DBRS Comments on Q4 Earnings of Whitney Holding Corporation -- Senior at BBB (high)

DBRS has today commented on the Q4 2008 earnings of Whitney Holding Corporation (Whitney or the Company), given the rapidly deteriorating economy. During Q4 2008, Whitney reported net income available to common shareholders of $8.2 million, up from $7.0 million for the prior quarter, yet down from $30.2 million in Q4 2007. Whitney’s Q4 2008 earnings benefited from the Parish National Corporation (Parish) acquisition, which closed on November 7, 2008. On a sequential-quarter basis, earnings improved as a result of a 7% increase in net interest income and a 6% increase in non-interest income, partially offset by a 13% increase in provisions for loan loss reserves, 56% of which was for reserve build, and a four basis point (bp) narrowing of net interest margin (NIM) to 4.49%. On an annual quarter basis, net income was pressured by a 3.5 times increase in provisions and a 26 bp narrowing of NIM, somewhat offset by a 3% increase in net interest income and a 12% increase in non-interest income. The Company’s credit fundamentals continue to support the current rating levels – BBB (high) for senior obligations – and Stable trend.

The Company’s heightened deterioration in asset quality and related credit costs reflect the rapidly declining economy, a less granular loan portfolio and the sizable level of commercial real estate (CRE) exposure. The Company’s non-performing assets (NPAs) increased to a relatively high 3.61% of loans from 3.15% at September 30, 2008. Nonetheless, Whitney’s Q4 2008 net charge-offs (NCOs) remained manageable at 0.91% of average loans, down from 1.22% for Q3 2008. At December 31, 2008, Whitney’s NPAs consisted mostly of residential-related CRE, CRE development and commercial and industrial (C&I) loans. DBRS comments that 72% of Whitney’s non-performing loans are in Florida. The Company’s NCOs mostly reflected residential-related credits and, to a lesser extent, C&I and CRE. For 2008, Whitney’s loan loss provisions of $134 million exceeded NCOs by 1.9 times. Despite the reserve build, the Company’s allowance for loan loss reserves-to-non-accruals was somewhat low at 54%.

Although NCOs have remained manageable, DBRS comments that further asset quality deterioration leading to increased NPAs may result in negative rating pressure. DBRS notes that Whitney has an element of relatively large top-lending relationships and a somewhat high CRE concentration, which have the potential to rapidly escalate NPAs and NCOs.

Although Whitney’s Q4 2008 NIM narrowed on a sequential-quarter basis, it remained solid at 4.49% and exhibits the Company’s relatively high level of non-interest bearing deposits, which represented 34% of average total deposits for the quarter. Moreover, Q4 2008 NIM benefited from the increase in spread between LIBOR and other benchmark rates. Nonetheless, the spread has since narrowed, which will pressure NIM. DBRS notes that Whitney’s cost of funds of 1.02% (at December 31, 2008) falls well below the average of 2.15% for similarly sized institutions (greater than $10 billion to less than $20 billion in assets).

Liquidity remains adequate as core deposits account for approximately 73% of net loans (at December 31, 2008). Moreover, Whitney’s securities portfolio, which represents 16% of total assets, and access to the Federal Home Loan Bank round out its liquidity profile.

The Company issued $300 million of preferred stock to the U.S. Treasury as part of the Treasury’s Capital Purchase Program, which helped augment regulatory capital ratios and provide more of a cushion to absorb credit losses. At December 31, 2008, Whitney’s regulatory leverage and tangible equity ratios were 9.87% and 8.95%, respectively, versus 8.14% and 7.89%, respectively, at September 30, 2008. DBRS notes that during Q4 2008, Whitney closed on its acquisition of Parish ($762 million in assets), which pressured tangible capital by roughly 100 bps.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Banks and Bank Holding Companies Operating in the United States, which can be found on our website under methodologies.

This is a Corporate (Financial Institutions) rating.