: Legal Proceedings 5
Item 4: Submission of Matters to a Vote of Security Holders 5
Item 4a: Executive Officers of the Registrant 5
- ------------------------------------------------------------------------------------------------------------------------------------
PART II
Item 5: Market for the Registrant's Common Stock and Related Shareholder Matters 5
Item 6: Selected Financial Data 6
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 7a: Quantitative and Qualitative Disclosure about Market Risk 24
Item 8: Financial Statements and Supplementary Data 25
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 54
- ------------------------------------------------------------------------------------------------------------------------------------
PART III
Item 10: Directors and Executive Officers of the Registrant 54
Item 11: Executive Compensation 57
Item 12: Security Ownership of Certain Beneficial Owners and Management 57
Item 13: Certain Relationships and Related Transactions 57
- ------------------------------------------------------------------------------------------------------------------------------------
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 57
Signatures 60
Page 2 of 63 Pages
</TABLE>
<PAGE>
PART I
Item 1: BUSINESS
ORGANIZATION AND RECENT DEVELOPMENTS
Whitney Holding Corporation (the "Company") is a Louisiana bank holding
company registered pursuant to the Bank Holding Company Act of 1956 ("BHCA").
The Company began operations in 1962 as the parent of Whitney National Bank,
which has been in continuous operation since 1883. Beginning in 1995 and
continuing through 1997, the Company operated as a multi-bank holding company,
having established the Whitney Bank of Alabama in 1995, the Whitney National
Bank of Florida in 1996 and the Whitney National Bank of Mississippi in 1997 in
connection with business acquisitions. In January 1998, the Company merged all
of its banking operations into Whitney National Bank. Throughout this annual
report, references to the "Bank" will cover all former subsidiary banks. The
Company also owns Whitney Community Development Corporation, which is authorized
to make equity and debt investments in corporations or projects whose activities
promote community welfare. Such activities could include providing housing,
services or jobs for residents of low income areas and supporting small
businesses that service low-income areas. In the third quarter of 1999, the Bank
formed Whitney Securities L.L.C., a wholly-owned subsidiary that is expected to
begin operations as a broker-dealer in securities during the first quarter of
2000 after obtaining regulatory approvals.
In November 1999, the Company entered into a definitive agreement to
acquire Bank of Houston with two locations in the Houston, Texas metropolitan
area. The Company completed this purchase in the first quarter of 2000. Bank of
Houston will continue to operate as a separate banking subsidiary of the Company
for the foreseeable future.
NATURE OF BUSINESS AND MARKETS
The Company, through the Bank, engages in community banking in its market
areas in the four state Gulf Coast region, including south Louisiana, the
coastal region of Mississippi, central and south Alabama, and the western
panhandle of Florida. The Bank serves both commercial and retail customers,
offering a variety of deposit products and cash management services, secured and
unsecured loan facilities, including revolving credit products, and commercial
transaction financing. The Bank also provides trust and investment management
services to retirement benefit plans, corporations and individuals, and offers
certain limited investment brokerage services. Whitney Securities L.L.C. will
expand the range of investment services and products that the Bank currently
offers directly to its customers. The Bank also maintains a foreign branch on
Grand Cayman in the British West Indies.
Bank of Houston also engages in community banking in the metropolitan area
of Houston, Texas, providing deposit and credit products primarily to
individuals and smaller-scale commercial customers. The Company expects to
expand Bank of Houston's product offerings and widen the scope of its target
commercial customer base. Bank of Houston will also market financial services
offered by the Bank and Whitney Securities L.L.C.
THE SUBSIDIARY BANK
All material funds of the Company are invested in the Bank. The Bank has a
large number of customer relationships that have been developed over a period of
many years. The loss of any single customer or a few customers would not have a
material adverse effect on the Bank or the Company. The Bank has customers in a
number of foreign countries, but the portion of revenue derived from these
foreign customers is not a material portion of its overall revenues.
COMPETITION
There is significant competition within the financial services industry in
general as well as with respect to the particular financial services provided by
the Bank. Within its market areas, the Bank competes directly with major banking
institutions of comparable or larger size and resources, as well as with various
other smaller banking organizations. The Bank also has numerous local and
national "non-bank" competitors, including savings and loans, credit unions,
mortgage companies, personal and commercial finance companies, investment
brokerage and financial advisory firms, and registered investment companies.
The growth of electronic communication and commerce over the Internet
influences the Company's competitive environment in several ways. New entities
have been formed which deliver financial services and access to financial
Page 3 of 63 Pages
<PAGE>
products and transactions exclusively through the Internet. New Internet-based
services are being and have been developed which are designed to enhance the
value of traditional financial products. The Internet will also make it easier
for consumers to obtain comparative information on financial products and, over
time, could lead to changes in consumer preferences for financial products.
Management has been evaluating the competitive challenges posed by the growing
use of the Internet and is actively developing a response appropriate in light
of its overall market strategy.
Over the last decade, there has been significant consolidation within the
financial services industry, particularly with respect to the banking and
savings and loan segments of this industry. Most recently, consolidation has
been driven by general competitive pressures. All of the Bank's major direct
banking competitors have been relatively active in expansion through
acquisition. Since January 1994 the Company has acquired twelve separate banking
operations involving approximately $1.8 billion of assets, including the Bank of
Houston transaction. The trend toward industry consolidation is expected to
continue in the near term.
INDUSTRY REGULATION AND INFLUENCE OF GOVERMENTAL AGENCIES
The participants in the financial services industry are subject to varying
degrees of regulation and governmental supervision. The current system of laws
and regulations will likely change over time and will influence the competitive
positions of the participants. Whether these changes will be favorable or
unfavorable to the Company and the Bank cannot be predicted.
The banking industry is extensively regulated under both federal and state
law. The regulation and ongoing supervision of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the deposit
insurance funds of the Federal Deposit Insurance Corporation ("FDIC") and the
banking system as a whole, and not for the protection of the holding company's
shareholders and creditors.
The Company is subject to regulation under the BHCA and to supervision by
the Board of Governors of the Federal Reserve System ("FRB"). Bank holding
companies must seek the FRB's approval for all bank acquisitions and must limit
their activities to those permitted under the BHCA. The Office of the
Comptroller of the Currency ("OCC") is the Bank's primary regulator and provides
ongoing supervision through regular examinations and other means. Bank of
Houston is regulated and supervised by the Texas Department of Banking and the
FDIC. Bank supervision focuses on evaluating management's ability to identify,
assess and control risk in all areas of bank operations in a safe and sound
manner. Regulators have a wide range of enforcement actions available to deal
with institutions with unacceptable levels of risk. These actions could have a
material impact on a bank's financial results and could impose additional limits
on a bank's ability to pay dividends to its holding company. Regulators are also
charged with monitoring compliance with other laws and regulations, such as
those designed to encourage banks to meet the needs of all segments of their
service areas. Regulatory agencies consider compliance ratings when deciding,
for example, whether to approve an acquisition by the bank or its holding
company.
The monetary and fiscal policies of the FRB also have a significant impact
on the banking industry. In its effort to restrain inflationary growth or
moderate recessions, the FRB uses various tools to influence the money supply
and interest rates. These actions attempt to regulate the availability of bank
credit and affect asset yields and cost of funds.
EMPLOYEES
At the end of 1999, the Company and the Bank employed a total of 2,116
employees. The Company and its subsidiaries provide a variety of competitive
benefit programs including retirement plans and group health, life and other
insurance programs. The Company also maintains training and educational programs
designed to prepare employees for positions of increasing responsibility.
Item 2: PROPERTIES
The Company owns no real estate in its own name. The Company's executive
offices are located in downtown New Orleans in the Bank's main office
facilities, which the Bank owns. A portion of these facilities, as well as
portions of certain other facilities in Louisiana and Mississippi, are available
for lease to third parties, although such incidental leasing activity is not
material to the Company's overall operations. The Bank owns approximately
seventy percent of its 116 active banking facilities. Bank of Houston also owns
its two banking locations. The remaining branch facilities are subject to
leases, each of which management considers to be reasonable and appropriate to
its location. Management ensures that
Page 4 of 63 Pages
<PAGE>
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. As a result of this process, the
Bank closed transactions involving six of its facilities during 1999,
recognizing gains as shown in Table 14 in Item 7.
In 2000, the Company plans to open or begin construction on three
additional branch locations in its Alabama and Florida markets. Total capital
expenditures for these new facilities are estimated at $3 million.
The Bank holds a variety of property interests acquired through the years
in settlement of loans. Reference is made to Note 8 to the financial statements
included in Item 8 for further information regarding such property interests as
of December 31, 1999.
Item 3: LEGAL PROCEEDINGS
There are no pending legal proceedings, other than routine litigation
incidental to the business, to which the Company or its subsidiaries is a party
or to which any of their property is subject.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4a: EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's 1999 10-K, Item 10.
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
a)The Company's stock is traded over-the-counter on The Nasdaq Stock
Market and is reported under the symbol WTNY. The Summary of Quarterly
Financial Information located on page 53 shows the range of closing
prices of the Company's stock for each calendar quarter of 1999 and 1998
as reported on The Nasdaq Stock Market.
b)The approximate number of shareholders of record of the Company, as of
February 29, 2000, was as follows:
Title of Class Shareholders of Record
---------------------------- ----------------------
Common Stock, no par value 6,100
c)Also located on the Summary of Quarterly Financial Information, page 53,
are details regarding the dividends declared by the Company.
Page 5 of 63 Pages
<PAGE>
<TABLE>
<CAPTION>
Item 6: SELECTED FINANCIAL DATA
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
YEAR-END BALANCE SHEET DATA
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $5,545,388 $5,211,919 $4,787,447 $4,675,250 $4,367,552
Earning assets 4,983,601 4,762,169 4,359,432 4,233,584 3,939,430
Investment in securities 1,291,863 1,340,078 1,470,967 1,668,000 1,822,582
Loans 3,673,047 3,270,581 2,864,664 2,484,495 2,027,538
Deposits 4,309,398 4,256,662 3,935,871 3,672,438 3,656,457
Shareholders' equity 557,103 560,961 525,136 482,992 449,225
- ------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Total assets $5,243,473 $4,857,088 $4,630,995 $4,438,672 $4,117,755
Earning assets 4,793,793 4,429,631 4,229,210 4,043,543 3,742,192
Investment in securities 1,363,456 1,301,163 1,569,143 1,798,811 1,901,027
Loans 3,377,691 2,972,664 2,609,275 2,174,400 1,745,433
Deposits 4,206,688 3,930,221 3,679,832 3,569,118 3,453,728
Shareholders' equity 560,261 548,806 503,325 465,347 417,417
- ------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Interest income $349,813 $336,113 $323,571 $301,586 $278,988
Interest expense 124,065 122,981 122,245 117,368 102,071
Net interest income 225,748 213,132 201,326 184,218 176,917
Net interest income (TE) 231,485 217,858 206,220 189,075 181,122
Provision for possible loan losses 6,000 73 (2,120) (3,626) (8,616)
Non-interest income (exclusive of securities transactions) 66,663 58,438 52,827 43,570 39,693
Securities transactions - 839 12 2 50
Non-interest expense 194,163 194,499 170,245 160,695 146,920
Net income 62,420 52,679 57,178 47,811 53,646
Net income, before tax-effected merger-related expenses 62,420 57,237 59,705 51,230 53,646
- ------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.19% 1.08% 1.23% 1.08% 1.30%
Return on average shareholders' equity 11.14% 9.60% 11.36% 10.27% 12.85%
Net interest margin 4.83% 4.92% 4.88% 4.68% 4.84%
Average loans to average deposits 80.29% 75.64% 70.91% 60.92% 50.54%
Efficiency ratio 65.12% 70.40% 65.72% 69.07% 66.54%
Efficiency ratio, before merger-related expenses 65.12% 68.17% 64.41% 67.26% 66.54%
Reserve for possible loan losses to loans 1.21% 1.23% 1.55% 1.77% 2.23%
Non-performing assets to loans plus foreclosed and surplus property .46% .49% .51% .69% 1.12%
Average shareholders' equity to average assets 10.68% 11.30% 10.87% 10.48% 10.14%
Shareholders' equity to total assets 10.21% 10.76% 10.97% 10.33% 10.29%
Leverage ratio 9.99% 10.39% 10.83% 10.60% 9.75%
Tier 1 capital ratio 12.75% 13.81% 15.27% 15.39% 17.68%
Total capital ratio 13.83% 14.87% 16.49% 16.64% 18.93%
- ------------------------------------------------------------------------------------------------------------------------------
SELECTED COMMON SHARE DATA
Earnings Per Share
Basic $2.71 $2.26 $2.48 $2.10 $2.39
Basic, before tax-effected merger-related expenses $2.71 $2.46 $2.59 $2.25 $2.39
Diluted $2.70 $2.24 $2.46 $2.09 $2.37
Diluted, before tax-effected merger-related expenses $2.70 $2.44 $2.57 $2.24 $2.37
Dividends
Cash dividends per share $1.32 $1.20 $1.12 $0.97 $0.82
Dividend payout ratio 48.50% 52.57% 42.63% 40.54% 27.79%
Book Value Per Share
Book value $24.68 $23.98 $22.72 $21.14 $19.91
Tangible book value $23.37 $23.01 $21.90 $20.20 $18.85
Trading Data
High stock price $41.75 $63.38 $59.75 $35.88 $34.00
Low stock price $32.19 $35.75 $34.75 $29.50 $22.00
Closing stock price $37.06 $37.50 $57.00 $35.38 $31.00
Trading volume 9,370,446 6,574,200 5,582,668 4,514,528 4,577,317
Average Shares Outstanding
Basic 23,013,671 23,283,458 23,025,173 22,729,851 22,417,663
Diluted 23,091,105 23,499,643 23,236,174 22,897,208 22,615,722
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 6 of 63 Pages
<PAGE>
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to focus on significant
changes in the financial condition of Whitney Holding Corporation (the Company)
and its subsidiaries and on their results of operations during 1999, 1998 and
1997. The Company's principal subsidiary is Whitney National Bank (the Bank), in
which virtually all of the Company's operations are contained. This discussion
and analysis is intended to highlight and supplement information presented
elsewhere in this annual report, particularly the preceding consolidated
financial statements and related notes. Certain financial information in prior
years has been reclassified to conform to the current year's presentation.
OVERVIEW
During 1998 and 1997, the Company made six business acquisitions as
detailed in Note 3, and the Company incurred conversion and other merger
expenses related to the acquisitions in each of these years. Table 1 compares
net income, earnings per share, return on average assets and return on average
shareholders' equity for 1999, 1998 and 1997, showing the effect of these
merger-related expenses.
<TABLE>
<CAPTION>
TABLE 1. EFFECTS OF MERGER-RELATED EXPENSES Years Ended December 31
- ------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share data) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings, before tax-effected merger-related expenses $62.4 $57.2 $ 59.7
Tax-effected merger-related expenses - (4.5) (2.5)
- ------------------------------------------------------------------------------------------------------------------------
Net income $62.4 $52.7 $ 57.2
- ------------------------------------------------------------------------------------------------------------------------
Basic earnings per share, before tax-effected merger-related expenses $2.71 $2.46 $ 2.59
Effect of tax-effected merger-related expenses - (.20) (.11)
- ------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $2.71 $2.26 $ 2.48
- ------------------------------------------------------------------------------------------------------------------------
Return on average assets, before tax-effected merger-related expenses 1.19 % 1.18 % 1.29 %
Effect of tax-effected merger-related expenses - ( .10) ( .06)
- ------------------------------------------------------------------------------------------------------------------------
Return on average assets 1.19 % 1.08 % 1.23 %
- ------------------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity, before tax-effected merger-related
expenses 11.14 % 10.43 % 11.86 %
Effect of tax-effected merger-related expenses - ( .83) ( .50)
- ------------------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity 11.14 % 9.60 % 11.36 %
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company earned $62.4 million for 1999. This is a $5.2 million, or 9%,
increase over the $57.2 million earned in 1998 before tax-effected
merger-related expenses. Per share earnings increased 10% to $2.71 in 1999 from
$2.46 in 1998 before merger-related expenses. The key components of 1999's
earnings performance follow:
o Net interest income, on a taxable-equivalent basis, increased $13.6
million, or 6%, from 1998 to 1999. Strong loan growth of 14% in 1999
continued to have a favorable impact on the mix of earning assets,
while the mix of funding sources remained relatively stable and the
Company effectively managed its funding costs. The net interest margin
remained strong at 4.83% in 1999 compared to 4.92% in 1998.
o Total non-interest income increased $7.4 million, or 12%. A growing
customer base and healthy market area economies contributed to strong
improvements in income from deposit service charges, merchant
processing fees and other fees from credit and debit card transactions,
and trust service fees. These factors and a favorable rate environment
also contributed to the growth in income from secondary mortgage market
operations, although the pace of this growth slowed toward the end of
1999 with rising market rates.
o Non-interest expense, excluding merger-related expenses, increased at a
slower rate, rising $5.8 million, or 3%, between 1998 and 1999. Expense
control programs begun in late 1998 had a favorable impact on the
growth rate of several major expense categories, including personnel
expense and net occupancy expense. 1998's non-interest expense had also
been unfavorably impacted by unexpected employee benefit costs and
certain other items.
o Sustained loan growth was the primary factor behind the $6 million
provision for possible loan losses during 1999 compared to a nominal
provision in 1998.
Page 7 of 63 Pages
<PAGE>
o The Company executed a $39 million stock repurchase program for one
million shares during 1999 as part of its ongoing efforts to
effectively manage its capital position.
Earnings before tax-effected merger-related expenses decreased by $2.5
million in 1998 from 1997. Growth in taxable-equivalent net interest income of
$11.6 million, or 6%, resulted primarily from a 14% increase in average loans.
Non-interest income grew by $6.4 million, or 12%, primarily because of increases
in credit card income and trust service fees resulting from increased business
in those areas. Offsetting these positive factors was a $2.2 million change in
the provision for possible loan losses and a $21.7 million, or 13%, increase in
non-interest expense over 1997, excluding merger-related expenses. Personnel
expense rose with the hiring of key employees, increased incentive compensation
expense and unexpectedly high health claims. Branch network expansion, including
the branches purchased in Lake Charles, Louisiana, also contributed to the
increase in non-interest expense, as did expenses related to enhancements to
communications and data processing hardware and software, and increased credit
card processing charges.
FORWARD-LOOKING STATEMENTS
Certain statements in this annual report may be regarded as forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements, made in good faith by the Company, are
based on a number of assumptions about the future. Some of the more important
assumptions include (i) expectations about overall economic strength and the
performance of the economies in the Company's market area, (ii) expectations
about the movement of interest rates, including actions that may be taken by the
Federal Reserve Board in response to changing economic conditions, (iii)
reliance on existing or anticipated changes in laws and regulations affecting
the activities of the banking industry and other financial service providers,
and (iv) expectations regarding the nature and level of competition, changes in
consumer behavior and preferences, and the Company's ability to execute its
plans to respond effectively.
Because it is uncertain whether future conditions and events will confirm
the Company's assumptions, there is a risk that the Company's future results
will differ materially from what is stated in or implied by such forward-looking
statements. The Company cautions the reader to consider this risk.
LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES
Average loans grew $405 million in 1999 compared to an increase in 1998 of
$363 million, or 14% in each period. Table 2, which is based on regulatory
collateral codes, shows the Company has experienced significant loan growth in
most all major categories.
<TABLE>
<CAPTION>
TABLE 2. LOANS OUTSTANDING BY TYPE
- ---------------------------------------------------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural loans $1,466,018 $1,299,243 $1,202,904 $1,039,873 $ 879,400
Real estate loans - commercial and other 1,213,465 1,036,547 818,213 698,054 530,769
Real estate loans - retail mortgage 700,311 640,214 548,771 468,439 384,029
Loans to individuals 292,680 292,336 288,810 265,851 219,734
Lease financing 573 2,241 5,966 12,278 13,606
- ---------------------------------------------------------------------------------------------------------------------------
Total loans $3,673,047 $3,270,581 $2,864,664 $2,484,495 $2,027,538
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
As can be seen in Table 2, commercial loans increased $344 million, or 15%,
between year-end 1998 and 1999. Commercial real estate lending, which includes
loans secured by properties used in commercial or industrial operations,
supplied $177 million of this overall increase, growing 17%. Recent growth has
come from a variety of sources. A strong convention and tourism industry in the
New Orleans metropolitan area continued to spur demand for hotel construction in
1999, and several new developments are planned for 2000. Hotel loans were
approximately 13% of total commercial real estate loans at year-end 1999. The
Bank does not provide permanent financing for all of its projects, and this
percentage is not expected to grow in 2000. The economic health of the Company's
eastern Gulf Coast markets and the attractiveness of
Page 8 of 63 Pages
<PAGE>
this area as a resort destination are behind the growth in apartment and
condominium projects financed by the Bank. The Bank has also increased its
financing of a variety of retail, small office and other commercial facilities
in this region and throughout its market areas.
Commercial loans other than those secured by real property increased $167
million, or 13%, from the end of 1998. Loans to customers in the oil and gas
industry increased $68 million in 1999, primarily to companies involved in
production support and services, as underlying commodity prices rebounded near
the end of 1999. The activity in this industry continues to have an important
impact on the economies of certain of the Company's market areas, particularly
southern Louisiana. At December 31, 1999, outstanding loans to oil and gas
industry customers totaled $250 million, or 7% of total loans. Another area of
substantial growth in 1999 was in loans secured by collateral other than real
estate to provide customers with venture capital funds, although such loans
represent only approximately 2% of the portfolio. Loans to retailers were
relatively stable, while loans to manufacturers and wholesalers declined, partly
as a result of out-of-market acquisitions of local companies. The overall growth
in commercial lending also reflects the Company's ability to develop its
customer base in its newer market areas and to take advantage of competitive
circumstances to attract new business in its established markets.
Retail loans, including both retail mortgage loans and other loans to
individuals, increased $60 million, or 6%, between 1998 and 1999. All of this
growth was in the retail mortgage loan category which increased 9% in 1999.
Growth in the origination of adjustable-rate mortgage loan products,
particularly as market rates rose in the second half of 1999, was a large factor
behind this increase. The Company originates conventional fixed-rate mortgage
loans primarily for sale in the secondary mortgage market. The successful
promotion of the Company's fixed-term home equity loan product was also an
important factor in the growth of this loan category. This product offers
customers the opportunity to leverage rising home values and equity to obtain
tax-advantaged consumer financing. Loans to individuals include various consumer
installment and credit line loan products other than retail mortgage loan
products. The Company's exit from one segment of this market and consumer
preference for tax-advantaged home equity financing impeded growth in this
category which was stable between 1998 and 1999. The customer-focused retail
sales training program conducted company-wide in 1998 produced enhanced sales
efforts that supported the overall growth in retail loans in 1999.
Table 3 reflects contractual loan maturities, unadjusted for scheduled
principal reductions, prepayments or repricing opportunities. Approximately 90%
of the loans with maturities greater than one year bear fixed rates of interest.
<TABLE>
<CAPTION>
TABLE 3. LOAN MATURITIES BY TYPE
- ---------------------------------------------------------------------------------------------------------------------------
December 31
- ---------------------------------------------------------------------------------------------------------------------------
One year One through More than
(dollars in thousands) or less five years five years Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural loans $ 925,510 $ 464,138 $ 76,370 $1,466,018
Real estate loans- commercial and other 301,759 620,295 291,411 1,213,465
Real estate loans - retail mortgage 46,129 219,671 434,511 700,311
Loans to individuals 187,319 89,061 16,300 292,680
Lease financing 365 208 - 573
- ---------------------------------------------------------------------------------------------------------------------------
Total loans $1,461,082 $1,393,373 $818,592 $3,673,047
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Each loan carries a degree of credit risk. Management's evaluation of this
risk is ultimately reflected in the Company's financial statements by the level
of the reserve for possible loan losses, and changes in this ongoing evaluation
over time are reflected in the provision for loan losses charged to operating
expense.
The Company maintains the reserve for possible loan loss at a level that
management believes is adequate to absorb potential losses in the portfolio. The
factors that management considers in determining the adequacy of the reserve
include, but are not limited to, prevailing economic conditions, credit reviews
of individual loans, collateral values of properties securing loans, growth in
the loan portfolio, composition of the loan portfolio, and past due and
non-accruing loans.
Page 9 of 63 Pages
<PAGE>
At December 31, 1999, the reserve for possible loan losses was $44.5
million or 1.21% of total loans, compared to $40.3 million, or 1.23% of total
loans in 1998. The reserve was 292% of non-performing loans at year-end 1999,
compared to 285% at year-end 1998. Table 4 shows the activity in the reserve for
possible loan losses over the past five years. The allocation of the reserve is
included in Table 5.
<TABLE>
<CAPTION>
TABLE 4. SUMMARY OF ACTIVITY IN THE RESERVE FOR POSSIBLE LOAN LOSSES
- --------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at the beginning of year $40,282 $44,543 $44,030 $45,309 $42,983
Reserves acquired in bank purchase - - - - 1,772
Provision for possible loan losses
charged (credited) to operations 6,000 73 (2,120) (3,626) (8,616)
Loans charged to the reserve
Commercial, financial and agricultural 5,533 6,100 5,174 4,981 3,669
Real estate (primarily commercial) 1,273 519 462 185 260
Loans to individuals 2,412 5,423 2,474 1,662 1,610
Lease financing 93 588 1,085 1,849 200
- --------------------------------------------------------------------------------------------------------------------------------
Total 9,311 12,630 9,195 8,677 5,739
- --------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off
Commercial, financial and agricultural 4,236 3,999 6,290 3,868 5,259
Real estate (primarily commercial) 1,256 2,699 3,442 5,481 6,972
Loans to individuals 2,003 1,597 2,096 1,652 2,620
Lease financing - 1 - 23 58
- --------------------------------------------------------------------------------------------------------------------------------
Total 7,495 8,296 11,828 11,024 14,909
- --------------------------------------------------------------------------------------------------------------------------------
Net (charge-offs) recoveries (1,816) (4,334) 2,633 2,347 9,170
- --------------------------------------------------------------------------------------------------------------------------------
Balance at the end of year $44,466 $40,282 $44,543 $44,030 $45,309
- --------------------------------------------------------------------------------------------------------------------------------
Ratios
Gross charge-offs to average loans .28% .42% .35 % .40 % .33 %
Recoveries to gross charge-offs 80.50% 65.68% 128.64 % 127.05 % 259.78 %
Net charge-offs (recoveries) to average loans .05% .15% (.10)% (.11)% (.53)%
Reserve for possible loan losses to loans at end of year 1.21% 1.23% 1.55 % 1.77 % 2.23 %
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE 5. ALLOCATION OF THE RESERVE FOR POSSIBLE LOAN LOSSES
- --------------------------------------------------------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural 48.4 % 39.9 % 39.7 % 39.7 % 41.5 % 41.9 % 42.0 % 41.8 % 40.8 % 43.4 %
Real estate - commercial
and other 28.4 33.0 31.6 31.7 28.3 28.6 26.7 28.1 23.2 26.2
Real estate - retail mortgage 14.9 19.1 20.4 19.6 16.4 19.2 14.8 18.9 12.7 18.9
Loans to individuals 8.0 7.9 7.9 8.9 9.0 10.1 6.9 10.7 8.0 10.8
Lease financing .1 .1 .1 .1 .7 .2 2.4 .5 1.9 .7
Unallocated .2 - .3 - 4.1 - 7.2 - 13.4 -
- --------------------------------------------------------------------------------------------------------------------------------
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 10 of 63 Pages
<PAGE>
In 1998 the Company charged off $2.7 million of student loans in connection
with the final settlement of a claim by the U.S. Department of Education (DOE)
related to the Company's participation in guaranteed student loan programs.
Excluding this fully-reserved loan loss, the Company's charge-offs have been
relatively stable over the last three years, totaling $9.3 million in 1999, $9.9
million in 1998 and $9.2 million in 1997. Recoveries of loans previously charged
off have declined over this three-year period, and the Company has moved to a
net charge-off position in 1999 and 1998 from the net recovery position in 1997.
Because of anticipated further declines in loan recoveries and continued loan
growth, management expects net charge-offs to grow in future periods.
A minimal provision for possible loan losses of $73,000 was recorded in
1998 by pooled entities prior to acquisition. A portion of the $2.1 million net
reserve reduction in 1997 reflected the reversal of excess reserves that had
previously been established to cover the settlement of the DOE claim mentioned
above.
Non-performing assets consist of non-performing loans, foreclosed assets
and surplus banking property. Table 6 provides information on non-performing
assets for the five years ended December 31, 1999. The 6% increase in
non-performing assets to $17.1 million at year-end 1999 follows a 10% increase
in 1998 from the low point in recent years of $14.7 million at the end of 1997.
Despite these increases, non-performing assets as a percent of loans plus
foreclosed assets and surplus property have declined over this period to .46% at
the end of 1999 from .49% in 1998 and .51% in 1997. With continued loan growth
and considering the rise in internally classified assets discussed below,
however, total non-performing assets will likely increase in the future.
<TABLE>
<CAPTION>
TABLE 6. NON-PERFORMING ASSETS
- --------------------------------------------------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis $13,601 $11,497 $ 9,335 $ 9,383 $11,839
Restructured loans 1,634 2,660 2,342 3,029 2,888
- --------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 15,235 14,157 11,677 12,412 14,727
Foreclosed assets and surplus property 1,831 2,004 3,048 4,835 8,056
- --------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $17,066 $16,161 $14,725 $17,247 $22,783
- --------------------------------------------------------------------------------------------------------------------------
Loans 90 days past due still accruing $ 2,617 $ 3,765 $ 2,142 $ 3,149 $ 2,084
- --------------------------------------------------------------------------------------------------------------------------
Ratios
Non-performing assets to loans plus
foreclosed assets and surplus property .46% .49% .51% .69% 1.12%
Reserve for possible loan losses to
non-performing loans 291.87% 284.54% 381.46% 354.74% 307.66%
Loans 90 days past due still accruing to loans .07% .12% .07% .13% .10%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, loans internally classified as having above normal
credit risk totaled $196 million, an increase of $39 million, or 25%, from $157
million at year-end 1998. Classified loans were approximately 5% of total loans
at the end of both 1999 and 1998, up from an historically low level of 3% of
total loans at December 31, 1997. The net increase from year-end 1998 is
primarily related to changes in the classifications of loans with five large
commercial customers, each of which operates in a different industry. The
classification totals at December 31, 1999 were as follows: loans as to which
there are serious doubts as to full repayment, $7 million; substandard loans
with well-defined weaknesses that, if not corrected, would likely result in some
loss, $85 million; and loans with risk characteristics that indicate potential
weaknesses that warrant special attention, $104 million. Management continually
reviews the loan portfolio to identify potentially weak or deteriorating
credits.
Page 11 of 63 Pages
<PAGE>
INVESTMENT IN SECURITIES
Total investment in securities was $1.29 billion at December 31, 1999,
compared to $1.34 billion at year-end 1998. The average total investment
portfolio was $1.36 billion in 1999, compared to $1.30 billion in 1998, an
increase of $62 million. Between these same periods, average federal funds sold
and other short-term liquidity management investments decreased $103 million.
This shift away from short-term investments and into longer-term investments
took place as the yield difference between these types of investments improved
after compressing during the latter part of 1998.
The weighted-average taxable-equivalent portfolio yield was 6.19% at
December 31, 1999, a decrease of 18 basis points from 6.37% at December 31,
1998, reflecting mainly maturities and calls of older higher-yielding
securities. At December 31, 1998, the weighted-average yield on securities
maturing within one year had been 6.66%. Substantially all of the securities in
the investment portfolio bear fixed interest rates.
Information about contractual investment maturities at December 31, 1999 is
shown in Table 7. The weighted-average contractual maturity of the overall
securities portfolio was 50 months at December 31, 1999, compared to 47 months
at year-end 1998. The carrying value of securities with explicit call options
totaled $465 million at year-end 1999. These call options and the projected
principal reductions and prepayments on mortgage-backed securities are not
reflected in Table 7.
<TABLE>
<CAPTION>
TABLE 7. DISTRIBUTION OF INVESTMENT MATURITIES
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) One year and Over one Over five Over ten years Total
less through five through ten
years years
- ---------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ---------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE(d)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 3,004 6.41 % $ 4,967 5.31 % $ - - % $ - - % $ 7,971 5.72 %
U.S. agency securities 196 3.32 102,357 5.94 6,579 6.70 4,995 7.12 114,127 6.03
Mortgage-backed securities(a) 4,549 5.71 8,087 5.65 57,241 6.15 13,654 6.01 83,531 6.05
Obligations of states
and political subdivisions(b) - - - - 134 8.00 508 9.65 642 9.30
Other corporate securities(c) 250 - - - - - 411 - 661 -
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 7,999 5.92 % $115,411 5.89 % $ 63,954 6.21 % $ 19,568 6.40 % $206,932 6.04 %
- ---------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $30,552 6.20 % $ 77,022 5.97 % $ - - % $ - - % $107,574 6.04 %
U.S. agency securities 11,690 5.54 270,301 5.74 75,613 5.81 1,002 6.96 358,606 5.75
Mortgage-backed securities(a) 5,604 6.16 127,106 6.40 187,374 5.96 106,990 6.35 427,074 6.19
Obligations of states and
political subdivisions(b) 13,011 7.76 63,738 7.74 62,449 7.04 44,953 6.90 184,151 7.30
Federal Reserve stock and
other corporate
securities (c) - - - - - - 7,256 - 7,256 -
- ---------------------------------------------------------------------------------------------------------------------------
Total $60,857 6.40 % $538,167 6.16 % $325,436 6.13 % $160,471 6.49 % $1,084,931 6.22 %
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(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.
(d) These securities are classified as available for sale before maturity. The actual timing of any potential sales,
however, is not determinable at year-end.
</FN>
</TABLE>
During 1999, the Company began building its investment in securities
classified as available for sale, primarily as a means to increase liquidity
management flexibility. Such securities constituted 16% of the total investment
portfolio at the end of 1999, compared to 8% at the end of 1998. These
securities are reported at estimated fair market value in the consolidated
balance sheets. The net unrealized loss on available for sale securities was
$4.8 million at year-end 1999 and $.3 million at 1998's year-end. These
unrealized losses are recognized, net of tax, in other comprehensive income and
in accumulated other comprehensive income, a separate component of shareholders'
equity.
Page 12 of 63 Pages
<PAGE>
Securities that the Bank positively intends and has the ability to hold to
maturity continued to constitute the bulk of the investment portfolio. These
securities are carried at amortized cost in the consolidated balance sheets.
The Bank does not normally maintain a securities trading portfolio.
Occasionally, immaterial amounts of trading account securities are held for
short periods while buying and selling securities for customers. Such
securities, if any, are included in other assets in the consolidated balance
sheets.
At December 31, 1999, the Bank held no investment in securities of a single
issuer, other than U.S. Treasury and U.S. government agency securities and
mortgage-backed securities issued or guaranteed by U.S. government agencies,
that exceeded 10% of its shareholders' equity. The Bank has made no investments
in financial instruments or participated in agreements with values that are
linked to or derived from changes in the value of some underlying asset or
index. Such instruments would include futures, forward contracts, option
contracts, interest rate swap agreements and other financial arrangements with
similar characteristics. These financial instruments or agreements are commonly
referred to as derivatives. Management continues to evaluate whether to use
deriviatives as part of its asset/liability and liquidity management processes.
DEPOSITS AND SHORT-TERM BORROWINGS
Deposits were $4.31 billion at December 31, 1999 and $4.26 billion at
year-end 1998. Average deposits were $4.21 billion in 1999, a $276 million, or
7%, increase over 1998. Growth was registered in all deposit categories, with
the exception of traditional savings account deposits. The most significant
growth continued to come from the promotion of bundled banking services, such as
the Bank's Whitney SELECT package, that include a premium money market account
product. Total money market deposits increased $163 million, or 28%, in 1999
and, as is shown in Table 8, represented approximately 18% of total average
deposits compared to 15% in 1998. Total time deposits, which are primarily
certificates of deposit, rose 3% in 1999 and were a relatively stable 32% of
total deposits. Table 9 shows the maturities of time deposits at December 31,
1999. The Bank continued to show growth in non-interest-bearing demand deposits,
with an increase of $81 million, or 7%, on average over 1998. Average
non-interest-bearing deposits were 28% of average total deposits during both
1999 and 1998. Deposits acquired with the Lake Charles branches in September
1998 contributed $95 million to the overall increase in average deposits in 1999
and represented a significant portion of the growth in average NOW account
deposits and time deposits.
<TABLE>
<CAPTION>
TABLE 8. AVERAGE DEPOSITS
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing demand deposits $1,164,231 27.7% $1,083,530 27.6% $ 996,888 27.1%
NOW account deposits 488,459 11.6 465,211 11.8 478,338 13.0
Money market deposits 744,440 17.7 580,828 14.8 389,540 10.6
Savings deposits 478,511 11.4 508,180 12.9 542,901 14.8
Other time deposits 753,545 17.9 743,783 18.9 763,358 20.7
Time deposits $100,000 and over 577,502 13.7 548,689 14.0 508,807 13.8
- -------------------------------------------------------------------------------------------------------------------------------
Total average deposits $4,206,688 100.0% $3,930,221 100.0% $ 3,679,832 100.0%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 13 of 63 Pages
<PAGE>
TABLE 9. MATURITIES OF TIME DEPOSITS
- --------------------------------------------------------------------------------
(dollars in thousands)
- --------------------------------------------------------------------------------
Remaining maturity of time deposits of $100,000 or more
as of December 31, 1999
Three months or less $ 321,525
Over three months through twelve months 231,253
Over twelve months 30,238
- --------------------------------------------------------------------------------
Total time deposits of $100,000 or more 583,016
- --------------------------------------------------------------------------------
Remaining maturity of time deposits of less than $100,000
as of December 31,1999
Three months or less 189,846
Over three months through twelve months 462,793
Over twelve months 140,464
- --------------------------------------------------------------------------------
Total time deposits of less than $100,000 793,103
- --------------------------------------------------------------------------------
Total time deposit $ 1,376,119
- --------------------------------------------------------------------------------
Short-term borrowings consist of purchases of federal funds and sales of
securities under repurchase agreements and were $541 million at December 31,
1999. These short-term borrowings largely represent transactions with customers,
but also include $80 million in brokered funds at year-end which were acquired
in part to support the build-up of liquidity in connection with the Bank's Year
2000 contingency plan. Average short-term borrowings in 1999 were $434 million,
including only $11 million in average brokered funds. This is a $97 million, or
29%, increase over 1998. Substantially all of this increase can be attributed to
higher demand for the Bank's sweep repurchase product, which reflects in part
the growth in commercial customer relationships and the underlying economic
strength of the Company's market areas.
LIQUIDITY
The object of liquidity management is to ensure that funds are available to
meet cash flow requirements of depositors and borrowers, while at the same time
meeting the cash flow needs of the Company and the Bank. Liquidity is provided
by a stable base of funding sources, including low cost core deposits, and an
adequate level of maturing assets. The Company models liquidity needs on a
periodic basis to determine the best strategy of investments and borrowings to
meet those needs.
The Bank had over $ 1.2 billion in unfunded loan commitments outstanding at
December 31, 1999, an increase of $125 million from 1998's year-end. Note 14
shows the details of these and other unfunded commitments at December 31, 1999
and 1998. Because loan commitments may, and many times do, expire without being
drawn upon, unfunded balances do not represent actual future liquidity
requirements.
To ensure adequate liquidity, the Company has developed an investment
strategy which plans a level of investment maturities that management considers
adequate to meet funding needs. In addition, 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. As mentioned
earlier, the Bank also began building its investment in securities classified as
available for sale. This process will further increase liquidity management
flexibility.
The Company's efforts to mitigate risks associated with the Year 2000
problem are discussed below in the section on "Year 2000 Remediation." One of
the uncertainties that was addressed in preparing for the date change to a new
century was the potential for increased demand for currency. The Bank forecast
this demand and implemented a plan to obtain and distribute additional cash
supplies throughout its delivery system. Actual demand was well below initial
forecasts as is evidenced by the increase in non-interest-bearing cash balances
in the consolidated balance sheets at year-end 1999. The costs of holding cash
reserves above normal levels and the direct costs of increased distribution and
security services were not significant.
Page 14 of 63 Pages
<PAGE>
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 and the
Bank obtain measures of their interest rate sensitivity by running net interest
income simulations, monitoring the economic value of equity, and preparing gap
analyses.
The simplest method of measuring interest rate sensitivity is gap analysis,
which identifies the difference between the dollar volume of assets and
liabilities that reprice within specified time periods. Gap analysis has several
limitations, including the fact that it is a point in time measurement. Table
10, shows the Company's static gap position as of December 31, 1999.
<TABLE>
<CAPTION>
TABLE 10. INTEREST RATE SENSITIVITY
- --------------------------------------------------------------------------------------------------------------------------------
By Maturity or Repricing Dates at December 31, 1999
- --------------------------------------------------------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 After Non-Interest
(dollars in millions) Days Days Days Days 1 Year Bearing Total
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale $ 4 $ 17 $20 $ 32 $ 134 $ - $ 207
Securities held to maturity 38 69 86 117 775 - 1,085
Loans 757 395 466 531 1,524 - 3,673
Federal funds sold and short-term investments 19 - - - - - 19
Other assets - - - - - 470 470
- --------------------------------------------------------------------------------------------------------------------------------
Total assets 818 481 572 680 2,433 470 5,454
- --------------------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS
NOW account deposits 510 - - - - - 510
Money market deposits 746 - - - - - 746
Savings deposits 14 - - - 433 - 447
Other time deposits 76 114 198 265 140 - 793
Time deposits $100,000 and over 207 115 106 125 30 - 583
Short-term borrowings 541 - - - - - 541
Non-interest bearing demand deposits - - - - - 1,231 1,231
Other liabilities - - - - - 46 46
Shareholders' equity - - - - - 557 557
- --------------------------------------------------------------------------------------------------------------------------------
Total sources of funds 2,094 229 304 390 603 1,834 $5,454
- --------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $(1,276) $ 252 $ 268 $ 290 $1,830 $(1,364) $ -
Cumulative interest rate sensitivity gap $(1,276) $(1,024) $(756) $(466) $1,364 $ -
Cumulative interest rate sensitivity gap
as a percentage of total earning assets (25.60) % (20.55) % (15.17) % (9.35) % 27.37 %
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Table 10 indicates that the Company is liability sensitive. However, static
gap does not take into consideration the actions that management intends to take
to maximize net interest income over time. The assets and liabilities of the
Company are constantly managed to limit changes in earnings because of changes
in interest rates.
A more sophisticated tool used by the Company to evaluate its interest rate
sensitivity is a net interest income simulation model, which tests the Bank's
reaction to various economic environments. The model's assumptions incorporate
management's expectations regarding such factors as loan and deposit growth,
pricing, prepayment speeds and spreads between interest rates. In general, the
simulations indicate that the Company is moderately liability sensitive. Balance
sheet and net interest income simulations were run at year-end to determine the
impact of various rate scenarios on net interest income for the next
twelve-month period. A "base case" scenario used a rate forecast which showed an
increase in key rates during 2000 totaling 50 basis points. The results of this
simulation showed an increase in net interest income (TE) of approximately $15
million, or 6%, from 1999 levels after consideration of projected asset and
liability volumes. When the simulations were subjected to parallel up and down
instantaneous rate shocks of 100 to 300 basis points, the model showed an annual
impact on the Company's 2000 net interest income (TE) from a negative $23
million at
Page 15 of 63 Pages
<PAGE>
300 basis points up to a positive $9 million at 300 basis points down. The
results of these simulations showed that the Bank was within acceptable limits,
considering established internal guidelines.
The method used for measuring longer-term interest rate risk is the
economic value of equity analysis. At year-end 1999, the Company's sensitivity
was acceptable under internal guidelines at all levels of rate shock simulation.
The actual impact of changing interest rates on net interest income is
dependent on many factors including the growth of earning assets, the mix of
earning assets and interest-bearing liabilities, the timing of repricing of
assets and liabilities, the magnitude of interest rate changes, interest rate
spreads and the level of success of asset/liability management strategies
implemented.
Changes in interest rates affect the fair values of financial instruments.
Note 15 contains information regarding these fair values. The differences
between fair values and book values were primarily the result of differences
between contractual and market interest rates at each year-end. Fluctuations in
fair values will occur as interest rates change.
IMPACT OF INFLATION AND CHANGING PRICES
The great majority of assets and liabilities of a financial institution are
monetary in nature. Management believes the most significant potential impact of
inflationary or deflationary economic cycles on the Company's financial results
is its ability to react to changes in interest rates. Interest rates do not,
however, necessarily move in the same direction, or at the same magnitude, as
the prices of goods and services. As discussed above, management attempts to
maintain a balance in its maturity and repricing structure to minimize the
effects of economic cycles on the Company's net interest income.
Inflation and changing prices also have an impact on the growth of total
assets in the banking industry and the resulting need to increase capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio. Changing prices will also affect the trend in non-interest operating
expenses and non-interest income.
CAPITAL ADEQUACY
The Company remained strongly capitalized at December 31, 1999. As part of
the effort to effectively manage its capital position, the Company executed a
stock repurchase program during 1999, acquiring one million shares, or
approximately 4.3%, of its common stock for $39 million. The Company will
consider similar programs in the future as appropriate opportunities arise. This
stock repurchase program and the continued increase in total and risk-weighted
assets, mainly through loan growth, contributed to the decrease in the Company's
capital ratios in 1999 as shown in Table 11. Because intangible assets generally
must be deducted to determine regulatory capital and are excluded from
risk-weighted assets, the increase in intangible assets by approximately $38
million in 2000 from the pending acquisition of Bank of Houston will tend to
further reduce the Company's regulatory capital ratios.
<TABLE>
<CAPTION>
TABLE 11. RISK-BASED CAPITAL AND CAPITAL RATIOS
- ----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tier 1 regulatory capital $ 527,206 $ 524,028 $ 505,470 $ 461,379 $ 424,731
Tier 2 regulatory capital 44,466 40,282 41,380 37,474 30,029
- ----------------------------------------------------------------------------------------------------------------------------
Total regulatory capital $ 571,672 $ 564,310 $ 546,850 $ 498,853 $ 454,760
- ----------------------------------------------------------------------------------------------------------------------------
Risk-weighted assets $4,134,623 $3,794,290 $3,310,400 $2,997,914 $2,402,325
- ----------------------------------------------------------------------------------------------------------------------------
Ratios
Leverage ratio (Tier 1 capital to average assets) 9.99% 10.39% 10.83% 10.60% 9.75%
Tier 1 capital to risk-weighted assets 12.75% 13.81% 15.27% 15.39% 17.68%
Total capital to risk-weighted assets 13.83% 14.87% 16.49% 16.64% 18.93%
Shareholders' equity to total assets 10.21% 10.76% 10.97% 10.33% 10.29%
Tangible equity to total assets 9.60% 10.05% 10.57% 9.87% 9.72%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The regulatory capital ratios of the Bank far exceed the minimum required
ratios, and the Bank has been categorized as "well-capitalized" in the most
recent notice received from its regulatory agency.
Page 16 of 63 Pages
<PAGE>
YEAR 2000 REMEDIATION
For over two years the Company and others within and outside the banking
industry worked diligently to address the risks posed by the Year 2000 problem.
This situation came about because many existing computer programs used only two
digits to identify a year in the date field. This raised the strong possibility
that date recognition problems would cause processing errors as we entered the
year 2000. The apparent success of these efforts has been widely publicized.
When the Company began processing in the new century it experienced only a
few date-related problems and suffered no disruptions to its operations.
Critical services, such as utilities and communication lines, were all
available. This also appears to have been the case with major customers and
suppliers, although the Bank continues to monitor significant borrowers for any
operational problems that would not have become immediately apparent in the new
year. While it is possible that Year 2000 problems will still occur, for example
in the operations of a system or a process that has not yet been activated in
2000, all mission-critical information processing systems and operationally
significant non-information systems that employ embedded information technology
are running normally. All new systems will be thoroughly tested for their
ability to operate in the year 2000 and beyond before going into production.
Costs associated with the Company's Year 2000 remediation efforts included
both internal costs, primarily personnel-related, and costs from using outside
consultants, both of which have been expensed. Non-interest expense for 1999
included internal costs estimated at $1.0 million and external costs totaling
approximately $.6 million. In 1998, these costs were $1.6 million and $1.0
million, respectively. There was no significant expense related to Year 2000
remediation efforts in 1997. The Company does not anticipate significant
additional costs for 2000. The majority of the costs to remediate the Company's
systems were borne by third party vendors who supply software under annual
maintenance fees.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income (TE) increased $13.6 million in 1999 from the prior
year, following an $11.6 million increase in 1998 over 1997. The percentage
increase was 6% in each period. Loan growth was the major factor behind these
improvements coupled with the Company's ability to maintain its mix of
interest-bearing and interest-free funding sources over these periods and
effectively manage its cost of funds. The net interest margin, which is net
interest income (TE) as a percent of average earning assets, decreased to 4.83%
in 1999 from 4.92% in 1998 and 4.88% in 1997. Tables 12 and 13 show the factors
contributing to these changes and the components of these changes.
The mix of earning assets has shown continued improvement in recent years.
Average loans grew 14% in both 1999 and 1998, outpacing the growth in average
earning assets of 8% in 1999 and 5% in 1998. As a percent of earning assets,
average loans increased to 70% in 1999 from 67% in 1998 and 62% in 1997. The
effective loan yield (TE) has declined over this three-year period reflecting in
part the trend in market rates over this timeframe. The Company's effective loan
yield (TE) decreased 40 basis points between 1998 and 1999, following a decrease
of 30 basis points between 1997 and 1998. Approximately 58% of the value of the
loan portfolio at year-end 1999 is subject to repricing within one year, which
is consistent with the percentage at year-end 1998.
1999's loan growth was funded mainly by increases in deposits and
short-term borrowings. In 1998, the Company funded its loan growth mainly
through reductions in the securities portfolio and steady deposit growth. The
average securities portfolio decreased by 17% in 1998, although a portion of
this decline was caused by a shift to short-term liquidity management
investments in response to a flattening yield curve in the latter part of that
year. Average securities were approximately 29% of average earning assets in
both 1999 and 1998, down from 37% in 1997. The 28 basis point decrease in the
effective investment portfolio yield (TE) between 1998 and 1999 generally
reflects the lower average reinvestment rates available in 1999.
As noted above, growth in average deposits supported average earning asset
growth in both 1999 and 1998. Average non-interest demand deposits grew 7% in
1999 and 9% in 1998. Average interest-bearing deposits grew 7% in 1999 and 6% in
1998. Traditional savings deposits has been the only interest-bearing deposit
category with consistent decreases in recent years. The demand for the Bank's
sweep repurchase product led to a 29% increase in average short-term borrowings
in 1999 over 1998. The percent of earning assets funded by non-interest-bearing
sources, however, has remained relatively stable at approximately 28% in each of
the three years ended 1999.
Page 17 of 63 Pages
<PAGE>
<TABLE>
<CAPTION>
TABLE 12. SUMMARYOF AVERAGE BALANCE SHEETS, NET INTEREST INCOME (TE) (a) AND INTEREST RATES
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (TE)(a),(b) $3,377,691 $267,676 7.92 % $2,972,664 $247,287 8.32 % $2,609,275 $224,798 8.62 %
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities 155,439 9,616 6.19 263,710 17,010 6.45 520,404 31,063 5.97
U.S. agency securities 481,990 28,736 5.96 435,925 28,024 6.42 558,306 35,453 6.35
Mortgage-backed securities 531,544 32,286 6.07 450,436 28,138 6.25 331,175 21,194 6.40
Obligations of states and political
subdivisions (TE)(a) 186,365 14,166 7.60 140,873 11,396 8.08 147,935 12,213 8.25
Federal Reserve stock and other
corporate securities 8,118 544 6.70 10,219 573 5.61 11,323 641 5.66
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in
securities(c) 1,363,456 85,348 6.26 1,301,163 85,141 6.54 1,569,143 100,564 6.41
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
short-term investments 52,646 2,526 4.80 155,804 8,411 5.39 50,792 3,103 6.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 4,793,793 $355,550 7.42 % 4,429,631 $340,839 7.69 % 4,229,210 $328,465 7.77 %
- ------------------------------------------------------------------------------------------------------------------------------------
NON-EARNING ASSETS
Other assets 491,915 470,525 446,339
Reserve for possible loan losses (42,235) (43,068) (44,554)
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $5,243,473 $4,857,088 $4,630,995
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits $ 488,459 $ 6,594 1.35 % $ 465,211 $ 7,701 1.66 % $ 478,338 $ 9,541 1.99 %
Money market deposits 744,440 26,838 3.61 580,828 21,901 3.77 389,540 12,827 3.29
Savings deposits 478,511 9,585 2.00 508,180 12,070 2.38 542,901 14,301 2.63
Other time deposits 753,545 35,371 4.69 743,783 37,403 5.03 763,358 38,463 5.04
Time deposits $100,000 and over 577,502 27,743 4.80 548,689 28,383 5.17 508,807 26,660 5.24
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 3,042,457 106,131 3.49 2,846,691 107,458 3.77 2,682,944 101,792 3.79
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 434,397 17,934 4.13 337,544 15,523 4.59 409,875 20,453 4.99
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 3,476,854 $124,065 3.57 % 3,184,235 $122,981 3.86 % 3,092,819 $122,245 3.95 %
- ------------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST-BEARING LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits 1,164,231 1,083,530 996,888
Other liabilities 42,127 40,517 37,963
Shareholders' equity 560,261 548,806 503,325
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $5,243,473 $4,857,088 $4,630,995
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin (TE)(a) $231,485 4.83 % $217,858 4.92 % $206,220 4.88 %
- ------------------------------------------------------------------------------------------------------------------------------------
Net earning assets and spread $1,316,939 3.85 % $1,245,396 3.83 % $1,136,391 3.82 %
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) Average balance includes non-accruing loans of $10,630, $10,679 and $9,208, respectively, in 1999, 1998 and 1997.
(c) Average balance excludes unrealized gain or loss on securities available for sale.
</TABLE>
Page 18 of 63 Pages
<PAGE>
<TABLE>
<CAPTION>
TABLE 13. SUMMARY OF CHANGES IN NET INTEREST INCOME (TE) (a)
- ------------------------------------------------------------------------------------------------------------------------------------
1999 compared to 1998 1998 compared to 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Due to Due to
Change in Total Change in Total
------------------------- Increase ------------------------ Increase
(dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME (TE) (a)
<S> <C> <C> <C> <C> <C> <C>
Loans (TE)(a),(b) $32,509 $(12,120) $20,389 $30,443 $(7,954) $22,489
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities (6,724) (670) (7,394) (16,384) 2,331 (14,053)
U.S. agency securities 2,834 (2,122) 712 (7,862) 433 (7,429)
Mortgage-backed securities 4,945 (797) 4,148 7,461 (517) 6,944
Obligations of states and
political subdivisions (TE)(a) 3,493 (723) 2,770 (575) (242) (817)
Federal reserve stock and other
corporate securities (130) 101 (29) (62) (6) (68)
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities 4,418 (4,211) 207 (17,422) 1,999 (15,423)
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and short term
investments (5,039) (846) (5,885) 5,709 (401) 5,308
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income(TE)(a) 31,888 (17,177) 14,711 18,730 (6,356) 12,374
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW account deposits 370 (1,477) (1,107) (256) (1,584) (1,840)
Money market deposits 5,935 (998) 4,937 7,004 2,070 9,074
Savings deposits (675) (1,810) (2,485) (879) (1,352) (2,231)
Other time deposits 486 (2,518) (2,032) (985) (75) (1,060)
Time deposits $100,000 and over 1,445 (2,085) (640) 2,067 (344) 1,723
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 7,561 (8,888) (1,327) 6,951 (1,285) 5,666
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 4,118 (1,707) 2,411 (3,413) (1,517) (4,930)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 11,679 (10,595) 1,084 3,538 (2,802) 736
- ------------------------------------------------------------------------------------------------------------------------------------
Change in net interest
income (TE)(a) $20,209 $ (6,582) $13,627 $15,192 $(3,554) $11,638
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
(b) Interest recognized on a cash basis on non-accruing loans and prior cost recovery interest currently recognized on
nonaccruing and certain accruing loans was $422, $1,216 and $1,645 in 1999, 1998 and 1997, respectively.
</FN>
</TABLE>
Page 19 of 63 Pages
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES
As was anticipated at the end of 1998, the Company began providing for
possible loan losses in 1999, after a nominal provision from a pooled
acquisition in 1998 and a $2.1 million reserve reduction in 1997. The $6.0
million provision in 1999 exceeded net charge-offs by $4.2 million. This
reflects management's consideration, among other factors, of sustained strong
loan growth and an increase in performing loans internally classified as having
above normal credit risk. With continued loan growth it is likely that
additional provisions will be required in 2000, although the size of these
provisions will reflect asset quality trends and management's ongoing
evaluation, based on established internal policies and practices, of the risk of
loss inherent in the portfolio.
For a discussion of changes in the reserve for possible loan losses,
non-performing assets and general asset quality, see the earlier section on
Loans and Reserve for Possible Loan Losses.
NON-INTEREST INCOME
Table 14 shows the components of non-interest income for each of the three
years ended December 31, 1999, along with the percent changes between years for
each component. Non-interest income increased $7.4 million in 1999 and $6.4
million in 1998, or approximately 12% in each period. Excluding income from
sales and other dispositions of foreclosed assets and surplus banking property,
non-interest income increased 20% in 1999 and 15% in 1998.
<TABLE>
<CAPTION>
TABLE 14. NON-INTEREST INCOME
- ------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 % change 1998 % change 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $27,721 17.1% $23,668 2.9% $23,012
Credit card income 13,144 30.5 10,075 35.1 7,455
Trust service fees 8,511 26.3 6,739 36.9 4,922
ATM fees 3,735 8.4 3,446 14.1 3,021
Secondary mortgage market operations 3,149 41.2 2,230 99.1 1,120
International services income 2,009 6.0 1,895 4.1 1,821
Other fees and charges 1,952 11.2 1,755 (10.2) 1,955
Investment services income 1,548 5.6 1,466 41.6 1,035
Other operating income 1,366 107.9 657 (58.8) 1,594
Net gain on sales and other
dispositions of foreclosed assets 1,182 (80.0) 5,897 (11.2) 6,641
Gains of sales of surplus property 2,346 284.6 610 143.0 251
- ------------------------------------------------------------------------------------------------------------------------
Total non-interest income before securities transactions 66,663 14.1 58,438 10.6 52,827
Securities transactions - (a) 839 (a) 12
- ------------------------------------------------------------------------------------------------------------------------
Total non-interest income $66,663 12.5% $59,277 12.2% $52,839
- ------------------------------------------------------------------------------------------------------------------------
(a) Not meaningful.
</TABLE>
Income from service charges on deposit accounts increased 17% in 1999 after
an increase of 3% in 1998. Revised fee structures for certain deposit services
made a significant contribution to the improvement in 1999, as did the overall
growth in fee-based deposit accounts and transaction volume. The lower increase
from 1997 to 1998 reflects increased deposit business and the assimilation of
acquisitions to Whitney's rate schedules, somewhat offset by the migration of
customers to Whitney SELECT and other products offering bundled services and
lower service charges.
Credit card income, the second-largest component of non-interest income,
grew 30% in 1999 after increasing 35% in 1998. The customer base for merchant
processing services continued to expand through successful sales efforts across
the Company's market areas, and retail transaction volumes have benefited from
healthy local economies. In both 1999 and 1998, the Company expanded the
distribution of its debit card product, and the increasing acceptance and use of
these cards for retail transactions has been a significant source of growth in
the credit card income category.
Page 20 of 63 Pages
<PAGE>
Trust service fees grew 26% in 1999 and 37% in 1998. Marketing and
incentive-based sales efforts across all market areas again played an important
role in building the customer base in 1999. The growth in trust service fees in
recent years was also supported by the strong performance of the financial
markets over much of this period.
ATM fees increased 8% in 1999 compared to 14% in 1998. During 1999, the
absence of mergers and significant branch expansion activity and a reduced
supply of economically attractive non-branch remote sites caused a significant
slowdown in the expansion of the Company's network of full-service ATM's and
cash dispensers. This is reflected in the slower rate of growth in this income
category for 1999. At December 31, 1999, 1998 and 1997 the Company had 193, 191
and 137 ATMs and cash dispensers in service, respectively.
Fees from secondary mortgage market operations grew strongly in both 1999
and 1998 as favorable interest rates and increased mortgage product emphasis and
marketing produced higher origination volumes. As expected, however, origination
volumes and fees have fallen off in the latter part of 1999 with the recent
upswing in market rates, and this will likely continue into the first part of
2000.
Late in the second quarter of 1999, the Company opened a new parking
facility next to its main office. The operating revenue from this facility
totaled $.6 million and accounts for almost all of the increase in 1999 in the
other operating income category. The decrease in this income category between
1997 and 1998 reflects certain non-recurring items in the earlier year.
Net gains on sales and other dispositions of foreclosed assets include
income from sales of pre-1933 assets that vary from year to year as
opportunities for sales arise. They also include revenue from conditional
payouts related to previously sold foreclosed assets. Management evaluates its
banking facilities on an ongoing basis to identify possible under-utilization
and to determine the need for functional improvements, relocations or possible
sales. The Bank closed transactions involving six of its facilities during 1999
and several additional transactions in both 1998 and 1997. The gains recognized
in each period are shown in Table 14.
NON-INTEREST EXPENSE
Table 15 shows the components of non-interest expense without
merger-related expenses for each of the three years ended December 31, 1999,
along with the percent changes between years for each component. Non-interest
expense before merger-related expenses increased 3% in 1999 after a 13% increase
in 1998.
Personnel expense increased $.7 million, or .7%, in 1999 after an increase
of $10.7 million, or 12%, in 1998. Employee salaries and incentive compensation
was essentially flat between 1998 and 1999. During 1999, the Company reduced its
full-time equivalent employee base by approximately 7% from the level at the end
of 1998 as it completed the integration of employees from merged entities and
strengthened the justification process for new positions. In addition, the
Company carefully managed the rate of regular merit increases and continued a
move to more incentive-based compensation programs. Employee benefits increased
approximately $.5 million, or 4%, in 1999. A reduction in health benefit expense
from the unusually high level in 1998 was more than offset by a $1.1 million
increase in the actuarially determined net periodic pension expense recognized
in 1999. Approximately $1.1 million of the increase in personnel expense in 1998
was due to the addition of key personnel and the staffing of additional banking
locations opened in that year and the latter part of the previous year.
Incentive compensation increased $3.7 million in 1998 primarily as a result of
increased incentive bonuses and stock-based incentive compensation as
participation and shares granted under the long-term incentive program
increased. Also increasing personnel expense in 1998 was unexpectedly high
health claims expense under a self-insured medical plan. Beginning in 1999, the
Company contracted with outside providers under set fee or premium arrangements
for all of its health insurance programs.
Page 21 of 63 Pages
<PAGE>
<TABLE>
<CAPTION>
TABLE 15. NON-INTEREST EXPENSE
- -------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 % change 1998 % change 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Employee compensation $83,293 .2% $83,105 13.7% $73,062
Employee benefits 14,772 3.5 14,272 4.9 13,599
- -------------------------------------------------------------------------------------------------------------------------
Total personnel expense 98,065 .7 97,377 12.4 86,661
Equipment and data processing expense 22,041 14.4 19,261 16.6 16,513
Net occupancy expense 15,614 4.5 14,938 13.4 13,174
Credit card processing services 9,448 27.6 7,405 35.2 5,476
Postage and communications 7,887 9.7 7,188 20.7 5,956
Ad valorem taxes 6,232 18.3 5,270 22.4 4,305
Legal and professional fees 4,823 (12.2) 5,493 42.3 3,859
Stationery and supplies 4,298 (3.8) 4,468 7.2 4,167
Other outside services 4,295 8.4 3,964 4.5 3,905
Amortization of intangible assets 3,781 36.2 2,777 14.8 2,418
Advertising 2,194 (28.6) 3,074 (13.1) 3,538
Security services 1,553 2.8 1,511 (28.9) 2,126
Deposit insurance and regulatory fees 1,316 11.2 1,182 (15.0) 1,390
Miscellaneous operating losses 1,272 (47.2) 2,409 (11.3) 2,716
Training expense 764 (64.4) 2,148 172.9 787
Other operating expenses 10,580 7.0 9,885 .3 9,857
- -------------------------------------------------------------------------------------------------------------------------
Non-interest expense, before
merger-related expenses 194,163 3.1 188,350 12.9 166,848
Merger-related expenses - (a) 6,149 (a) 3,397
- -------------------------------------------------------------------------------------------------------------------------
Total non-interest expense $194,163 (.2)% $194,499 14.2% $170,245
- -------------------------------------------------------------------------------------------------------------------------
(a) Not meaningful.
</TABLE>
Equipment and data processing expense increased $2.8 million, or 14%, in
1999 after an increase of $2.7 million, or 17%, in 1998. 1999's increase was
caused almost entirely by increased provisions for depreciation and
amortization, and changes in these provision were a major factor behind the
increase in 1998. During 1999 and 1998, the Company completed the various phases
in the development and rollout of a new branch delivery system and standardized
office automation network. In 1999 the Company also acquired systems to automate
certain back-office functions and increase their effectiveness and efficiency.
In both years, the Company made other enhancements to its data processing and
communications systems. Branch expansion, including the Lake Charles branch
acquisition in September 1998, also contributed to increased expenses in each of
these years. Equipment and data processing expense in 1998 also includes
approximately $.5 million in special charges related to the upgrade of the
Company's mainframe central processing unit in that year.
Net occupancy expense increased $.7 million, or 5%, in 1999 after growing
$2.7 million, or 13%, in 1998. Depreciation expense increased in both 1999 and
1998 largely as a result of the expanded branch network, renovations designed to
improve the appearance and functionality of certain facilities and, for 1999
only, the construction of the new parking facility. In addition to the eight
Lake Charles locations, the Company opened sixteen newly-constructed branches
since the beginning of 1997, including five replacement facilities. The timing
of these openings and acquisitions was such that related increases in property
taxes were felt mainly in 1999, even though only two locations were opened in
that year. During 1999, the Company reevaluated many of its facilities
maintenance contracts and negotiated changes that helped produce a net reduction
in maintenance and repairs expense compared to 1998. This overall reduction also
reflected an unusually high level of unscheduled repair work in 1998.
Credit card processing services expense grew from 1997 through 1999 at
rates that are generally consistent with the growth in revenue from those
operations discussed earlier. Postage and communications expense increased 10%
in 1999
Page 22 of 63 Pages
<PAGE>
and 21% in 1998. Branch expansion and an increasing number of customers were the
main contributing factors. The increase in 1999 also reflects a postal rate
increase. The increase in ad valorem taxes over this period is discussed below
in the section on "Income Taxes."
Amortization of intangible assets acquired with the Lake Charles branch
purchase in late 1998 caused a $1.0 million, or 36%, increase in this expense
category for 1999. The weighted-average remaining life of intangible assets at
December 31, 1999 was approximately thirteen years. The purchase of Bank of
Houston in early 2000 will add approximately $38 million in intangible assets
and increase amortization expense by approximately $2 million annually.
Legal and other professional services decreased 12% in 1999 after rising
42% in 1998. These fluctuations reflect the general level of corporate legal
activity in each of these periods and also the use of consultants in 1998 for
customer call center design work and Year 2000 remediation testing.
Advertising expense decreased 29% in 1999 following a 13% decrease in 1998.
No campaigns were needed in 1999 to introduce the Bank and its products to
customers of merged entities. In recent years the Company has also been able to
focus more on recurring sales-oriented campaigns while reducing general
corporate image advertising and new product introduction campaigns. The marked
$1.4 million decrease in training expense in 1999, following a similar increase
in 1998 over 1997, reflects the system wide customer-focused sales training
program substantially completed in 1998. This program complemented the rollout
of the branch delivery system, and both were designed to benefit revenue growth
in future periods.
Security services expense in 1998 was impacted by changes in the mix of
on-site armed guards versus other security measures. Even with increases in the
number of branch and ATM locations, this expense category decreased 29% in 1998
and grew only 3% in 1999.
The Company and its merger candidates incur various non-recurring costs to
complete merger transactions and to consolidate operations subsequent to a
merger. Such merger-related costs include change in control payments and
severance or retention bonuses for management and employees of the merged
entity, investment banker fees, fees for various professional services and
losses on cancellation of contracts and the disposition of obsolete and
redundant facilities and equipment. Total merger-related expenses vary with each
transaction.
INCOME TAXES
Income tax expense was $29.8 million in 1999, $25.2 million in 1998 and
$28.9 million in 1997. The changes in income tax expense resulted primarily from
changes in pretax income and non-deductible merger-related expenses. The
Company's effective tax rate was 32.3% in both 1999 and 1998 and 33.6% in 1997.
These effective rates were lower than the 35% federal statutory tax rate,
primarily because of tax-exempt interest income received from the financing of
state and local governments. 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 these ad
valorem taxes are included in non-interest expense. This expense will fluctuate
based in part on the growth in the Company's equity and earnings and in part
based on market valuation trends for the banking industry.
See Note 20 for additional information on the Company's effective tax rates
and the composition of changes in income tax expense for all periods.
FOURTH QUARTER RESULTS
The Company earned $.74 per share in the fourth quarter of 1999, a 40%
increase over the $.53 per share reported for the fourth quarter of 1998 before
tax-effected merger-related expenses and a 3% increase from the $.72 per share
earned in the third quarter of 1999. Return on average assets increased to 1.25%
for the fourth quarter, and return on average shareholders' equity rose to
11.94%. Reported net income was $16.7 million in the fourth quarter of 1999
compared to $11.4 million in 1998's fourth quarter and $16.3 million in the
third quarter of 1999.
The following key items impacted the fourth quarter's results:
o Net interest income (TE) increased 7% from the fourth quarter of
1998 and 3% from the third quarter of 1999. Loan growth fueled an
overall increase in higher-yielding earning assets. At the same
time, the mix of interest-bearing and non-interest-bearing funding
sources remained stable, and the cost of funds was effectively
managed during the recent period of rising market rates.
Page 23 of 63 Pages
<PAGE>
o Non-interest income, excluding securities transactions and sales
of banking properties and pre-1933 assets, was 13% higher than the
same quarter in 1998 and essentially unchanged from the third
quarter of 1999. Credit card income increased 29% from the same
period in 1998 and was up 10% from the previous quarter in 1999,
partly as a result of a seasonal increase in transaction volume.
Trust service fees improved 21% and 7%, respectively, from the
fourth quarter of 1998 and the third quarter of 1999. Quarterly
income from service charges on deposit accounts was up 10% year
over year but slightly below the previous quarter in 1999. Income
from secondary mortgage market operations was also down as
expected on reduced volume in a rising interest rate environment.
Gains on sales of banking properties and pre-1933 assets were $1.9
million in the fourth quarter of 1999, $1.1 million in the
previous quarter and $.5 million in the fourth quarter of 1998.
o Throughout 1999, non-interest expense showed the positive effects
of expense control programs established in late 1998. Non-interest
expense was $50.3 million in the fourth quarter, down $1.9 million
from $52.2 million in the fourth quarter of 1998, excluding
conversion and other merger-related expenses in the prior year.
Compared with the previous quarter in 1999, non-interest expense
increased 5%, largely because of the periodic revision of
performance-based incentive compensation estimates.
o Sustained loan growth continued to be the primary factor behind
quarterly provisions for possible loan losses, which totaled $1.75
million in the fourth quarter and $2.0 million in 1999's third
quarter. Whitney had net charge-offs of $1.0 million in the fourth
quarter following a small net recovery in the third quarter. The
reserve for possible loan losses was 1.21% of total loans at
December 31, 1999, 1.25% at September 30, 1999, and 1.23% at
year-end 1998.
The Summary of Quarterly Financial Information on page 53 provides selected
comparative financial information for each of the four quarters in 1999 and
1998.
Item 7a: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Incorporated by reference to the Company's 1999 10-K, Item 7.
Page 24 of 63 Pages
<PAGE>
<TABLE>
<CAPTION>
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WHITNEY HOLDING COPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
- ----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and due from financial institutions $ 230,690 $ 214,963
Investment in securities
Securities available for sale 206,932 105,361
Securities held to maturity, fair values of $1,060,340 and $1,253,113, respectively 1,084,931 1,234,717
- ----------------------------------------------------------------------------------------------------------------------------
Total investment in securities 1,291,863 1,340,078
Federal funds sold and short-term investments 18,691 151,510
Loans, net of unearned income 3,673,047 3,270,581
Reserve for possible loan losses (44,466) (40,282)
- ----------------------------------------------------------------------------------------------------------------------------
Net loans 3,628,581 3,230,299
- ----------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment 169,715 169,724
Intangible assets 33,317 37,204
Accrued interest receivable 30,694 31,070
Other assets 50,837 37,071
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 5,454,388 $5,211,919
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Non-interest-bearing demand deposits $ 1,230,509 $1,240,189
Interest-bearing deposits 3,078,889 3,016,473
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 4,309,398 4,256,662
- ----------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under repurchase agreements 541,357 355,322
Accrued interest payable 12,389 12,229
Accounts payable and other accrued liabilities 34,141 26,745
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,897,285 4,650,958
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized --100,000,000 shares
Issued -- 23,745,512 and 23,669,700 shares, respectively 2,800 2,800
Capital surplus 141,512 138,848
Retained earnings 461,025 428,880
Accumulated other comprehensive income (3,483) (272)
Treasury stock at cost -- 1,171,458 and 276,703 shares, respectively (40,678) (4,613)
Unearned restricted stock compensation (4,073) (4,682)
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 557,103 560,961
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 5,454,388 $5,211,919
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
Page 25 of 63 Pages
<PAGE>
<TABLE>
<CAPTION>
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $ 266,895 $ 246,534 $ 224,158
Interest and dividends on investments
U.S. Treasury securities 9,616 17,010 31,063
U.S. agency securities 28,736 28,024 35,453
Mortgage-backed securities 32,286 28,138 21,194
Obligations of states and political subdivisions 9,210 7,423 7,959
Federal Reserve stock and other corporate securities 544 573 641
Interest on federal funds sold and short-term investments 2,526 8,411 3,103
- --------------------------------------------------------------------------------------------------------------------------
Total interest income 349,813 336,113 323,571
- --------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 106,131 107,458 101,792
Interest on federal funds purchased and securities sold under repurchase agreements 17,934 15,523 20,453
- --------------------------------------------------------------------------------------------------------------------------
Total interest expense 124,065 122,981 122,245
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 225,748 213,132 201,326
PROVISION FOR POSSIBLE LOAN LOSSES 6,000 73 (2,120)
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 219,748 213,059 203,446
- --------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 27,721 23,668 23,012
Credit card income 13,144 10,075 7,455
Trust service fees 8,511 6,739 4,922
Other non-interest income 17,287 17,956 17,438
Securities transactions - 839 12
- --------------------------------------------------------------------------------------------------------------------------
Total non-interest income 66,663 59,277 52,839
- --------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Employee compensation 83,293 84,537 73,543
Employee benefits 14,772 14,283 13,599
- --------------------------------------------------------------------------------------------------------------------------
Total personnel expense 98,065 98,820 87,142
Equipment and data processing expense 22,041 19,555 16,578
Net occupancy expense 15,614 14,943 13,174
Credit card processing services 9,448 7,405 5,476
Postage and communications 7,887 7,188 5,956
Ad valorem taxes 6,232 5,270 4,305
Legal and professional fees 4,823 7,734 5,608
Stationery and supplies 4,298 4,468 4,167
Other non-interest expense 25,755 29,116 27,839
- --------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 194,163 194,499 170,245
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 92,248 77,837 86,040
INCOME TAX EXPENSE 29,828 25,158 28,862
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 62,420 $ 52,679 $ 57,178
- --------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $ 2.71 $ 2.26 $ 2.48
Diluted $ 2.70 $ 2.24 $ 2.46
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic 23,013,671 23,283,458 23,025,173
Diluted 23,091,105 23,499,643 23,236,174
- --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
Page 26 of 63 Pages
<PAGE>
<TABLE>
<CAPTION>
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated Unearned
Other Restricted
Common Capital Retained Comprehensive Treasury Stock
(dollars in thousands, except per share data) Stock Surplus Earnings Income Stock Compensation Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $2,800 $117,345 $371,090 $ (469) $ (4,693) $(3,081) $482,992
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 57,178 - - - 57,178
Other comprehensive income:
Unrealized net holding gain on
securities, net of reclassification
adjustments and tax - - - 842 - - 842
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 57,178 842 - - 58,020
- ----------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.12 per share - - (22,790) - - - (22,790)
Cash dividends, pooled entities - - (1,586) - - - (1,586)
Exercise of stock options - 861 - - 295 - 1,156
Sales to dividend reinvestment and
employee benefit plans - 4,922 - - 123 - 5,045
Director stock grants - 153 - - - - 153
Restricted stock grants and other activity, net - 4,035 - - 590 (2,479) 2,146
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,800 127,316 403,892 373 (3,685) (5,560) 525,136
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 52,679 - - - 52,679
Other comprehensive income:
Unrealized net holding loss on
securities, net of reclassification
adjustments and tax - - - (645) - - (645)
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 52,679 (645) - - 52,034
- ----------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.20 per share - - (27,041) - - - (27,041)
Cash dividends, pooled entities - - (650) - - - (650)
Exercise of stock options - 1,997 - - 37 - 2,034
Sales to dividend reinvestment and
employee benefit plans - 6,005 - - 150 - 6,155
Director stock grants - 167 - - - - 167
Restricted stock grants and other activity, net - 3,363 - - (1,115) 878 3,126
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,800 138,848 428,880 (272) (4,613) (4,682) 560,961
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 62,420 - - - 62,420
Other comprehensive income:
Unrealized net holding loss on
securities, net of reclassification
adjustments and tax - - - (3,211) - - (3,211)
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 62,420 (3,211) - - 59,209
- ----------------------------------------------------------------------------------------------------------------------------
Cash dividends, $1.32 per share - - (30,275) - - - (30,275)
Purchases of treasury stock
under repurchase plan - - - - (38,736) - (38,736)
Exercise of stock options - 589 - - 288 - 877
Sales to dividend reinvestment and
employee benefit plans - 1,430 - - 1,329 - 2,759
Director stock grants - 22 - - 96 - 118
Restricted stock grants and other activity, net - 623 - - 958 609 2,190
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $2,800 $141,512 $461,025 $(3,483) $(40,678) $(4,073) $557,103
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
Page 27 of 63 Pages
<PAGE>
<TABLE>
<CAPTION>
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 62,420 $ 52,679 $ 57,178
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 24,094 20,420 18,572
Amortization of intangibles 3,781 2,777 2,418
Deferred tax expense (benefit) (2,021) (486) 221
Net gains on sales of investment securities - (839) (12)
Provision for possible loan losses 6,000 73 (2,120)
Provision for losses on foreclosed assets 201 128 243
Net gains on sales and other dispositions of foreclosed assets (1,182) (5,897) (6,641)
Net (gains) losses on sales and other dispositions of surplus property (2,262) 51 486
Increase (decrease) in accrued income taxes 811 (51) 1,725
Decrease in accrued interest receivable and prepaid expenses 2,129 420 1,719
Increase in accrued interest payable and other accrued expenses 1,705 1,462 1,477
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 95,676 70,737 75,266
- ----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 374,605 551,791 777,045
Purchases of investment securities held to maturity (226,085) (522,828) (633,357)
Proceeds from maturities of investment securities available for sale 67,945 105,698 128,222
Proceeds from sales of investment securities available for sale - 1,051 -
Purchases of investment securities available for sale (174,652) (4,927) (75,866)
Net increase in loans (405,341) (371,130) (378,408)
Net (increase) decrease in federal funds sold and short-term investments 132,819 (127,709) 56,063
Proceeds from sales and other dispositions of foreclosed assets 2,780 8,089 8,756
Proceeds from sales of surplus property 5,812 1,734 2,114
Purchases of bank premises and equipment (23,337) (36,936) (36,008)
Net cash acquired in branch purchase - 83,459 -
Other, net (6,831) (92) 2,001
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (252,285) (311,800) (149,438)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW, money market and savings deposits (3,761) 238,370 147,151
Net increase (decrease) in time deposits 56,497 (66,496) 115,671
Net increase (decrease) in federal funds purchased and securities sold under
repurchase agreements 186,035 65,636 (194,734)
Proceeds from issuance of stock 3,354 8,201 6,044
Purchases of treasury stock (39,948) (1,300) (513)
Cash dividends (29,841) (26,443) (23,425)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 172,336 217,968 50,194
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,727 (23,095) (23,978)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 214,963 238,058 262,036
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 230,690 $ 214,963 $ 238,058
- ----------------------------------------------------------------------------------------------------------------------------
Cash received during the year for:
Interest income $ 350,189 $ 340,793 $ 324,564
Cash paid during the year for:
Interest expense $ 123,905 $ 122,066 $ 121,684
Income taxes $ 29,800 $ 23,482 $ 26,489
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
Page 28 of 63 Pages
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
NATURE OF BUSINESS
Whitney Holding Corporation ("the Company") is a Louisiana bank holding
company headquartered in New Orleans, Louisiana. The Company's principal
subsidiary is Whitney National Bank ("the Bank"), which has been in continuous
operation since 1883 and represents virtually all of the operations and net
income of the Company. The Bank engages in community banking in its market areas
in the four state Gulf Coast region, including southern Louisiana, the coastal
region of Mississippi, central and south Alabama, and the panhandle 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.
During the third quarter of 1999, the Bank formed Whitney Securities
L.L.C., a wholly-owned subsidiary that is expected to begin operations as a
broker-dealer in securities during the first quarter of 2000 after obtaining
regulatory approvals. Whitney Securites L.L.C. will expand the range of
broker-dealer products and services that the Bank currently offers on a limited
basis directly to its customers.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT PRONOUNCEMENTS
The accounting and reporting policies of the Company and its subsidiaries
follow generally accepted accounting principles and practices 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 the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated. Prior year financial statements have been restated to
reflect subsequent business combinations, if any, accounted for as
poolings-of-interests. The Company reports the balances and results of
operations from business combinations accounted for as purchases from the
respective dates of acquisition. Certain financial information for prior years
has been reclassified to conform to the current year's presentation.
Use of Estimates
In preparing the consolidated financial statements, the Company is required
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Investment in 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 non-interest income. Trading account securities are
immaterial in each period presented and have been included in other assets on
the consolidated balance sheets.
Securities which the Company both positively intends and has the ability to
hold to maturity are classified as securities held to maturity and are carried
at amortized cost. Intent and ability to hold are not considered satisfied when
a security is available to be sold in response to changes in interest rates,
prepayment rates, liquidity needs or other reasons as part of an overall
asset/liability management strategy.
Securities not meeting the criteria to be classified as either trading
securities or securities held to maturity are classified as available for sale
and are carried at fair value. Net unrealized holding gains or losses are
excluded from net income and are recognized in other comprehensive income and in
accumulated other comprehensive income, a separate component of shareholders'
equity.
Page 29 of 63 Pages
<PAGE>
Interest and dividend income earned on securities either held to maturity
or available for sale are recognized in interest income, including amortization
of premiums and accretion of discounts computed using the interest method.
Realized gains and losses on securities either held to maturity or available for
sale are computed based upon specifically identified amortized cost and are
reported as a separate component of non-interest income.
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 to yield a level rate of return on recorded principal.
Non-performing Loans
Non-performing loans consist of loans accounted for on a non-accrual basis
and restructured loans. Loans are placed on non-accrual status when, in the
opinion of management, there is an indication that a borrower will be unable to
meet contractual payments as they become due. For commercial and real estate
loans, generally a loan is placed on non-accrual status when it is 90 days past
due as to principal and interest, and the loan is not otherwise both well
secured and in the process of collection. When a loan is placed on non-accrual
status, any accrued but uncollected interest is reversed against interest
income. Interest payments on non-accrual loans are used to reduce the reported
loan principal under the cost recovery method when the collectibility of the
remaining principal is not reasonably assured; otherwise, such payments are
recognized as interest income in the period in which they are received. A loan
on non-accrual 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.
Impaired Loans
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 non-accrual basis.
The extent of impairment is measured based upon a comparison of the recorded
investment in the loan with either the expected cash flows discounted using the
loan's original effective interest rate or, in the case of certain
collateral-dependent loans, the fair value of the underlying collateral. The
amount of impairment is included in the reserve for possible loan losses.
Reserve for Possible Loan Losses
The reserve for possible loan losses is maintained at a level which, in the
opinion of management, is adequate to absorb potential losses inherent in the
loan portfolio. The adequacy of the reserve level is evaluated on an ongoing
basis. Factors considered include estimated potential losses from specific
lending relationships, including unused loan commitments and credit guarantees;
general economic conditions; economic conditions affecting specific classes of
borrowers or types of loan collateral; historic loss experience; and various
trends in loan portfolio characteristics, such as volume, maturity, customer
mix, delinquencies and non-accruals. Changes in management's evaluation over
time are reflected in the provision for possible loan losses charged to
operating expense.
As actual loan losses are incurred, they are charged against the reserve.
Recoveries on loans previously charged against the reserve are added back to the
reserve when collected.
Bank Premises and Equipment
Bank premises and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation and amortization are 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. Additions to bank premises and equipment and major
replacements or improvements are capitalized.
Foreclosed Assets and Surplus Property
Collateral acquired through foreclosure or in settlement of loans and
surplus banking property are reported with other assets in the consolidated
balance sheets. With the exception of pre-1933 property interests, which are
assigned a nominal book value, these assets are recorded at estimated fair
value, less estimated selling costs, if this
Page 30 of 63 Pages
<PAGE>
value is lower than the carrying value of the related loan or property asset.
The initial reduction in the carrying amount of a loan to the fair value of the
collateral received is charged to the reserve for possible 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 prior to
sale.
Intangible Assets
The unamortized cost of intangible assets is included in other assets.
Goodwill, which represents the excess of cost over the fair value of the net
assets of an acquired business, including identified intangible assets, is
amortized on a straight-line basis over periods of up to twenty-five years.
Identified intangible assets, such as the value of purchased deposit
relationships, are amortized using the straight-line method over the periods
benefited. The Company periodically reviews its intangible assets for possible
impairment in value or life.
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 expected tax consequences when such amounts are settled or
realized. Valuation allowances are established against net deferred tax assets
if, based on all available evidence, it is more likely than not that some or all
of the assets will not be realized.
Earnings Per Share
Basic earnings per share is computed by dividing income applicable to
common shares (net income in all periods presented) by the weighted-average
number of common shares outstanding for the applicable period. Diluted earnings
per share is computed using the weighted-average number of common shares
outstanding increased by the number of additional shares that would have been
issued if potentially dilutive stock options had been exercised as determined
using the treasury stock method.
Statements of Cash Flows
The Company considers only cash on hand and balances due from financial
institutions as cash and cash equivalents for purposes of the consolidated
statements of cash flows.
Operating Segment Disclosures
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
About Segments of an Enterprise and Related Information," which was effective
for 1998, established standards for reporting information about a company's
operating segments using a "management approach." Reportable segments are
identified 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. The Company evaluated its potential operating segments against the
criteria specified in the statement and has determined that no operating segment
disclosures are required in 1999 or 1998 because of the aggregation concepts
specified in the statement.
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.
Page 31 of 63 Pages
<PAGE>
Recent Pronouncements
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," in June 1998.
This statement provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities, in which the
Company does not presently participate. The provisions of SFAS No. 133 are
effective as of January 1, 2001 for the Company, with early adoption permitted.
Upon adoption, the Company may transfer any security held to maturity into the
available for sale category without calling into question the Company's intent
to hold other debt securities to maturity. The Company has not determined what
transfers would be made in accordance with this provision. Other than for the
effects of any such transfers, the adoption of this accounting standard is not
expected to have a material effect on the Company's financial position or
results of operations.
NOTE 3
MERGERS AND ACQUISITIONS
In November 1999, the Company announced it had entered into a definitive
agreement to acquire Bank of Houston, which has approximately $185 million in
total assets and $163 million in total deposits in two locations in the Houston,
Texas metropolitan area. The total all-cash purchase price will be approximately
$58 million. The anticipated acquisition will be accounted for as a purchase and
is subject to approval by appropriate regulatory agencies. The Company expects
to complete this acqusition in the first quarter of 2000.
In September 1998, the Bank purchased substantially all of the assets and
deposits of eight of the branches of The First National Bank of Lake Charles in
southwest Louisiana. These branches had approximately $39 million of loans and
$149 million of deposits at the time of purchase. In connection with this
purchase, the Bank recorded goodwill and deposit intangibles totaling $21
million. The deposit intangibles are being amortized over the estimated lives of
the deposits, approximately eight years, and the goodwill is being amortized
over twenty-five years. The results of operations of the Lake Charles branches
are included in the financial statements from the acquisition date. The pro
forma impact of this acquisition on the Company's results of operations is not
material.
During the three-year period ended December 31, 1999, five financial
institutions merged with the Company. These mergers were accounted for as
poolings-of-interests, and the Company's financial statements have been restated
to include these pooled companies. These financial institutions include First
National Bankshares, Inc. ("FNB"), the parent of First National Bank of Houma,
Louisiana; Merchants Bancshares, Inc. ("Merchants"), the parent of Merchants
Bank & Trust Company, Gulfport, Mississippi; Meritrust Federal Savings Bank
("Meritrust"), Thibodaux, Louisiana; Louisiana National Security Bank ("LNSB"),
Donaldsonville, Louisiana; and The First National Bancorp of Greenville, Inc.
("Greenville"), Greenville, Alabama. The following table shows the merger date,
assets acquired and the number of Company common shares issued for each of the
merged institutions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(dollars in millions) Merger Date Assets Acquired Shares Issued
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FNB February 28, 1997 $235 1,132,983
Merchants April 18, 1997 $208 1,451,507
Meritrust April 24, 1998 $233 1,046,686
LNSB May 16, 1998 $104 542,476
Greenville August 21, 1998 $115 720,938
- --------------------------------------------------------------------------------------------------------
</TABLE>
Page 32 of 63 Pages
<PAGE>
NOTE 4
INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
Summary information about securities available for sale and securities held
to maturity follows:
- ----------------------------------------------------------------------------------------------------------------
Securities Available for Sale
- ----------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains (Losses) Value
- ----------------------------------------------------------------------------------------------------------------
December 31, 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,019 $ 5 $ (53) $ 7,971
U.S. Agency securities 116,690 13 (2,576) 114,127
Mortgage-backed securities 85,672 10 (2,151) 83,531
Obligations of states and political subdivisions 634 8 - 642
Other corporate securities 758 - (97) 661
- ----------------------------------------------------------------------------------------------------------------
Total $211,773 $ 36 $(4,877) $206,932
- ----------------------------------------------------------------------------------------------------------------
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 19,986 $ 154 $ (1) $ 20,139
U.S. agency securities 41,123 238 (90) 41,271
Mortgage-backed securities 42,452 293 (344) 42,401
Obligations of states and political subdivisions 904 48 - 952
Other corporate securities 648 - (50) 598
- ----------------------------------------------------------------------------------------------------------------
Total $105,113 $ 733 $ (485) $105,361
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Securities Held to Maturity
- ----------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains (Losses) Value
- ----------------------------------------------------------------------------------------------------------------
December 31, 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 107,574 $ 233 $ (711) $ 107,096
U.S. agency securities 358,606 4 (15,413) 343,197
Mortgage-backed securities 427,074 300 (10,421) 416,953
Obligations of states and political subdivisions 184,151 1,073 (4,983) 180,241
Federal Reserve stock and other corporate
securities 7,526 5,327 - 12,853
- ----------------------------------------------------------------------------------------------------------------
Total $1,084,931 $ 6,937 $(31,528) $1,060,340
- ----------------------------------------------------------------------------------------------------------------
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 183,270 $ 3,754 $ (3) $ 187,021
U.S. agency securities 431,135 2,429 (1,706) 431,858
Mortgage-backed securities 453,545 5,596 (422) 458,719
Obligations of states and political subdivisions 158,686 5,117 (121) 163,682
Federal Reserve stock and other corporate
securities 8,081 3,752 - 11,833
- ----------------------------------------------------------------------------------------------------------------
Total $1,234,717 $20,648 $ (2,252) $1,253,113
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 33 of 63 Pages
<PAGE>
The amortized cost and estimated fair value of securities available for
sale and held to maturity by contractual maturity follow:
- -----------------------------------------------------------------------
Securities Available for Sale
- -----------------------------------------------------------------------
Amortized Fair
(dollars in thousands) Cost Value
- -----------------------------------------------------------------------
December 31, 1999
- -----------------------------------------------------------------------
Within one year $ 8,026 $ 7,999
One to five years 117,958 115,411
Five to ten years 65,581 63,954
After ten years 20,208 19,568
- -----------------------------------------------------------------------
Total securities available for sale $ 211,773 $ 206,932
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Securities Held to Maturity
- -----------------------------------------------------------------------
Amortized Fair
(dollars in thousands) Cost Value
- -----------------------------------------------------------------------
December 31, 1999
- -----------------------------------------------------------------------
Within one year $ 60,857 $ 61,370
One to five years 538,167 524,875
Five to ten years 325,436 313,539
After ten years 160,471 160,556
- -----------------------------------------------------------------------
Total securities held to maturity $1,084,931 $1,060,340
- -----------------------------------------------------------------------
Expected maturities may differ from contractual maturities, particularly
for mortgage-backed securities and certain U.S. agency securities and
obligations of states and political subdivisions, because of principal
prepayments and the exercise of call options.
Securities with carrying values of $1.03 billion and $953 million at
December 31, 1999 and 1998, respectively, were sold under repurchase agreements,
pledged to secure public deposits and trust deposits or pledged for other
purposes. Included in the 1999 total is $164 million that was pledged at the
Federal Reserve discount window in connection with the Company's Year 2000
contingency plan.
NOTE 5
LOANS
<TABLE>
<CAPTION>
The composition of the Company's loan portfolio follows:
December 31
- --------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 1,466,018 39.9% $ 1,299,243 39.7%
Real estate loans - commercial and other 1,213,465 33.0% 1,036,547 31.7%
Real estate loans - retail mortgage 700,311 19.1% 640,214 19.6%
Loans to individuals 292,680 7.9% 292,336 8.9%
Lease financing 573 .1% 2,241 .1%
- --------------------------------------------------------------------------------------------------------------------
Total loans $ 3,673,047 100.0% $ 3,270,581 100.0%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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 ("related
parties"). Loans to related parties are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions
Page 34 of 63 Pages
<PAGE>
with unrelated parties and do not involve more than normal risks of
collectibility at the time of the transactions. An analysis of the changes in
such loans during 1999 follows:
- ------------------------------------------------------------
(dollars in thousands) 1999
- ------------------------------------------------------------
Beginning balance $ 66,179
Additions 96,530
Repayments (83,330)
- ------------------------------------------------------------
Ending balance $ 79,379
- ------------------------------------------------------------
Outstanding commitments and letters of credit to related parties totaled
$64 million and $43 million at December 31, 1999 and 1998, respectively.
NOTE 6
RESERVE FOR POSSIBLE LOAN LOSSES
A summary analysis of changes in the reserve for possible loan losses
follows:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Balance at beginning of year $ 40,282 $ 44,543 $ 44,030
Provision for possible loan losses 6,000 73 (2,120)
Loans charged off (9,311) (12,630) (9,195)
Recoveries 7,495 8,296 11,828
- --------------------------------------------------------------------------------
Net (charge-offs) recoveries (1,816) (4,334) 2,633
- --------------------------------------------------------------------------------
Balance at end of year $ 44,466 $ 40,282 $ 44,543
- --------------------------------------------------------------------------------
NOTE 7
IMPAIRED LOANS, NON-PERFORMING LOANS, FORECLOSED ASSETS AND SURPLUS PROPERTY
Information on loans evaluated for possible impairment losses follows:
December 31
- -----------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------
Impaired loans at year-end
Requiring a loss reserve $ 9,278 $ 5,054
Not requiring a loss reserve 1,142 6,007
- -----------------------------------------------------------------------------
Total recorded investment in impaired loans $ 10,420 $ 11,061
- -----------------------------------------------------------------------------
Total impairment loss allowance required at year-end $ 3,702 $ 1,554
- -----------------------------------------------------------------------------
Average recorded investment in impaired loans during
year $ 9,736 $ 10,819
- -----------------------------------------------------------------------------
The following is a summary of non-performing loans and foreclosed assets
and surplus property:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Loans accounted for on a non-accrual basis $ 13,601 $ 11,497
Restructured loans 1,634 2,660
- --------------------------------------------------------------------------------
Total non-performing loans $ 15,235 $ 14,157
- --------------------------------------------------------------------------------
Total foreclosed assets and surplus property $ 1,831 $ 2,004
- --------------------------------------------------------------------------------
Page 35 of 63 Pages
<PAGE>
Interest income on certain non-accrual loans is recognized as cash interest
payments are received. Interest payments on non-accrual loans that were
accounted for under the cost recovery method may also subsequently be recognized
as interest income when loan collections exceed expectations or when workout
efforts result in fully rehabilitated credits. The following compares
contractual interest income on non-accrual loans and restructured loans with
both the interest income reported on a cash basis for these loans and the cost
recovery interest recognized on non-accrual loans and certain accruing loans:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Contractual interest $1,131 $ 1,218 $ 1,111
Interest recognized 422 1,216 1,645
- --------------------------------------------------------------------------------
Increase (decrease) in reported interest income $ (709) $ (2) $ 534
- --------------------------------------------------------------------------------
The Bank owns a variety of property interests which were acquired through
routine banking transactions prior to 1933 and for which there existed no ready
market. These assets were subsequently written down to a nominal holding value
in accordance with general banking practice at that time. The property includes
ownership interests in scattered undeveloped acreage, various mineral interests,
and a few commercial and residential site locations, principally in the greater
New Orleans area.
Revenues and direct expenses related to these property interests that are
included in the statements of operations follow:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Revenues $ 881 $ 2,488 $ 3,026
Direct expenses $ 34 $ 36 $ 38
- --------------------------------------------------------------------------------
NOTE 8
BANK PREMISES AND EQUIPMENT
An analysis of bank premises and equipment by asset classification follows:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Land $ 35,837 $ 36,502
Buildings and improvements 155,174 150,248
Furnishings and equipment 99,518 100,256
- --------------------------------------------------------------------------------
290,529 287,006
Accumulated depreciation and amortization (120,814) (117,282)
- --------------------------------------------------------------------------------
Total bank premises and equipment $169,715 $169,724
- --------------------------------------------------------------------------------
Provisions for depreciation and amortization included in non-interest
expense were as follows:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Buildings and improvements $ 5,854 $ 5,044 $ 4,604
Furnishings and equipment 13,471 10,998 9,478
- --------------------------------------------------------------------------------
Total depreciation and amortization expense $ 19,325 $ 16,042 $ 14,082
- --------------------------------------------------------------------------------
Page 36 of 63 Pages
<PAGE>
At December 31, 1999, the Bank was obligated under a number of
non-cancelable operating leases. Certain of these leases have escalation clauses
and renewal options. Total rental expense, net of immaterial sublease rentals,
was $2.7 million, $2.8 million and $1.8 million in 1999, 1998 and 1997,
respectively.
As of December 31, 1999, the future minimum rentals under non-cancelable
operating leases having an initial lease term in excess of one year were as
follows:
(dollars in thousands)
- ------------------------------------------------
2000 $ 3,038
2001 2,097
2002 1,706
2003 1,611
2004 1,472
Later years 10,823
- ------------------------------------------------
Total $20,747
- ------------------------------------------------
NOTE 9
INTANGIBLE ASSETS
Intangible assets consist of indentified intangibles, such as the value of
deposit relationships, and goodwill acquired in business combinations accounted
for as purchases. The unamortized cost of intangible assets consisted of the
following:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Deposit relationships and other identifiable intangibles $10,880 $12,952
Goodwill 22,437 24,252
- --------------------------------------------------------------------------------
Total intangible assets $33,317 $37,204
- --------------------------------------------------------------------------------
These assets are being amortized to expense over remaining lives ranging
from approximately three to eight years for identified intangibles and nine to
twenty-three years for goodwill as of December 31, 1999. Amortization included
in non-interest expense was as follows:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Deposit relationships and other identifiable
intangibles $ 2,072 $ 1,394 $ 1,280
Goodwill 1,709 1,383 1,138
- --------------------------------------------------------------------------------
Total amortization $ 3,781 $ 2,777 $ 2,418
- --------------------------------------------------------------------------------
Page 37 of 63 Pages
<PAGE>
NOTE 10
SHORT-TERM BORROWINGS
Short-term borrowings consisted of the following components:
December 31
- ------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------
Federal funds purchased $ 72,270 $ 70,780
Securities sold under agreements to repurchase 469,087 284,542
- ------------------------------------------------------------------------------
Total short-term borrowings $ 541,357 $ 355,322
- ------------------------------------------------------------------------------
The Bank has the ability to exercise legal authority over the securities
that serve as collateral for the securities sold under repurchase agreements.
The carrying and estimated fair values of securities sold under repurchase
agreements at December 31, 1999, by term of the underlying borrowing agreement,
were as follows:
Up to 30 to
(dollars in thousands) Overnight 30 days 90 days
- ------------------------------------------------------------------------------
December 31, 1999
- ------------------------------------------------------------------------------
Carrying value:
U.S. Treasury securities $ 27,484 $ 18,993 $ -
U.S. agency securities 347,308 56,446 29,015
- ------------------------------------------------------------------------------
Total carrying value $ 374,792 $ 75,439 $ 29,015
- ------------------------------------------------------------------------------
Fair value:
U.S. Treasury securities $ 26,822 $ 14,625 $ -
U.S. agency securities 338,363 54,911 28,226
- ------------------------------------------------------------------------------
Total fair value $ 365,185 $ 69,536 $ 28,226
- ------------------------------------------------------------------------------
Outstanding borrowings $ 366,847 $ 73,840 $ 28,400
- ------------------------------------------------------------------------------
Additional information about federal funds purchased follows:
- ------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------
Average effective yield on December 31 3.82% 4.25%
- ------------------------------------------------------------------------------
Average for the year
Effective yield 4.90% 5.08%
Balance $74,011 $66,803
- ------------------------------------------------------------------------------
Maximum month-end outstanding $159,675 $79,650
- ------------------------------------------------------------------------------
Additional information about securities sold under repurchase agreements
follows:
- ------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------
Average effective yield on December 31 4.48% 4.07%
- ------------------------------------------------------------------------------
Average for the year
Effective yield 3.97% 4.44%
Balance $360,386 $270,741
- ------------------------------------------------------------------------------
Maximum month-end outstanding $469,087 $320,190
- ------------------------------------------------------------------------------
Page 38 of 63 Pages
<PAGE>
NOTE 11
EMPLOYEE BENEFIT PLANS
Retirement Plans
The Company has a noncontributory qualified defined benefit pension plan
covering substantially all employees. The benefits are based upon an employee's
total years of service and his or her highest five-year average 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.
The following table details the changes both in the actuarial present value
of the pension benefit obligation and in the plan's assets for the years ended
December 31, 1999 and 1998. The table also shows the funded status of the plan
at each year-end and identifies amounts recognized and unrecognized in the
Company's consolidated balance sheets.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation, beginning of year $ 73,769 $ 65,533
Service cost for benefits 3,756 2,854
Interest cost on benefit obligation 4,535 4,222
Net actuarial (gain) loss (12,019) 4,385
Benefits paid (3,327) (3,225)
- -----------------------------------------------------------------------------------------
Benefit obligation, end of year 66,714 73,769
- -----------------------------------------------------------------------------------------
Plan assets at fair value, beginning of year 97,766 91,206
Actual return on plan assets 7,723 10,069
Benefits paid (3,327) (3,225)
Plan expenses (318) (284)
- -----------------------------------------------------------------------------------------
Plan assets at fair value, end of year 101,844 97,766
- -----------------------------------------------------------------------------------------
Plan assets in excess of benefit obligation, end of year 35,130 23,997
Unrecognized net actuarial gains (29,888) (18,561)
Unrecognized net implementation asset (1,499) (1,904)
Unrecognized prior service cost resulting
from plan amendments (1,204) (1,329)
- -----------------------------------------------------------------------------------------
Prepaid pension asset $ 2,539 $ 2,203
- -----------------------------------------------------------------------------------------
</TABLE>
The Company recognized a net pension benefit in each of the three years in
the period ended December 31, 1999. The components of the net pension benefit
were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits during the period $ 3,756 $ 2,854 $ 2,019
Interest cost on benefit obligation 4,535 4,222 4,237
Expected return on plan assets (7,677) (7,162) (5,750)
Amortization of:
Unrecognized net actuarial gains (421) (785) (55)
Unrecognized net implementation asset (405) (405) (405)
Unrecognized prior service cost (124) (124) (124)
- -----------------------------------------------------------------------------------------
Net pension benefit $ (336) $ (1,400) $ (78)
- -----------------------------------------------------------------------------------------
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the pension benefit obligation was 7.50% for 1999, 6.25% for
1998 and 7.00% for 1997. For all periods presented, the Company assumed an 8%
expected long-term rate of return on plan assets and an annual rate of increase
in future
Page 39 of 63 Pages
<PAGE>
compensation levels of 4%.
The pension plan held 219,800 shares of Company common stock at December
31, 1999 and 1998 and 239,555 shares at December 31, 1997.
The Company also has a nonqualified defined benefit plan which 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. At December 31, 1999, the
actuarial present value of the excess benefit obligation was $2.4 million and
the recorded accrued pension liability was $1.9 million. The net pension expense
for the excess benefit plan was not material in 1999, 1998 or 1997.
The Company sponsors an employee savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all full-time employees,
and the Company matches the savings of each participant up to 3% 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,
including those made by pooled entities with comparable plans, was approximately
$1.6 million in 1999 and 1998 and $1.4 million in 1997.
Health and Welfare Plans
The Company maintains health care and life insurance benefit plans for
retirees and their eligible dependents. Participant contributions are required
under the health plan. Beginning in 1999, all health care benefits are covered
under contracts with health maintenance or preferred provider organizations or
insurance contracts. The Company recognizes the expected cost of providing these
postretirement benefits during the period employees are actively working. The
Company funds its obligations under these plans as contractual payments come
due.
At December 31, 1999, the net postretirement benefit liability reported
with other liabilities in the consolidated balance sheets was approximately $6.8
million, essentially unchanged from December 31, 1998. The net periodic
postretirement benefit expense was approximately $.6 million for 1999 and $.5
million for 1998 and 1997. This expense includes components for the portion of
the expected benefit obligation attributed to current service, for interest on
the accumulated benefit obligation, and for amortization of unrecognized
actuarial gains or losses. No component was individually significant for any
period reported.
For the actuarial calculation of its postretirement benefit obligations at
December 31, 1999, 1998 and 1997, the Company assumed annual health care cost
increases beginning at 7.80 %, 8.40% and 9.00%, respectively, with each
decreasing to a 5.00% rate over a five to seven year period. Discount rates of
7.50% in 1999, 6.25% in 1998 and 7.00% in 1997 were used in determining the
present value of benefit obligations in each period. A 1% rise in the assumed
health care cost trend rates would increase the accumulated benefit obligation
by approximately $900,000 and the periodic net benefit expense by approximately
$160,000. A 1% fall in these trend rates would decrease the accumulated benefit
obligation by $700,000 and the periodic net benefit expense by $120,000.
NOTE 12
STOCK-BASED INCENTIVE COMPENSATION PLANS AND OTHER STOCK-BASED COMPENSATION
The Company maintains two stock-based compensation plans. The long-term
incentive plan for key employees is administered by the Compensation Committee
of the Board of Directors. The Committee designates who will participate and
authorizes the awarding of grants. Under this plan, participants may receive
stock options, restricted stock, performance shares, phantom shares and stock
appreciation rights. To date, the Company has awarded only stock options and
restricted stock. The Company may issue up to 7% of its outstanding common
shares in connection with the long-term incentive plan awards. The directors'
compensation plan provides for the annual award of common stock and stock
options to each non-employee director. The Company is authorized to issue
150,000 shares under this plan. At December 31, 1999, future awards covering the
issuance of 1,003,434 shares could be made under the employee plan and 30,400
shares under the directors' plan.
Page 40 of 63 Pages
<PAGE>
The following schedule summarizes the common stock grants awarded under
these plans during 1999, 1998 and 1997:
- --------------------------------------------------------------------
(dollars in thousands) Market Value
Shares Of Award On
Year Plan Awarded Grant Date
- --------------------------------------------------------------------
1999 Employee-performance 88,750 $3,609
Director 5,100 $ 200
1998 Employee-performance 61,500 $3,383
Director 5,100 $ 259
1997 Employee-performance 62,375 $2,505
Employee 54,040 $2,141
Director 5,400 $ 192
- --------------------------------------------------------------------
Employees can forfeit their shares if they terminate employment within
three years of the grant date and they are prohibited from transferring or
otherwise disposing of the shares during this period. In addition, with the
exception of a portion of the 1997 grant, the employee grants are subject to
adjustment based on the Company's performance, as measured by its return on
assets and return on equity over the restriction period, in relation to that of
a designated peer group. The ultimate performance-based awards can range from 0%
to 200% of the initial grants. Shares granted to employees before 1996 are
subject to possible forfeiture and transfer restrictions for a five-year period
but not to performance-based adjustments. All restrictions on employee shares
would lapse upon a change in control of the Company. The directors' shares are
awarded without any significant restrictions and are not subject to future
adjustment.
The Company initially measures the compensation expense related to a stock
grant as the market value of the shares awarded on the grant date. This expense
is recognized ratably over the restriction period, if any. Adjustments are made
for forfeitures as they occur. The Company periodically re-measures compensation
expense for performance-based grants for changes both in the estimate of the
unrestricted shares to which employees will ultimately become entitled and in
the market value of the Company's stock. Differences from previous compensation
expense measurements are recognized prospectively over the remaining restriction
periods. Compensation expense related to common stock awards was $3.5 million in
1999 and 1998 and $2.4 million in 1997.
Page 41 of 63 Pages
<PAGE>
The following table summarizes stock option activity under the long-term
incentive plan and under the directors' compensation plan for each of the three
years in the period ended December 31, 1999. The exercise price for all options
is set at the market price on the grant date. All options are fully exercisable
six months after the grant date and expire after ten years.
- --------------------------------------------------------------------------------
Employees Directors
- --------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1996 339,824 $26.08 41,000 $28.17
Options granted 150,500 $42.44 18,000 $42.44
Options exercised (30,021) $22.69 (1,000) $30.50
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1997 460,303 $31.65 58,000 $32.56
Options granted 152,250 $55.00 17,000 $50.88
Options exercised (94,540) $24.74 (4,000) $34.47
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1998 518,013 $39.61 71,000 $36.84
Options granted 164,750 $40.66 17,000 $39.31
Options exercised (18,101) $20.99 - -
Options forfeited (36,250) $46.37 - -
- --------------------------------------------------------------------------------
Outstanding and exercisable at
December 31, 1999 628,412 $40.16 88,000 $37.31
- --------------------------------------------------------------------------------
The following table summarizes certain information about the stock options
outstanding under these plans at December 31, 1999:
- --------------------------------------------------------------------------------
Weighted- Weighted-
Number of Average Average
Range of Shares Years to Exercise
Exercise Prices Under Option Expiration Price
- --------------------------------------------------------------------------------
$13.22-$19.42 22,916 3.1 $17.27
$26.25-$28.88 118,682 5.1 $28.15
$30.00-$39.31 110,564 7.0 $31.50
$40.66-$42.44 308,500 8.5 $41.51
$50.88-$55.00 155,750 8.5 $54.55
- --------------------------------------------------------------------------------
$13.22-$55.00 716,412 7.5 $39.81
- --------------------------------------------------------------------------------
Page 42 of 63 Pages
<PAGE>
In connection with the merger with Meritrust in 1998, the Company converted
options held by Meritrust employees and directors into options to acquire 93,283
shares of Company stock at a weighted-average exercise price of $11.26. Holders
exercised options for 22,992 shares in 1999 and 37,231 shares in 1998. The
unexercised options at December 31, 1999 for 32,448 shares had a
weighted-average exercise price of $14.03 and a weighted-average remaining life
of five years.
Upon its merger with First Citizens BancStock, Inc. in 1996, the Company
converted options held by First Citizens employees and directors into options on
192,551 Company shares with a weighted-average exercise price of $11.64. Holders
exercised options for 22,191 shares in 1999, 1,000 in 1998 and 14,085 shares in
1997. At December 31, 1999, 11,311 of these options with a weighted-average
exercise price of $10.13 and a remaining life of four years remained
unexercised.
SFAS No. 123, "Accounting for Stock-Based Compensation," established a fair
value based method of accounting for stock-based compensation, including the
award of stock options. As provided for in SFAS No. 123, however, the Company
elected to continue to follow Accounting Principles Board Opinion No. 25 and
related interpretations to measure and recognize stock-based incentive
compensation expense. Under this Opinion, the Company's recognizes no
compensation expense with respect to fixed awards of stock options. Because the
Company's awards options with an exercise price equal to the stock's market
price, the options have no intrinsic value on the award date, which is also the
measurement date for compensation expense.
SFAS No. 123 requires the following disclosure of pro forma net income and
earnings per share determined as if the fair value method had been applied in
measuring and recognizing stock-based compensation expense related to option
grants:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 62,420 $ 52,679 $ 57,178
Pro forma stock-based compensation expense, net of tax 1,514 1,961 1,474
- ----------------------------------------------------------------------------------------------
Pro forma net income $ 60,906 $ 50,718 $ 55,704
- ----------------------------------------------------------------------------------------------
Pro forma earnings per share
Basic $ 2.65 $ 2.18 $ 2.42
Diluted $ 2.64 $ 2.16 $ 2.40
Weighted-average fair value of options granted during the year $ 9.52 $14.22 $10.79
- ----------------------------------------------------------------------------------------------
</TABLE>
The fair values of the stock options were estimated as of the grant dates
using the Black-Sholes option-pricing model. The Company made the following
significant assumptions in applying the option-pricing model: (a) an expected
annualized volatility for the Company's common stock of 22.47% in 1999, 22.74%
in 1998 and 18.78% in 1997; (b) an average option life of seven years before
exercise; (c) an expected annual dividend yield of 3.60% in 1999, 2.70% in 1998
and 2.80% in 1997; and (d) a weighted-average risk-free interest rate of 6.10%
in 1999, 5.60% in 1998 and 6.50% in 1997.
NOTE 13
REGULATORY MATTERS
Regulatory Capital Requirements
Measures of regulatory capital are an important tool used by regulators to
monitor the financial health of insured financial institutions. The primary
quantitative measures used by regulators to gauge capital adequacy are the
ratios of Tier 1 and total regulatory capital to risk-weighted assets and the
ratio of Tier 1 regulatory capital to average total assets, also known as the
leverage ratio. 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% Tier 1 capital, 8% total capital and 4% leverage. However,
regulators may 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
Page 43 of 63 Pages
<PAGE>
assigning an appropriate classification under the uniform framework, regulators
must also consider other subjective and quantitative assessments of risk
associated with the institution, such as interest-rate risk. Regulators will
take certain mandatory as well as possible additional discretionary actions
against institutions they judge to be inadequately capitalized. These actions
could materially impact the institution's financial position and results of
operations.
Under the regulatory framework for prompt corrective action, the capital
levels of banks are categorized into one of five classifications ranging from
well-capitalized to critically under-capitalized. For an institution to qualify
as well-capitalized, its Tier 1 capital, total capital and leverage ratios must
be at least 6%, 10% and 5%, respectively. Maintaining capital ratios at the
well-capitalized levels avoids certain restrictions that, for example, could
impact the FDIC insurance premium rate. As of December 31, 1999 and 1998, the
Bank was categorized as well-capitalized, and there have been no events since
December 31, 1999 that management believes would cause this status to change.
The Company also fully anticipates that its Bank of Houston subsidiary will be
categorized as well-capitalized.
The actual capital amounts and ratios and the minimum and well-capitalized
required capital amounts for the Company and the Bank are presented in the
following tables:
<TABLE>
<CAPTION>
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
Actual Well-
December 31, 1999 Amount Ratio Minimum(a) Capitalized(b)
- ---------------------------------------------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets):
<S> <C> <C> <C> <C>
Company $ 571,672 13.83% $ 330,770 (c)
Bank 490,773 11.88% 330,408 $ 413,011
- ---------------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk Weighted Assets):
Company $ 527,206 12.75% $ 165,385 (c)
Bank 446,307 10.81% 165,204 $ 247,806
- ---------------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company $ 527,206 9.99% $ 211,083 (c)
Bank 446,307 8.46% 210,914 $ 263,643
- ---------------------------------------------------------------------------------------------------------------------
December 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets):
Company $ 564,310 14.87% $ 303,543 (c)
Bank 505,988 13.35% 303,292 $ 379,115
- ---------------------------------------------------------------------------------------------------------------------
Tier 1 Capital (to Risk Weighted Assets):
Company $ 524,028 13.81% $ 151,772 (c)
Bank 465,707 12.28% 151,646 $ 227,469
- ---------------------------------------------------------------------------------------------------------------------
Leverage (Tier 1 Capital to Average Assets):
Company $ 524,028 10.39% $ 201,691 (c)
Bank 465,707 9.24% 201,583 $ 251,979
- ---------------------------------------------------------------------------------------------------------------------
<FN>
(a) Minimum capital required for capital adequacy purposes.
(b) Capital required for well-capitalized status.
(c) Not applicable.
</FN>
</TABLE>
Other Regulatory Matters
Dividends received from the Bank represent the primary source of funds
available to the Company for the declaration and payment of dividends to the
Company's shareholders. There are various regulatory and statutory provisions
that limit the amount of dividends that the Bank may distribute to the Company.
In December 1999, the Bank received approval to exceed this limit by
approximately $3 million in connection with the declaration of a special
dividend to the Company to provide funds for the pending Bank of Houston
purchase. During 2000, the
Page 44 of 63 Pages
<PAGE>
Bank will have available an amount equal to substantially all of its current net
income less the 1999 excess to declare as dividends to the Company without prior
regulatory approval. The Bank of Houston subsidiary is not expected to be a
significant source of dividends to the Company in 2000.
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.
Banks are required to maintain currency and coin or a non-interest-bearing
balance with the Federal Reserve Bank to meet reserve requirements based on a
percentage of deposits. Average balances maintained by the Bank with the Federal
Reserve Bank for such purposes were $18 million during 1999 and $11 million
during 1998.
NOTE 14
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 on
the consolidated balance sheets. These financial instruments include commitments
to extend credit under loan facilities and letters of credit and similar
financial guarantees. Such instruments expose the Bank to varying degrees of
credit and interest rate risk in much the same way as funded loans.
Commitments under loan facilities, including credit card and related lines,
obligate the Bank to make loans to customers as long as there is no violation of
the conditions established in the underlying contracts. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Letters of credit and similar financial guarantees are agreements
which obligate the Bank to fulfill a customer's financial commitments to a third
party if the customer is unable to perform. The Bank issues these conditional
agreements primarily to support commercial trade.
The Bank's exposure to credit losses from these financial instruments is
represented by their contractual amounts. Because loan commitments and financial
guarantees may, and many times do, expire without being drawn upon, however, the
contractual amounts do not represent actual future funding requirements. The
Bank follows its standard credit policies in making loan commitments and
financial guarantees. The amount of collateral, if any, that the Bank requires
to support a loan commitment is based on the credit evaluation of the borrower.
The collateral required may include accounts receivable, inventory, property,
plant and equipment, and income-producing commercial property. The Bank holds
marketable securities as collateral to support letters of credit and similar
financial guarantees when it is deemed necessary.
The Company has had no investments in financial instruments or agreements
whose value is linked to or derived from changes in the value of some underlying
asset or index. Such instruments or agreements include futures, forward
contracts, option contracts, interest-rate swap agreements and other financial
arrangements with similar characteristics and are commonly referred to as
derivatives.
A summary of off-balance-sheet financial instruments follows:
December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Commitments to extend credit $ 1,247,833 $ 1,122,761
Letters of credit and similar financial guarantees $ 88,080 $ 102,416
Credit card and related lines $ 203,764 $ 147,843
- --------------------------------------------------------------------------------
NOTE 15
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of estimated fair value information about certain on-
and off-balance-sheet financial instruments where it is practicable to estimate
those values. If quoted market prices are not available, which is true for many
of the Company's financial instruments, the Company estimates fair value using
present value or other valuation techniques. The assumptions
Page 45 of 63 Pages
<PAGE>
used in applying these techniques, such as those concerning appropriate discount
rates and estimates of future cash flows, require considerable judgment and
significantly affect the resulting fair value estimates. In addition, no value
estimate is assigned to future business opportunities from long-term customer
relationships underlying certain financial instruments. Accordingly, the derived
fair value estimates may not indicate the amount the Company could realize in a
current settlement of the financial instruments. Reasonable comparability of
fair value estimates between financial institutions may not be possible due to
the wide range of permitted valuation techniques and numerous assumptions
involved. The aggregate fair value amounts presented do not, and are not
intended to, represent an aggregate measure of the underlying fair value of the
Company.
The following significant methods and assumptions were used by the Company
to estimate the fair value of financial instrument:
Cash and short-term investments - The carrying amount is a reasonable
estimate of the fair value of cash and due from financial institutions, federal
funds sold and short-term investments.
Investment in securities - Fair values of securities are based on quoted
market prices obtained from independent pricing services.
Loans - Loans with no significant change in credit risk and with rates that
are repriced in coordination with movements in market rates are valued at
carrying amounts. The fair values of other loans are estimated by discounting
scheduled cash flows to maturity using current rates at which loans with similar
terms would be made to borrowers of similar credit quality. Appropriate
adjustments are made to reflect probable credit losses.
Deposits - SFAS No. 107 requires that deposits without stated maturities,
such as non-interest-bearing demand deposits, NOW deposits, money market
deposits and savings deposits, be assigned fair values equal to the amounts
payable upon demand (carrying amounts). Deposits with stated maturities were
valued by discounting contractual cash flows using a discount rate approximating
current market rates for deposits of similar remaining maturities.
Short-term borrowings - Short-term borrowings are valued fairly at their
carrying amounts.
Off-balance-sheet financial instruments - Off-balance-sheet financial
instruments include commitments to extend credit, letters of credit and similar
financial guarantees. 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 are not material.
The estimated fair values of the Company's financial instruments follow:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
- ----------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(dollars in thousands) Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C> <C> <C> <C>
Cash and short-term investments $ 249,381 $ 249,381 $ 366,473 $ 366,473
Investment in securities $ 1,291,863 $ 1,267,272 $ 1,340,078 $ 1,358,474
Loans, net $ 3,628,581 $ 3,608,730 $ 3,230,299 $ 3,230,099
LIABILITIES:
Deposits $ 4,309,398 $ 4,305,594 $ 4,256,662 $ 4,256,087
Short-term borrowings $ 541,357 $ 541,357 $ 355,322 $ 355,322
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 16
CONTINGENCIES
The Company and its subsidiaries are parties to various legal proceedings
arising in the ordinary course of business. After reviewing pending and
threatened actions with legal counsel, management believes that the ultimate
resolution of these actions will not have a material effect on the Company's
financial condition or results of operations.
Page 46 of 63 Pages
<PAGE>
NOTE 17
STOCK REPURCHASE PROGRAM
In 1999 the Board of Directors authorized the Company to repurchase up to
one million shares, or approximately 4.3%, of its common stock. The Company
purchased one million shares at a weighted-average price of $38.74 per share, or
a total of approximately $39 million. There are no specific plans for using the
repurchased shares, except for reissuances in connection with employee stock
option exercises or other employee stock plans.
NOTE 18
OTHER NON-INTEREST INCOME
The components of other non-interest income were as follows:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
ATM fees $3,735 $ 3,446 $ 3,021
Secondary market mortgage income 3,149 2,230 1,120
International services income 2,009 1,895 1,821
Investment services income 1,548 1,466 1,035
Other fees and charges 1,952 1,755 1,955
Other operating income 1,366 657 1,594
Net gains on sales and other dispositions of
foreclosed assets 1,182 5,897 6,641
Gains on sales of surplus property 2,346 610 251
- --------------------------------------------------------------------------------
Total other non-interest income $ 17,287 $ 17,956 $ 17,438
- --------------------------------------------------------------------------------
NOTE 19
OTHER NON-INTEREST EXPENSE
The components of other non-interest expense were as follows:
Years Ended December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Other outside services $ 4,295 $ 3,964 $ 3,905
Amortization of intangible assets 3,781 2,777 2,418
Advertising 2,194 3,074 3,538
Security services 1,553 1,511 2,126
Deposit insurance and regulatory fees 1,316 1,182 1,390
Miscellaneous operating losses 1,272 2,855 3,330
Training expense 764 2,148 787
Other operating expense 10,580 11,605 10,345
- --------------------------------------------------------------------------------
Total other non-interest expense $ 25,755 $ 29,116 $ 27,839
- --------------------------------------------------------------------------------
Page 47 of 63 Pages
<PAGE>
NOTE 20
INCOME TAXES
The components of income tax expense (benefit) follow:
<TABLE>
<CAPTION>
Years Ended December 31
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Included in net income
Current
<S> <C> <C> <C>
Federal $31,142 $25,422 $28,405
State 707 222 236
- -------------------------------------------------------------------------------------------------------------------
Total current 31,849 25,644 28,641
- -------------------------------------------------------------------------------------------------------------------
Deferred
Federal (1,975) (221) 213
State (46) (265) 8
- -------------------------------------------------------------------------------------------------------------------
Total deferred (2,021) (486) 221
- -------------------------------------------------------------------------------------------------------------------
Total $29,828 $25,158 $28,862
- -------------------------------------------------------------------------------------------------------------------
Included in shareholders' equity
Deferred tax expense (benefit) related to the change in the net
unrealized gain (loss) on securities $ (1,731) $ (378) $ 416
Current tax benefit related to nonqualified stock options and restricted
stock (383) (1,342) (661)
- -------------------------------------------------------------------------------------------------------------------
Total $ (2,114) $ (1,720) $ (245)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense was different from the amounts computed by applying the
statutory federal income tax rates to pretax income as follows:
<TABLE>
<CAPTION>
Years Ended December 31
- --------------------------------------------------------------------------------------------------
(in percentages) 1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax expense 35.00 % 35.00 % 35.00 %
Increase (decrease) resulting from
Tax exempt income (3.98) (3.92) (3.67)
Non-deductible merger-related expenses - .72 .37
Tentative settlement of contingent liability - - 1.19
State income tax and miscellaneous items 1.31 .52 .66
- --------------------------------------------------------------------------------------------------
Effective tax rate 32.33 % 32.32 % 33.55 %
- --------------------------------------------------------------------------------------------------
</TABLE>
Page 48 of 63 Pages
<PAGE>
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
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets:
Reserves for losses on loans and foreclosed assets $14,961 $12,677
Employee benefit plan liabilities 5,249 5,955
Net unrealized loss on securities 1,867 136
Unrecognized interest income 1,357 1,193
Other 1,601 2,185
- --------------------------------------------------------------------------------
Total deferred tax assets 25,035 22,146
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation and amortization 4,278 4,579
Other 1,534 2,096
- --------------------------------------------------------------------------------
Total deferred tax liabilities 5,812 6,675
- --------------------------------------------------------------------------------
Net deferred tax asset $19,223 $15,471
- --------------------------------------------------------------------------------
NOTE 21
PARENT COMPANY FINANCIAL STATEMENTS
The following financial statements are for the parent company only. For the
statement of cash flows, cash and cash equivalents include non-interest-bearing
and interest-bearing deposits in banking subsidiaries.
BALANCE SHEETS December 31
- --------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
ASSETS
Investment in and advances to banking subsidiaries $476,204 $502,641
Other investments in subsidiaries 1,782 1,035
Interest-bearing deposits in banking subsidiaries 78,900 56,622
Dividends receivable 7,450 7,384
Other assets 2,993 2,591
- --------------------------------------------------------------------------------
Total assets $567,329 $570,273
- --------------------------------------------------------------------------------
LIABILITIES
Dividends payable $ 7,450 $ 7,015
Other liabilities 2,776 2,297
- --------------------------------------------------------------------------------
Total liabilities 10,226 9,312
SHAREHOLDERS' EQUITY 557,103 560,961
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $567,329 $570,273
- --------------------------------------------------------------------------------
Page 49 of 63 Pages
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS Years Ended December 31
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend income from banking subsidiaries $88,276 $71,474 $28,089
Equity in undistributed earnings of subsidiaries
Banks (26,909) (18,557) 29,888
Nonbanks 12 4 11
Other income (expense), net 1,041 (242) (810)
- ----------------------------------------------------------------------------------------------------------------
NET INCOME $62,420 $52,679 $57,178
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS Years Ended December 31
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $62,420 $52,679 $57,178
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiaries 26,897 18,553 (29,899)
Increase in dividends receivable (66) (1,195) (1,331)
Other, net 80 468 117
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 89,331 70,505 26,065
- ----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in and advances to subsidiaries (735) - (7,742)
Other, net - - 109
- ----------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (735) - (7,633)
- ----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash dividends (29,841) (26,443) (23,425)
Proceeds from issuance of stock 3,354 8,201 6,044
Purchases of treasury stock (39,948) (1,300) (513)
- ----------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (66,435) (19,542) (17,894)
- ----------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 22,161 50,963 538
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 56,827 5,864 5,326
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $78,988 $56,827 $ 5,864
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 50 of 63 Pages
<PAGE>
NOTE 22
EARNINGS PER SHARE
The components used to calculate basic and diluted earnings per share are
as follows:
<TABLE>
<CAPTION>
Years Ended December 31
- -------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Numerator:
<S> <C> <C> <C>
Net income $62,420 $52,679 $57,178
Effect of dilutive securities - - -
- -------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $62,420 $52,679 $57,178
- -------------------------------------------------------------------------------------------------
Denominator:
Weighted-average shares outstanding 23,013,671 23,283,458 23,025,173
Effect of dilutive stock options 77,434 216,185 211,001
- -------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 23,091,105 23,499,643 23,236,174
- -------------------------------------------------------------------------------------------------
Earnings per share:
Basic $2.71 $2.26 $2.48
Diluted $2.70 $2.24 $2.46
- -------------------------------------------------------------------------------------------------
Antidilutive stock options 458,421 123,125 42,125
- -------------------------------------------------------------------------------------------------
</TABLE>
Page 51 of 63 Pages
<PAGE>
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Whitney Holding Corporation is responsible for the
preparation of the financial statements, related financial data and other
information in this annual report. The financial statements are prepared in
accordance with generally accepted accounting principles and include amounts
based on management's estimates and judgements where appropriate. Financial
information appearing throughout this annual report is consistent with that in
the financial statements.
The Company's financial statements have been audited by Arthur Andersen
LLP, independent public accountants. Management has made available to Arthur
Andersen LLP all of the Company's financial records and related data, as well as
the minutes of shareholders' and directors' meetings. Furthermore, management
believes that all representations made to Arthur Andersen LLP during the
Company's audit were valid and appropriate.
Management of the Company has established and maintains a system of
internal control that provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition, and the prevention and detection of fraudulent
financial reporting. The system of internal control provides for appropriate
division of responsibility, is documented by written policies and procedures
that are communicated to employees with significant roles in the financial
reporting process, and is updated as necessary. Management continually monitors
the system of internal control for compliance. The Company maintains a
professional staff of internal auditors who independently assess the
effectiveness of internal controls and recommend possible system improvements.
As part of their audit of the Company's 1999 financial statements, Arthur
Andersen LLP considered the Company's system of internal control to the extent
they deemed necessary to determine the nature, timing and extent of their audit
tests. Management has considered the recommendations of the internal auditors
and Arthur Andersen LLP concerning the Company's system of internal control and
has taken actions that it believes are cost-effective in the circumstances to
respond appropriately to these recommendations. Management believes that, as of
December 31, 1999, the Company's system of internal control is adequate to
accomplish the objectives discussed above.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS
AND BOARD OF DIRECTORS OF
WHITNEY HOLDING CORPORATION:
We have audited the consolidated balance sheets of Whitney Holding
Corporation (a Louisiana corporation) and subsidiaries as of December 31, 1999
and 1998 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Whitney Holding Corporation
and subsidiaries as of December 31, 1999 and 1998, and the consolidated results
of their operations and cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
New Orleans, Louisiana
January 12, 2000
Page 52 of 63 Pages
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF QUARTERLY FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------
1999 Quarters (a)
- ------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $58,549 $56,952 $55,492 $54,755
Net interest income (TE) 60,048 58,418 56,899 56,120
Provision for possible loan losses 1,750 2,000 1,250 1,000
Non-interest income (exclusive of securities transactions) 18,136 17,271 16,030 15,226
Securities transactions - - - -
Non-interest expense 50,277 48,078 47,962 47,846
Income tax expense 7,969 7,810 7,210 6,839
- ------------------------------------------------------------------------------------------------------------------------
Net income $16,689 $16,335 $15,100 $14,296
- ------------------------------------------------------------------------------------------------------------------------
Average balances
Total assets $5,310,400 $5,232,588 $5,236,898 $5,192,831
Earning assets 4,869,097 4,793,980 4,782,107 4,728,438
Loans 3,560,119 3,419,433 3,287,766 3,239,464
Deposits 4,213,370 4,196,385 4,233,337 4,183,433
Shareholders' equity 554,529 554,920 564,147 567,651
- ------------------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets 1.25% 1.24% 1.16% 1.12%
Return on average shareholders' equity 11.94% 11.68% 10.74% 10.21%
Net interest margin 4.91% 4.85% 4.77% 4.79%
- ------------------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.74 $.72 $.65 $.61
Diluted $.74 $.71 $.65 $.61
Dividends per share $.33 $.33 $.33 $.33
Trading data (b)
High stock price $39.25 $39.75 $41.75 $38.25
Low stock price $33.50 $33.25 $35.63 $32.19
Closing stock price $37.06 $34.38 $39.75 $36.91
Trading volume 2,068,524 1,866,193 2,625,862 2,809,867
- ------------------------------------------------------------------------------------------------------------------------
1998 Quarters (a)
- ------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 4th 3rd 2nd 1st
- ------------------------------------------------------------------------------------------------------------------------
Net interest income $55,005 $52,938 $52,697 $52,492
Net interest income (TE) 56,245 54,118 53,825 53,670
Provision for possible loan losses - - - 73
Non-interest income (exclusive of securities transactions) 14,840 13,408 17,161 13,029
Securities transactions (2) 833 - 8
Non-interest expense 53,438 51,308 47,487 42,266
Income tax expense 4,962 5,216 7,464 7,516
- ------------------------------------------------------------------------------------------------------------------------
Net income $11,443 $10,655 $14,907 $15,674
- ------------------------------------------------------------------------------------------------------------------------
Average balances
Total assets $5,079,486 $4,812,321 $4,789,152 $4,744,201
Earning assets 4,622,708 4,392,199 4,374,009 4,326,763
Loans 3,197,192 3,023,046 2,862,037 2,803,496
Deposits 4,093,579 3,885,729 3,878,803 3,860,698
Shareholders' equity 560,425 555,462 546,233 532,725
- ------------------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets .89% .88% 1.25% 1.34%
Return on average shareholders' equity 8.10% 7.61% 10.95% 11.93%
Net interest margin 4.83% 4.90% 4.93% 5.00%
- ------------------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $.49 $.46 $.64 $.67
Diluted $.49 $.45 $.63 $.67
Dividends per share $.30 $.30 $.30 $.30
Trading data (b)
High stock price $41.88 $51.25 $62.38 $63.38
Low stock price $35.75 $36.63 $50.00 $51.13
Closing stock price $37.50 $41.75 $50.75 $60.00
Trading volume 1,922,621 2,093,098 1,410,536 1,147,945
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Unaudited.
(b) Common stock is traded in the over-the-counter market on The Nasdaq Stock Market. All closing prices represent
closing sales prices as reported on The Nasdaq Stock Market.
</FN>
</TABLE>
Page 53 of 63 Pages
<PAGE>
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the Company's directors and executive
officers are listed below with their business experience during the past five
years.
<TABLE>
<CAPTION>
Director Term
Name and Age Principal Occupation Since Expires
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert C. Baird, Jr., 49 Executive Vice President of N/A N/A
the Company and the Bank since
1995
Guy C. Billups, Jr., 71 Former Chairman of the Board 1997 2002
of Merchants Bancshares, Inc. and
Merchants Bank & Trust Company;
Director, Billups Plantation, Inc.
(farming)
Harry J. Blumenthal, Jr., 54 President, Blumenthal 1993 2004
Print Works, Inc.
(textiles manufacturing)
Joel B. Bullard, Jr., 49 President, Joe Bullard 1994 2004
Automotive Companies
James M. Cain, 66 Former Vice Chairman, Entergy 1987 2002
Corp. (utility holding company);
former Chairman of the Board,
Chief Executive Officer and
President, Louisiana Power and
Light Company (electric utility);
former Director, Chief Executive
Officer and President, New
Orleans Public Service, Inc.
(retired 1993)
Thomas L. Callicutt, Jr., 52 Executive Vice President and Chief N/A N/A
Financial Officer of the Company and
the Bank since 1999; Senior Vice
President and Comptroller of the Bank
from 1998 to 1999; former Executive
Vice President, Controller and Principal
Accounting Officer, First Commerce
Corporation, a $9 billion asset bank
holding company, from 1996 to 1998,
and Senior Vice President, Controller
and Principal Accounting Officer from
1987 to 1996
Page 54 of 63 Pages
<PAGE>
Rodney D. Chard, 57 Executive Vice President N/A N/A
of the Company and the Bank
since 1996; Former Consultant
with EDS Management Consulting
Services from 1992 to 1995
Angus R. Cooper II, 56 Chairman and Chief Executive 1994 2004
Officer, Cooper/T. Smith Corp.
(shipping service company)
Robert H. Crosby, Jr., 79 Chairman of the Board and 1972 2002
Chief Executive Officer,
Crosby Land & Resources
(timberland holdings, oil
and gas production)
Richard B. Crowell, 60 Attorney, Crowell & Owens 1983 2002
Camille A. Cutrone, 70 Partner, Cutrone, 1996 2000
Verlander & Meyer, Attorneys
at Law
G. Blair Ferguson, 56 Executive Vice President N/A N/A
of the Company and the Bank
since 1993
William A. Hines, 63 Chairman of the Board, 1986 2001
Nassau Holding Corporation
(holding company of entities
in oil field service industry);
Director, Unifab International, Inc.
John C. Hope, III, 50 Executive Vice President N/A N/A
of the Company and the Bank
since 1994
Robert E. Howson, 68 Former Chairman of the Board 1989 2000
and Chief Executive Officer of
McDermott International, Inc.
and of McDermott Incorporated
(marine construction services
and power generation systems)
John J. Kelly, 65 Former President, Textron 1986 2000
Marine and Land Systems
(designs and builds advanced
technology vehicles and
ships); Chairman, New Orleans
Technology Council
Page 55 of 63 Pages
<PAGE>
E. James Kock, Jr., 71 Former President: Bowie 1965 2003
Lumber Associates, Downmans
Associates, Jeanerette Lumber &
Shingle Co., Ltd. and White
Castle Lumber & Shingle Co., Ltd.
(land and timber holdings, and
investments), retired 1993
Kenneth A. Lawder, Jr., 58 Executive Vice President N/A N/A
of the Company and the Bank
since 1991
Alfred S. Lippman, 61 Partner, Lippman, Mahfouz 1996 2001
& Martin, Attorneys at Law
William L. Marks, 56 Chairman of the Board and 1990 2000
Chief Executive Officer of
the Company and the Bank
since 1990
Joseph W. May, 54 Executive Vice President N/A N/A
of the Company and the Bank
since 1993
R. King Milling, 59 President of the Company 1979 2003
and the Bank since 1984
John G. Phillips, 77 Former Chairman of the Board 1972 2003
and Chief Executive Officer, The
Louisiana Land and Exploration
Company (oil and gas exploration
and production), retired 1985
John K. Roberts, Jr., 63 Chairman of the Board, 1985 2002
Pan-American Life Insurance
Company (markets and services
life, health and retirement insurance);
Director, Pan-American Financial
Services, Inc.
Carroll W. Suggs, 61 Chairman, Chief Executive 1996 2001
Officer and President,
Petroleum Helicopters, Inc.
Warren K. Watters, 72 President, Reilly-Benton 1986 2000
Company, Inc. (fabrication
and wholesale distribution of
marine and commercial
construction materials)
</TABLE>
In further response to this Item 10, registrant incorporates by reference
the section entitled "Compliance with Section 16(a) of the Exchange Act" of its
Proxy statement dated March 9, 2000.
Page 56 of 63 Pages
<PAGE>
Item 11: EXECUTIVE COMPENSATION
In response to this item, registrant incorporates by reference the sections
entitled "Executive Compensation Report," "Stock Performance Graph," "Summary
Compensation Table," "Option Grants Table," "Option Exercises and Year End Value
Table," and "Retirement Plans, Change in Control Agreements" of its Proxy
Statement dated March 9, 2000.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In response to this item, registrant incorporates by reference the sections
entitled "Voting Securities and Principal Holders Thereof" and "Election of
Directors" of its Proxy Statement dated March 9, 2000.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this item, registrant incorporates by reference the section
entitled "Certain Transactions" of its Proxy Statement dated March 9, 2000.
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements and
supplementary data of the Company and its subsidiaries are included
in Part II Item 8:
Page Number
-----------
Consolidated Balance Sheets --
December 31, 1999 and 1998 25
Consolidated Statements of Operations --
Years Ended December 31, 1999, 1998 and 1997 26
Consolidated Statements of Changes in Shareholders' Equity --
Years Ended December 31, 1999, 1998 and 1997 27
Consolidated Statements of Cash Flows --
Years Ended December 31, 1999, 1998 and 1997 28
Notes to Consolidated Financial Statements 29
Report of Independent Public Accountants 52
Summary of Quarterly Financial Information 53
(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.
Page 57 of 63 Pages
<PAGE>
(a)(3) Exhibits:
Exhibit 3.1 - Copy of Composite Charter (filed as Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1993 (Commission file number 0-1026) and incorporated by reference).
Exhibit 3.2 - Copy of Bylaws, as amended July 1998 (filed as Exhibit
3.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.1 - Stock Option Agreement between Whitney Holding
Corporation and William L. Marks (filed as Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1990 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.2 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and William L. Marks (filed as Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993 (Commission file number 0-1026) and incorporated by
reference).
Exhibit 10.3 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and R. King Milling (filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.4 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and Kenneth A. Lawder, Jr. (filed as Exhibit 10.6
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993 (Commission file number 0-1026) and incorporated by
reference).
Exhibit 10.5 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and G. Blair Ferguson (filed as Exhibit 10.7 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993 (Commission file number 0-1026) and incorporated by
reference).
Exhibit 10.6 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and Joseph W. May (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.7 - Executive agreement between Whitney Holding Corporation,
Whitney Bank of Alabama and John C. Hope, III (filed as Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1994 (Commission file number 0-1026) and incorporated by
reference).
Exhibit 10.8 - Executive agreement between Whitney Holding Corporation,
Whitney National Bank and Robert C. Baird, Jr. (filed as Exhibit 10.9
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995 (Commission file number 0-1026) and incorporated by
reference).
Exhibit 10.9 - Long-term incentive program (filed as Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1991 (Commission file number 0-1026) and incorporated by
reference).
Exhibit 10.9a - Long-term incentive plan (filed as a Proposal in the
Company's Proxy Statement dated March 18, 1997 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.10 - Executive compensation plan (filed as Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1991 (Commission file number 0-1026) and incorporated by
reference).
Exhibit 10.11 - Form of restricted stock agreement between Whitney
Holding Corporation and certain of its officers (filed as Exhibit 19.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992 (Commission file number 0-1026) and incorporated by
reference).
Page 58 of 63 Pages
<PAGE>
Exhibit 10.12 - Form of stock option agreement between Whitney Holding
Corporation and certain of its officers (filed as Exhibit 19.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1992 (Commission file number 0-1026) and incorporated by reference).
Exhibit 10.13 - Directors' Compensation Plan (filed as Exhibit A to the
Company's Proxy Statement dated March 24, 1994 (Commission file number
0-1026) and incorporated by reference).
Exhibit 10.13a - Amendment No. 1 to the Whitney Holding Corporation
Directors' Compensation Plan (filed as Exhibit A to the Company's Proxy
Statement dated March 15, 1996 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.14 - Retirement Restoration Plan effective January 1, 1995
(filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.15 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Rodney D. Chard (filed as
Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.16 - Form of Amendment to Section 2.1e of the Executive
agreements (filed as Exhibits 10.2 through 10.8 herein (filed as
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.17 - Executive agreement between Whitney National Bank of
Mississippi and Guy C. Billups, Jr. dated April 18, 1997 (filed as
Exhibit 10.19 to the Company's Quarterly Report on form 10-Q for the
quarter ended June 30, 1997 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 10.18 - Form of Amendment adding subsection 2.1g to the
Executive Agreements set forth as Exhibits 10.2 through 10.8 and
Exhibit 10.15 herein (filed as Exhibit 10.19 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 (Commission
file number 0-0126) and incorporated by reference).
Exhibit 10.19 - Executive agreement between Whitney Holding
Corporation, Whitney National Bank and Thomas L. Callicutt, Jr. (filed
as Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 (Commission file number 0-1026) and
incorporated by reference).
Exhibit 21 - Subsidiaries
Whitney Holding Corporation owns 100% of the capital stock of Whitney
National Bank, successor by merger in early January 1998 to Whitney
Bank of Alabama, Whitney National Bank of Florida and Whitney National
Bank of Mississippi. In February 2000, the Company acquired 100% of the
capital stock of Bank of Houston. All other subsidiaries considered in
the aggregate would not constitute a significant subsidiary.
Exhibit 23 - Consent of Arthur Andersen LLP dated March 27, 2000
Exhibit 27 - Financial Data Schedule
(b) Reports of Form 8-K
None
Page 59 of 63 Pages
<PAGE>
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WHITNEY HOLDING CORPORATION
(Registrant)
By:/s/ William L. Marks
---------------------------------------
William L. Marks
Chairman of the Board and
Chief Executive Officer
March 22, 2000
--------------------------------------
Date
Page 60 of 63 Pages
<PAGE>
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 Date
/s/ William L. Marks March 22, 2000
- --------------------------------- , Chairman of the Board, ------------------
William L. Marks Chief Executive Officer
and Director
/s/ R. King Milling March 22, 2000
- --------------------------------- , President and Director ------------------
R. King Milling
/s/ Thomas L. Callicutt, Jr. March 22, 2000
- ----------------------------------, Executive Vice President ------------------
Thomas L. Callicutt, Jr. and Chief Financial Officer
(Principal Accounting Officer)
/s/ Guy C. Billips, Jr. , Director March 22, 2000
- --------------------------------- ------------------
Guy C. Billups, Jr.
/s/ Harry J. Blumenthal, Jr. , Director March 22, 2000
- --------------------------------- ------------------
Harry J. Blumenthal, Jr.
/s/ Joel B. Bullard, Jr. , Director March 22, 2000
- --------------------------------- ------------------
Joel B. Bullard, Jr.
/s/ James M. Cain , Director March 22, 2000
- --------------------------------- ------------------
James M. Cain
/s/ Angus R. Cooper II , Director March 22, 2000
- --------------------------------- ------------------
Angus R. Cooper II
/s/ Robert H. Crosby, Jr. , Director March 22, 2000
- --------------------------------- ------------------
Robert H. Crosby, Jr.
/s/ Richard B. Crowell , Director March 22, 2000
- --------------------------------- ------------------
Richard B. Crowell
/s/ Camille A. Cutrone , Director March 22, 2000
- --------------------------------- ------------------
Camille A. Cutrone
Page 61 of 63 Pages
<PAGE>
/s/ William A. Hines , Director March 22, 2000
- --------------------------------- ------------------
William A. Hines
/s/ Robert E. Howson , Director March 22, 2000
- --------------------------------- ------------------
Robert E. Howson
/s/ John J. Kelly , Director March 22, 2000
- --------------------------------- ------------------
John J. Kelly
/s/ E. James Kock, Jr. , Director March 22, 2000
- --------------------------------- ------------------
E. James Kock, Jr.
/s/ Alfred S. Lippman , Director March 22, 2000
- --------------------------------- ------------------
Alfred S. Lippman
/s/ John G. Phillips , Director March 22, 2000
- --------------------------------- ------------------
John G. Phillips
/s/ John K. Roberts, Jr. , Director March 22, 2000
- --------------------------------- ------------------
John K. Roberts, Jr.
/s/ Carroll W. Suggs , Director March 22, 2000
- --------------------------------- ------------------
Carroll W. Suggs
/s/ Warren K. Watters , Director March 22, 2000
- --------------------------------- ------------------
Warren K. Watters
Page 62 of 63 Pages
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included herein or incorporated by reference in this
Form 10-K, into Whitney Holding Corporation's previously filed Registration
Statements on Forms S-3 (File Nos. 33-56024, 33-55307, and 33-56277) and on Form
S-8 (File No. 33-68506).
/s/ Arthur Andersen LLP
New Orleans, Louisiana
March 27, 2000
Page 63 of 63 Pages
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
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