Whitney Shares Drop on Loss Provision View

Shares of Whitney Holding Corp. fell Wednesday after the New Orleans lender forecast a hefty credit loss provision for the second quarter.
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) - Shares of

Whitney Holding Corp


plunged Wednesday after the bank outlined a hefty provision for credit losses for the second quarter because of continued weakness in the Florida real estate market.

The stock was down 14.3% to $8.52 in midday action. Volume of 3.2 million was already nearly three times the issue's trailing daily average of 1.2 million.

In a press release issued after Tuesday's closing bell, the bank said it expects to record a provision for credit losses of between $57 million and $62 million, mainly because of the continued difficulties in both Florida's commercial and residential real estate markets.

The provision for credit losses is a bank's quarterly addition to its loan loss reserves, as it anticipates losses on specific problem loans, and directly affects earnings. If the second-quarter provision comes in at the lower range of Whitney's estimate, it will increase 53% from first-quarter levels, but still be much-improved from a $72 million provision in the second quarter of 2009.

Whitney Holding tied a portion of the second-quarter provision to an increase in "criticized assets" in Texas and Louisiana. Criticized assets can include loans that are still current on payments, but are considered doubtful because of the borrower's financial position or other problems related to credit underwriting.

The bank also cited its decision to establish a $5 million reserve to counter the impact of the

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on tourism in the Gulf Coast region, and its "willingness to capitalize on the increasing opportunities to dispose of problem assets during the quarter and in the near term" as factors in the provision.

"The lack of predictability as to the timing of an economic recovery, coupled with the uncertainty as to the impact of the oil spill on our markets, has tempered our optimism for the second half of 2010," said John C. Hope, III, the company's Chairman and CEO, in a statement.

Net charge-offs -- actual loan losses less recoveries -- for the second quarter are expected to come in between $52 million and $57 million. Net charge-offs in the first quarter were $37.1 million and the annualized ratio of net charge-offs to average loans was 1.80%, well below the national aggregate of 2.84% reported by the Federal Deposit Insurance Corp.

Whitney Holding expects nonperforming loans to increase slightly from first-quarter levels to roughly $450 million, and sees repossessed real estate assets rising by $31 million to approximately $92 million in the latest quarter.

Looking back to March 31, nonperforming assets -- including loans past due 90 days or more or in nonaccrual status (less government-guaranteed balances) and repossessed real estate -- comprised 4.44% of total assets, compared to a ratio of "noncurrent loans and repossessed real estate" of 3.43% reported by the FDIC.

Keefe Bruyette & Woods analyst Brian Slack widened his loss estimate for the second quarter following the news, going to a loss of 11 cents a share from 7 cents. For the full year, he adjusted his view to a loss of 37 cents a share from a prior expectation of 23 cents.

Slack upgraded Whitney Holding to a "market perform" rating, essentially neutral, on June 30, and has a 12-month price target of $10 on the stock. As of Tuesday's close, the shares were trading just above tangible book value, reflecting the market's concerns about credit quality, the oil spill in the Gulf of Mexico and the company's eventual need to redeem $300 million in preferred shares held by the government for bailout money received through the Troubled Assets Relief Program.

The bank is slated to report its second-quarter results before the opening bell on July 27.


Written by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.