10-Q 1 thirdquarter10q06-b.htm WHITNEY THIRD QUARTER 2006 10-Q
 
 
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549


FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006
Commission file number 0-1026
 
WHITNEY HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
   
                                            Louisiana
72-6017893
(State or other jurisdiction of incorporation or organization)
(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)

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 ü  No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ü  
Accelerated filer __
Non-accelerated filer __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes __ No ü

As of October 31, 2006, 65,898,470 shares of the registrant’s no par value common stock were outstanding.
 






WHITNEY HOLDING CORPORATION
       
TABLE OF CONTENTS
       
     
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  Item 1. FINANCIAL STATEMENTS
             
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
        September 30
  December 31
(dollars in thousands)
   
       2006
  2005
   
 (Unaudited)
   
ASSETS
 
  
   
  Cash and due from financial institutions
 
$    288,834
 
$     554,827
 
  Federal funds sold and short-term investments
   
346,322
   
805,758
 
  Loans held for sale
   
24,230
   
46,678
 
  Investment securities
             
     Securities available for sale
   
1,733,215
   
1,413,763
 
     Securities held to maturity, fair values of $249,025 and $228,027, respectively
   
247,449
   
227,688
 
       Total investment securities
   
1,980,664
   
1,641,451
 
  Loans, net of unearned income
   
6,852,640
   
6,560,597
 
     Allowance for loan losses
   
(74,633
)
 
(90,028
)
       Net loans
   
6,778,007
   
6,470,569
 
               
  Bank premises and equipment
   
173,905
   
151,978
 
  Goodwill
   
292,526
   
204,089
 
  Other intangible assets
   
26,072
   
26,304
 
  Accrued interest receivable
   
47,198
   
52,808
 
  Other assets
   
140,417
   
154,544
 
       Total assets
 $10,098,175
 
$10,109,006
 
               
LIABILITIES
             
  Noninterest-bearing demand deposits
 
2,864,705
 
$   3,301,227
 
  Interest-bearing deposits
   
5,334,995
   
5,303,609
 
       Total deposits
   
8,199,700
   
8,604,836
 
               
  Short-term and other borrowings
   
626,398
   
433,350
 
  Accrued interest payable
   
16,096
   
10,538
 
  Accrued expenses and other liabilities
   
142,870
   
99,239
 
       Total liabilities
   
8,985,064
   
9,147,963
 
               
SHAREHOLDERS' EQUITY
             
  Common stock, no par value
             
     Authorized - 100,000,000 shares
             
     Issued - 66,081,490 and 63,657,059 shares, respectively
   
2,800
   
2,800
 
  Capital surplus
   
340,786
   
250,174
 
  Retained earnings
   
796,645
   
738,655
 
  Accumulated other comprehensive loss
   
(20,889
)
 
(21,223
)
  Treasury stock at cost - 208,939 and 316,575 shares, respectively
   
(6,231
)
 
(9,363
)
       Total shareholders' equity
   
1,113,111
   
961,043
 
       Total liabilities and shareholders' equity
 
$10,098,175
 
$10,109,006
 
The accompanying notes are an integral part of these financial statements.
             



1


 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
   
              Three Months Ended
 
          Nine Months Ended
   
               September 30
 
          September 30
(dollars in thousands, except per share data)
 
2006
 
2005
 
2006
 
2005
 
INTEREST INCOME
                 
  Interest and fees on loans
 
$131,230
 
$103,152
 
$369,390
 
$279,063
 
  Interest and dividends on investment securities
                 
     Taxable securities
 
18,536
 
15,326
 
50,890
 
50,369
 
     Tax-exempt securities
 
2,319
 
2,269
 
6,891
 
7,214
 
  Interest on federal funds sold and short-term investments
 
7,365
 
163
 
30,470
 
456
 
     Total interest income
 
159,450
 
120,910
 
457,641
 
337,102
 
INTEREST EXPENSE
                 
  Interest on deposits
 
33,196
 
17,949
 
87,047
 
43,752
 
  Interest on short-term and other borrowings
 
6,483
 
5,276
 
16,337
 
12,677
 
     Total interest expense
 
39,679
 
23,225
 
103,384
 
56,429
 
NET INTEREST INCOME
 
119,771
 
97,685
 
354,257
 
280,673
 
PROVISION FOR CREDIT LOSSES
 
-    
 
34,000
 
2,720
 
37,000
 
NET INTEREST INCOME AFTER PROVISION
             
 
 
  FOR CREDIT LOSSES
 
119,771
 
63,685
 
351,537
 
243,673
 
NONINTEREST INCOME
 
 
             
  Service charges on deposit accounts
 
7,337
 
7,805
 
20,819
 
24,396
 
  Bank card fees
 
3,855
 
2,861
 
11,213
 
8,502
 
  Trust service fees
 
2,864
 
2,318
 
8,159
 
7,126
 
  Secondary mortgage market operations
 
1,240
 
1,274
 
4,192
 
3,609
 
  Other noninterest income
 
6,052
 
6,047
 
19,384
 
20,206
 
  Securities transactions
 
-    
   
-    
    
-    
 
68
 
     Total noninterest income
 
21,348
 
20,305
 
63,767
 
63,907
 
NONINTEREST EXPENSE
             
 
 
  Employee compensation
 
38,106
 
33,302
 
109,089
 
97,947
 
  Employee benefits
 
8,832
 
8,110
 
26,561
 
24,817
 
     Total personnel
 
46,938
 
41,412
 
135,650
 
122,764
 
  Net occupancy
 
8,162
 
6,026
 
21,075
 
16,820
 
  Equipment and data processing
 
5,778
 
4,387
 
14,976
 
13,267
 
  Telecommunication and postage
 
2,580
 
2,250
 
7,826
 
6,576
 
  Corporate value and franchise taxes
 
2,237
 
1,951
 
6,633
 
5,856
 
  Legal and other professional services
 
3,601
 
1,353
 
7,865
 
4,734
 
  Amortization of intangibles
 
2,794
 
2,290
 
7,680
 
6,006
 
  Other noninterest expense
 
17,140
 
12,009
 
49,598
 
34,298
 
     Total noninterest expense
 
89,230
 
71,678
 
251,303
 
210,321
 
INCOME BEFORE INCOME TAXES
 
51,889
 
12,312
 
164,001
 
97,259
 
INCOME TAX EXPENSE
 
16,698
 
3,189
 
53,248
 
30,059
 
NET INCOME
 
$35,191
 
$9,123
 
$110,753
 
$67,200
 
EARNINGS PER SHARE
                 
  Basic
 $ .54
 
$ .15
 $ 1.72
 $ 1.09
 
  Diluted
   
.53
   
.14
   
1.69
   
1.07
 
WEIGHTED-AVERAGE SHARES OUTSTANDING
                         
  Basic
   
65,444,539
   
62,699,332
   
64,399,751
   
61,764,918
 
  Diluted
   
66,591,530
   
63,579,123
   
65,589,410
   
62,757,756
 
CASH DIVIDENDS PER SHARE
 
$ .27
 $ .25
 $ .81
 
$ .73
 
The accompanying notes are an integral part of these financial statements.

2

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
 
                 
    Accumulated 
         
 
             
    Other
         
(dollars in thousands,
   
  Common
   Capital
   Retained
 Comprehensive
  Treasury
   
  except per share data)
   
   Stock
   Surplus
   Earnings
  Income (Loss)
   Stock
 Total
Balance at December 31, 2004
 
$2,800
 
$238,426
 
$697,977
 
$(2,963
)
$(31,475
)
$904,765
 
Comprehensive income:
                                     
  Net income
   
   -     
   
   -     
   
67,200
   
   -     
   
   -     
   
67,200
 
  Other comprehensive loss:
                                     
     Unrealized net holding loss on
                                     
       securities, net of reclassification
                                     
       adjustments and taxes
   
     -     
   
   -     
   
   -     
   
(11,366
)
 
   -     
   
(11,366
)
Total comprehensive income
   
   -     
   
   -     
   
67,200
   
(11,366
)
 
   -     
   
55,834
 
Cash dividends, $.73 per share
   
   -     
   
   -     
   
(45,836
)
 
   -     
   
   -     
   
(45,836
)
Stock acquired under repurchase program
   
   -     
   
   -     
   
   -     
   
   -     
   
(46,669
)
 
(46,669
)
Stock issued in business combination
   
   -     
   
(714
)
 
   -     
   
   -     
   
57,838
   
57,124
 
Stock issued to dividend reinvestment plan
   
   -     
   
   -     
   
   -     
   
   -     
   
1,790
   
1,790
 
Long-term incentive plan stock activity:
                                     
  Performance-based restricted stock
   
   -     
   
(544
)
 
   -     
   
   -     
   
5,840
   
5,296
 
  Stock options
   
   -     
   
9,811
   
   -     
   
   -     
   
1,748
   
11,559
 
Directors' compensation plan stock activity
   
   -     
   
1,064
   
   -     
   
   -     
   
302
   
1,366
 
Balance at September 30, 2005
 
$2,800
 
$248,043
 
$719,341
 
$(14,329
)
$(10,626
)
$945,229
 
                                       
Balance at December 31, 2005
 $2,800
 $250,174
 
$738,655
 
$(21,223
)
$(9,363
)
$961,043
 
Comprehensive income:
                                     
  Net income
   
   -     
   
   -     
   
110,753
   
   -     
   
   -     
   
110,753
 
  Other comprehensive income:
                                     
     Unrealized net holding gain on
                                     
       securities, net of reclassification
                                     
       adjustments and taxes
   
   -     
   
   -     
   
   -     
   
334
   
   -     
   
334
 
Total comprehensive income
   
   -     
   
   -     
   
110,753
   
334
   
   -     
   
111,087
 
Cash dividends, $.81 per share
   
   -     
   
   -     
   
(52,763
)
 
   -     
   
   -     
   
(52,763
)
Stock issued in business combination
   
   -     
   
75,129
   
   -     
   
   -     
   
   -     
   
75,129
 
Stock issued to dividend reinvestment plan
   
   -     
   
204
   
   -     
   
   -     
   
1,842
   
2,046
 
Long-term incentive plan stock activity:
                                     
  Performance-based restricted stock & units
   
   -     
   
8,288
   
   -     
   
   -     
   
(571
)
 
7,717
 
  Stock options
   
   -     
   
6,063
   
   -     
   
   -     
   
458
   
6,521
 
Directors' compensation plan stock activity
   
   -     
   
928
   
   -     
   
   -     
   
1,403
   
2,331
 
Balance at September 30, 2006
 
$2,800
 
$340,786
 
$796,645
 
$(20,889
)
$(6,231
)
$1,113,111
 
                                       
The accompanying notes are an integral part of these financial statements.

3

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
                 Nine Months Ended
 
                  September 30
(dollars in thousands)
 
2006
 
2005
 
OPERATING ACTIVITIES
         
Net income
 
$110,753
 
$67,200
 
Adjustments to reconcile net income to net cash provided by operating activities:
         
     Depreciation and amortization of bank premises and equipment
 
11,288
 
10,318
 
     Amortization of purchased intangibles
 
7,680
 
6,006
 
     Share-based compensation earned
 
10,027
 
7,558
 
     Premium amortization (discount accretion) on securities, net
 
2,242
 
2,201
 
     Provision for credit losses and losses on foreclosed assets
 
2,769
 
37,114
 
     Net gains on asset dispositions
 
(212
(2,604
     Deferred tax benefit
 
(857
(16,341
     Net (increase) decrease in loans originated and held for sale
 
22,448
 
(38,461
     Net (increase) decrease in interest and other income receivable and prepaid expenses
 
7,587
 
(19,146
     Net increase (decrease) in interest payable and accrued income taxes and expenses
 
(10,752
32,981
 
     Other, net
 
(1,306
 
(2,373
       Net cash provided by operating activities
 
161,667
 
84,453
 
INVESTING ACTIVITIES
         
     Proceeds from sales of investment securities available for sale
 
45,815
 
273,148
 
     Proceeds from maturities of investment securities available for sale
 
224,502
 
278,030
 
     Purchases of investment securities available for sale
 
(469,143
 
(206,950
     Proceeds from maturities of investment securities held to maturity
 
8,500
 
12,405
 
     Purchases of investment securities held to maturity
 
(28,411
 
(14,901
     Net increase in loans
 
(19,270
 
(447,838
     Net decrease in federal funds sold and short-term investments
 
458,665
 
39,805
 
     Proceeds from sales of foreclosed assets and surplus property
 
2,393
 
8,004
 
     Purchases of bank premises and equipment
 
(20,926
 
(8,847
     Net cash paid in acquisitions
 
(33,992
 
(39,228
     Other, net
 
9,196
 
(4,728
       Net cash provided by (used in) investing activities
 
177,329
 
(111,100
FINANCING ACTIVITIES
         
     Net increase (decrease) in transaction account and savings account deposits
 
(768,102
 
315,085
 
     Net increase in time deposits
 
44,514
 
112,072
 
     Net increase in short-term and other borrowings
   
161,108
   
188,979
 
     Proceeds from issuance of common stock
   
8,600
   
12,722
 
     Purchases of common stock
   
(3,165
 
(52,924
)
     Cash dividends
   
(50,298
 
(45,409
)
     Other, net
   
2,354
   
-
 
       Net cash provided by (used in) financing activities
   
(604,989
 
530,525
 
       Increase (decrease) in cash and cash equivalents
   
(265,993
 
503,878
 
       Cash and cash equivalents at beginning of period
   
554,827
   
213,751
 
       Cash and cash equivalents at end of period
 
$288,834
 
$717,629
 
               
Cash received during the period for:
             
     Interest income
 
$461,477
 
$320,984
 
               
Cash paid during the period for:
             
     Interest expense
 
$100,571
 
$54,422
 
     Income taxes
   
63,950
   
28,192
 
               
Noncash investing activities:
             
     Foreclosed assets received in settlement of loans
 
$749
 
$1,743
 
               
The accompanying notes are an integral part of these financial statements.
             

4


WHITNEY HOLDING CORPORATION AND SUBSIDIARIES

NOTE 1
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Whitney Holding Corporation and its subsidiaries (the Company or Whitney). All significant intercompany balances and transactions have been eliminated.
In preparing the consolidated financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations, changes in shareholders’ equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions. Certain financial information for prior periods has been reclassified to conform to the current period’s presentation.
Pursuant to rules and regulations of the Securities and Exchange Commission (SEC), certain financial information and disclosures have been condensed or omitted in preparing the consolidated financial statements presented in this quarterly report on Form 10-Q. These financial statements should be read in conjunction with the Company’s 2005 annual report on Form 10-K. Financial information reported in these financial statements is not necessarily indicative of the financial condition, results of operations or cash flows of any other interim or annual periods.
 
NOTE 2
UPDATE ON IMPACT OF NATURAL DISASTERS
Two strong hurricanes struck portions of Whitney’s service area during the third quarter of 2005. The following sections summarize the more significant continuing financial repercussions of these natural disasters for the Company and for its major subsidiary, Whitney National Bank (the Bank).

Credit Quality and Credit-related Losses
    Relationship officers have closely monitored the performance of storm-impacted loan customers. Information provided by these officers and statistics on the performance of consumer credits were factored into management’s determination of the allowance for loan losses at September 30, 2006. The significant overall uncertainties that complicated management’s early assessments of storm-related credit losses have largely been addressed in the year since the storms, and the storms’ impact on credit quality is primarily being reflected in the normal process for determining the loan loss allowance and reserves for losses on unfunded credit commitments. Some important uncertainties remain, however, including those specific to some individual customers, such as the resolution of insurance claims, and those applicable to the economic prospects of the storm-impacted area as a whole. Management will continue to monitor the resolution of these uncertainties when determining future loss allowances and reserves.
 

5


Disaster Response Costs, Casualty Losses, Business Interruption and Related Insurance
The Bank incurred a variety of costs to operate in disaster response mode, and a number of facilities and their contents were damaged by the storms, including sixteen that require replacement, relocation or major renovation. Whitney maintains insurance for casualty losses as well as for reasonable and necessary disaster response costs and certain revenue lost through business interruption. All significant disaster response costs have been incurred and included where appropriate in an insurance claim receivable based on management’s understanding of the underlying coverage. The bulk of costs to replace or renovate facilities will be incurred in future periods, and these will be included in the insurance claims as appropriate. Management projects that casualty claims arising from the 2005 storms will be within policy limits, and that gains will be recognized with respect to these claims in future periods; however, this is contingent upon reaching agreement with insurance carriers. An insurance claim receivable of $19.7 million was included in other assets at September 30, 2006. Whitney has expensed $9.3 million of storm-related disaster response costs and operating and casualty losses, of which $4.9 million was charged to operations during 2006, including $.9 million in the third quarter.
 
NOTE 3
MERGERS AND ACQUISITIONS
On October 5, 2006, Whitney announced a definitive agreement to acquire Signature Financial Holding, Inc. (Signature), headquartered in St. Petersburg, Florida. Signature is the parent of Signature Bank, which operates seven banking centers in the Tampa metropolitan area and had approximately $270 million in total assets and $220 million in deposits at September 30, 2006. Signature’s shareholders will receive approximately $62 million in cash and/or Whitney common stock, but no more than 49% of the total consideration will be paid in cash. Subject to approval by Signature’s shareholders, receipt of appropriate regulatory approvals and certain other closing conditions, this acquisition is expected to be completed in the first quarter of 2007.
On April 13, 2006, Whitney acquired First National Bancshares, Inc. of Bradenton, Florida (First National) and its subsidiary, 1st National Bank & Trust (1st National), which operates in the Tampa Bay area. 1st National had approximately $380 million in total assets, including a loan portfolio valued at $286 million, and $319 million in deposits at the acquisition date. The Company merged 1st National into Whitney National Bank in July 2006 upon completion of systems-integration work. First National shareholders received 2.2 million shares of Whitney common stock and cash totaling $41 million, for a total transaction value of approximately $116 million. Applying purchase accounting to this transaction, the Company recorded goodwill of $88 million and a $7 million intangible asset for the estimated value of deposit relationships with a weighted-average life of 2.3 years. No other material adjustments were required to record First National’s assets and liabilities at fair value.
In April 2005, Whitney acquired Destin Bancshares, Inc. (Destin). Destin’s major subsidiary was Destin Bank, which operated ten banking centers in the Destin, Fort Walton Beach and Pensacola areas of the Florida panhandle, with approximately $540 million in total assets, including a loan portfolio of $390 million, and $440 million in deposits on the acquisition date. Destin Bank was merged into Whitney National Bank at the acquisition date. This transaction was valued at $115 million, with $58 million paid to Destin shareholders in cash and the remainder in Whitney stock totaling approximately 1.9 million shares (1.3 million shares before adjustment for the three-for-two stock split in May 2005). Intangible assets acquired in

6


this transaction included $88 million of goodwill and $9 million assigned to the value of deposit relationships with an estimated weighted-average life of 3.0 years.
Whitney’s financial statements include the results from acquired operations since the acquisition dates.

NOTE 4
FEDERAL FUNDS SOLD AND SHORT-TERM INVESTMENTS
The balance of federal funds sold and short-term investments included the following:
 
 
     September 30   
  December 31
(in thousands)
   
  2006
 
  2005
Federal funds sold
 
$143,000
 $304,500
 
Securities purchased under resale agreements
   
200,000
   
-
 
U. S. government agency discount notes
   
-
   
499,013
 
Other short-term interest-bearing investments
   
3,322
   
2,245
 
  Total
 $346,322
 $805,758
 

Federal funds were sold on an overnight basis. The Company’s investment in U. S. government agency securities purchased under resale agreements at September 30, 2006 matures in less than one month. It is Whitney’s policy to take possession of securities purchased under resale agreements.

NOTE 5
LOANS

The composition of the Company’s loan portfolio was as follows:
   
 
 
      September 30 
          December 31
(in thousands)
 
      2006
          2005
Commercial, financial and agricultural
 
$2,591,733
   
38
%
$2,685,894
   
41
%
Real estate - commercial, construction and other
   
3,053,927
   
44
   
2,743,486
   
42
 
Real estate - residential mortgage
   
874,945
   
13
   
774,124
   
12
 
Individuals
   
332,035
   
5
   
357,093
   
5
 
  Total
 
$6,852,640
   
100
%
$6,560,597
   
100
%


7


NOTE 6
ALLOWANCE FOR LOAN LOSSES AND RESERVE FOR LOSSES ON UNFUNDED CREDIT COMMITMENTS, IMPAIRED LOANS, AND NONPERFORMING LOANS

A summary analysis of changes in the allowance for loan losses follows:
   
   
     Three Months Ended
     Nine Months Ended
   
     September 30
     September 30
(in thousands)
 
            2006
           2005
           2006
             2005
Allowance at beginning of period
 
$80,715
 $58,647
 
$90,028
 
$54,345
 
Allowance of acquired bank
   
-
   
-
   
2,908
   
3,648
 
Provision for credit losses
   
(1,500
)
 
34,000
   
1,500
   
37,000
 
Loans charged off
   
(5,263
)
 
( 2,850
)
 
(22,406
)
 
( 8,839
)
Recoveries
   
681
   
1,149
   
2,603
   
4,792
 
  Net charge-offs
   
(4,582
)
 
(1,701
)
 
(19,803
)
 
(4,047
)
Allowance at end of period
 
$74,633
 
$90,946
 
$74,633
 
$90,946
 

A summary analysis of changes in the reserve for losses on unfunded credit commitments follows. The reserve is reported with accrued expenses and other liabilities in the consolidated balance sheets.
   
 
 
          Three Months Ended 
          Nine Months Ended
 
 
          September 30 
          September 30
(in thousands)
   
2006
   
2005
 
2006
   
2005
Reserve at beginning of period
 
$   300
 
$        -  
$   580
 
$       -
Provision for credit losses
   
1,500
   
  -  
 
1,220
   
-
Reserve at end of period
 
$1,800
 
$        -  
$1,800
 
$       -

Information on loans evaluated for possible impairment loss follows:
 
 
       September 30 
  December 31
(in thousands)
   
      2006
   
    2005
 
Impaired loans
             
  Requiring a loss allowance
 $37,722
 
$54,994
 
  Not requiring a loss allowance
   
10,985
   
4,789
 
  Total recorded investment in impaired loans
 
$48,707
 
$59,783
 
Impairment loss allowance required
 
$9,338
 
$17,334
 

The following is a summary of nonperforming loans:
 
   
   September 30
   December 31
(in thousands)
 
   2006
   2005
Loans accounted for on a nonaccrual basis
 
$54,277
 
$65,565
 
Restructured loans
   
-
   
30
 
  Total nonperforming loans
 
$54,277
 
$65,595
 

8


NOTE 7
DEPOSITS
The composition of deposits was as follows:
 
   
   September 30
   December 31
(in thousands)
 
   2006
   2005
Noninterest-bearing demand deposits
 
$2,864,705
 
$3,301,227
 
Interest-bearing deposits:
   
       
  NOW account deposits
   
996,429
   
1,116,000
 
  Money market deposits
   
1,172,037
   
1,103,510
 
  Savings deposits
   
1,050,219
   
1,120,078
 
  Other time deposits
   
757,424
   
717,938
 
  Time deposits $100,000 and over
   
1,358,886
   
1,246,083
 
     Total interest-bearing deposits
   
5,334,995
   
5,303,609
 
       Total deposits
 
$8,199,700
 
$8,604,836
 

Time deposits of $100,000 or more include balances in treasury-management deposit products for commercial and certain other larger deposit customers. Balances maintained in such products totaled $498 million at September 30, 2006 and $504 million at December 31, 2005. Most of these deposits mature on a daily basis. 

NOTE 8
OTHER ASSETS AND ACCRUED EXPENSES AND OTHER LIABILITIES
The more significant components of other assets and accrued expenses and other liabilities were as follows:
 
 
      September 30 
  December 31
(in thousands)
      2006
  2005
Other Assets
             
Net deferred income tax asset
 
54,278
 
53,065
 
Insurance claim receivable
   
19,748
   
21,895
 
Low-income housing tax credit fund investments
   
16,227
   
17,986
 
Prepaid pension asset
   
9,875
   
15,271
 
Cash surrender value of life insurance
   
9,689
   
9,575
 
Prepaid expenses
   
10,118
   
4,713
 
Miscellaneous investments, receivables and other assets
   
20,482
   
32,039
 
  Total other assets
 
$140,417
 
$154,544
 
Accrued Expenses and Other Liabilities
             
Trade date obligations
 
50,000
 
$      -   
 
Accrued taxes and expenses
   
44,139
   
56,958
 
Dividend payable
   
14,624
   
12,159
 
Liability for postretirement benefits other than pensions
   
13,571
   
11,877
 
Reserve for losses on unfunded credit commitments
   
1,800
   
580
 
Miscellaneous payables, deferred income and other liabilities
   
18,736
   
17,665
 
  Total accrued expenses and other liabilities
 $142,870
 
$99,239
 

See Note 2 for information on the natural disasters that affected Whitney during 2005, including a discussion of related insurance matters.

9


NOTE 9
EMPLOYEE BENEFIT PLANS

Retirement Plans
Whitney has a noncontributory qualified defined benefit pension plan covering substantially all of its employees, subject to minimum age and service-related requirements. Based on currently available information, the Company does not anticipate making a contribution to the plan during 2006. The components of net pension expense were as follows:
   
 
 
          Three Months Ended 
          Nine Months Ended
   
          September 30 
             September 30 
(in thousands)
   
2006
   
2005
   
2006
   
2005
 
Service cost for benefits during the period
 $1,899
 
$1,706
 
$5,698
 $5,221
 
Interest cost on benefit obligation
   
1,948
   
1,814
   
5,827
   
5,394
 
Expected return on plan assets
   
(2,458
)
 
(2,098
)
 
(7,380
)
 
(6,255
)
Amortization of:
                         
  Unrecognized net actuarial losses
   
451
   
244
   
1,312
   
675
 
  Unrecognized prior service cost
   
(27
)
 
(27
)
 
(81
)
 
(81
)
Net periodic benefit expense
 $1,813
 
$1,639
 
$5,376
 
$4,954
 

Whitney also has an unfunded nonqualified defined benefit pension plan that provides retirement benefits to designated executive officers. The net pension expense for nonqualified plan benefits was approximately $.3 million for the third quarters of both 2006 and 2005. Year-to-date expense through September 30 was approximately $.8 million in each year.

Health and Welfare Plans
Whitney maintains health care and life insurance benefit plans for retirees and their eligible dependents. Participant contributions are required under the health plan. The Company funds its obligations under these plans as contractual payments come due to health care organizations and insurance companies.
Whitney recognized a net periodic expense for postretirement benefits of approximately $.7 million in the third quarter of 2006 and $.6 million in the third quarter of 2005. Year-to-date expense through September 30 was $2.3 million in 2006 and $1.7 million in 2005. None of the individual components of the net periodic expense was individually significant for any period.

NOTE 10
SHARE-BASED COMPENSATION
Whitney maintains incentive compensation plans that incorporate share-based compensation. The plans for both employees and directors have been approved by the Company’s shareholders. Descriptions of these plans, including the terms of awards and the number of Whitney shares authorized for issuance, were included in the Company’s annual report on Form 10-K for the year ended December 31, 2005. At September 30, 2006, future awards with respect to 806,799 shares of Whitney common stock could be made under the employee plan and 1,198,676 shares under the directors’ plan. The shares available under the employee plan have been reduced by the maximum number of shares that could be issued with respect to performance-based awards. The stock issued for awards may come from unissued shares or shares held in treasury.

10


During June 2006, annual share-based compensation awards were made under each of these plans as follows:
 
 
 
 
(dollars in thousands, except per share data)
   
     Number
     Awarded
Grant Date
Fair Value
of Option, Stock or
Stock Unit
Total
Share-based Compensation
 
                       
Long-term incentive plan for employees:
                     
  Performance-based restricted stock units
   
             (a)
$35.01
 
$20,284
(b)
  Stock options
   
238,800
   
7.23
     
1,727
 
Directors' compensation plan:
                     
  Stock grant
   
8,775
   
35.37
     
310
 
  Stock options
   
58,500
   
8.10
   
 474
 

(a) Number of shares that potentially could be issued ranges from 684,980 to none. As of September 30, 2006, 579,365 shares are expected to ultimately be issued.
(b)  Based on market price of Whitney common stock on the grant date and number of shares that are ultimately expected to be issued, taking into consideration expected performance factors and forfeitures.

Employees forfeit their restricted stock units if they terminate employment within three years of the award date, although they can retain a prorated number of units in the case of retirement, death, disability and, in limited circumstances, involuntary termination. During the three-year period, they cannot transfer or otherwise dispose of the units awarded. The restricted stock units that ultimately vest will be determined with reference to Whitney’s financial performance over a three-year period in relation to that of a designated peer group. The directors’ stock grant is fully vested upon award. Prior to 2006, the Company had awarded performance-based restricted stock, but with substantially the same terms as the restricted units.
The Company has recognized compensation expense with respect to restricted stock and stock units of $9.9 million in 2006, including $3.7 million in the third quarter. During 2005, Whitney recognized compensation expense with respect to restricted stock awards totaling $2.4 million for the third quarter and $7.6 million year-to-date through September 30, 2005. Unrecognized compensation related to restricted stock and stock units totaled $28.2 million at September 30, 2006. This compensation will be recognized over an expected weighted-average period of 2.3 years. At September 30, 2006, 1,333,744 shares with a weighted-average grant-date fair value of $32.49 per share were expected to ultimately become vested and issued under performance-based stock and stock unit awards. At December 31, 2005, the total was 875,685 shares with a per share value of $27.81. During the first nine months of 2006, updated performance expectations added 172,819 shares with a weighted-average fair value of $30.70 per share to the total of shares expected to become vested. In the same period, employees vested in 282,901 shares with a value per share of $22.44 and a total value of $6.3 million and forfeited their rights to 12,712 shares with a weighted-average per share value of $29.16.
Employees can first exercise their stock options from the 2006 award three years from the grant date, provided they are still employed. A prorated number of options can vest and become immediately exercisable upon an employee’s retirement, death or disability within this three-year period. All employee options expire after ten years, although an earlier expiration applies in the case of retirement, death or disability. The exercise price for employee options is set at an amount not lower than the opening market price for Whitney’s stock on the grant date. Before

11


2006, employee stock options were awarded without the three-year service requirement, but otherwise had substantially the same terms as the options awarded in 2006. Directors’ stock options are immediately exercisable and expire no later than ten years from the grant date. The exercise price for directors’ options is set at the closing market price for the Company’s stock on the grant date.
The following table summarizes stock option activity for 2006.
 
       
Weighted-
     
             Weighted-
Average
     
             Average
Years to
   
Number
          Exercise Price
Expiration
Outstanding at December 31, 2005
 
2,908,044
$24.38
6.6
  Options granted
 
297,300
35.40
 
  Options exercised
 
(334,772)
21.03
 
  Options forfeited
 
(6,000)
30.34
 
Outstanding at September 30, 2006
 
2,864,572
$25.91
6.5
Exercisable at September 30, 2006
 
2,625,772
$25.04
6.2
 
The options held by employees and directors at September 30, 2006, both those outstanding and those exercisable, had an intrinsic value of approximately $28.2 million based on the closing market price for Whitney’s stock on that date. The intrinsic value of options exercised during 2006 totaled $4.7 million as of the exercise dates. The Company received exercise proceeds totaling $6.6 million and realized a tax benefit of $1.4 million year-to-date through September 30, 2006. During the first nine months of 2005, options to acquire 548,272 shares were exercised with a total intrinsic value of $5.7 million. These exercises yielded $10.9 million of cash proceeds and a realized tax benefit of $1.7 million year-to-date through September 30, 2005. The tax benefit in each period was credited to capital surplus. The impact of the tax benefit was reported as a cash flow from financing activities in the consolidated statement of cash flows for 2006 and as a cash flow from operations in 2005.
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment. SFAS No. 123R replaced SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148. Whitney must apply SFAS No. 123R to all awards granted after December 31, 2005 and to awards modified, repurchased, or cancelled after that date. The revised standard established the fair value-based method as the exclusive method of accounting for share-based compensation, with only limited exceptions. Under SFAS No. 123R, the grant-date fair value of equity instruments, including stock options, awarded to employees determines the cost of the services received in exchange, and the cost associated with awards that are expected to vest is recognized over the required service period.
For outstanding awards for which the required service period extends beyond December 31, 2005, SFAS No. 123R requires Whitney to recognize compensation after that date based on the grant-date fair value of those awards as calculated for pro forma disclosure under the original SFAS No. 123. As of December 31, 2005, all stock options awarded by the Company were fully vested and exercisable and there were no continuing service requirements. The service requirements for certain performance-based restricted stock awards do extend beyond December 31, 2005. During 2005, Whitney recognized compensation expense with

12


respect to restricted stock awards under Accounting Principles Board Opinion (APB) No. 25 and related interpretations. The expense recognized under APB No. 25 was also based on fair value, but the timing of when fair value was determined and the method of allocating expense over time differed in certain respects from what was required under SFAS No. 123, as amended.
The following shows the effect on net income and earnings per share if Whitney had applied the provisions of SFAS No. 123 to measure and to recognize share-based compensation expense in 2005 for all awards, both options and restricted stock.
 
 
   
  Three Months 
   
Nine Months
   
     
          Ended    
   
Ended 
   
(dollars in thousands, except per share data)
   September 30, 2005  September 30, 2005
Net income
 
$9,123
 
$67,200
   
Share-based compensation expense included
               
  in reported net income, net of related tax effects
   
1,544
   
4,913
   
Share-based compensation expense determined
               
  under SFAS No. 123, net of related tax effects
   
(1,185
)
 
(6,424
Pro forma net income
 $9,482
 
$65,689
 
Earnings per share:
               
  Basic - as reported
 
$.15
 
$1.09
   
  Basic - pro forma
   
.15
   
1.06
   
  Diluted - as reported
   
.14
   
1.07
   
  Diluted - pro forma
   
.15
   
1.05    
Weighted-average fair value of options awarded
   
-
 
$6.09
 

The fair values of the stock options were estimated as of the grant dates using the Black-Scholes option-pricing model. The Company made the following significant assumptions in applying the option-pricing model: (a) a weighted-average expected annualized volatility for Whitney’s common stock of 22.85% for 2006 and 22.97% for 2005; (b) a weighted-average option life of 5.4 years for 2006 and 5.6 years for 2005; (c) an expected annual dividend yield of 3.25% for 2006 and 3.14% for 2005; and (d) a weighted-average risk-free interest rate of 5.14% for 2006 and 3.87% for 2005. Both the volatility assumption and the weighted-average option life assumption were based primarily on historical experience.
 
NOTE 11
CONTINGENCIES
The Company and its subsidiaries are parties to various legal proceedings arising in the ordinary course of business. After reviewing pending and threatened actions with legal counsel, management believes that the ultimate resolution of these actions will not have a material effect on Whitney’s financial condition, results of operations or cash flows.
See Note 2 for information on the impact of natural disasters that struck Whitney’s market area in 2005, including comments about contingencies surrounding the resolution of insurance claims.


13


NOTE 12
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
To meet the financing needs of its customers, the Bank issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the consolidated balance sheets. These financial instruments include commitments to extend credit under loan facilities and guarantees under standby and other letters of credit. Such instruments expose the Bank to varying degrees of credit and interest rate risk in much the same way as funded loans.
Revolving loan commitments are issued primarily to support commercial activities. The availability of funds under revolving loan commitments generally depends on whether the borrower continues to meet credit standards established in the underlying contract and has not violated other contractual conditions. A number of such commitments are used only partially or, in some cases, not at all before they expire. Nonrevolving loan commitments are issued mainly to provide financing for the acquisition and development or construction of real property, both commercial and residential, although many are not expected to lead to permanent financing by the Bank. Loan commitments generally have fixed expiration dates and may require payment of a fee. Credit card and personal credit lines are generally subject to cancellation if the borrower’s credit quality deteriorates, and many lines remain partly or wholly unused.
Substantially all of the letters of credit are standby agreements that obligate the Bank to fulfill a customer’s financial commitments to a third party if the customer is unable to perform. The Bank issues standby letters of credit primarily to provide credit enhancement to its customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors of essential goods and services. A substantial majority of standby letters of credit outstanding at September 30, 2006 have a term of one year or less.
The Bank’s exposure to credit losses from these financial instruments is represented by their contractual amounts. The Bank follows its standard credit policies in approving loan facilities and financial guarantees and requires collateral support if warranted. The required collateral could include cash instruments, marketable securities, accounts receivable, inventory, property, plant and equipment, and income-producing commercial property. See Note 6 for a summary analysis of changes in the reserve for losses on unfunded credit commitments.
A summary of off-balance-sheet financial instruments follows:
 
 
 
 September 30
 
December 31
 
(in thousands)
   
2006
   
 2005
 
Commitments to extend credit - revolving
 
$2,099,993
 
$1,834,415
 
Commitments to extend credit - nonrevolving
   
504,420
   
593,667
 
Credit card and personal credit lines
   
553,473
   
507,733
 
Standby and other letters of credit
   
403,526
   
365,582
 


14


NOTE 13
EARNINGS PER SHARE
The components used to calculate basic and diluted earnings per share were as follows:
 
   
      Three Months Ended
     Nine Months Ended
   
      September 30
     September 30
(dollars in thousands, except per share data)
 
      2006 
 
      2005 
 
     2006 
 
     2005 
 
Numerator:
                 
  Net income
 
$35,191
 
$9,123
 $110,753
 
$67,200
 
  Effect of dilutive securities
   
-  
     
-  
   
-  
   
-  
 
  Numerator for diluted earnings per share
 $35,191
 
$9,123
 $110,753
 $67,200
 
Denominator:
                         
  Weighted-average shares outstanding
   
65,444,539
   
62,699,332
   
64,399,751
   
61,764,918
 
  Effect of potentially dilutive securities
                         
     and contingently issuable shares
   
1,146,991
   
879,791
   
1,189,659
   
992,838
 
  Denominator for diluted earnings per share
   
66,591,530
   
63,579,123
   
65,589,410
   
62,757,756
 
Earnings per share:
                         
  Basic
 
$.54
 
$.15
 
$1.72
 
$1.09
 
  Diluted
   
.53
   
.14
   
1.69
   
1.07
 
Antidilutive stock options
   
238,800
   
502,825
   
83,099
   
169,450
 

NOTE 14
ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R). This statement requires an employer to recognize the funded status of a benefit plan as an asset or liability in its statement of financial position. The funded status is measured as the difference between plan assets at fair value and the plan’s specified benefit obligation, which would be the projected benefit obligation for a pension plan and the accumulated benefit obligation for other postretirement plans. Under SFAS No. 158, the gains or losses and prior service costs or credits that arise in a period but are not immediately recognized as components of net periodic benefit expense will now be recognized, net of tax, as a component of other comprehensive income. The amounts included in accumulated other comprehensive income will be adjusted as they are recognized as components of net periodic benefit expense in subsequent periods. Whitney will initially recognize the funded status of its postretirement plans and provide certain additional disclosures required by this statement in its December 31, 2006 year-end financial statements. The amounts to be recognized are not yet determinable. SFAS No. 158 also requires an employer to measure plan assets and obligations as of the date of the employer’s fiscal year-end. This requirement is effective for the Company’s 2008 fiscal year.
Also in September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, to increase consistency and comparability in fair value measurements and provide for expanded disclosures about the development of such measurements and their effect on earnings. Although the statement does not require any new fair value measurements, its definition of fair value and the framework it establishes for measuring fair value in generally accepted accounting principles will result in some changes from current practice. Whitney has not completed its evaluation of the potential impact of this statement.

15


In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. This interpretation clarifies that the benefit of a position taken or expected to be taken in a tax return should be recognized in a company’s financial statements in accordance with SFAS No.109, Accounting for Income Taxes, when it is more likely than not that the position will be sustained based on its technical merits. The interpretation also prescribes how to measure the tax benefit recognized and provides guidance on when a tax benefit should be derecognized as well as various other accounting, presentation and disclosure matters. This interpretation is effective for Whitney’s 2007 fiscal year. Application of this interpretation is not expected to have a material impact on Whitney’s financial condition or results of operations.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. This statement replaced SFAS No. 123, Accounting for Stock-Based Compensation. Whitney adopted the provisions of SFAS No. 123R beginning January 1, 2006. Information about the more significant provisions of this standard is presented in Note 10.


16

 
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
(Unaudited)
 
   Third Quarter
      Second Quarter
   Third Quarter
 Nine Months ended September 30
(dollars in thousands, except per share data)
       2006
      2006
 
   2005
 
    2006
   
     2005
 
QUARTER-END BALANCE SHEET DATA
                               
Total assets
 
$10,098,175
 
$10,427,716
 
$9,431,253
 $10,098,175
 
$9,431,253
 
Earning assets
   
9,203,856
   
9,489,364
   
8,247,993
   
9,203,856
   
8,247,993
 
Loans
   
6,852,640
   
6,860,746
   
6,462,623
   
6,852,640
   
6,462,623
 
Investment securities
   
1,980,664
   
1,822,119
   
1,719,026
   
1,980,664
   
1,719,026
 
Deposits
   
8,199,700
   
8,623,661
   
7,478,921
   
8,199,700
   
7,478,921
 
Shareholders' equity
   
1,113,111
   
1,072,764
   
945,229
   
1,113,111
   
945,229
 
AVERAGE BALANCE SHEET DATA
                               
Total assets
 
$10,218,601
 $10,552,631
 
$8,999,177
 
$10,311,510
 
$8,688,833
 
Earning assets
   
9,320,563
   
9,665,927
   
8,158,377
   
9,412,166
   
7,955,598
 
Loans
   
6,837,875
   
6,792,224
   
6,332,291
   
6,714,722
   
6,011,389
 
Investment securities
   
1,893,125
   
1,787,210
   
1,752,317
   
1,794,635
   
1,892,291
 
Deposits
   
8,399,368
   
8,790,845
   
7,229,462
   
8,577,067
   
6,971,880
 
Shareholders' equity
   
1,095,628
   
1,061,216
   
966,771
   
1,044,540
   
929,561
 
INCOME STATEMENT DATA
                               
Interest income
 $159,450
 $156,199
 
$120,910
 
$457,641
 $337,102
 
Interest expense
   
39,679
   
34,950
   
23,225
   
103,384
   
56,429
 
Net interest income
   
119,771
   
121,249
   
97,685
   
354,257
   
280,673
 
Net interest income (TE)
   
121,344
   
122,804
   
99,116
   
358,892
   
285,072
 
Provision for credit losses
   
-
   
760
   
34,000
   
2,720
   
37,000
 
Noninterest income
   
21,348
   
21,243
   
20,305
   
63,767
   
63,907
 
  Net securities gains in noninterest income
   
-
   
-
   
-
   
-
   
68
 
Noninterest expense
   
89,230
   
82,933
   
71,678
   
251,303
   
210,321
 
Net income
   
35,191
   
39,413
   
9,123
   
110,753
   
67,200
 
KEY RATIOS
                               
Return on average assets
   
1.37
%
 
1.50
%
 
.40
%
 
1.44
%
 
1.03
%
Return on average shareholders' equity
   
12.74
   
14.90
   
3.74
   
14.18
   
9.67
 
Net interest margin (TE)
   
5.17
   
5.09
   
4.83
   
5.10
   
4.79
 
Average loans to average deposits
   
81.41
   
77.26
   
87.59
   
78.29
   
86.22
 
Efficiency ratio
   
62.53
   
57.41
   
60.02
   
59.46
   
60.28
 
Allowance for loan losses to loans
   
1.09
   
1.18
   
1.41
   
1.09
   
1.41
 
Nonperforming assets to loans plus foreclosed
                               
  assets and surplus property
   
.80
   
.83
   
.69
   
.80
   
.69
 
Annualized net charge-offs to average loans
   
.27
   
.73
   
.11
   
.39
   
.09
 
Average shareholders' equity to average assets
   
10.72
   
10.06
   
10.74
   
10.13
   
10.70
 
Shareholders' equity to total assets
   
11.02
   
10.29
   
10.02
   
11.02
   
10.02
 
Leverage ratio
   
8.35
   
7.82
   
8.45
   
8.35
   
8.45
 
COMMON SHARE DATA
                               
Earnings Per Share
                               
  Basic
 
$.54
 
$.61
 
$.15
 
$1.72
 
$1.09
 
  Diluted
   
.53
   
.60
   
.14
   
1.69
   
1.07
 
Dividends
                               
  Cash dividends per share
 
$.27
$.27
 
$.25
$.81
 
$.73
 
  Dividend payout ratio
   
50.79
%
 
45.04
%
 
173.41
%
 
47.64
%
 
68.21
%
Book Value Per Share
 
$16.90
$16.31
 
$14.94
 
$16.90
 
$14.94
 
Trading Data
                               
  High sales price
 
$37.00
 
$37.26
 
$33.69
 
$37.26
 
$33.69
 
  Low sales price
   
34.42
   
33.80
   
26.60
   
27.27
   
26.60
 
  End-of-period closing price
   
35.77
   
35.37
   
27.04
   
35.77
   
27.04
 
  Trading volume
   
10,339,045
   
13,719,163
   
18,314,726
   
38,469,336
   
34,258,321
 
Average Shares Outstanding
                               
  Basic
   
65,444,539
   
64,890,893
   
62,699,332
   
64,399,751
   
61,764,918
 
  Diluted
   
66,591,530
   
66,197,108
   
63,579,123
   
65,589,410
   
62,757,756
 
Tax-equivalent (TE) amounts are calculated using a marginal federal income tax rate of 35%.
The efficiency ratio is noninterest expense to total net interest (TE) and noninterest income, excluding securities transactions.
 
17



FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of Whitney Holding Corporation and its subsidiaries (the Company or Whitney) from December 31, 2005 to September 30, 2006 and on their results of operations during the third quarters of 2006 and 2005 and during the nine-month periods through September 30 in each year. Nearly all of the Company’s operations are contained in its banking subsidiary, Whitney National Bank (the Bank). This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes appearing in Item 1. This discussion and analysis should be read in conjunction with the Company’s 2005 annual report on Form 10-K.

FORWARD-LOOKING STATEMENTS
This discussion contains “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements provide projections of results of operations or of financial condition or state other forward-looking information, such as expectations about future conditions and descriptions of plans and strategies for the future. Forward-looking statements often contain words such as “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “plan,” “predict,” “project” or other words of similar meaning.
The forward-looking statements made in this discussion include, but may not be limited to, (a) comments on the financial repercussions of natural disasters, including the impact on the allowance for credit losses and related provision, deposit balances, liquidity and on certain categories of noninterest expense; (b) expectations expressed about insurance recoveries of storm-related casualty losses and repair and rebuilding costs; (c) expectations about Whitney’s operational resiliency in the event of natural disasters and projections of costs associated with disasters; (d) comments on conditions impacting certain sectors of the loan portfolio; (e) information about changes in the duration of the investment portfolio with changes in market rates; (f) statements of the results of net interest income simulations run by the Company to measure interest rate sensitivity; (g) discussion of the performance of Whitney’s net interest income assuming certain conditions; and (h) comments on expected trends or changes in expense levels for share-based compensation and retirement benefits.
Whitney’s ability to accurately project results or predict the effects of future plans or strategies is inherently limited. Although Whitney believes that the expectations reflected in its forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements.
Factors that could cause actual results to differ from those expressed in the Company’s forward-looking statements include, but are not limited to:

l 
changes in economic and business conditions, including those caused by past or future natural disasters or by acts of war or terrorism, that directly or indirectly affect the financial health of Whitney’s customer base;
l 
changes in interest rates that affect the pricing of Whitney’s financial products, the demand for its financial services and the valuation of its financial assets and liabilities;


18



l 
changes in laws and regulations that significantly affect the activities of the banking industry and the industry’s competitive position relative to other financial service providers;
l 
technological changes affecting the nature or delivery of financial products or services and the cost of providing them;
       l    
Whitney's ability to effectively expand into new markets;
l     the cost and other effects of material contingencies, including litigation contingencies and insurance recoveries;
l     Whitney's ability to effectively manage interest rate risk and other market risk, credit risk and operational risk; 
l     Whitney's ability to manage fluctuations in the value of its assets and liabilities and off-balance sheet exposure so as to maintain sufficient capital and liquidity to support its business;
 l 
the failure to capitalize on growth opportunities and to realize cost savings in connection with business acquisitions;
l 
management’s inability to develop and execute plans for Whitney to effectively respond to unexpected changes.

You are cautioned not to place undue reliance on these forward-looking statements. Whitney does not intend, and undertakes no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.

OVERVIEW

UPDATE ON IMPACT OF NATURAL DISASTERS
Two strong hurricanes struck portions of Whitney’s service area during the third quarter of 2005. The following sections summarize the more significant continuing financial repercussions of these natural disasters for the Company and the Bank.

Credit Quality and Credit-related Losses
    Relationship officers have closely monitored the performance of storm-impacted loan customers. Information provided by these officers and statistics on the performance of consumer credits were factored into management’s determination of the allowance for loan losses at September 30, 2006. The significant overall uncertainties that complicated management’s early assessments of storm-related credit losses have largely been addressed in the year since the storms, and the storms’ impact on credit quality is primarily being reflected in the normal process for determining the loan loss allowance and reserves for losses on unfunded credit commitments. Some important uncertainties remain, however, including those specific to some individual customers, such as the resolution of insurance claims, and those applicable to the economic prospects of the storm-impacted area as a whole. Management will continue to monitor the resolution of these uncertainties when determining future loss allowances and reserves.
 
Disaster Response Costs, Casualty Losses, Business Interruption and Related Insurance
The Bank incurred a variety of costs to operate in disaster response mode, and a number of facilities and their contents were damaged by the storms, including sixteen that require replacement, relocation or major renovation. Whitney maintains insurance for casualty losses as well as for reasonable and necessary disaster response costs and certain revenue lost through business interruption. All significant disaster response costs have been incurred and included where appropriate in an insurance claim receivable based on management’s understanding of the underlying coverage. The bulk of costs to replace or renovate facilities will be incurred in future periods, and these will be included in the insurance claims as appropriate. Management projects that casualty claims arising from the 2005 storms will be within policy limits, and that gains will be recognized with respect to these claims in future periods; however, this is contingent upon reaching agreement with insurance carriers.

19


Deposit Growth and Liquidity Management
The Bank experienced a rapid accumulation of deposits in the months following the storms. Although some of the factors that contributed to this accumulation were still present during the third quarter of 2006, these funds have been experiencing some anticipated run-off, and management is monitoring the ongoing stability of these deposits as part of the Company’s overall asset/liability management process. Whitney invested a major portion of the funds from this post-storm deposit influx into short-term liquidity-management securities. Significant additional government funds to cover uninsured property losses and to support the rebuilding process are becoming available in the storm-impacted markets, but only limited distributions had been made by the end of 2006’s third quarter. Whitney does not expect significant near-term deposit growth related to these funds.
 
HIGHLIGHTS OF FINANCIAL RESULTS
Whitney earned $35.2 million in the quarter ended September 30, 2006, compared to net income of $9.1 million reported for the third quarter of 2005. Per share earnings were $.54 per basic share and $.53 per diluted share in 2006’s third quarter, compared to $.15 and $.14, respectively, for the year-earlier period.
Year-to-date earnings were $111 million in 2006 and $67.2 million in 2005. Per share earnings were $1.72 per basic share and $1.69 per diluted share in 2006, compared to $1.09 and $1.07, respectively in 2005. The results for the third quarter of 2006 included approximately $6.4 million in expenses associated with the late-summer hurricanes of 2005. This total included both the cost to implement initiatives that reduced the exposure of the Company’s operations to future disasters and improved operational resilience as well as certain increased operating costs and additional expenditures directly related to the 2005 storms. The components of these expenses are covered in more detail in the “Noninterest Expense” section of the discussion of “Results of Operations” below. The storms’ impact on the prior year’s quarterly earnings was mainly reflected in the $34 million provision for credit losses for that period and $1.1 million in casualty losses.
On April 13, 2006, Whitney acquired First National Bancshares, Inc. of Bradenton, Florida (First National) and its subsidiary, 1st National Bank & Trust (1st National), which operates in the Tampa Bay area. 1st National had approximately $380 million in total assets, including a loan portfolio valued at $286 million, and $319 million in deposits at the acquisition date. First National shareholders received 2.2 million shares of Whitney common stock and cash totaling $41 million, for a total transaction value of approximately $116 million. The Company merged 1st National into the Bank in July 2006. Whitney’s financial information for 2006 includes the results from these acquired operations since the acquisition date.
Selected third quarter highlights follow:
l 
Whitney’s net interest income (TE) for the third quarter of 2006 increased $22.2 million, or 22%, compared to the third quarter of 2005, driven by both the 14% increase in average earning assets and a wider net interest margin. The net interest margin (TE) was 5.17% for the third quarter of 2006, up 34 basis points from the year-earlier period. The net interest margin for the third quarter of 2006 was up 8 basis points from the 5.09% margin in 2006’s second quarter, but a decline in average earning assets, prompted by some recent run-off of deposits, led to a small decrease in net interest income between these periods.


20



l 
Average total loans for the quarter, including loans held for sale, were up 7%, or $471 million, compared to the third quarter of 2005, with approximately 5% associated with the 1st National acquisition. With the funding of some recent deposit losses, short-term investments for the third quarter of 2006 decreased on average by $492 million from 2006’s second quarter, but were still $550 million higher than in the third quarter of 2005. As noted earlier, total average earning assets for the quarter were up a net 14%, or $1.16 billion, compared to the third quarter of 2005.
l 
Whitney made no overall provision for credit losses in the third quarter of 2006. The provision for credit losses includes both the provision for loan losses and the provision for loss reserves established against unfunded credit commitments. The Company recorded a $1.5 negative provision for loan losses in the current period, compared to a $34 million provision in the third quarter of 2005 that reflected management’s initial estimate of the impact of the 2005 storms. Net charge-offs totaled $4.6 million in 2006’s third quarter, compared to $1.7 million in the third quarter of 2005. For the third quarter of 2006, Whitney provided $1.5 million for reserves on unfunded credit commitments, mainly related to a storm-affected commercial customer. There was no loss provision for unfunded credit commitments in the third quarter of 2005.
l 
Noninterest income increased 5% from the third quarter of 2005. Improvements were noted in a number of income categories, reflecting both internal growth and contributions from acquired operations. Deposit service charge income was down 6% compared to the third quarter of 2005. The residual additional liquidity in the deposit base from the post-storm build-up continued to reduce comparative charging opportunities in the current period, and fee potential from business customers declined as the earnings credit allowed against account charges rose between these periods with short-term market rates.
l 
Noninterest expense increased 24%, or $17.6 million, from 2005’s third quarter. As noted earlier, the third quarter of 2006 included approximately $6.4 million in expenses associated directly and indirectly with the late-summer hurricanes of 2005. Incremental operating costs associated with 1st National totaled approximately $2.3 million in the third quarter of 2006, and the amortization of intangibles acquired in this transaction added another $.7 million to expense for the current year’s period. Whitney’s personnel expense increased 13%, or $5.5 million, in total, including approximately $1.4 million for the 1st National staff. Compensation expense under management incentive programs increased by $2.3 million in the third quarter of 2006 compared to the year-earlier period, mainly related to share-based compensation earned under Whitney’s long-term incentive plan.


21


FINANCIAL CONDITION

LOANS, CREDIT RISK MANAGEMENT AND ALLOWANCE AND RESERVES FOR CREDIT LOSSES
Loan Portfolio Developments
Total loans increased $292 million, or 4%, from year-end 2005 to the end of 2006’s third quarter, and were up 6%, or $390 million, from the end of 2005’s third quarter. Whitney acquired a $286 million loan portfolio with 1st National in April 2006. Table 1 shows loan balances by type of loan at September 30, 2006 and at the end of the four prior quarters. The following discussion provides a brief overview of the composition of the different portfolio segments and the customers served in each as well as recent changes.
 
TABLE 1. LOANS
 
   
 2006 
 
2005 
(dollars in thousands)
 
 September 30
June 30
March 31
December 31
September 30
Commercial, financial and
                               
     agricultural
 
$2,591,733
 
$2,640,588
 
$2,595,056
 
$2,685,894
 
$2,614,414
 
Real estate - commercial,
                               
     construction and other
   
3,053,927
   
3,025,366
   
2,780,340
   
2,743,486
   
2,684,353
 
Real estate -
                               
     residential mortgage
   
874,945
   
851,569
   
771,547
   
774,124
   
790,823
 
Individuals
   
332,035
   
343,223
   
341,696
   
357,093
   
373,033
 
     Total loans
 
$6,852,640
 
$6,860,746
 
$6,488,639
 
$6,560,597
 
$6,462,623
 

The portfolio of commercial loans, other than those secured by real property, decreased 4%, or $94 million, between year-end 2005 and September 30, 2006. Advances on existing credits and a steady pace of newly originated loans in certain parts of Whitney’s market area were offset by paydowns and payoffs, partly reflecting strong cash flows to customers in certain industry segments such as oil and gas and construction contractors as well as the application of storm-related insurance proceeds. This portfolio sector was relatively stable compared to the end of 2005’s third quarter, and was little impacted by the 1st National acquisition. Overall the portfolio has remained diversified, with customers in a range of industries, including oil and gas exploration and production, marine transportation and maritime construction, wholesale and retail trade in various durable and nondurable products and the manufacture of such products, financial services, and professional services. Also included in the commercial loan category are loans to individuals, generally secured by collateral other than real estate, that are used to fund investments in new or expanded business opportunities. There have been no major trends or changes in the concentration mix of this portfolio category from year-end 2005.
Loans outstanding to oil and gas industry customers represented approximately 9% of total loans at September 30, 2006, consistent with the percentage at year-end 2005. The major portion of Whitney’s customer base in this industry provides transportation and other services and products to support exploration and production activities. With expectations of sustained higher commodity prices, Whitney has increased its attention to lending opportunities in the exploration and production sector in recent years.
Outstanding balances under participations in larger shared-credit loan commitments totaled $375 million at the end of 2006’s third quarter, including approximately $54 million

22


related to the oil and gas industry. This total is up $24 million from year-end 2005. Substantially all such shared credits are with customers operating in Whitney’s market area.
The commercial real estate portfolio includes loans for construction and real estate development, both commercial and residential, loans secured by multi-family residential properties and other income-producing properties, and loans secured by properties used in commercial or industrial operations. This portfolio sector grew 11%, or $310 million, from December 31, 2005, and has increased 14%, or $370 million, since the end of the third quarter of 2005. The 1st National acquisition added approximately $204 million to this category in 2006, mainly related to commercial mortgages. Whitney continues to develop new business in this highly competitive sector throughout its market area in addition to financing new projects for its established customer base. The more recent activity in this portfolio sector has been driven by condominium and apartment projects and single-family residential development, particularly in the eastern Gulf Coast region, and by the development of retail, office and industrial properties by customers throughout Whitney’s market area. The future pace of new real estate project financing will reflect the level of confidence by Whitney and its customers in the sustainability of favorable economic conditions. The rate of portfolio growth in a given period will also be affected by the refinancing of seasoned income properties in the secondary market and payments on residential development loans as inventory is sold.
The residential mortgage loan portfolio increased 13%, or $101 million, from the end of 2005 to September 30, 2006, and was up 11% from a year earlier. Growth in this category has mostly come from acquisitions, with additional support from the promotion of targeted home loan products held in the portfolio. Whitney continues to sell most conventional residential mortgage loan production in the secondary market.
Loans to individuals include various consumer installment and credit line products. Some storm-related factors are evident in the decrease in this portfolio category since September 30, 2005, including the application of insurance proceeds and some reduction in credit demand associated with the ongoing disruption of normal routines for individuals from the most affected areas.

Credit Risk Management and Allowance and Reserves for Credit Losses
General Discussion of Credit Risk Management and Determination of Credit Loss Allowance and Loss Reserve
Whitney manages credit risk mainly through adherence to underwriting and loan administration standards established by its Credit Policy Committee and through the efforts of the credit administration function to ensure consistent application and monitoring of standards throughout the Company. Lending officers are responsible for ongoing monitoring and the assignment of risk ratings to individual loans based on established guidelines. An independent credit review function reporting to the Audit Committee of the Board of Directors assesses the accuracy of officer ratings and the timeliness of rating changes and performs concurrent reviews of the underwriting process.
Management’s evaluation of credit risk in the loan portfolio is ultimately reflected in the estimate of probable losses inherent in the portfolio that is reported in the Company’s financial statements as the allowance for loan losses. Changes in this evaluation over time are reflected in the provision for loan losses charged to expense. The methodology for determining the allowance involves significant judgment, and important factors that influence this judgment are re-evaluated quarterly to respond to changing conditions.

23



The recorded allowance encompasses three elements: (1) allowances established for losses on criticized loans; (2) allowances based on historical loss experience for loans with acceptable credit quality and groups of homogeneous loans not individually rated; and (3) allowances based on general economic conditions and other qualitative risk factors internal and external to the Company. The allowance for criticized loans includes any specific allowances determined for loans that are deemed impaired under the definition in Statement of Financial Accounting Standards No. 114. The allowance for the remainder of criticized loans is calculated by applying loss factors to loan balances aggregated by severity of the internal risk rating.
The monitoring of credit risk also extends to unfunded credit commitments, such as unused commercial credit lines and letters of credit, and management establishes reserves as needed for its estimate of probable losses on such commitments.

Management’s Assessment of Storms’ Impact on Credit Quality 
The significant overall uncertainties that complicated management’s early assessments of storm-related credit losses have largely been addressed in the year since the storms, and the storms’ impact on credit quality is primarily being reflected in the normal process for managing credit risk and determining the loan loss allowance and reserves for losses on unfunded credit commitments. The detailed review process that was applied to commercial and commercial real estate loans in the year following the storms was not logistically feasible for the residential mortgage and consumer credit components of the storm-impacted portfolio. Management has applied incremental loss factors to this portfolio based on accumulated statistics on loss experience.

Credit Quality Statistics and Components of Credit Loss Allowance and Loss Reserve
Table 2 provides information on nonperforming loans and other nonperforming assets at September 30, 2006 and at the end of the previous four quarters. Nonperforming loans are included in the criticized loan total discussed below and encompass substantially all loans separately evaluated for impairment. There was a $1.5 million decrease in the allowance for impaired loans between June 30, 2006 and September 30, 2006, reflecting charge-off activity and other changes during the third quarter of 2006. Overall there have been no significant trends related to industries or markets underlying the changes in nonperforming assets.

24



TABLE 2. NONPERFORMING ASSETS
 
   
2006
 
2005
 
 
(dollars in thousands)
   
September
30
 
June
30
March
31
December
31
 
September
30
Loans accounted for on a nonaccrual basis
 $54,277
 
$56,188
 
$65,494