10-Q 1 wtny1q201010q.htm WHITNEY HOLDING CORPORATION 1ST QUARTER 2010 T0Q wtny1q201010q.htm



 
 

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 March 31, 2010

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes __   No __

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

Large accelerated filer  ü
Accelerated filer __
Non-accelerated filer __
Smaller reporting company __

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 April 30, 2010, 96,463,547 shares of the registrant’s no par value common stock were outstanding.
 
 
 



 

 
 

 
WHITNEY HOLDING CORPORATION
TABLE OF CONTENTS

 
 
Page
PART I.
Financial Information
 
       
 
Item 1.
Financial Statements:
 
   
Consolidated Balance Sheets
1
   
Consolidated Statements of Income
2
   
Consolidated Statements of Changes in Shareholders’ Equity
3
   
Consolidated Statements of Cash Flows
4
   
Notes to Consolidated Financial Statements
5
   
Selected Financial Data
23
       
 
Item 2.
Management’s Discussion and Analysis of Financial
 
   
  Condition and Results of Operations
24
       
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
49
       
 
Item 4.
Controls and Procedures
49
       
PART II.
Other Information
 
       
 
Item 1.
Legal Proceedings
50
       
 
Item 1A.
Risk Factors
50
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
51
       
 
Item 3.
Defaults upon Senior Securities
51
       
 
Item 4.
Reserved
51
       
 
Item 5.
Other Information
52
       
 
Item 6.
Exhibits
52
       
     
Signature
 
53
       
Exhibit Index
 
54

 
 

 


 
PART 1. FINANCIAL INFORMATION
           
             
  Item 1. FINANCIAL STATEMENTS
           
             
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
   
March 31
   
December 31
 
(dollars in thousands)
 
2010
   
2009
 
   
(Unaudited)
       
ASSETS
           
  Cash and due from financial institutions
  $ 198,912     $ 216,347  
  Federal funds sold and short-term investments
    256,505       212,219  
  Loans held for sale
    22,942       33,745  
  Investment securities
               
    Securities available for sale
    1,877,653       1,875,495  
    Securities held to maturity, fair values of  $169,452 and $180,384, respectively
    164,654       174,945  
      Total investment securities
    2,042,307       2,050,440  
  Loans, net of unearned income
    8,073,498       8,403,443  
    Allowance for loan losses
    (223,890 )     (223,671 )
      Net loans
    7,849,608       8,179,772  
                 
  Bank premises and equipment
    226,105       223,142  
  Goodwill
    435,678       435,678  
  Other intangible assets
    12,621       14,116  
  Accrued interest receivable
    33,277       32,841  
  Other assets
    502,851       493,841  
      Total assets
  $ 11,580,806     $ 11,892,141  
                 
LIABILITIES
               
  Noninterest-bearing demand deposits
  $ 3,298,095     $ 3,301,354  
  Interest-bearing deposits
    5,663,862       5,848,540  
      Total deposits
    8,961,957       9,149,894  
                 
  Short-term borrowings
    610,344       734,606  
  Long-term debt
    199,722       199,707  
  Accrued interest payable
    12,598       11,908  
  Accrued expenses and other liabilities
    119,945       114,962  
      Total liabilities
    9,904,566       10,211,077  
                 
SHAREHOLDERS' EQUITY
               
  Preferred stock, no par value
               
    Authorized, 20,000,000 shares; issued and outstanding, 300,000 shares
    295,291       294,974  
  Common stock, no par value
               
    Authorized - 200,000,000 shares
               
    Issued - 96,959,728 and 96,947,377 shares, respectively
    2,800       2,800  
  Capital surplus
    618,392       617,038  
  Retained earnings
    779,158       790,481  
  Accumulated other comprehensive loss
    (6,704 )     (11,532 )
  Treasury stock at cost - 500,000 shares
    (12,697 )     (12,697 )
      Total shareholders' equity
    1,676,240       1,681,064  
      Total liabilities and shareholders' equity
  $ 11,580,806     $ 11,892,141  
The accompanying notes are an integral part of these financial statements.
               

 
- 1 -

 

WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
 
(Unaudited)
 
   
Three Months Ended
 
   
March 31
 
(dollars in thousands, except per share data)
 
2010
   
2009
 
INTEREST INCOME
           
  Interest and fees on loans
  $ 100,130     $ 111,814  
  Interest and dividends on investment securities
               
    Taxable securities
    18,817       18,851  
    Tax-exempt securities
    1,685       2,045  
  Interest on federal funds sold and short-term investments
    179       178  
    Total interest income
    120,811       132,888  
INTEREST EXPENSE
               
  Interest on deposits
    11,420       17,506  
  Interest on short-term borrowings
    276       1,278  
  Interest on long-term debt
    2,486       2,489  
    Total interest expense
    14,182       21,273  
NET INTEREST INCOME
    106,629       111,615  
PROVISION FOR CREDIT LOSSES
    37,500       65,000  
NET INTEREST INCOME AFTER PROVISION
               
  FOR CREDIT LOSSES
    69,129       46,615  
NONINTEREST INCOME
               
  Service charges on deposit accounts
    8,482       9,836  
  Bank card fees
    5,674       4,387  
  Trust service fees
    2,908       2,966  
  Secondary mortgage market operations
    1,882       1,835  
  Other noninterest income
    9,301       10,242  
  Securities transactions
    -       -  
    Total noninterest income
    28,247       29,266  
NONINTEREST EXPENSE
               
  Employee compensation
    39,044       38,592  
  Employee benefits
    11,051       11,322  
    Total personnel
    50,095       49,914  
  Net occupancy
    9,945       9,676  
  Equipment and data processing
    6,594       6,354  
  Legal and other professional services
    5,232       4,687  
  Deposit insurance and regulatory fees
    6,013       3,585  
  Telecommunication and postage
    3,085       3,097  
  Corporate value and franchise taxes
    1,698       2,371  
  Amortization of intangibles
    1,495       2,590  
  Provision for valuation losses on foreclosed assets
    3,088       717  
  Nonlegal loan collection and other foreclosed asset costs
    3,173       1,259  
  Other noninterest expense
    19,288       12,598  
    Total noninterest expense
    109,706       96,848  
INCOME (LOSS) BEFORE INCOME TAXES
    (12,330 )     (20,967 )
INCOME TAX EXPENSE (BENEFIT)
    (6,050 )     (9,828 )
NET INCOME (LOSS)
  $ (6,280 )   $ (11,139 )
Preferred stock dividends
    4,067       4,025  
NET INCOME (LOSS) TO COMMON SHAREHOLDERS
  $ (10,347 )   $ (15,164 )
EARNINGS (LOSS) PER COMMON SHARE
               
  Basic
  $ (.11 )   $ (.22 )
  Diluted
    (.11 )     (.22 )
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
               
  Basic
    96,534,425       67,465,497  
  Diluted
    96,534,425       67,465,497  
CASH DIVIDENDS PER COMMON SHARE
  $ .01     $ .01  
The accompanying notes are an integral part of these financial statements.
               

 
- 2 -

 


WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
                                           
               
Common
         
Accumulated
             
               
Stock and
   
 
   
Other
             
(dollars and shares in thousands,
 
Preferred
   
Common
   
Capital
   
Retained
   
Comprehensive
   
Treasury
       
 except per share data)
 
Stock
   
Shares
   
Surplus
   
Earnings
   
Income (Loss)
   
Stock
   
Total
 
Balance at December 31, 2008
  $ 293,706       67,345     $ 400,503     $ 869,918     $ (25,952 )   $ (12,697 )   $ 1,525,478  
Comprehensive income (loss):
                                                       
Net loss
    -       -       -       (11,139 )     -       -       (11,139 )
Other comprehensive income:
                                                       
Unrealized net holding gain on securities,
                                                       
  net of reclassifications and tax
    -       -       -       -       6,765       -       6,765  
Net change in prior service cost or credit and
                                                       
  net actuarial loss on retirement plans, net of tax
    -       -       -       -       2,358       -       2,358  
Total comprehensive income (loss)
    -       -       -       (11,139 )     9,123       -       (2,016 )
Common stock dividends, $.01 per share
    -       -       -       (649 )     -       -       (649 )
Preferred stock dividend and discount accretion
    317       -       -       (2,109 )     -       -       (1,792 )
Common stock issued to dividend reinvestment plan
    -       37       586       -       -       -       586  
Employee incentive plan common stock activity
    -       -       503       -       -       -       503  
Director compensation plan common stock activity
    -       8       (25 )     -       -       -       (25 )
Balance at March 31, 2009
  $ 294,023       67,390     $ 401,567     $ 856,021     $ (16,829 )   $ (12,697 )   $ 1,522,085  
                                                         
Balance at December 31, 2009
  $ 294,974       96,447     $ 619,838     $ 790,481     $ (11,532 )   $ (12,697 )   $ 1,681,064  
Comprehensive income (loss):
                                                       
Net loss
    -       -       -       (6,280 )     -       -       (6,280 )
Other comprehensive income:
                                                       
Unrealized net holding gain on securities,
                                                       
  net of reclassifications and tax
    -       -       -       -       4,075       -       4,075  
Net change in prior service cost or credit and
                                                       
  net actuarial loss on retirement plans, net of tax
    -       -       -       -       753       -       753  
Total comprehensive income (loss)
    -       -       -       (6,280 )     4,828       -       (1,452 )
Common stock dividends, $.01 per share
    -       -       -       (976 )     -       -       (976 )
Preferred stock dividend and discount accretion
    317       -       -       (4,067 )     -       -       (3,750 )
Common stock issued to dividend reinvestment plan
    -       5       49       -       -       -       49  
Employee incentive plan common stock activity
    -       -       1,296       -       -       -       1,296  
Director compensation plan common stock activity
    -       8       9       -       -       -       9  
Balance at March 31, 2010
  $ 295,291       96,460     $ 621,192     $ 779,158     $ (6,704 )   $ (12,697 )   $ 1,676,240  
                                                         
The accompanying notes are an integral part of these financial statements.
                                         

 
- 3 -

 

WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
   
Three Months Ended
 
   
March 31
 
(dollars in thousands)
 
2010
   
2009
 
OPERATING ACTIVITIES
           
  Net income (loss)
  $ (6,280 )   $ (11,139 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
         
    Depreciation and amortization of bank premises and equipment
    5,222       5,311  
    Amortization of purchased intangibles
    1,495       2,590  
    Share-based compensation earned
    1,293       449  
    Premium amortization and discount accretion on securities, net
    760       565  
    Provision for credit losses and losses on foreclosed assets
    40,588       65,717  
    Net gains (losses) on asset dispositions
    263       (505 )
    Deferred tax benefit
    (3,844 )     (13,573 )
    Net (increase) decrease in loans originated and held for sale
    10,803       (18,151 )
    Net (increase) decrease in interest and other income receivable and prepaid expenses
    (732 )     5,288  
    Net increase (decrease) in interest payable and accrued income taxes and expenses
    2,726       (13,151 )
    Other, net
    (1,004 )     2,156  
      Net cash provided by operating activities
    51,290       25,557  
INVESTING ACTIVITIES
               
  Proceeds from maturities of investment securities available for sale
    144,516       127,465  
  Purchases of investment securities available for sale
    (136,319 )     (38 )
  Proceeds from maturities of investment securities held to maturity
    10,265       8,968  
  Net decrease in loans
    275,890       83,185  
  Net (increase) decrease in federal funds sold and short-term investments
    (44,286 )     140,017  
  Proceeds from sales of foreclosed assets and surplus property
    7,273       4,462  
  Purchases of bank premises and equipment
    (8,053 )     (5,062 )
  Other, net
    (1,238 )     (30,296 )
      Net cash provided by investing activities
    248,048       328,701  
FINANCING ACTIVITIES
               
  Net increase (decrease) in transaction account and savings account deposits
    (168,790 )     36,408  
  Net decrease in time deposits
    (19,116 )     (85,480 )
  Net decrease in short-term borrowings
    (124,262 )     (368,390 )
  Proceeds from issuance of long-term debt
    77       11,543  
  Repayment of long-term debt
    (11 )     (65 )
  Proceeds from issuance of common stock
    49       586  
  Cash dividends on common stock
    (973 )     (11,189 )
  Cash dividends on preferred stock
    (3,750 )     (2,334 )
  Other, net
    3       26  
      Net cash used in financing activities
    (316,773 )     (418,895 )
      Decrease in cash and cash equivalents
    (17,435 )     (64,637 )
      Cash and cash equivalents at beginning of period
    216,347       299,619  
      Cash and cash equivalents at end of period
  $ 198,912     $ 234,982  
                 
Cash received during the period for:
               
  Interest income
  $ 119,224     $ 136,283  
                 
Cash paid during the period for:
               
  Interest expense
  $ 13,541     $ 21,159  
  Income taxes
    -       -  
                 
Noncash investing activities:
               
  Foreclosed assets received in settlement of loans
  $ 18,362     $ 14,743  
                 
The accompanying notes are an integral part of these financial statements.
               

 
- 4 -

 
 

 
WHITNEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Whitney Holding Corporation and its subsidiaries (the Company or Whitney).  The Company’s principal subsidiary is Whitney National Bank (the Bank), which represents virtually all of the Company’s operations and net income.  All significant intercompany balances and transactions have been eliminated.
In preparing the consolidated financial statements, the Company is required to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.  The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of Whitney’s financial condition, results of operations, changes in shareholders’ equity and cash flows for the interim periods presented.  These adjustments are of a normal recurring nature and include appropriate estimated provisions.
Pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), some financial information and disclosures have been condensed or omitted in preparing the consolidated financial statements presented in this quarterly report on Form 10-Q.  These financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2009.  Financial information reported in these financial statements is not necessarily indicative of the Company’s financial condition, results of operations or cash flows of any other interim or annual periods.

 
- 5 -

 

NOTE 2
INVESTMENT SECURITIES
Summary information about securities available for sale and securities held to maturity follows.  Mortgage-backed securities are issued or guaranteed by U.S. government agencies and substantially all are backed by residential mortgages.

 
 
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
(in thousands)
 
Cost
   
Gains
   
Losses
   
Value
 
Securities Available for Sale
 
March 31, 2010
                       
Mortgage-backed securities
  $ 1,677,781     $ 43,599     $ 648     $ 1,720,732  
U. S. agency securities
    100,096       1,233       -       101,329  
Obligations of states and political subdivisions
    5,519       265       2       5,782  
Other securities
    49,810       -       -       49,810  
    Total
  $ 1,833,206     $ 45,097     $ 650     $ 1,877,653  
December 31, 2009
                               
Mortgage-backed securities
  $ 1,673,136     $ 38,435     $ 2,806     $ 1,708,765  
U. S. agency securities
    100,131       2,260       -       102,391  
Obligations of states and political subdivisions
    6,376       293       3       6,666  
Other securities
    57,673       -       -       57,673  
    Total
  $ 1,837,316     $ 40,988     $ 2,809     $ 1,875,495  
Securities Held to Maturity
 
March 31, 2010
                               
Obligations of states and political subdivisions
  $ 164,654     $ 4,834     $ 36     $ 169,452  
    Total
  $ 164,654     $ 4,834     $ 36     $ 169,452  
December 31, 2009
                               
Obligations of states and political subdivisions
  $ 174,945     $ 5,464     $ 25     $ 180,384  
    Total
  $ 174,945     $ 5,464     $ 25     $ 180,384  

The following summarizes securities with unrealized losses at March 31, 2010 and December 31, 2009 by the period over which the security’s fair value had been continuously less than its amortized cost as of each date.

March 31, 2010
 
Less than 12 Months
   
12 Months or Longer
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
(in thousands)
 
Value
   
Losses
   
Value
   
Losses
 
Securities Available for Sale
 
 
   
 
   
 
   
 
 
Mortgage-backed securities
  $ 231,505     $ 648     $ -     $ -  
Obligations of states and political subdivisions
    -       -       641       2  
     Total
  $ 231,505     $ 648     $ 641     $ 2  
Securities Held to Maturity
                               
Obligations of states and political subdivisions
  $ 4,353     $ 36     $ -     $ -  
     Total
  $ 4,353     $ 36     $ -     $ -  


 
- 6 -

 


December 31, 2009
 
Less than 12 Months
   
12 Months or Longer
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
(in thousands)
 
Value
   
Losses
   
Value
   
Losses
 
Securities Available for Sale
 
 
   
 
   
 
   
 
 
Mortgage-backed securities
  $ 504,315     $ 2,806     $ -     $ -  
Obligations of states and political subdivisions
    235       1       406       2  
     Total
  $ 504,550     $ 2,807     $ 406     $ 2  
Securities Held to Maturity
                               
Obligations of states and political subdivisions
  $ 4,279     $ 25     $ -     $ -  
     Total
  $ 4,279     $ 25     $ -     $ -  

Management evaluates whether unrealized losses on securities represent impairment that is other than temporary.  If such impairment is identified, the carrying amount of the security is reduced with a charge to operations.  In making this evaluation, management first considers the reasons for the indicated impairment.  These could include changes in market rates relative to those available when the security was acquired, changes in market expectations about the timing of cash flows from securities that can be prepaid, and changes in the market’s perception of the issuer’s financial health and the security’s credit quality.  Management then considers the likelihood of a recovery in fair value sufficient to eliminate the indicated impairment and the length of time over which an anticipated recovery would occur, which could extend to the security’s maturity.  Finally, management determines whether there is both the ability and the intent to hold the impaired security until an anticipated recovery, in which case the impairment would be considered temporary.  In making this assessment, management considers whether the security continues to be a suitable holding from the perspective of the Company’s overall portfolio and asset/liability management strategies and whether there are other circumstances that would more likely than not require the sale of the security.
There were minimal unrealized losses at March 31, 2010, all of which were unrelated to credit quality.  In all cases, the indicated impairment would be recovered by the security’s maturity or repricing date or possibly earlier if the market price for the security increases with a reduction in the yield required by the market.  At March 31, 2010, management had both the intent and ability to hold these securities until the market-based impairment is recovered.
The following table shows the amortized cost and estimated fair value of securities available for sale and held to maturity grouped by contractual maturity as of March 31, 2010.  Debt securities with scheduled repayments, such as mortgage-backed securities, and equity securities are presented in separate totals.  The expected maturity of a security, in particular certain U.S. agency securities and obligations of states and political subdivisions, may differ from its contractual maturity because of the exercise of call options.

 
- 7 -

 


   
Amortized
   
Fair
 
(in thousands)
 
Cost
   
Value
 
Securities Available for Sale
           
Within one year
  $ 100,836     $ 102,069  
One to five years
    7,729       7,928  
Five to ten years
    1,050       1,114  
After ten years
    -       -  
  Debt securities with single maturities
    109,615       111,111  
Mortgage-backed securities
    1,677,781       1,720,732  
Equity securities
    45,810       45,810  
    Total
  $ 1,833,206     $ 1,877,653  
Securities Held to Maturity
               
Within one year
  $ 9,540     $ 9,645  
One to five years
    68,969       71,338  
Five to ten years
    60,268       61,808  
After ten years
    25,877       26,661  
    Total
  $ 164,654     $ 169,452  

Securities with carrying values of $1.30 billion at March 31, 2010 and $1.39 billion at December 31, 2009 were sold under repurchase agreements, pledged to secure public deposits or pledged for other purposes.

NOTE 3
LOANS
The composition of the Company’s loan portfolio was as follows.

   
March 31
   
December 31
 
(in thousands)
 
2010
   
2009
 
Commercial & industrial
  $ 2,869,206       36 %   $ 3,075,340       37 %
Owner-occupied real estate
    1,069,191       13       1,079,487       13  
  Total commercial & industrial
    3,938,397       49       4,154,827       50  
Commercial construction, land & land development
    1,479,518       18       1,537,155       18  
Other commercial real estate
    1,216,417       15       1,246,353       15  
    Total commercial real estate
    2,695,935       33       2,783,508       33  
Residential mortgage
    1,014,982       13       1,035,110       12  
Consumer
    424,184       5       429,998       5  
    Total
    8,073,498       100 %   $ 8,403,443       100 %


 

 
- 8 -

 

NOTE 4
ALLOWANCE FOR LOAN LOSSES AND RESERVE FOR LOSSES ON UNFUNDED CREDIT
COMMITMENTS
A summary analysis of changes in the allowance for loan losses follows.

   
Three Months Ended
 
   
March 31
 
(in thousands)
 
2010
   
2009
 
Allowance at beginning of period
  $ 223,671     $ 161,109  
Provision for credit losses
    37,300       65,000  
Loans charged off
    (39,987 )     (33,829 )
Recoveries
    2,906       1,899  
   Net charge-offs
    (37,081 )     (31,930 )
Allowance at end of period
  $ 223,890     $ 194,179  

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
 
   
March 31
 
(in thousands)
 
2010
   
2009
 
Reserve at beginning of period
  $ 2,200     $ 800  
Provision for credit losses
    200       -  
Reserve at end of period
  $ 2,400     $ 800  

NOTE 5
IMPAIRED LOANS, NONPERFORMING LOANS, FORECLOSED ASSETS AND SURPLUS PROPERTY
Information on loans evaluated for possible impairment loss follows.

   
March 31 
   
December 31
 
(in thousands)
 
2010
   
2009
 
Impaired loans:
           
   Requiring a loss allowance
  $ 297,065     $ 277,421  
   Not requiring a loss allowance
    65,872       67,572  
   Total recorded investment in impaired loans
  $ 362,937     $ 344,993  
Impairment loss allowance required
  $ 47,687     $ 51,462  

The following is a summary of nonperforming loans and foreclosed assets and surplus property.  All of the impaired loans summarized above are included in the nonperforming loan totals.

   
March 31  
   
December 31  
 
(in thousands)
 
2010
   
2009
 
Loans accounted for on a nonaccrual basis
  $ 436,680     $ 414,075  
Restructured loans accruing
    -       -  
   Total nonperforming loans
  $ 436,680     $ 414,075  
Foreclosed assets and surplus property
  $ 60,879     $ 52,630  

 
- 9 -

 

NOTE 6
DEPOSITS
The composition of deposits was as follows.

   
March 31
   
December 31
 
(in thousands)
 
    2010
   
    2009
 
Noninterest-bearing demand deposits
  $ 3,298,095     $ 3,301,354  
Interest-bearing deposits:
               
   NOW account deposits
    1,161,120       1,299,274  
   Money market deposits
    1,767,818       1,823,548  
   Savings deposits
    868,488       840,135  
   Other time deposits
    745,435       799,142  
   Time deposits $100,000 and over
    1,121,001       1,086,441  
      Total interest-bearing deposits
    5,663,862       5,848,540  
         Total deposits
  $ 8,961,957     $ 9,149,894  

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 $159 million at March 31, 2010 and $151 million at December 31, 2009.  Most of these deposits mature on a daily basis.

NOTE 7
SHORT-TERM BORROWINGS
Short-term borrowings consisted of the following.

   
March 31
   
December 31
 
(in thousands)
 
2010
   
2009
 
Securities sold under agreements to repurchase
  $ 596,149     $ 711,896  
Federal funds purchased
    6,895       15,810  
Treasury Investment Program
    7,300       6,900  
  Total short-term borrowings
  $ 610,344     $ 734,606  

The Bank borrows funds on a secured basis by selling securities under agreements to repurchase, mainly in connection with treasury-management services offered to its deposit customers.  Repurchase agreements generally mature daily.
Federal funds purchased are unsecured borrowings from other banks, generally on an overnight basis.
Under the Treasury Investment Program, excess U.S. Treasury receipts are loaned to participating financial institutions at 25 basis points under the federal funds rate.  Repayment of these borrowed funds can be demanded at any time, and the Bank pledges securities as collateral.
From time to time, the Bank uses advances from the Federal Home Loan Bank (FHLB) as an additional source of short-term funds, although no advances were outstanding at March 31, 2010 or December 31, 2009.  FHLB advances are secured by a blanket lien on Bank loans secured by real estate.

 
- 10 -

 

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.

   
   March 31
   
December 31
 
(in thousands)
 
2010
   
2009
 
Other Assets
           
Cash surrender value of life insurance
  $ 175,052     $ 174,296  
Net deferred income tax asset
    87,005       85,825  
Prepaid FDIC insurance assessments
    63,292       68,012  
Foreclosed assets and surplus property
    60,879       52,630  
Recoverable income taxes
    36,008       32,942  
Low-income housing tax credit fund investments
    8,837       9,503  
Other prepaid expenses
    11,436       9,582  
Miscellaneous investments, receivables and other assets
    60,342       61,051  
  Total other assets
  $ 502,851     $ 493,841  
Accrued Expenses and Other Liabilities
               
Trade date obligations
  $ 30,446     $ 30,060  
Accrued taxes and other expenses
    23,016       20,063  
Dividend payable
    834       832  
Liability for pension benefits
    22,452       23,170  
Obligation for postretirement benefits other than pensions
    19,018       19,043  
Reserve for losses on unfunded credit commitments
    2,400       2,200  
Reserve for losses on loan repurchase obligations
    4,500       -  
Miscellaneous payables, deferred income and other liabilities
    17,279       19,594  
  Total accrued expenses and other liabilities
  $ 119,945     $ 114,962  

Life insurance policies purchased under a bank-owned life insurance program are carried at their cash surrender value, which represents the amount that could be realized as of the reporting date.  Earnings on these policies are reported in noninterest income and are not taxable.
Recent bank failures and economic conditions have put pressure on deposit insurance reserve ratios and led the FDIC to require that insured banks prepay an estimate of their deposit insurance premiums for the years 2010 through 2012.  These premiums are normally assessed and collected on a quarterly basis.  This prepayment does not affect how the Bank determines and reports FDIC insurance expense.
The total for miscellaneous investments, receivables and other assets at March 31, 2010 and December 31, 2009, included approximately $25 million of investments in auction rate securities (ARS), which are investment grade securities with underlying holdings of municipal securities.  The ARS were purchased at par from brokerage customers to provide a source of liquidity.  Disruptions in the broader credit markets led to failed auctions in the ARS market and a resulting period of illiquidity.  While management believes the ARS will be redeemed at par, the actual timing of redemptions is uncertain.  These investments are carried at their estimated fair values.
The reserve for losses on mortgage loan repurchase obligations is discussed below in Note 14.

 
- 11 -

 

NOTE 9
OTHER NONINTEREST INCOME
The components of other noninterest income were as follows.

   
Three Months Ended
 
   
March 31
 
(in thousands)
 
2010
   
2009
 
Investment services income
  $ 1,540     $ 1,395  
Credit-related fees
    1,685       1,550  
ATM fees
    1,128       1,591  
Other fees and charges
    1,279       1,327  
Earnings from bank-owned life insurance program
    1,629       1,748  
Other operating income
    1,458       1,003  
Net gains on sales and other revenue from foreclosed assets
    588       1,005  
Net gains (losses) on disposals of surplus property
    (6 )     623  
     Total
  $ 9,301     $ 10,242  

NOTE 10
OTHER NONINTEREST EXPENSE
The components of other noninterest expense were as follows.

   
Three Months Ended
 
   
March 31
 
(in thousands)
 
2010
   
2009
 
Security and other outsourced services
  $ 4,767     $ 4,136  
Advertising and promotion
    1,571       980  
Bank card processing services
    1,540       997  
Operating supplies
    838       1,064  
Loss on mortgage loan repurchase obligations
    4,500       -  
Miscellaneous operating losses
    257       788  
Other operating expenses
    5,815       4,633  
     Total
  $ 19,288     $ 12,598  

The loss on mortgage loan repurchase obligations is discussed below in Note 14.

NOTE 11
EMPLOYEE RETIREMENT BENEFIT PLANS
Retirement Income Plans
Whitney has a noncontributory qualified defined-benefit pension plan.  In 2008, the qualified plan was amended (a) to limit eligibility to those employees who were employed on December 31, 2008 and (b) to freeze benefit accruals for all participants other than those who were fully vested and whose age and years of benefit service combined equaled at least 50 as of December 31, 2008.  Whitney also has an unfunded nonqualified defined-benefit pension plan that provides retirement benefits to designated executive officers.
The Company has contributed $2.1 million to the qualified plan in 2010 through the end of the first quarter and, based on currently available information, anticipates making additional contributions totaling approximately $6.4 million for the remainder of the year.

 
- 12 -

 

The components of net periodic pension expense were as follows for the combined qualified and nonqualified plans.

   
Three Months Ended
 
   
March 31
 
(in thousands)
 
2010
   
2009
 
Service cost for benefits in period
  $ 1,789     $ 1,809  
Interest cost on benefit obligation
    3,064       2,767  
Expected return on plan assets
    (3,244 )     (2,739 )
Amortization of:
               
   Net actuarial loss
    1,061       1,498  
   Prior service cost (credit)
    80       (2 )
Net  periodic pension expense
  $ 2,750     $ 3,333  

The actuarial gains or losses and prior service costs or credits with respect to a retirement benefit plan that arise in a period but are not immediately recognized as components of net periodic pension expense are recognized, net of tax, as a component of other comprehensive income.  The amounts included in accumulated other comprehensive income are adjusted as they are recognized as components of net periodic pension expense in subsequent periods.

Health and Welfare Plans
Whitney has offered health care and life insurance benefit plans for retirees and their eligible dependents.  The Company funds its obligations under these plans as contractual payments come due to health care organizations and insurance companies.  In 2007, Whitney amended these plans to restrict eligibility for postretirement health benefits to retirees already receiving benefits and to those active participants who were eligible to receive benefits by December 31, 2007.  The amendment also eliminated the life insurance benefit for employees who retire after December 31, 2007.  The net periodic expense for postretirement benefits was immaterial in the first quarter of both 2010 and 2009.

NOTE 12
SHARE-BASED COMPENSATION
Whitney maintains incentive compensation plans that incorporate share-based compensation.  The plans for both employees and directors have been approved by the Company’s shareholders.  Descriptions of these plans, including the terms of awards and the number of Whitney shares authorized for issuance, were included in Note 16 to the consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2009.  No significant share-based compensation awards were made during the first quarter of 2010.
The Company recognized share-based compensation expense of $1.3 million ($.8 million after-tax) in the first quarter of 2010 and $.5 million ($.3 million after-tax) in the first quarter of 2009.



 
- 13 -

 

NOTE 13
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is tested for impairment at least annually.  The impairment test compares the estimated fair value of a reporting unit with its net book value.  Whitney has assigned all goodwill to one reporting unit that represents the overall banking operations.  The fair value of the reporting unit is based on valuation techniques that market participants would use in the acquisition of the whole unit, such as estimated discounted cash flows, the quoted market price of Whitney’s common stock including an estimated control premium, and observable average price-to-earnings and price-to-book multiples of our competitors.  No indication of goodwill impairment was identified in the annual assessment as of September 30, 2009.  Given the current economic environment and potential for volatility in the fair value estimate, management has been updating the impairment test for goodwill quarterly throughout 2009 and into 2010.  No indication of goodwill impairment was identified in the tests as of March 31, 2010 and December 31, 2009.  For the most recent impairment test, the discounted cash flow analysis resulted in a fair value estimate approximately 5% higher than book value.  Either a 7 basis point reduction in the expected net interest margin, a .50% lower projected growth rate or a .35% higher discount rate would reduce the estimated fair value by 5%.
Management will continue to update its impairment analysis as circumstances change in this environment of volatile and unpredictable market conditions.  As a result, it is possible that a noncash goodwill impairment charge may be required in future periods.

NOTE 14
CONTINGENCIES
Legal Proceedings
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.

Reserve for Losses on Mortgage Loan Repurchase Obligations
During the first quarter of 2010, the Company established a $4.5 million reserve for estimated losses on mortgage loan repurchase obligations associated with certain loans that were originated and sold by an acquired entity.  The Bank has received repurchase demands from investors claiming loan defects that are covered by the standard representations and warranties in mortgage loan sale contracts executed by the acquired entity before the date of the acquisition.  In determining the loss reserve estimate, management investigated the investor claims and the nature and cause of the underlying defects and evaluated the potential for additional claims associated with the loan origination and sale activities of the acquired entity.  The Bank has incurred no losses stemming from the representations and warranties it makes in its own secondary mortgage market operations and historically has not maintained a loss reserve for repurchase obligations.
The reserve for losses on mortgage loan repurchase obligations is reported with accrued expenses and other liabilities in the consolidated balance sheets and the corresponding expense is reported with other noninterest expense in the consolidated income statements.

 
- 14 -

 

Indemnification Obligation
In October 2007, Visa completed restructuring transactions that modified the obligation of members of Visa USA, including Whitney, to indemnify Visa against pending and possible settlements of certain litigation matters.  In the first quarter of 2008, Visa completed an initial public offering of its shares and used the proceeds to redeem a portion of Visa USA members’ equity interests and to establish an escrow account that will fund any settlement of the members’ obligations under the indemnification agreement.  Visa has made additional cash contributions to the escrow account subsequent to the initial funding.  Although the Company remains obligated to indemnify Visa for losses in connection with certain litigation matters whose claims exceed amounts set aside in the escrow account, Whitney’s interest in the escrow balance approximates management’s current estimate of the value of the Company’s indemnification obligation.  The amount of offering proceeds and other cash contributions to the escrow account for litigation settlements will reduce the number of shares of Visa stock to which Whitney will ultimately be entitled as a result of the restructuring.

NOTE 15
SHAREHOLDERS’ EQUITY AND REGULATORY MATTERS

Common Stock Offering
During the fourth quarter of 2009, Whitney announced and completed an underwritten public offering of the Company’s common stock.  The underwriters purchased 28.75 million shares at a public offering price of $8.00 per share.  The net proceeds to the Company after deducting offering expenses and underwriting discounts and commissions totaled $218 million.

Senior Preferred Stock
In December 2008, Whitney issued 300,000 shares of senior preferred stock to the U.S. Department of Treasury (Treasury) under the Capital Purchase Program (CPP) established under the Troubled Asset Relief Program (TARP) that was created as part of the Emergency Economic Stabilization Act of 2008 (EESA).  Treasury also received a ten-year warrant to purchase 2,631,579 shares of Whitney common stock at an exercise price of $17.10 per share.  The aggregate proceeds were $300 million, and the total capital raised qualifies as Tier 1 regulatory capital and can be used in calculating all regulatory capital ratios.
Whitney may not declare or pay dividends on its common stock or, with certain exceptions, repurchase common stock without first having paid all accrued cumulative preferred dividends that are due to Treasury.  For three years from the preferred stock issue date, the Company also may not increase its common stock dividend rate above a quarterly rate of $.31 per share or repurchase its common shares without Treasury’s consent, unless Treasury has transferred all the preferred shares to third parties or the preferred stock has been redeemed.

Regulatory Capital Requirements
Measures of regulatory capital are an important tool used by regulators to monitor the financial health of financial institutions.  The primary quantitative measures used by regulators to gauge capital adequacy are the ratio of Tier 1 regulatory capital to average total assets, also known as the leverage ratio, and the ratios of Tier 1 and total regulatory capital to risk-weighted assets.  The regulators define the components and computation of each of these ratios.  The minimum capital ratios for both the Company and the Bank are generally 4% leverage, 4% Tier 1 capital and 8% total capital.
 
 
- 15 -

 
 
To evaluate capital adequacy, regulators compare an institution’s regulatory capital ratios with their agency guidelines, as well as with the guidelines established as part of the uniform regulatory framework for prompt corrective supervisory action toward insured institutions.  In reaching an overall conclusion on capital adequacy or assigning an appropriate classification under the uniform framework, regulators must also consider other subjective and quantitative assessments of risk associated with the institution.  Regulators will take certain mandatory as well as possible additional discretionary actions against institutions that they judge to be inadequately capitalized.  These actions could materially impact the institution’s financial position and results of operations.
Under the regulatory framework for prompt corrective action, the capital levels of banks are categorized into one of five classifications ranging from well-capitalized to critically under-capitalized.  For an institution to be eligible to be classified as “well-capitalized,” its leverage, Tier 1 and total capital ratios must be at least 5%, 6% and 10%, respectively.  If an institution fails to maintain a well-capitalized classification, it will be subject to a series of operating restrictions that increase as the capital condition worsens.
Regulators may, however, set higher capital requirements for an individual institution when particular circumstances warrant.  As a result of the current difficult operating environment and recent operating losses, the Bank has committed to its primary regulator that it will maintain higher capital ratios with a leverage ratio of at least 8%, a Tier 1 regulatory capital ratio of at least 9%, and a total capital ratio of at least 12%.  As of March 31, 2010, the Bank’s regulatory capital ratios exceeded the requisite capital levels to both satisfy these target minimums and to qualify as well-capitalized by its regulators, with a leverage ratio of 8.51%, a Tier 1 capital ratio of 10.25% and a total capital ratio of 13.14%.
Bank holding companies must also have at least a 6% Tier 1 capital ratio and a 10% total capital ratio to be considered well-capitalized for various regulatory purposes.  As of March 31, 2010, the Company had the requisite capital levels to qualify as well-capitalized by its regulators.

Regulatory Restrictions on Dividends
At March 31, 2010, the Company had approximately $234 million in cash and demand notes from the Bank available to provide liquidity for future dividend payments to its common and preferred shareholders and other corporate purposes.  Regulatory policy statements provide that generally bank holding companies should only pay dividends out of current operating earnings and that the level of dividends, if any, must be consistent with current and expected capital requirements. The Company must currently obtain regulatory approval before increasing the common dividend rate above the current quarterly level of $.01 per share.
Dividends received from the Bank have been the primary source of funds available to the Company for the declaration and payment of dividends to Whitney’s shareholders, both common and preferred.  There are various regulatory and statutory provisions that limit the amount of dividends that the Bank can distribute to the Company.  Because of recent losses, the Bank currently has no capacity to declare dividends to the Company without prior regulatory approval.

 
- 16 -

 

NOTE 16
EARNINGS (LOSS) PER COMMON SHARE
The Financial Accounting Standards Board (FASB) has concluded that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and must be included in the computation of earnings per share using the two-class method.  Whitney has awarded share-based payments that are considered participating securities under this guidance.  The two-class method allocates earnings to each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings.
The components used to calculate basic and diluted earnings (loss) per common share under the two-class method were as follows.  The net loss was not allocated to participating securities because the securities bear no contractual obligation to fund or otherwise share in losses.  Potential common shares consist of employee and director stock options, unvested restricted stock units awarded to employees without dividend rights, and stock warrants issued to Treasury in December 2008.  These potential common shares do not enter into the calculation of diluted earnings per share if the impact would be anti-dilutive, i.e., increase earnings per share or reduce a loss per share.

     
Three Months Ended
 
     
March 31
 
(dollars in thousands, except per share data)
   
2010
   
2009
 
Numerator:
                 
Net income (loss)
        $ (6,280 )   $ (11,139 )
Preferred stock dividends
          4,067       4,025  
  Net income (loss) to common shareholders
          (10,347 )     (15,164 )
Net income (loss) allocated to participating securities – basic and diluted
          -       -  
  Net income (loss) allocated to common shareholders – basic and diluted
    A     $ (10,347 )   $ (15,164 )
Denominator:
                       
Weighted-average common shares – basic
    B       96,534,425       67,465,497  
Dilutive potential common shares
            -       -  
  Weighted-average common shares – diluted
    C       96,534,425       67,465,497  
Earnings (loss) per common share:
                       
  Basic
    A/B     $ (.11 )   $ (.22 )
  Diluted
    A/C       (.11 )     (.22 )
Weighted-average anti-dilutive potential common shares:
                       
  Stock options and restricted stock units
            2,114,838       2,586,948  
  Warrants
            2,631,579       2,631,579  
 
 

 
- 17 -

 

NOTE 17
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AND DERIVATIVES

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 not all are expected to lead to permanent financing by the Bank.  Loan commitments generally have fixed expiration dates and may require payment of a fee.  Credit card and personal credit lines are generally subject to cancellation if the borrower’s credit quality deteriorates, and many lines remain partly or wholly unused.
Substantially all of the letters of credit are standby agreements that obligate the Bank to fulfill a customer’s financial commitments to a third party if the customer is unable to perform.  The Bank issues standby letters of credit primarily to provide credit enhancement to its customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors of essential goods and services.  Approximately 96% of the letters of credit outstanding at March 31, 2010 were rated as having average or better credit risk under the Bank’s credit risk rating guidelines.  A majority of standby letters of credit outstanding at March 31, 2010 have a term of one year or less.
The Bank’s exposure to credit losses from these financial instruments is represented by their contractual amounts.  The Bank follows its standard credit policies in approving loan facilities and financial guarantees and requires collateral support if warranted.  The required collateral could include cash instruments, marketable securities, accounts receivable, inventory, property, plant and equipment, and income-producing commercial property.  See Note 4 for a summary analysis of changes in the reserve for losses on unfunded credit commitments.
A summary of off-balance-sheet financial instruments follows.

   
March 31
   
December 31
 
(in thousands)
 
  2010
   
2009
 
Loan commitments – revolving
  $ 2,360,288     $ 2,296,865  
Loan commitments – nonrevolving
    285,728       239,313  
Credit card and personal credit lines
    576,082       560,116  
Standby and other letters of credit
    355,795       364,294  

Derivative Financial Instruments
During 2009, the Bank began offering interest rate swap agreements to commercial banking customers seeking to manage their interest rate risk.  For each customer swap agreement, the Bank has entered into an offsetting agreement with an unrelated financial
 
 
 
- 18 -

 
institution.  These derivative financial instruments are carried at fair value, with changes in fair value recorded in current period earnings.  The aggregate notional amounts of both customer interest rate swap agreements and the offsetting agreements were each $72.2 million at March 31, 2010 and each $30.4 million at December 31, 2009.  The fair value of these derivatives and the credit risk exposure to the Bank was insignificant at March 31, 2010 and December 31, 2009.

NOTE 18
FAIR VALUE DISCLOSURES
The FASB defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  This accounting guidance also emphasizes that fair value is a market-based measurement and not an entity-specific measurement and established a hierarchy to prioritize the inputs that can be used in the fair value measurement process.  The inputs in the three levels of this hierarchy are described as follows:

Level 1
Quoted prices in active markets for identical assets or liabilities.  An active market is one in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2
Observable inputs other than Level 1 prices.  This would include quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3
Unobservable inputs, to the extent that observable inputs are unavailable.  This allows for situations in which there is little or no market activity for the asset or liability at the measurement date.

The material assets or liabilities measured at fair value by Whitney on a recurring basis are summarized below.  Mortgage-backed securities are issued or guaranteed by U.S. government agencies and substantially all are backed by residential mortgages.  Nonmarketable equity securities (Federal Reserve Bank and Federal Home Loan Bank stock) that are carried at cost are not included below.  These equity securities totaled $46 million at March 31, 2010 and $53 million at December 31, 2009.  The Level 2 fair value measurement below was obtained from a third-party pricing service that uses industry-standard pricing models.  Substantially all the model inputs are observable in the marketplace or can be supported by observable data.

   
           Fair Value Measurement Using
 
(in millions)
 
Level 1
   
Level 2
   
Level 3
 
March 31, 2010
                 
Investment securities available for sale:
                 
  Mortgage-backed securities
    -     $ 1,721       -  
  U. S. agency securities
    -       101       -  
  Other debt securities
    -       10       -  
December 31, 2009
                       
Investment securities available for sale:
                       
  Mortgage-backed securities
    -