Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Whitney Holding Corporation (NASDAQ:WTNY)

Q2 2008 Earnings Call Transcript

July 22, 2008 4:30 pm ET

Executives

Trisha Voltz Carlson – Manager, IR

John Hope – Chairman and CEO

John Turner – President

Tom Callicutt – CFO

Lewis Rogers – EVP, Credit Administration

Analysts

John Pancari – J.P. Morgan

Brent Christ – Fox-Pitt

Bain Slack – KBW

Jennifer Demba – SunTrust Robinson Humphrey

Jeff David – FBN Securities

Operator

Good day everyone and welcome to the Whitney Holding Corporation’s second quarter 2008 earnings results conference call. Today’s call 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. Please go ahead.

Trisha Voltz Carlson

Thank you. During today’s call, we may make forward-looking statements. Forward-looking statements provide projections of results of operation or financial conditions or state other forward-looking information such as expectations about future conditions and descriptions of plans and strategies for the future. Whitney’s ability to accurately project results or predict the effect of future plans or strategies is inherently limited. Although Whitney believes that the expectations reflected in its forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ from those expressed in the Company’s forward-looking statements include, but are not limited to, 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 whether as a result of differences in actual results, changes in assumptions, or changes in other factors affecting such statements except those required by law.

On June 9th Whitney announced its intent to acquire Parish National Corporation. The proposed transaction will be submitted to the Parish National Corporation shareholders for their consideration. Shareholders of Parish National Corporation are advised to read the proxy statement regarding the proposed transaction. The proxy statement will be filed in conjunction with the registration statement to be filed with the SEC.

I will now turn the call over to John Hope, Chairman and CEO.

John Hope

Thank you, Trisha. And thanks to all of you for joining us today. We’re not going to spend a lot of time on opening comments. There are few things I'd like to point out to you and then we’ll enter make ourselves available to answer your questions.

Earnings for the quarter were 12.9 million or $0.20 per share reflecting stable core results they were overshadowed by credit. And the credit story is really two-fold. First is the impact on results from our traditional typical long-standing C&I lending portfolio. As noted in our pre-announcement of few commercial and industrial credits namely in Louisiana that have been included in our watch process for a number of quarters finally came to here and resulted in an increase level of charge-offs.

Four C&I credits in Louisiana aided $8.9 million to the quarter’s provision. In addition, one C&I credit in Texas and one in Alabama aided $2.3 million to the provision and those two credits are now completely charged-off as of the end of the quarter. The six credits were responsible for 11.2 million of the $35 million provision for the quarter. Most of the C&I credits had been included in our Watch Process for several quarters, some for years. The issues associated with C&I portfolio are not systemic and do not have us concerned about our new level of problems. Unfortunately, these events happened at the time when another part of our portfolio was continuing to experience pressure.

The second part of the quarter’s credit story involves the newer parts of our franchise where we can continue to see pressure in Florida and coastal Alabama markets resulting from ongoing deterioration in the underlying value of collateral. The problems and pressures in the real estate markets in Florida and coastal Alabama related to existing Watch List credits aided 8.4 million in provision while new problem owns aided 5.6 million. These loans were responsible for 14 million of the $35 million provision. The combination of these two events led to what we believe are appropriately higher allowance provision and charge-off ratios given current market conditions.

During the quarter we did not change our reserve methodology however, we did take a different view of some of the underlying collateral values in several credits. We continue to apply standard discounts to appraisals however we were more aggressive in assessing the continued change in values.

We continue to build reserve and aided 3.8 million to the unallocated allowance and qualitative factors. In addition, 4.8 million in provision related to consumer and miscellaneous small commercial credit charge-offs and then 1.2 million was aided to the provision for additional loan growth. The provision of 35 million exceeded net charge-offs of 16.9 million and as a result to build in reserves led to reserve to loan ratio of 1.38% up from 1.19 last quarter and 1.02, a year earlier.

So where are we going from here? While we have seen some movement in the level of criticized loan from these markets it continues at a manageable pace. The overall level of criticized loans was up 19% for the quarter to 465 million from 392 million last quarter. Special mention credits, the least criticized category increased approximately 4 million as we saw normal migration from movement both in and out both real estate and C&I loans. The majority of the increase was in what we call substandard credits at 275 million, up 73 million from the end of the first quarter. Approximately, 80% of that increase came up four credits.

Loans categorized as doubtful, the most severely criticized category were actually down 3.5 million for the first quarter. As some of you noted after our preannouncement nonperforming assets did not increase materially during the quarter. Nonperforming loans were up 8 million while ROE [ph] increased 2.5 million. We did not sell any impaired loans during the quarter, but instead charged down many existing problems. After adjusting for charge-offs, only one loan significantly aided to nonperformers for the quarter.

As of the end of the second quarter 51% of nonperforming loans are in Florida, it is 29% in the panhandle and 22% in the Tampa Bay area, 26% in Louisiana, and 21% in Alabama. Additional credit quality information as to geographic breakout by tie and criticized by type-in geography has been included in our financial tables and can be found in the investor relation section of our website.

Outside a credit results for the second quarter held-up well as we continued our focus on controlling expenses, managing the net interest margin, and increasing recurring fee income. Total assets end of the period are 11 billion, up from 10.8 billion last quarter, period end total loans increased 3% linked quarter while total deposits were relatively flat. Average loans were up 2% linked quarter while average deposits were down 2%. Loan demand from the Metropolitan New Orleans area primarily in commercial and industrial lending was the major contributors to the loan growth linked quarter with smaller contribution from Southwest Louisiana and our Texas market.

The net interest margin was 4.54% for the second quarter, down 10 basis points from the first. The decrease reflects a full quarter impact from the 75 basis point rate drop in mid-March, a full quarter impact from our aggressive move in deposit rates in the first quarter and a partial impact of the 25 basis point drop in rates at the end of April.

Fee income increased linked quarter and sources of recurring income such as deposit service charges, bank card fees, trust service fees, and secondary mortgage income. Expenses remained under control and normalized for the impact of the Visa litigation liability noninterest expenses were up less than 1% compared to the first quarter.

Through the cycle Whitney has remained and still remains a well-capitalized institution and we do not need additional capital. Our ratios remain above those required to be well-capitalized with leverage of 8.27% and a tangible common equity ratio of 7.86%. Even after paying a normal dividend, completing the repurchase of shares under the buyback program and anticipating the merger with Parish National, our capital position is strong.

Nothing has occurred that has caused us to think differently about our dividend policy or the level of capital needed to operate in this environment. Throughout our capital planning process we have been focused and will continue to focus on the economic environment and is projected stress tested effects on our credit quality.

I’d like now to open it up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We will go first to John Pancari with J.P. Morgan.

John Pancari – J.P. Morgan

Good afternoon.

John Hope

Afternoon.

John Pancari – J.P. Morgan

Can you give us some additional detail on the concentration of your C&I credits that moved on to nonperformer by industry, particularly, new credits in the Louisiana markets?

John Hope

Lewis Rogers at credit will serve.

Lewis Rogers

John, you are asking for small detail in terms of the industries that we – if there any industry issues…

John Pancari – J.P. Morgan

Right, if there is any concentration in the C&I non-perfomers that moved on the quarter and in the progression you’re seeing in your watch list, is there any concentration by industry in the C&I, I was just trying to…?

Lewis Rogers

I think in the C&I side, the answer is generally no, that there is nothing systemic industry wise that we see as it relates to the deterioration that we alluded to in the press release and in John’s comments.

John Pancari – J.P. Morgan

Okay. So you will characterize that the pressure you’re seeing there on C&I is just general linked to the economics slowdown in general then?

Lewis Rogers

If they are unique – most of these are unique, industries that these individual credits operate in, and again, there is really nothing systemic, it’s not as if we got six (inaudible) manufacturers that are going down, that it’s – they really are independent and unique – unique from one another.

John Pancari – J.P. Morgan

Okay. And in terms of outside a credit actually, just in terms of your loan growth I know you indicated that bulk of the contribution came from some of your core markets there, New Orleans or actually Louisiana, just want to get some detail around what type of loan demand you are seeing there? You know was it the immediate New Orleans markets or where is it concentrated?

John Turner

John, this is John Turner. It’s mixed, we, for the quarter, solved the majority of loan growth in our core New Orleans market, and it was across a variety of sectors both C&I and (inaudible) well a couple of commercial real estate transactions, both owner-occupied and nonowner-occupied. We continue to see good loan demand in Southwest Louisiana and in our Houston markets. Generally, our pipelines are good.

John Pancari – J.P. Morgan

Okay. When you indicated that Texas is a smaller contributor, anything you’re seeing there, is it a slowdown that’s evident or is it just quarterly aberration?

John Turner

We had some pay downs in the market that were expected as a result of real estate projects that moved to the permanent market, but we still have a very good pipeline in the Houston and expect positive things from that market for the balance of the year.

John Pancari – J.P. Morgan

Okay. That’s all I have now. Thanks.

Operator

Thank you. (Operator instructions) We will go next to Brent Christ with Fox-Pitt.

Brent Christ – Fox-Pitt

Good afternoon. You mentioned with – some of the increased provision this quarter this quarter, was partially attributable to some of the existing credits in Florida and Alabama, and then you had refreshed your view of underlying collateral values and I was just curious in terms of kind of a general order of magnitude of change in some of those values that you saw over the past few months and how much – how that was kind of driving the provisioning in the quarter?

Tom Callicutt

Brent, we continue to see some deterioration value as we get new appraisals, the magnitude is little hard to generalize, but we do see values contracting – I don’t know that they are accelerating in terms of the contraction this quarter is opposed to last, but in general, I would tell you that we have seen occasionally values from ‘05 to now that would be 40 to 50% change for certain property types. But don’t mistake that mean that all property types in these distressed markets are declining by 50%, I don’t want to leave that impression. Our impaired assets are refreshed annually in terms of value and we continue to monitor this on an ongoing basis, but as John indicated that is a contributor to some of the deterioration we noted is, is the appraisal issues as we continue to monitor these credits.

John Hope

Brent, we see – this is John Hope. We are seeing only a few encouraging signs as to the market beginning to firm out, there have been some projects that where there have been some absolute auctions and the values have surprised us with their resiliency, but it’s way too early to draw any conclusions from something like that. We are participating in a large condo project, this is in the process of closing out right now, and it’s – the project is going exactly as planned, but I’ll tell you that those are more exceptions and the rule that the market is still very soft, and there is a lot of volatility and that underlying for.

Brent Christ – Fox-Pitt

Got you. And then switching gears for second, regarding the Parish National deal, could you give us an update as far as where you are with the due diligent on that, and if anything has surprised you throughout that process?

Tom Callicutt

Sure, Brent. This is Tom. You know, we announced when we did our preannouncement that we have completed the due diligent….

Brent Christ – Fox-Pitt

Okay.

Tom Callicutt

…I am not sure we would characterize anything we found as a surprise. We are moving toward – doing all the things you need to do to get that deal closed.

John Hope

We are looking for a fourth quarter closing date.

Brent Christ – Fox-Pitt

Got you. Okay. Thanks a lot.

Operator

And we will go next to Bain Slack with KBW.

Bain Slack – KBW

Hi, good afternoon.

John Hope

Hi, Bain.

Bain Slack – KBW

Hi, just a follow-up as most of my questions were answered, but on the Parish National with the move in the stock prices there can you quantify or give some color on the – I guess expected in – I guess there will be an increasing dilution here given the extra shares and how that might have impact I guess the deal in terms of a pro forma numbers?

Tom Callicutt

This is Tom. We have not done that, you know, we have said that the deal is accretive. So, I don’t think we have any more to add to that.

Bain Slack – KBW

And I guess that – I mean that poll through today’s – what the market is there?

Tom Callicutt

As far as we know.

Bain Slack – KBW

Okay. Great. Thank you.

Operator

And we will go next to David (inaudible) with SunTrust Robinson Humphrey.

Jennifer Demba – SunTrust Robinson Humphrey

Hi, it’s Jennifer Demba.

Unidentified Speaker

Yes, please.

Jennifer Demba – SunTrust Robinson Humphrey

If you covered this already I apologize, I had to jump on a few minutes late. But, can you give us a sense of the size of your loan off reserve for the Florida portfolio? And also, John, I think you mentioned a couple of minutes ago you had a condo project that was going as planned, is there anything specific about that project that you think makes it unusual geography, price point, whatever?

John Turner

Jennifer, I’m really just giving you an opinion, but the geography is not anything were to draw any conclusions about, I will tell you the project is a – it’s in upscale type of project, it’s a very – it’s a really good product, and it seems that the buyers are just not walking away from it, and they are paying what they’re contracted for. The only differentiation is it’s a quality – the quality of the project. Now, back to your other question on the amount of the reserve allocated to Florida, I’m going to let Lewis kind of talk to that.

Lewis Rogers

Jennifer, I don’t think we are prepared to give our allowance [ph] by geography, I can’t give you some insight, and we’ve already given it to you in the back up material here and with regard to John’s comments, but we can’t breakdown our reserve in terms of pipes we got, about 25 million of our reserve is allocated to impaired assets, and we got about 12% related to just qualitative factors, 51% is related to the total criticized, that’s the number I was looking for, that includes that impaired number. So that will give you a sense you can then look at what information we’ve given as to the impaired totals and John’s comments by what’s impaired by state and begin to understand how that might break down. We do have some one [ph] allocated over and above the qualitative factors of less than 10%, and that really rounds out the totals than what we got the remainder would all be for our past credits which come from all geographies.

John Hope

We have never split it down by geography when we added – we do by loan or by classification, not by geography.

Lewis Rogers

And by product type.

Jennifer Demba – SunTrust Robinson Humphrey

Okay. Again, I am sorry, if you covered this before, but do you anticipate needing to build the reserve further in the second half of the year?

John Hope

Well, we’re just going to have to take it quarter-by-quarter. I would like to say that they were true but I think it would be a little naïve to come to that conclusion. We’re sitting on a $150, $160 million worth of nonperforming assets and we got to work through those. But we have aggressively built the reserve and provided from this quarter as best as we can and we just have to work through it in the third and fourth quarter.

Jennifer Demba – SunTrust Robinson Humphrey

Okay. Thank you very much.

Operator

(Operator instructions) We go to Jeff David with FBN Securities.

Jeff David – FBN Securities

Good afternoon. Tom, you may have covered this, I joined late, I apologize if you did. The margin, down 10, what are you thinking over the next couple of quarters?

Tom Callicutt

Well, Jeff, we are going to manage it the same way we managed it. We have allowed CDs to run off, and it will be while a little bit [ph].

Jeff David – FBN Securities

Well, you are thinking that that’s – Tom, I’m not asking this for bit, what are you thinking relatively flat, how would characterize it asset institution since the institution going from 464 to 454s relatively flat, we bottoming out here or…

Tom Callicutt

You know, I think it remains to be seen as to how LIBOR behave, also as to what other space we have to work on deposits and there also it’s the factors to go into that.

Jeff David – FBN Securities

Well, Tom, was there a much impact from movements in the LIBOR primes prior this quarter?

Tom Callicutt

Yes, most of the right moves are through the loan book.

Jeff David – FBN Securities

Positive to the margin this quarter? (inaudible) follow-up with you.

Tom Callicutt

Yes.

Jeff David – FBN Securities

Okay. I’ll do so. And then Lewis, coming back to Jennifer’s question or John, let me ask a little bit differently. Aside from whether you need to build a reserve further, is it unlikely that we see a quarterly provision again, or at least over the next two, three quarters that’s to the size of this one?

John Hope

We will give you a credit perspective and a CEO perspective.

Lewis Rogers

Jeff, I wouldn’t want to venture that.

Jeff David – FBN Securities

Optimistic and pessimistic, right.

Lewis Rogers

I think that Yes, John knows me too well. I would not be willing to venture an expectation of our reserving going forward. We worked very hard to come to the right conclusion at 630 we were we looked at and relooked at a number of assets to make the proper call and what the future holds is anyone’s guess. And it gets back to some of the earlier questions we’ve had. What’s happening with the appraised values? How liquid is real estate becoming? Is it becoming more liquid or stay where it is? Etc.

Jeff David – FBN Securities

I think this really understands that answer the question the same way. We’ve got to see some bars going to the market and the bars are not going to go into the market until – I guess what you saw last week with the bank stocks, and the bars finally start to go into the market and now look what’s happened. The real estate market could turn just like that. And when it does then you won’t see any more those provisions that you’re talking about.

Lewis Rogers

Okay.

Tom Callicutt

Jeff, this is Tom, let me follow up a little bit on your margin question. The excess LIBOR spread contributed 12 basis points.

Jeff David – FBN Securities

Okay. Thank you, Tom.

Operator

And there are no other questions at this time. I would like to turn the conference back to Mr. Hope for any closing remarks.

John Hope

Just a quick closing comment. Balancing a risk culture is an important focus as we continue moving forward and taking a more long-term view of things. We recently appointed Joe Ignatius [ph] as our company’s Chief Risk Officer. Whitney has never had this position in the past so we’ve created the position and then we take in one of our own people to fill it and Joe. Joe has held 30 years of service to the bank, mainly as part of the lending group, and head of a commercial line of business, and he is very knowledgeable about the banks culture. He is responsible for both credit and non-credit risk management. And interestingly, Joe also has a degree in law and he is a CPA as well as a banker. We think his contribution going forward what should be significant to balancing managing risk as we move forward.

Thanks again for your participation. I imagine some of you will have some follow-up questions and if you just direct them through Trisha, we’ll give a best answer to them.

Operator

Thanks, everyone. That does conclude today’s conference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Whitney Holding Corporation Q2 2008 Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts