DBRS Downgrades Whitney Holding Corporation to BBB; Trend Stable

DBRS has today downgraded the ratings of Whitney Holding Corporation (Whitney or the Company) and its related entities, including its Issuer & Senior Debt rating to BBB from BBB (high). At the same time, DBRS has downgraded Whitney’s banking subsidiary’s Deposit & Senior Debt rating to BBB (high) from A (low). All ratings were placed on Stable trend.

Whitney’s sustained elevated asset quality deterioration over the past year, in light of pressured levels of income before provisions and taxes and DBRS’s expectation of sustained heightened credit costs and expenses over the intermediate term, led to this action. The Stable trend reflects DBRS’s view that Whitney’s underlying fundamentals, relative to certain peers, somewhat cushions the bank against ongoing headwinds. Today’s rating actions conclude a review with Negative Implications initiated by DBRS in July 2009.

Since the financial crisis started in 2007, this is the first time DBRS has changed the ratings of Whitney. During the first three quarters of 2009, Whitney evidenced material increases in credit costs, which resulted in three consecutive quarterly losses. Credit deterioration, especially commercial real estate (CRE) within the Company’s Florida and coastal Alabama markets and to a lesser degree commercial and industrial (C&I) and CRE credits within its Louisiana and Texas footprints, have led to higher credit costs. Whitney’s ratings also reflect its large CRE exposure, its solid and recently augmented capital position, adequate liquidity, and deeply rooted community banking franchise.

The Stable trend reflects DBRS’s view that Whitney’s current capital position, which was recently bolstered by $218 million in net proceeds from its recently oversubscribed issuance of common stock, provides the Company with ample loss absorption capacity over the intermediate term, in light of currently expected loss rates. Indeed, on a pro-forma basis (September 30, 2009), the capital raise increased the Company’s tangible common equity ratio to a more healthy 8.4% from a reported 6.4% at September 30, 2009.

The ratings action follows the Company’s Q3 2009 loss to common shareholders of $34 million, which was down from a $25 million loss for the prior quarter. On a sequential quarter basis, higher provisions for loan loss reserves and lower revenues, more than overshadowed lower non-interest expenses. Provisions rose by 9%, driven by sustained asset quality deterioration. Net interest income, which slightly decreased was negatively impacted by lower average earning assets, mostly offset by a 6 basis points (bps) widening of net interest margin (NIM) to 4.11%. Lower non-interest revenues reflected lower secondary mortgage market operations income, trust fees and other non-interest income. Whitney’s non-interest expense fell 7%, which reflected its Q2 2009 $5.5 million FDIC special assessment fee, a $3.0 million decline in provisions for valuation allowances on foreclosed property and lower personnel expenses.

Whitney continues to struggle with elevated levels of asset quality erosion, especially CRE exposures within its Florida and coastal Alabama markets and to a lesser extent CRE and C&I credits within Louisiana and Texas. DBRS notes that the bulk of Whitney’s problematic loans and credit costs are related to exposures originated outside of its legacy footprint of Louisiana. Indeed, at September 30, 2009, roughly 67% of the Company’s non-performing loans and 76% of its Q3 2009 gross charge-offs were Florida based exposures. Although Florida-related loans will take more time to work through, perhaps Q3 2009 might reflect a peak for the state, as criticized Florida loans contracted, versus quarterly increases over the prior three quarters. Nonetheless Whitney’s criticized loans increased by $131 million to $1.18 billion during Q3 2009, driven by $100 million of Texas-serviced credits. DBRS notes however that Texas represents only 5% of the Company’s non-performing loans. At September 30, 2009, Whitney’s non-performing assets increased to a high 5.34% of loans, from 5.17% at June 30, 2009. Meanwhile Q3 2009 net charge-offs represented 2.86% of average loans, up from 2.09% for the prior quarter. For Q3 2009, loan loss provisions totaled $80.5 million, of which 23% was for reserve build. DBRS comments that Whitney’s reserves to NPAs remain moderate at 52%.

As aforementioned Whitney’s capital position is currently ample and was bolstered by the proceeds from its recent common stock issuance. At September 30, 2009, which excludes the Q4 2009 capital issuance, Whitney’s estimated regulatory leverage, tier 1 and total capital ratios were 8.99%, 10.55%, and 13.37%, respectively. DBRS notes that Whitney’s capital includes $300 million in TARP funds.

Whitney’s liquidity remains adequate as core deposits represent 89% of net loans (at June 30, 2009). Whitney’s good quality securities portfolio, which represents 17% of total assets, access to the Federal Home Loan Bank and Federal Reserve Discount Window round out its liquidity profile.

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

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.