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Whitney Holding Corporation (NASDAQ:WTNY)

Q1 2008 Earnings Call

April 22, 2008 4:30 pm ET

Executives

John Hope - Chairman and CEO

John Turner - President

Tom Callicutt - CFO

Lewis Rogers - EVP of Credit Administration

Bobby Baird - EVP of Banking Services

Steve Barker - Comptroller of the Bank

Trisha Voltz Carlson - Manager, Investor Relations

Analysts

Brent Christ - Fox-Pitt

John Pancari - J.P. Morgan

Kevin Fitzsimmons - Sandler O'Neill

Charlie Ernst - Sandler O'Neill

Casey [Alfas] - Millennium

Bain Slack - KBW

Tom Doheny - Decade Capital

Operator

Good day everyone and welcome to the Whitney Holding Corporation’s first quarter 2008 earnings results conference call. Today’s program is being recorded.

Participating in today’s call are John Hope, the Chairman and CEO; John Turner, President; Tom Callicutt, CFO; Lewis Rogers, EVP of Credit Administration; Bobby Baird, EVP of Banking Services; and Steve Barker, Comptroller of the Bank.

At this time for opening remarks, I would like turn things over to Whitney’s Manager of Investor Relations, Trisha Voltz Carlson. Ms. Carlson, please go ahead.

Trisha Voltz Carlson - Manager, Investor Relations

Thank you. Good afternoon and welcome to the Whitney Holding Corporation's first quarter 2008 earnings conference call. During today’s call, we may make forward-looking statements, which are subject to risks and uncertainty. 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, Chairman and CEO.

John Hope - Chairman and CEO

Thank you, Trisha. Thanks to all of you for your interest today in Whitney. As you may know, this is our first earnings conference call. Part of that commitment going forward will be to provide you with both access to executive management and information as best as we can.

On today’s call, we may not have really available all the answers to your questions and we are not going to provide guidance. However, we will do our best to answer the questions that we can while others may have to be researched and followed up for inclusion in our 10-Q.

Results for the first quarter of ’08 were as expected in light of the operating environment. And what I mean by that principally of the credit issues and the margin pressures that we are all experiencing.

Credit continued to be a primary focus with the increased levels of criticized and non-performing loans in addition to a higher provision and net charge-offs. We did benefit from gains related to sales of grandfathered assets in addition to the same gains that other banks have reported on Visa shares in their IPO.

Our balance sheet contracted slightly as total deposits declined slightly. However, we did see growth in total loans during the quarter mostly coming out of our Houston market. Our proactive and aggressive management of the continuing decline in Fed rates helped me to gauge some of the expected decline in our net interest margin. I would suggest that our margin of 464 while it was down 11 basis point linked quarter should remain one of the strongest if not the strongest margin that you will experience among banks.

Our core fee generating business produced relatively stable results, and as part of our ongoing cost control initiatives, many expenses were either flat or declined. Over the past year, we have talked about our focus on expenses and in lowering our efficiency ratio not only to improve the bottom line but also to pay for strategic initiatives as a result of our recently updated strategic plan, we are doing exactly that.

Total expenses normalized for the Visa -- the Visa item are down about 2% from the first quarter of 2007. But just as important as the fact that over the same period we have opened new offices, offered additional products and services to our customers and updating our technology without increasing the total expense level of the bank, we are really proud of that.

Our capital remains strong with a tangible equity ratio of 832 while we continue to our buyback program and at the same time increased our quarterly dividend.

I would like to turn the call over now to our CFO, Tom Callicutt, who will discuss in more detail our financial results followed by Lewis Rogers, who will discuss credit and then we will introduce you to John Turner, who was recently appointed our President, and John will have some comments about what we are seeing in our different markets. Tom.

Tom Callicutt - Chief Financial Officer

Thanks, John. Net income for the first quarter was 29.9 million or $0.45 per diluted share compared to 30.2 million or $0.45 from the fourth quarter of 2007. Results within quarter included a 2.3 million gain from the Visa IPO, a 1.4 million gain from the sale of pre-1933 assets or what we call grandfathered asset, and this was included in the total 2.7 million gain in revenue from other foreclosed asset that you saw in the press release. The remainder was the annual recurring first quarter dividend on some of these other assets, and we had sales like this from time to time.

They also included 1 million reduction to expense from the reversal of the Visa liability that we booked in the fourth quarter of ’07 and an increase in provision expense of 4 million from the fourth quarter of ’07.

Total assets ended the period at 10.8 billion, which is down from 11 billion at year-end 2007. Period-end total loans increased 2% linked quarter while total deposits declined 3% for the same period. Average loans were also up 2% linked quarter with average deposits flat.

During the quarter, loans in Houston as John mentioned continued recent growth trends and were up 10%. We saw a small 1% increase in loans in our greater New Orleans market. Loans in Florida and Alabama markets were flat to slightly down, reflecting the environment in these coastal areas.

The loss of period-end deposits was mainly from higher cost CDs and public funds deposits. As John mentioned, we were very proactive and aggressive in managing our net interest margin during the quarter. We moved deposit rates down significantly as the Fed again dropped rates. This move help mitigate the expected net interest margin compression. And for the first quarter, our net interest margin was a strong 4.64%, down only 11 basis points linked quarter.

Given the assets sensitive nature of our balance sheet, we are subject to continued net interest margin compression in this environment. However, we will continue our proactive management of that balance sheet.

Variable-rate loans in our portfolio at the end of the quarter totaled 54% with 29% tied to LIBOR and 25% tied to Prime. Currently, the LIBOR to Fed fund spread has again widened to our benefit.

Several non-interest income was up 18% from last quarter, mainly related to the items I just noted earlier. Normalized for those items, total fees were slightly down from the fourth quarter. Service charges were essentially flat impacted by lower overdraft fee. Bank card fees were down 5% linked quarter with some decrease expected following the holiday spending season.

Trust fees were up 2% in the first quarter. The conversion to prime, which is our new brokerage platform, was completed during the quarter, placing all brokers on the same platform with an expanded product set and more efficient operation.

As John mentioned, total expenses were virtually flat linked quarter after normalizing the first quarter 2008 and the fourth quarter 2007 for the Visa liability accrual and reversal. Employee compensation expenses were down 4% or 1.6 million linked quarter, mainly related to incentives and management bonus. Seasonality and payroll taxes and an increase in health benefit expense drove a 10% increase in employee benefit compared to the fourth quarter. Occupancy expense was up 8% linked quarter mainly related to special refunds and estimated adjustments in the fourth quarter of ’07 related to property taxes and insurance.

New product and services contributed to increases in equipment and data processing expense. Other non-interest expense as reported was down 2 million mainly related to the reversal of the Visa accrual and a decline in professional fees. Our capital position remained very strong in the first quarter with the leverage ratio of 8.45%.

During the quarter, we bought back 1.6 million shares at an average cost of $25.11, bringing our total repurchase under the current authorization to 3.5 million shares at an average cost of $25.65. We increased the quarterly dividend 7% and we will continue to prudently manage our capital position.

John Hope - Chairman and Chief Executive Officer

Thanks, Tom. One of the things that gives me a great deal of comfort during this current credit cycle is the culture that we have developed over time at Whitney. By following our review disciplined and allowance methodology consistently each quarter, we believe over time we will perform better than most.

I’d like now to turn the call over to Lewis Rogers, Head of Credit Administration for his comments.

Lewis Rogers - EVP of Credit Administration

Thanks, John. At March 31, 2008, NPAs were $151 million with an NPA ratio 1.96%. This represents a $92 million increase since June 30, ’07. While this total dollar increase is significant, the composition of our commercial portfolio and a less granular portfolio than many banks also impacts our ratios. Commercial loans comprise 83% of our total loans. When one of these loans reaches non-performing status, we do not immediately charge it all as you do with the consumer loan, we move it to a non-performing status and begin the workout process. This drives a higher NPA ratio due to the fact that we do not have a sizable consumer portfolio to include in the denominator of the calculation. Historically, Whitney has had an NPA ratio higher than those of our peers due to our loan mix.

In each of the past three quarters, we detailed in our releases the significant items impacting our non-performers. And in each quarter, the explanation has included the impact of one or two sizable loans moving into our numbers. If you look back, basically four credits each in a different geographic market and each in a different industry added 42 million since June 30, ’07. Today those credits total 36 million or 47 basis points of the NPA ratio.

Don’t get me wrong, I’m not saying we have been immune to the economic issues impacting Florida and Costal Alabama. We have at March 31st approximately half of our non-performing assets were in Florida with 30% in Louisiana and 15% in Alabama. What I’m trying to point out is that four or five credits can have a huge impact on our numbers and ratios. These bigger loans are included in our reserve calculation and ultimate provision number.

However, based on the characteristics of each credit and the collateral backing each loan we reserve for the inherent loss we see in each individual credit. This may or may not force us to set aside large reserves for such credits. When a credit is determined not to have much loss, but is large in size, it contributes to a loan NPA reserve coverage ratio.

The same can be said about criticized credits, which includes our NPAs. Since June 30, 2007, we have added 173 million to our criticized portfolio, which totaled 392 million at March 31.

Just a note. Our criticized loans make up only 5% of total loans. That means 95% of our portfolio is not criticized. Most of the increase came during this quarter with the addition of 87 million in criticized credits. While that increase may seem large in total, just over 70% of the increase came from four credits, different from the last four I mentioned, each in a different market and each in a different industry, all on a weighted special mention our least severe criticized rating.

The criticized portfolio composition by state is 47% Florida, 30% Louisiana, 13% Alabama, and 10% Texas. The total loan portfolio breakout by geography is 54% Louisiana, 18% Florida, 16% Texas, and 12% Alabama and Mississippi. This translates to 13% of our Florida loans as being criticized. This shouldn’t be a warning to you given the real estate issues in Florida and the numbers you have seen from other banks. Louisiana’s numbers show that only 3% of its portfolio is criticized. And from time-to-time, a loan outside of Florida is going to have trouble. As you are aware of business results and are taking a reasonable level of manageable risk.

So, when we focus on the individual parts and not on the ratios or overall increases, we get a better picture of our situation. While the ratios may seem too high or too low, we do not manage the ratios as we do each quarter, we reserve using a consistent discipline and methodology and reserve for the inherent loss we believe is in our portfolio. Our quarterly growth in our portfolio and the increased level of criticized loans are the key elements creating a need for $14 million provision this quarter. I am not going to tell you we will not have additional increases in NPAs next quarter or that we are certain we have addressed all of the problems that could occur, we will not have any additional charge-offs or provisions.

During the first quarter, we took charge-offs for some of the inherent losses we reserved for in earlier periods. What I will reemphasize is that we are prompt in recognizing problems and beginning a thorough workout process. Of course, we continue to believe that based on estimates of the inherent loss in the portfolio that we are adequately reserved.

John Hope - Chairman and Chief Executive Officer

Thank you, Lewis. Let me briefly just apologize for the sounds in the background, you may be aware from the media that we currently have the President of United States, the President of Mexico and the Prime Minister of Canada have been in New Orleans last two days and they are in the process of leaving and they have been meeting only a block for the banks. So, as they leave we are going to hear more sirens leaving the way out of town. Sorry about that. Lewis, thank you.

Last month, the Board appointed John Turner, President of the Bank in the holding company. Prior to his promotion, John was Head of the Banking Division across our footprint. This did not change with his promotion. I am now going to turn the call over to John for some comments about what we are seeing in that different geographies.

John Turner – President

Thanks, John. Back in 1994, when we embarked on our expansion strategy, one of the goals was diversification beyond New Orleans and Louisiana. Today we believe we see the benefits of our efforts. Our expanded footprint provided balance as we dealt with the impact of hurricanes Katrina and Rita on the bank. And now in light of the real estate economy in Florida, we again are able to offset the stress markets with growing markets in Houston and Southwest Louisiana.

While the growth in the quarter came mainly from the Houston market, our pipelines look good. We continue to see good opportunities in Houston as well as Southwest Louisiana, South Alabama, and the outlook for these markets we believe is very positive. The growth we saw in Houston was mixed between commercial real estate and C&I credit and was distributed between various types and industries.

The greater New Orleans economy is showing some positive signs as well as liquidity for some of our customers is at an all-time high. Businesses and construction, energy service and marine construction industries all are doing well in the current environment. The rebuilding of our city continues and we are committed to the community. During the first quarter, we opened three new branches in the Greater New Orleans area and we plan to make additional investments in the region in the future.

It's no surprise that our Florida markets are under stress. Over the past year, we have seen a decrease in both loans and deposits as a result of the declining economy. In addition, we have seen run-off and higher cost CDs acquired from merged banks. This change was expected as we migrated their pricing miles to ours. We have also seen runoffs in our Alabama CD portfolio. During that disruption from other bank mergers, principally early last year, we offered some higher rate CDs to attract customers. These deposits are beginning to mature and we are not continuing to pay up the deposits but we do believe we have some success in retaining the ultimate customer.

Across the company, we are focused on being the leading business bank in our markets, enhancing revenue from non-interest sources, and continually looking for ways to become more efficient.

John Hope - Chairman and Chief Executive Officer

Okay. We would like now to open it up for any questions that you may have and we will do our best to answer those. I am going to ask Trisha Carlson to help manage this part of the process too.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We will take our first question from Brent Christ with Fox-Pitt.

Brent Christ

Good afternoon.

John Turner

Hi Brent.

Brent Christ

A couple of questions. First in terms of the net interest margin, it looked like you guys obviously the margin I think held out may be a little bit better than what people were expecting and it looked like you added some securities in the quarter and reduced some short-term investment. Can you give us a sense of kind of what specifically you did and what you are buying and may be to the extent that that help boosting the margin a little bit this quarter?

John Turner

Okay. Let me just start with a comment or two on the banking side and then I'll go and ask Tom to talk more about the investment side of our business. Having been through this before, we pretty much were ready each time the Fed reduced rates and reduced our deposit rates basically about the same time the Fed reduced rates, we have experienced some help from the LIBOR situation as you are aware that should help. And in fact, that’s not something we knew to anticipate, but it's been a pleasant surprise.

The other thing that we are probably doing a little different this time, we’ve always tried to impose borrowers as rates go down to the level where they are now. This time, this cycle, we are having more success in doing that particularly on a real estate customers. The customers are glad to have the bankers in the market, continuing to put flat loans and liquidity and when we ask them to compensate us recently by way of a floor, we have met with some pretty good success there. Tom, you want to talk towards the investment portfolios?

Tom Callicutt

Sure. We did a little pre-investing early in the quarter. We had in looking forward at how our investments were rolling off as they do on a latter basis, we looked ahead and decided to invest a little ahead of that. And so that did help us pick up a little during the quarter. Obviously, I think bringing the deposit rates down as quickly as we did and managing that well and in the LIBOR situation that John mentioned certainly helped us more than that.

Brent Christ

Okay. So those would be the two biggest kind of benefits to the margins?

Tom Callicutt

Yes.

John Hope

Yeah.

Brent Christ

Got you. And then switching gears for a second to credit quality, I appreciate the granularity about by state in terms of the NPAs and their classified assets. Could you give us a little bit more sense in terms of specifically in Florida, what the loan portfolio looks like from a product standpoint and how much reserves you specifically have kind of allocated to that 13% that is currently criticized?

Lewis Rogers

The products that we have in Florida are similar to the products we have everywhere, Brent. We have a - but we are heavy in real estate, it’s a real estate market in Florida and we have C&I lending and then other variety of consumer products, but like our process overall, we are 83% commercial and that's similar profile in Florida where we are very heavily involved in commercial lending and the real estate markets there.

Brent Christ

Okay. And then the last question just expense control, it looks like you guys have -- you had quite a bit of the success with your initiatives to reduce the expense levels and you mentioned some specific action plans going forward to potentially reduce costs further. Could you give us a sense of kind of what you have done so far and what else there is potentially in store?

John Hope

Brent, part of it was normalized and rationalizing our expenses post-Katrina, which occurred really beginning last summer and we were able to get a better handle in a more normalized working environment. And then I would say the next major contributor to that as most of you all are aware, we brought upon our strategic planning process last year in the firm that we use Cornerstone, also is well known and respected for their benchmarking expertise. We have never done a bank-wide benchmarking initiative before Cornerstone helped us through that process. They were in excess of 250 benchmarks that covered the waterfront. I mean, they have everything from cash and branches to headcount by departments, lots of different benchmarking measures. Those obviously pointed out some things that gave us some pretty good opportunity.

I would say that we have taken most of the low hanging fruit, the easy things to do like rewriting our staffing model and our branch system and some other things that are relatively easy to do. The remaining benchmarks actually afford us considerably more opportunity but they are more complicated. They are going to involve some process changes and possibly even some investment in technology, but we are really pretty excited about it. We have committed to have board that it’s going to be continue to be high priority through this year and then subject again to some of the technology issues it may even play into 2009. So it’s been a scientific process, it hadn't just be a hit or miss process at all.

Brent Christ

Okay, great. Thanks a lot.

Operator

Also next from John Pancari with J.P. Morgan.

John Pancari

Good afternoon.

John Turner

Hi John.

John Pancari

In the benefits of LIBOR spread provided in the quarter can you quantify that in terms of a basis point impact to the margin?

John Turner

I am not sure I have that at my finger tips John. But you could probably go back and look at how the spread has behaved between quarter ends and make a good approximation.

Thomas Callicutt

27% of our loan portfolio is priced to LIBOR.

John Pancari

Right, okay.

Thomas Callicutt

That’s should help you.

John Pancari

Yeah. Okay and are you a little bit of latest at the quarter actually the monthly margin throughout this quarter?

John Turner

No.

John Pancari

Alright. Okay, and then on the loan growth side, I am just trying to get an idea of what you think would be, your outlook there in terms of the growth you can see on that portfolio by stay for example Florida do you expect that’s likely to continue to see some shrinkage just given the trends you are seeing there? And then same thing around the world and just look like it was relatively modest you had indicated about 1% growth to that portfolio. Do you expect more of the same there as well?

John Turner

This is John Turner. We actually are experiencing some mixed results in Florida and we have seen growth in our loan portfolio in the Tampa Bay area over the last six to nine months. We have actually seen a number of opportunities to make loans obviously, opportunities that meet our credit standards in the Panhandle of Florida we continue to see a reduction in our loan portfolio. I think it’s mix and we would expect results from Florida to continue to be mixed. And in South West Louisiana, the economy is good and we would expect it to continue to be good just as it is in Houston and New Orleans. Specifically, we’re continued to be optimistic about New Orleans, there is a good bit of infrastructure work to be done in this community over the next few years, and so we believe that there will be opportunities both make loans and get deposit associated with that.

John Pancari

So what does the pipeline look like there in New Orleans specifically?

John Turner

I don’t know that I have that information at my fingertips, but despite to say that we think our pipeline in New Orleans is good.

John Pancari

Okay. And then on your commentary on your loan growth, you are seeing in Tampa what type of growth is that, is that real estate related again?

John Turner

Typically, it’s been real estate related, but real estate opportunities that are generally where we were making loans they were payment sources well defined and we were not making any land speculation loans, we were not making any land development loans today. Typically are still real estate related, generally owner occupied real estate opportunities in small businesses. We have seen a few national credit type tenant retail development, well that we think meet our standards.

Thomas Callicutt

We were surprised when we actually found that, but there is still some good business in Florida that is meeting our credit standards.

John Pancari

Okay. Alright that’s helpful. And then on the grandfather -- the sale of the grandfathered assets, can you just remind me what was that gain you noted for that -- for those assets this quarter?

Thomas Callicutt

Well, this quarter we had 1.4 million from a sale of some land, and we have sales from time-to-time and then we had about 1.2 million or so from a recurring dividend we get every first quarter.

John Pancari

Okay. When was the last time you had a land sale?

Thomas Callicutt

I am sure, we sold a little bit last year some in the fourth quarter, yeah.

John Pancari

Okay, good. And then one last question in terms of your outlook for buyback, would you expect a similar level of activity as you had this quarter?

Thomas Callicutt

I guess all I can say is we have about half a million shares in the current authorization and we have not made any determination beyond that authorization.

John Pancari

Okay. Alright, thank you.

Operator

We will move now to Kevin Fitzsimmons with Sandler O'Neill.

Kevin Fitzsimmons

Good afternoon everyone. Lewis, I think you mentioned the number 36 million and I just wanted to clarify what that was? I think it was related to a few large loans that contributed to NPAs, can you just clarify that?

Lewis Rogers

Right. I think the number we said was that -- if you look back over the last 9 months that we’ve had a four large credits impact NPAs that would have added $42 million to the NPA totals. Today the balance on those loans is 36 million. If you take them back at the point in time they impacted we have been 42, so that’s the number we left going to that we have four credits of that due impact are numbers and that’s the granularity issue that we refer to you earlier.

Kevin Fitzsimmons

Okay great. Thank you. I understand you know, your message in saying that the ratio’s can be very lumpy depending on the inflow of a few large credits like that. But I guess what we are trying to get a handle for is are there a few more or more than a few of these other large credits that are looming on the horizon or teetering in. And can you give us some kind of color of sense on how your delinquencies or your kind of early read on flow into the watch list is. Or things accelerate and I think stabilizing I’m sure it varies by market any kind of color you can give us there?

Lewis Rogers

We don’t give guidance, I think that you can just look at the numbers and see if that the first quarter did show some acceleration. If you look at the delinquency buckets that we have that actually improved as of 331 compared to 1231, so that is the severity of delinquency is looking a little better as of 331. There is going to the lumpiness of their arch, there are large credits in our portfolio; you are absolutely correct. I think what we have tried to point out also is that we are seeing some large credits really from the variety of locations and industry types, because we don’t want give the impression that all of these numbers relate necessarily to a Florida real estate issue.

Kevin Fitzsimmons

Okay. Alright and I just want add, just looking to see what’s going on in the market I understand you guys aren’t giving guidance on credit, but and then just a follow-on on the margin and there was question on the margin already. Tom said you think you can proactively manage the way you have been doing given the timing of when the Fed cuts are though should we expect more the of a head wind going into this quarter in terms of the margin?

Thomas Callicutt

Well, obviously so, because we started the last quarter at higher interest rate and so were starting from a position where it’s much harder to keep that spread. And as you go down and you get to some proceed to artificial floors and some deposit rates it becomes harder to move those down. That doesn’t mean we won’t be aggressive this we can be and it doesn’t mean that we will not profit from the position the LIBOR is in today too.

Kevin Fitzsimmons

Okay. Alright great. And thanks separately just thanks for doing the conference call. Very helpful.

Thomas Callicutt

Sure.

Operator

We will hear now from Charlie Ernst also with Sandler O'Neill.

Charlie Ernst

Good afternoon to you guys.

John Turner

Hello, good afternoon.

Charlie Ernst

I know that you talked a little bit about earlier the reserve coverage ratios, but when I look at you are 66% of non-performing loans and I guess on a quarterly basis the average going back to 2000 is almost 2%. And so, can you just say again why you’re comfortable at those levels?

John Turner

Well, I think the message we have is that we really don’t manage to that number in terms of managing the reserve. We are comfortable, because as we look at the non-performing most of which are subject to our impairment analysis. We are comfortable with the reserves that are allocated with those credits on one-on-one basis. And we use our methodology in determining the adequacy of the allowances as it relates to the total portfolio. So I think that’s the methodology is we’re very comfortable with giving us adequate estimate of the inherent loss.

Thomas Callicutt

Surely John, let me add something to that, just that you better understand the process. We joke from time-to-time that Lewis is the highest [MT] guy in the bank and maybe the bankers like me are the helpful guys in the bank. Our process reserve calculation process is done by our credit people and not influenced by our banking people. The credit people independently come up with their assessment of the risk and the need for reserves and we don’t adjust that number due to our optimism, it’s strictly an arms length calculation.

Charlie Ernst

Okay. And then secondly, can you, Tom can you maybe comment on how much flexibility you think you have in the deposit rates, I did notice that the someone seem to be getting pretty low?

Thomas Callicutt

Well, they are getting low, when you have less flexibility as you go down, again will be aggressive and we tend to leave, complete the market down, but I tend to think other factors like the position of LIBOR, we will offset some of that at least in the short term.

Charlie Ernst

Okay. And then lastly on the expense side, I know that you guys talked about some of the initiatives that you have underway, but can you just specifically comment on the salaries line given that first quarter, I think historically tends to be a little bit seasonally higher, but this quarter we saw it down?

Thomas Callicutt

Right. I think that we had decreases in management bonus and incentives and they were just, based on where we are in our plan. It’s nothing dramatically different from what you would expect.

Charlie Ernst

So were there bonus accruals this quarter?

Thomas Callicutt

Sure.

Charlie Ernst

But just to a lesser extend then maybe normal?

John Turner

But remember the incentive plans are designed to compensate for sales activity, and we have declining economy and the lower loan growth level, the incentive plans should reflect that.

Thomas Callicutt

But you also have do have things where they are commission based sales, incentives that you do. But to the extent that we may or may not have met our goals on the management side the accrual reflects that.

John Turner

And the other thing that we have not time to talk about amongst our sales yet, is actually given you some information about our headcount reduction. So I don’t want to offer that today, but we will talk amongst our selves as if well its appropriate. We have had a net reduction in head count is fairly substantial since last summer. I’m just not going to give you the number.

Charlie Ernst

Is there any sense that you can give in terms of the degree of accruals in the quarter taken?

Thomas Callicutt

The degree of our accruals you mean for…

Charlie Ernst

Just the overall bonus accruals, I mean its sounds like they are less in average, but may be not zero?

Thomas Callicutt

No not any more so then you see in the financials.

John Turner

I don’t think that in any way is reflected in getting to the numbers that you are looking at.

Charlie Ernst

Okay. Alright, thanks a lot.

John Turner

Okay.

Operator

Will go now to Casey [Alfas] with Millennium.

Casey Alfas

Hi, thanks very much for taking a questions. Assuming a lot of you would just keep going to your 66% coverage ratio between NPAs and the reserves and 5% watch list so those are kind of concerning. Maybe you could talk little bit about what percentage of your construction loans are in some form of a work out particularly in Florida?

John Turner

Yeah, I don’t that number. We have some construction loan activity that is a concern to us, but I don’t have that number at my fingers tips in terms of a certain percentage.

Casey Alfas

Over 30%?

John Turner

I wouldn’t characterize as you said, but again I just don’t have the number in front me. Of course all types of constructional activity and you may be alluding just a single family or land development or like the residential.

Casey Alfas

May be I can try this way. With the NPAs ramping Florida like they are, and with the reserves only at 1.19%, how do you plan on curing your NPA’s?

John Turner

We plan on -- you’ll see some migration into ORE that’s the unfortunate why you cure some of them and then sell the assets. And you saw a little bit of increased already this quarter and so that’s the sad way that a bank resolves it problems. The others are working with Bowers working with them to, in case of real estate create economic value that means selling real estate for many developers and working them down overtime. Again we have also got CNI credits that we work with as it relates to repairing their ability to generate working with them to repair their ability to generate cash and return the loans of performance status.

Casey Alfas

Okay. So you said two things, you are willing to be selling the assets at a loss and two you would be working through workout. For the first one selling assets?

John Turner

You might not sell in that at loss, if you look at our history traditionally and we haven’t sold property at a loss?

Casey Alfas

Okay. But I mean Florida property is my understanding is not trading right now. Where do you think the market is in Florida property right now. If you had to sell some of these non-performing assets in Florida?

John Turner

I think there is a lot of liquidity in the property and we have to be patient in working through some of them, I don’t disagree with you with this.

Casey Alfas

Okay. And then the workout component -- okay, because you can understand what we are saying here that you have always assets going to NPA and related to CRE in Florida. You could sell assets which is you said the sad way to do it. You would want to do that, but there is no liquidity. So you can't really sell assets for the next part it was 1% of your borrower are in some form of work out and you don’t have the number there for us. So I get back to my original question. How you are going to cure this assets?

John Turner

I think you conceded that we have a certain percentage of our assets Class 5, so we told you that. So we are working with those clients all of them to enhance their situation as it relate to their banking relationship with the Whitney. There are assets changing hands in Florida. I didn’t say we couldn’t sell any assets. But I didn’t disagree with you that real estate is certainly not as liquid today as it was in the past in certain markets and certain types of real estates, but need to make sure that you understand that when a loan becomes a non-performer we require to revalue the loan relative to the any underlying collateral particularly appraised value for real estate. So by the time it shows up in appropriate numbers on non-performers it should have been either reserved for or charged down to current value. And I can tell you that the appraisers in Florida are being very conservative about the appraisals that they will and to pass out today.

Casey Alfas

Okay. What do you, what’s your reserved the loans for your Florida franchise?

John Turner

We don’t calculate it that way. We do each loan and the work up and then we add them up into a total.

Casey Alfas

But you can’t segment that for us, reserved loans for Florida?

John Turner

It would be meaningless really, it wouldn’t help you understand the situation at all.

Casey Alfas

What the value you allocate the reserves to your NPAs in Florida?

John Turner

Again it would be relatively meaningless.

Casey Alfas

Why it would be meaning less, you had a $100 million in NPAs in Florida and the $100 million reserves. Why would that be meaningless?

John Turner

Well I think, what I guess, I am trying to say is our assessment of the reserve for a specific credit would necessary help you understand, the risk of loss in that credit. What I would suggest you do is look at our net losses over time.

Casey Alfas

Okay. Good luck

John Turner

Thank you.

Operator

We move next to Bain Slack with KBW.

Bain Slack

Hi, good afternoon.

John Turner

Hi Bain.

Bain Slack

Hi, I was wondering so with regard to your total NPAs, which I will be able to provide maybe an average write-down of that portfolio?

John Turner

The average write down.

Bain Slack

Yeah. For instance you talked previously about the four credits that were put on 42 now stand on at 36 I think in previous Q&A you were just talking about how you do take your marks as some of these real estate loans you put on. So, I didn’t know if there is a way to approach this to have an average write-down of the total NPA portfolio?

John Turner

Bain, I don’t have any averages of that nature. I think that the reductions we have seen probably come from the variety sources as that would relate to the balances. Again some of the reduction are due to working with clients to reduce some of these credits and they are not strictly related. I don’t want imply that we charged off $6 million of the assets that I alluded to you earlier.

Bain Slack

Okay.

Thomas Callicutt

I think that we haven’t tried to calculate charges-offs of NPAs to-date as you know our charge off this was a fairly significant ramp up in charge-off for us this quarter. Here before we haven’t had losses, but we had indicated previously that if we are correct in adding the reserves we added in third quarter and fourth quarter that we would expect more charge-offs. In other words if we felt there was more inherent loss and at September 30, and then again at December 31st that those estimates would manifest themselves and charge offs that would be identifiable in future periods and we saw some of that this quarter.

John Turner

Thanks, I understand where you are going and truly an interesting question, actually I would really like to know answer too, but of course and maybe we can work on it because it might help us as well as you all a little bit. I think what may complicate this is the timing that we would take the charge-off or write-down. It may actually be on our books before it transfers into NPA or coincident with the transfer to NPA as opposed to a later time. So, it maybe a difficult number to calculate but we will take a look and if we think there is any value to it if we can produce it in such a way that makes sense, we’ll see when come up with.

Bain Slack

Okay. And I guess the second question is, I didn’t know, is there a value of the 1933 assets that are left in the balance sheet?

John Turner

$1.

Bain Slack

$1?

Thomas Callicutt

Actually, it’s more like $17.

Bain Slack

So, the - I guess maybe the one way to look at the $1.4 million gain that you had, what was that being carried out?

John Turner

$0.03.

Bain Slack

Okay.

John Turner

Yeah, we are not tying to be cute, but we have...

Bain Slack

I understand.

Thomas Callicutt

Yes, it always written-down to basically $1 per property and I don’t know whether this particular piece of property was the piece of that property.

John Turner

Yeah, I mean you may have a piece of property which 10,000 acres and we may sell off a corner of it or something like that. And we have never, seriously we have never attempted to place a value on those assets, because some of them are just pieces of marsh I mean some of them are valuable and some of them are not.

Bain Slack

I understand. I appreciate it. Thank you guys.

John Turner

Thanks.

Operator

And our final question today will come from Tom Doheny with Decade Capital.

Tom Doheny

Hi, thanks for taking my question. I appreciate the detail on the credit size loans. I was wondering if you could provide the remaining split, you gave some of the increase that you saw in special mention, I was wondering whether remaining increase in the credit size loans were between substandard and doubtful?

John Turner

I think we give that generally in the subsequent regulatory filings, so you will see it there.

Tom Doheny

Okay, thanks.

Operator

And I will turn the conference back to you for closing remarks.

John Turner

Thank you again for participating in our first telephone conference call. It’s a learning experience for us, and we will try to react to what we heard today. Let me close though by saying, you know, I can absolutely understand your concern about our Florida markets and the fact we have operations in areas impacted by real estate. This and ever relates to questions about our portfolio and as resulted intense focus on our ratios.

I hop that you now have a better understanding about our total portfolio and as Lewis pointed out that the very few credits can impact our numbers and subsequently the ratios. Some of those credits have absolutely nothing to do with Florida real estate, they are just commercial credits that for some reason or another or coincidently having problems at the same time, unrelated to the real estate market in Florida.

Second, I have confidence in our time tested process and in our strong credit culture. I may have mentioned this to some of you at times, but a month ago at a board meeting one of our directors said what are you doing different to react to the times and the circumstances? And the answer to the question was absolutely nothing. We are doing at the way that we have always done it. And we believe that we have adequately reserves for the losses that we could possibly see in our portfolio as of the first quarter this year. We are aggressive in identifying at our problems I think probably all the banks are telling you that, but if you go back and look it and numbers overtime, you will see that exactly what the numbers will tell you.

Whitney is and will be our commercial and business bank. We’re proud of our customer relationships and our relationship with bankers. We think its the right business model for us. We are definitely focused on long-term strategies and we feel like we have considerable opportunities particularly today in an environment where some of the banks who really do have some issues or having to take care of their balance sheets and their capital positions and we are still in the business where we can go out and acquire customers and continue to make loans and do business.

I hope many of you will be in New Orleans next week for the Gulf South conference. Unfortunately I’m committed to another conference and I’ll be in California next week. But John Turner, Tom Callicutt, Lewis and the others will be here and will look forward to welcoming you to our city. If you have any questions later on let Trisha know and we’ll do our best to answer them.

Thank you.

Operator

That concludes today’s conference call. Have a pleasant rest of your day.

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