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Whitney Holding Corp. (NASDAQ:WTNY)

Q1 2009 Earnings Call

April 23, 2009; 12:00 pm ET

Executives

John Hope - Chairman & Chief Executive Officer

Tom Callicutt - Chief Financial Officer

Lewis Rogers - Executive Vice President, Credit Administration

Joe Exnicios - Chief Risk Officer

Steve Barker - Comptroller of the Bank

Tricia Carlson - Manager of Investor Relations

Analysts

Kevin Fitzsimmons - Sandler O’Neill

Jeff Davis - Howe Barnes

Jennifer Demba - SunTrust Robinson

Albert Savastano - Fox-Pitt Kelton

William Griffin - Sterne Agee

Dave Bishop - Stifel Nicolaus

Jon Arfstrom - RBC Capital Markets

Brian Hagler - Kennedy Capital

Operator

Good day everyone and welcome to the Whitney Holding Corporation first quarter 2009 earnings results conference call. Today’s program is being recorded. Participating in today’s program are John Hope, Chairman and CEO; Tom Callicutt, CFO; Joe Exnicios, Chief Risk Officer; Lewis Rogers, EVP of Credit Administration; and Steve Barker, Controller of the Bank.

At this time for opening remarks I would like to turn things over to Tricia Carlson. Please go ahead ma’am.

Tricia Carlson

Thank you. During today’s call we may make forward-looking statements. Forward-looking statements provide projections of results of operations or financial condition or state other forward-looking information such as expectations about future conditions and descriptions of plans and strategies for the future.

Factors that could cause actual results to differ from those expressed in the company’s forward-looking statements, include but are not limited to those outlined in Whitney’s filings with the SEC. Whitney does not intend and undertakes no obligation to update or revise any forward-looking statements.

I will now turn the call over to John Hope.

John Hope

Good morning everyone. Thank you for joining us this morning. We’ll go through our usual comments; that will take just a few minutes and then we’ll be glad to answer your questions. As we expected and continue to expect, 2009 will be a challenging year in light of the economic environment; however, this morning we are disappointed to report a net loss of $11 million for the first quarter of 2009. This net loss along with the $4 million dividend on the preferred stock resulted in a $0.22 per share diluted common loss for the quarter.

As we have talked about with you before, there are several factors that we expected to negatively impact earnings this year. These factors include the compression in our net interest margin, reduced loan demand, an increase in certain previously identified expenses and then continued elevated credit costs.

As the deterioration in residential real estate values continued mainly in Florida, our criticized and impaired loans increased and our net charge-offs increased. As a result, we took additional steps to further strengthen our allowance for credit losses. At the end of the first quarter, our allowance to loans was 2.17, an increase of 40 basis points from year end.

Nevertheless, while we have challenges and while we expect continued pressure on credit quality, what gives me the most comfort during these unpredictable times is the strength of our capital base. At the end of the first quarter this year, our tangible common equity ratio was 668, up from 649 at year end.

While it wasn’t an easy decision, the reduction in the quarterly common dividend last quarter from $0.20 to a $0.001 served its intended purpose, because it’s going to allow us to build and preserve capital that we otherwise would have paid out by dividends. In fact, the amount was about $12 million saved during this quarter.

Another component of our total capital is the $300 million in funds received through the Treasury’s CPP program. Many banks have indicated that they intend to return the CPP funds. In light of the ongoing economic challenges, we believe that the participation continues to be in the best interests of the company and its shareholders, just as we stated when we initially entered the program and issued the preferred shares.

This capital strengthens our ability to continue to provide both lending and deposit services to the communities where we bank, despite the unprecedented economic pressure. We will continue to monitor developments to CPP and also our expectations for the course of the economy and if changes were to occur in our conclusions, we’ll let you know, but otherwise, we intend to continue to participate in the program for the time being.

One final comment, I say this every quarter, but I believe it’s worth repeating. Whitney is and has always been a fundamentally sound bank. We will continue working through the challenges we face today and maintain our focus on achieving the goals set in our strategic plan, all designed to enhance long term shareholder value.

Tom Callicutt’s now going to go over the numbers for the quarter.

Tom Callicutt

Thank you, John. Before I start my review, I’d like to remind everybody that the Parish acquisition closed on November 7, 2008 and the linked quarter trends include only two months of Parish’s results in the fourth quarter.

During 2008, we were able to maintain a relatively high net interest margin despite the steep drops in interest rates and their impact on our asset sensitive balance sheet. As we discussed over the past few quarters, that relatively stable margin was a result of active loan and deposit pricing, coupled with the benefit from higher than expected LIBOR rates.

Approximately 30% of our loan portfolio is tied to LIBOR and as we noted in our 10-K, LIBOR rate levels helped our fourth quarter margin by approximately 30 basis points, but as we also said last quarter, we expected to see net interest margin compression in the first quarter with a return to a more normal spread between LIBOR and fed funds and that’s just what happened.

The net interest margin for the first quarter of 2009 was 4.13%, down 36 basis points from the fourth quarter. Floors on approximately 40% of our variable rate loans partially offset the decline from the lower rate environment. The last time rates fell near this level was in mid-2003. At that time our margin hit a low of 4.31% as we successfully managed through the cycle. Today we’re working to do just the same.

We’re still focused on maintaining a high level of demand deposits, 34% of total deposits at March 31. What’s different about this cycle however, is the level of non-accrual loans impacting our net interest margin. Over the past few quarters, the impact from non-accrual loans has been between 15 and 20 basis points. For the first quarter, non-accrual loans reduced our net interest margin by 19 basis points.

As we pointed out last quarter, while organic loan growth was significant during the fourth quarter, we were and remain cautious about expectations for loan growth in 2009. We expected the weak economy to result in the slowdown in loan demand and it did.

Period end loans were down $129 million from year end and while average loans are up from last quarter, that increase is mainly the result of a full quarter of Parish. While we originated new loans or funded commitments of $800 million during the first quarter, based on what we know at this time, we expect loan demand to remain weak and not exceed pay downs of maturities. As a result, we expect loans to be down slightly for the year.

Total deposits were down almost $50 million at March 31 from year end. Approximately half of the increase in average deposits this quarter was related to the full quarter impact of Parish. The decline in the first quarter deposits also reflects seasonality.

The most significant growth in deposits we saw this quarter was in money market balances. Towards the end of the quarter, we launched a campaign that’s added approximately $200 million in money market deposits. This campaign designed to meet the goals in our strategic plan, was targeted at acquiring new households and attracting new business accounts and while the results of the quarter reflect a decline in total deposits, over the course of the past 12 months we picked up sizable new DDA balances.

Non-interest income for the first quarter of 2009 increased $2.2 million or 8% from the fourth quarter. Service charges on deposits increased $700,000 or 7%, mainly as a result of the lower earnings credit rate for commercial accounts. The full quarter impact of Parish helped offset a decline in NSF fees.

Secondary mortgage market income was up approximately half a million or 37% as strong refinancing activity and the addition of Parish’s operations drove a significant increase in first quarter ‘09 production. Dividend income from one of our grandfathered assets totaled $1 million in the quarter. As a reminder, this item has been a recurring first quarter event and totaled $1.2 million a year ago.

Total non-interest expense for the first quarter of 2009 increased $4.8 million or 5% from the fourth quarter of 2008. The main components of the change were a $9 million increase in total personnel expense, partially offset by a decrease in legal and professional fees of $1.2 million and a decline in other non-interest expense of $3.3 million.

As we detailed last quarter, total personnel expense for the fourth quarter included reductions in management, bonus and other incentive plan compensation based on updated performance estimates. The change in these two compensation categories made up $3 million of the $4 million increase in employee compensation from last quarter. The remaining increase reflects mainly the full quarter impact of Parish and normal salary adjustments.

Benefits expense increased $5.1 million between the quarters. In addition to the normal rise in payroll taxes at the beginning of each year, this increase was mainly related to increased pension and profit sharing 401(k) expense for 2009, as well as some fourth quarter reductions from planned amendments. The decrease and other expense was partly due to a $1.9 million charge in the fourth quarter related to branch closings.

There were declines in various other expense categories, such as advertising, travel and entertainment, operating supplies, charges associated with tax credit investments and other miscellaneous costs. These expense reductions helped offset $1.6 million increase in FDIC insurance expense.

The decline in legal and other professional fees was mainly due to $1.2 million of costs in the fourth quarter for the Parish conversion. Keep in mind that legal costs remain elevated from problem credits collection efforts and other collection and ORE costs continue to inflate the other expense total.

Now in getting to taxes, we’ve received many questions regarding our low effective tax rate over the past couple of quarters. The reason is the reduced level of pretax income. As total pretax income gets lower, the impact of tax exempt income and tax credits is greater. Interest income from state and local government financing and bank-owned life insurance are the components of tax exempt income.

Investments in affordable housing projects and recovery and redevelopment projects are the main source of our tax credits. The impact on tax expense of these tax credits and tax exempt income total $2.6 million for the first quarter and will continue to be part of our tax calculation. How much they impact the effective tax rate in future quarters will depend on the level of future pretax earnings.

Now I’d like to turn the floor over to Joe Exnicios, who will discuss credit.

Joe Exnicios

Thanks Tom. While this quarter’s credit metrics remained under pressure, there were some changes as to the reasons why. The total of loans criticized through the company’s credit risk rating process was $883 million at March 31, 2009. That represents 10% of total loans and a net increase of $113 million from year end 2008.

Special mentioned credits, the least criticized category, increased $50 million to a total of $242 million, while substandard and doubtful credits increased $63 million. Of the total increase, $62 million or 55% was related to C&I credits, mainly in Louisiana and Texas and in a variety of industries.

The increase does include some new hospitality credits, about $7.5 million and energy related credits, approximately $36 million.

At this point the underlying relationships have been criticized for a variety of different reasons and we do not see signs of significant impact to our credit quality metrics from these industries.

The total criticized commercial real estate portfolio increased $43 million. The majority of the increase, $25 million, came out of the Florida markets and was concentrated in commercial mortgages on both owner user and income producing properties and not land or land development loans.

Included in criticized loans are approximately $366 million of non-performing loans. That’s up a net of $65 million during the quarter. As of March 31, 2009, 66% of our non-performing loans were in Florida; 7% in Alabama; 23% in Louisiana and 3% in Texas. The first quarter’s provision for credit losses of $65 million, an increase of $20 million from last quarter is a reflection of the increased level of criticized and impaired loans, the increase to net charge-offs and continued allowance billed.

Here’s how the provision breaks down: Continuing weaknesses in residential related real estate markets accounted for approximately $26 million of the provision for the first quarter of 2009, compared with $25 million of the fourth quarter of 2008, while commercial real estate development and investor credits added $12 million.

A significant portion of this provision expense was again related to credits in the Tampa Bay, Florida region and reflects for the most part, deterioration in existing criticized credits, not new ones. Problem commercial and industrial credits added approximately $10 million to the provision, mainly in Louisiana and Texas from the items I noted earlier.

Management added another $10 million to the allowance and provision based on its regular assessment of current economic conditions and other qualitative factors. The quarterly provision also includes $1 million associated with changes and non-criticized credits and approximately $5 million related to charge-offs on consumer and other smaller credits, offset by losses recovered during the period of $2 million.

The provision of $65 million exceeded net charge-offs of $31.9 million and strengthened our allowance for credit losses to 2.17%, up from 1.77% last quarter and 1.19% a year earlier. The breakdown of gross charge-offs during the quarter was approximately $20 million of residential related credits, $3 million of C&I credits and $8 million of non-residential commercial real estate credits.

I’d like to take just a moment to provide some details about a few of our individual portfolios. First, I’d like to review the commercial construction, land & land development portfolio in Florida. Of the $414 million total portfolio at March 31, 2009, a little under half is criticized. Approximately 40% of total portfolio is residential purpose land and developed lots with 47% criticized.

Commercial purpose developed and undeveloped land accounts for about 20% of the total portfolio with 33% of it criticized. The remainder of the portfolio is spread fairly evenly between town houses, condominiums, retail, office buildings and hotels and motels.

Loans outstanding to the oil and gas industry customers represent approximately 12% of total loans at March 31, 2009; it’s consistent with year end 2008. About 29% of the loans are related to exploration and production lending, with a balance supporting the industry through transportation, supplies and other services. A significant percentage of the gas reserves of our customers are hedged. At the end of the first quarter, approximately 6% of the total energy portfolio was criticized.

One other portfolio that we have been watching and discussing these past couple of quarters is hospitality. Many communities within our footprint that are tourist destinations are experiencing slowdowns this year, and those that depend on convention business are under even more stress.

While there are many different types of credits that can be considered hospitality related, hotels, restaurants, tour companies and many, many more, in our portfolio, the two largest types of exposures are hotel/motel credits and full service restaurants. At March 31, we had approximately $250 million in hotel/motel exposure and approximately $100 million in exposure to full service restaurants. Both categories are seeing signs of stress with approximately 20% of our hotel/motel portfolio criticized and approximately 10% of the full service restaurant portfolio criticized.

While it is not a large portfolio, our exposure to the auto industry has also been closely watched and has seen some signs of stress. At the end of the first quarter, our exposure was approximately $100 million, with approximately 20% of this portfolio criticized. The largest component of this portfolio is new car dealers, which makes up approximately half of the total outstanding.

In closing, while we did see a change in the mix of loans moving into criticized, we are not implying that the end is near. Until we see a stabilization in real estate prices, a positive turn in the general economy and until the overall level of movement into criticized slows, we currently expect credit costs and provision levels to remain elevated.

I’d like to turn the presentation back to John Hope.

John Hope

Thanks Joe, questions everybody.

Question-and-Answer Session

Operator

Yes. We’ll go to our first question with Kevin Fitzsimmons with Sandler O'Neill.

Kevin Fitzsimmons - Sandler O’Neill

Good afternoon everyone. Just a couple of questions; I was wondering if, first, you could help us feel a little more comfortable with the allowance percentage of non-performing loans. I think we spoke about this last quarter and the way you guys are probably looking at it is making an adjustment for impaired loans; if we could talk about that.

Then secondly, John just wondering, I mean it seems like a theme we’re hearing this quarter is the inflow to criticized loans seems to be potentially slowing on the Florida construction side, because that’s remaining stable, but it’s picking up in all these other areas and I’m just curious, is that how you view it? Are we at that kind of function point and then is that a good thing or a bad thing? Because it seems like while not increasing may stay elevated for a while, but these other areas are picking up and just kind of how you view that. Thank you.

John Hope

Okay. Let’s go to question one, just briefly have the reserve process for the non-performance. Joe Exnicios and Lewis will give out.

Joe Exnicios

Kevin, as you probably have already noted, our reserves to NPAs remain flat at about 53%. As you know, a large portion of our NPAs are impaired and we have specific reserves against those. I don’t know if we feel that it’s adequate at the moment.

Lewis Rogers

I think the only color I would add is that as it’s true, I think probably at every bank, Kevin, it’s a ongoing discipline to update those values frequently as it relates to getting new appraisals and establishing proper reserves and/or taking losses on those collateral dependent credits.

We do that in a robust manner. It’s time consuming to do that analysis and the number that falls out is not a target, we don’t have a target of 53%, 50%, 75% or in terms of coverage, we go look at these on a loan by loan basis and establish reserves on the basis that we think estimates the inherent loss in those credits.

Kevin Fitzsimmons - Sandler O’Neill

Lewis, is there an adjusted number though? Some companies give that, where if you back out impaired loans, here’s what the allowance is to on anything that hasn’t been impaired to this point?

Lewis Rogers

We have that number because we know what our reserves are on impaired loans, but I don’t know that we’ve ever made that public. We can take that under consideration if we see others doing it.

Kevin Fitzsimmons - Sandler O’Neill

Okay and then just secondly on the whole question on the Florida construction in-flow to criticized potentially slowing.

Lewis Rogers

I think Joe actually can talk to that also. We spent some time trying to answer that question with our Board yesterday.

Joe Exnicios

Kevin, the only thing I could tell you, we have done such an exhaustive review of our credits down there and such a large percentage are already identified. The fact that they’re slowing is that we’re running out of products to criticize.

Kevin Fitzsimmons of Sandler O’Neill

So you would think you’re in the later innings on that or is it too early to say that? Is it more just a gap in timing that you took an aggressive whack at it last quarter, that this is kind of a breather or do you really think you’re in the very late innings on that one?

Tom Callicutt

I think all of us were gunshot about talking about innings. I did that a year ago unfortunately. I think that Joe’s comment is, clearly these are the loans that we have been watching closely for some period of time. I can’t tell you that we don’t have some borrowers and guarantors who appear to be fine right now, whose fortunes may change based on other issues, their liquidity and so forth.

I do think that it’s a portfolio that we have been monitoring for a long period of time and so we are hopeful that we are in a late inning, but Kevin, I’m not willing to make any predictions about the innings after not realizing we were in the doubleheader last year when I made some predictions about innings.

Lewis Rogers

Our board asked me yesterday if I was willing to make a projection on the April results for them and I said no. So we’re not making any guesses until we got the hard numbers.

Kevin Fitzsimmons of Sandler O’Neill

Alright. I don’t blame you on that front. Alright, thank you very much.

Operator

(Operator Instructions) We’ll take our next question from Jeff Davis with Howe Barnes.

Jeff Davis - Howe Barnes

Good morning.

John Hope

Good morning Jeff.

Jeff Davis - Howe Barnes

A three part question, just to put out there; the first one may have been answered, but I just didn’t quite catch it. One is from a residential real estate perspective, are we seeing a bottoming in values or at least the market where we’re starting to see maybe some net absorption and I think Tampa stats have looked maybe a little bit better. If you can address that Lewis, and then also as it relates to Destin and the panhandle, I know you done have a huge book there, but as it relates to that.

Secondly, as it relates to new non-performing assets. Are most of the new and hell you may have said it, but I missed it hear, but are most of the new NPAs migrating with your ratings down grades from past to especial mentioned to eventually we got a problem or as maybe in the last quarter or two have there been notable exceptions where we pass the down grades or went from pass to if it’s a none accrual?

Then thirdly, are markets loosening up enough where some of these problem assets, where you might be able to monetize them in chunks and move them out?

John Hope

Jeff, I’ll address the first part of the question and by the time I finish, you may need to remind us what the other two are.

I think like you, the numbers I’m seeing for instance out of Tampa, do imply that the velocity of sales is improving and we are very hopeful that’s a sign that money and people that have been putting off the decision to buy as prices decline, have decided that this is beginning to be the time to get into the market. So like you asserted, we are hopeful that that will signal; that the decline in prices is flattening out. I don’t know that it’s flat yet, but that’s a hope and I draw the same conclusion you did from that.

We don’t have a lot of what I call stick built construction projects there where we’ve done it, we’ve got a lot of builder exposure. So our experience in that regard is maybe a little bit limited as compared to others that have a lot of home builders that they’ve financed in that market.

I think lots that we do have some of are going to be slower and longer to come out of inventory, just because they’ve got to work through the completed product before there’s going to be a demand for lots and remind me what your second question was.

Jeff Davis - Howe Barnes

Your last couple of quarters with the new NPAs coming on and let’s take Parish out of it, Lewis have you been surprised where our credits performing; you’ve got it pass rated for whatever and then all of a sudden, boom, it’s a non-accrual or has most of the stuff that’s moved to non-accrual, it’s flowed through your ratings system over the last six, nine months as it should down grade, we got an issue, down grade.

Lewis Rogers

I think we are shooting from the hip, because I don’t have any statistics. There is always a loan that ends up being a surprise, but that is very much isolated. The norm is that we are seeing it flow through our spectrum of risk grades as you said, into special mentioned substandard and then having to be placed on a non-performing status and that’s because we’ve all been attentive to the risk now for a year and a half; that we’ve been looking at these markets and understanding that things were not as they had been in ‘06 and ‘07.

John Hope

Let me venture a conclusion. I’ll probably get an ugly look from my credit guys. When the Florida thing started happening, it was precipitous. I mean the values changed so dramatically, so quickly, that on the front end we did have a lot of credits going from fours to sixes or fours to sevens fairly rapidly and I think as we got control of the situation, then what Lewis described is exactly what happened. It followed the pattern of a step down grade or so. It was dramatically quick.

What we’re seeing in our other markets as a result of the general economic malaise and the recession as it impacts other things, it’s not happening as quickly. We’re much more in control of the situation than we were initially in Florida where it just happened overnight. I mean the changes that we’re seeing in general, C&I or energy or hospitality or whatever, they’re slowly moving from fours to fives and fives to sixes. It’s not as dramatic a change which I take as a good sign, actually.

Joe Exnicios

Jeff, I think the analogy would be where asset values would bid up quickly, they fall quickly and we saw that more prevalent in the panhandle and to some extent in Tampa as it related to land.

Jeff Davis - Howe Barnes

Okay makes sense, and last question, are you actively considering trying to monetize a big block of assets in the distressed market just to clear them out and move on with life?

John Hope

Jeff, I tell you, we have taken a look at some opportunities to do that, but to this point, we do not think that we’re in the best interests of the bank or the shareholders to do that.

Jeff Davis - Howe Barnes

Thank you.

Operator

And we’ll take our next question from Jennifer Demba with SunTrust Robinson.

Jennifer Demba - SunTrust Robinson

Thank you. Good morning. Joe you gave us a lot of detail on those individual portfolios, thank you. I missed the first one, though, the commercial development. I’m wondering if you could repeat that.

Joe Exnicios

Let me go back and to exactly what I told you. I think I first talked about the commercial construction land and land development portfolio in Florida, is that what you’re referring to?

Jennifer Demba - SunTrust Robinson

Yes.

Joe Exnicios

Okay. Of the $414 million total portfolio, almost half of that is criticized. Approximately 40% of that portfolio is residential purpose, land and developed lots. We have 47% of the land and developed lot portfolio being criticized. The commercial purpose developed and undeveloped land accounts for about 20% of the total portfolio, approximately 33% is criticized. The remainder of that portfolio is spread pretty evenly between town houses, condominiums, retail, office, buildings and hotels and motels.

Jennifer Demba - SunTrust Robinson

Okay. Thank you and I was just wondering, I mean you gave us a breakdown of how your MPLs spread out by state. Can you specifically talk about what you’re seeing in the economies in Louisiana and Texas right now?

Joe Exicious

I think it’s probably safe to say that there’s really no region that’s going to be insulated from this national recession. We have started to see signs in the Houston market for instance, of some weakness. Some of it’s manifesting itself and we’ve had very active home builders there. That industry has been very robust.

What we’re starting to see is a slowdown and I think it bodes well. A lot of those builders continued building in that market, where other markets had really come to a stop, we’re now seeing a slowdown because I think what’s happening is the demand is just kind of catching up with the supply there.

In the Louisiana market, the bulk of our hotel/motel exposure would be in Louisiana, primarily in the metropolitan New Orleans area. We rely very heavily on the convention traffic. What we’re seeing right now is that New Orleans kind of goes from large event to large event.

We’re not seeing the smaller events that happen in between and many of the conferences that come for shorter periods of time, companies are just more aware of how much money they’re spending and we are seeing examples where the restaurant business is suffering because a lot of those conferences are self-contained within the larger hotel complexes and when you only come for a couple of days, you just don’t have the opportunity to go out and maybe experience some of the finer restaurants in the French Quarter, for instance. So that’s really causing some of the stress.

I can tell you our Convention and Visitor Bureau is spending an awful lot of time doing a lot of advertising trying to attract people to New Orleans, but we still rely very heavily on the convention trade and I think it’s really the national recession and the fact that a lot of companies are cutting back on expenses has probably really taken its toll on the amount of convention traffic that we see in New Orleans.

Jennifer Demba of SunTrust Robinson

Thank you very much.

Operator

(Operator Instructions) We’ll take our next question from Albert Savastano from Fox-Pitt Kelton.

Albert Savastano - Fox-Pitt Kelton

Good morning. How are you?

Lewis Rogers

Hi, Al.

Albert Savastano - Fox-Pitt Kelton

Just a question, two questions actually. Did Parish have any impact on the Louisiana criticized assets this quarter?

John Hope

Not too much this quarter. There were some isolated cases, but most of that volume was identified as they came into the fold in the fourth quarter.

Joe Exnicios

Al, they had done a pretty good job of identifying their credit issues. We also did some real extensive due diligence prior to that purchase and we felt pretty good about the portfolio as it came in and I think at this point it’s safe to say there have been no real surprises.

Albert Savastano - Fox-Pitt Kelton

Secondly, on the Texas criticized increase, is that mostly the energy portfolio there and then the second part of that question is, did the NPLs increase in taxes have the same rate as the criticized?

Lewis Rogers

Well let me first say, I think we said about $36 million of the increase was energy related. I don’t have the figures in front of me. I think approximately 30 of that was housed in the Houston market and about $6 million or $7 million came out of the Louisiana market.

The issue that we had with this specific credit in New Orleans, we think is a temporary one. There was a transmission pipeline that was damaged in Hurricane Gustav and took a lot longer to repair than was anticipated. So that company experienced an abrupt shutoff of a large portion of its revenues and ran into some cash flow problems. We expect that to work itself out, but we ran into a statutory issue there.

In Houston, I think it’s safe to say that the issues were isolated between maybe one and two energy related companies. One would have been in the drilling and pre-drilling area, but we don’t see anything really systemic.

Albert Savastano - Fox-Pitt Kelton

Alright and then a kind of on the level of NPA change for Texas.

Lewis Rogers

They are up for the quarter, but their numbers are not significant, really. I mean when you’re dealing with very small balances, less than $10 million increase, it looks like a big percentage increase when your numbers are relatively small.

Albert Savastano - Fox-Pitt Kelton

Okay great. Thank you.

Operator

We’ll take our next question from William Griffin with Sterne Agee.

William Griffin - Sterne Agee

I apologize gentlemen. Jennifer actually covered both my questions, so thank you.

Operator

Thank you and we’ll take our next question from Dave Bishop with Stifel Nicolaus.

Dave Bishop - Stifel Nicolaus

Hey, Good morning gentlemen. A question for you, both of my questions have been addressed as well, but as we sort of pencil out our growth targets for operating expenses this year, is there any sort of set target efficiency ratios or growth targets, maybe what you’re thinking along the lines there?

Joe Exnicios

Well, as we talked about, we have had an expense control program in place, but there are other expenses that are rather uncontrollable like FDIC increases and pension increases and things like that that we’ve outlined for you in the disclosures. There’s no target I can give you, Dave. We are just working very hard to get those down, but remember too that legal fees and ORE costs are bound to go up as we work through some of these assets.

Dave Bishop - Stifel Nicolaus

Then as you look across the markets, I don’t know if you can segment them or characterize them on a differentiated basis, but in terms of deposit pricing there, have we seen any rationality or the rationality pricing sort of abate consistently or is there still some craziness out there in some of the markets?

Tom Callicutt

I think every market is different Dave. We look at them differently and the pricing is different. Maybe the others would have some more insight into this than I would, but I think some of the players in the markets that were irrational on both the asset and the deposit side have moved away, but all markets are different.

John Hope

Hey, let me just say I don’t think it would be exclusive to the Whitney Bank. I think it’s a market condition. People are saving more; there’s more deposit money available out there, so that has probably done a lot to help subside some of the irrational pricing that we’ve seen.

Dave Bishop - Stifel Nicolaus

Great. Thank you.

Operator

And we’ll take our next question from Jon Arfstrom with RBC Capital Markets

Jon Arfstrom - RBC Capital Markets

Thanks, good morning guys. Just a follow-up on Dave’s question in terms of your money market campaign, can you talk about maybe where that was the most successful?

Joe Exnicios

Pretty much across the footprint. Through the end of the quarter, it was around $200 million. I’ll tell you that it looks like we’re probably going to stop it somewhere around $400 million in growth, which has exceeded our expectation. Of that 400 number that we’re projecting right now, about $100 million of that is metro New Orleans and the balance of it really is spread fairly consistently around the footprint.

Jon Arfstrom - RBC Capital Markets

How is the program structured?

Joe Exnicios

Basically it’s designed to bring in new money. Existing customers could add additional money to their existing accounts and be paid a higher premium on the new money, but it really was designed for a new account relationship.

John Hope

Jon, we also encouraged them to open up a new checking account. So, we’re trying to attract relationships and part of the goal here is to use the money market deposit account as sort of a magnet, but we’re really trying to not only attract, but to retain these as customers of long standing.

Jon Arfstrom - RBC Capital Markets

Tom, just a follow-up question on the margin; does it feel like all of the pressure is in the margin? I understand there could be some volatility from non-performance.

Tom Callicutt

Sure, there could be some volatility from non-performers and from just swings in the balance sheet as we get in money and loan volumes not as great as it was and we throw it off into more thinly margined things, but the big compression was between the fourth quarter and the first quarter as you saw.

Joe Exnicios

And let me emphasize again, if you take back the factor out for the non-accrual hit on the margin, we’re basically at the same level that we were at in 2003.

Tom Callicutt

Which really says we’re managing it the same way, as aggressively as we did back then.

Jon Arfstrom - RBC Capital Markets

Then just a question on the loan pipeline; I understand what you’re saying about demand waning and that’s not inconsistent with what others are saying, but can you talk about maybe how quickly that has changed, maybe an idea qualitatively of what the loan pipeline looks like today versus a quarter or two ago?

Joe Exnicios

Jon let me tell you, what we experienced at the third quarter of last year and really carried forward into the fourth quarter, as you recall, our loan portfolio increased by $1 billion. About 60% of that we attributed to the acquisition of Parish, so about 40% of $400 million was organic growth. That was really the result of some pent up demand that had, started I guess around mid-year.

We knew that there would be some inertia into the first quarter, but I think it’s safe to say that the economic climate is just not conducive to a strong demand for commercial and industrial loans. Companies just are accumulating cash, there’s not a lot of acquisition activity, not a lot of high level of capital expenditure. So that takes away a lot of the opportunities that we might otherwise have.

We’ve said this repeatedly; we are out there actively trying to solicit good loans, we’re looking for new customers, we’re in the lending business, but I think as John has indicated, it would be a great monuments effort if we could just attract enough new business to offset what we would normally have in the way of runoff.

So, you shouldn’t imply that we’re not out there trying to actively make loans, we are, but for the most part it’s a breakeven proposition and the way it depends on how the economy plays out for the balance of the year and what level of optimism returns, but right now we just don’t see the probability that we’ll be increasing our loans going forward.

Jon Arfstrom - RBC Capital Markets

Okay. Thanks for the help.

Operator

And we’ll take our next question from Brian Hagler with Kennedy capital.

Brian Hagler - Kennedy Capital

Hey, good afternoon. Just a couple of questions on your energy portfolio I was wondering if you could give a rough breakout of the how much of that portfolio is oil related versus natural gas related?

Joe Exnicios

Well, we’ve got about 60% of our portfolio is gas and about 40% would be oil. I think we said of the E&P piece. The total energy related portfolio is about 12% of our portfolio. I think 29% to 30% of that is E&P. So 30% of 12 would be 4, so 4% of the portfolio is E&P and, 60% was gas and 40% oil.

Brian Hagler - Kennedy Capital

Okay. I appreciate that and then just a follow-up. Of the two, I guess energy credits in Houston that went delinquent, were they oil or gas related and was that a result of recalculating the borrowing base?

John Hope

Well I will say this, we have not had major issues with respect to recalculating our borrowing bases and we do that regularly. We’ve just reviewed as we do each quarter our price deck on both oil and gas. These are energy related credits, but I didn’t mean to imply it was an E&P.

Joe Exnicios

Or that they were necessarily delinquent.

John Hope

Yes. I’ll say it again, because I mentioned it earlier; the one particular credit that became criticized was in the drilling and pre-drilling services area.

Bain Hadley - Kennedy capital

Great, thanks.

Operator

And this concludes today’s question-and-answer session. At this time I would like to turn the conference back over to management for any additional comments.

John Hope

We appreciate you joining us today and as usual, if you have any follow-up questions, we’ll be available to take your calls and help out in any way we can. Thank you.

Operator

And this concludes today’s conference. Thank you for your participation.

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Source: Whitney Holdings Corp. Q1 2009 Earnings Call Transcript
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