Hancock Whitney Corp (HWC) 2008 Q1 法說會逐字稿

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, 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 to turn things over to Whitney's Manager of Investor Relations, Trisha Voltz Carlson. Ms. Carlson, please go ahead.

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.

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 our 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 readily 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, are the credit issues and the margin pressures that we've all experienced, are experiencing. Credit continued to be a primary focus with increased levels of criticized and nonperforming 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 and 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 mitigate some of the expected decline in our net interest margin. I would suggest that our margin of 4.64, while it was down 11 basis point linked quarter, should remain one of the strongest, if not the strongest margin that you'll 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've talked about our focus on expenses and then 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're doing exactly that.

Total expenses normalized for the Visa item are down about 2% from the first quarter of 2007, but just as important is 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're really proud of that.

Our capital remains strong with a tangible equity ratio of 8.32, while we continued our buyback program and, at the same, time increased our quarterly dividend.

I'd 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'll introduce you to John Turner, who was recently appointed our President, and John will have some comments about what we're seeing in our different markets.

Tom?

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 in the fourth quarter of 2007. Results for the 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 assets that you saw in the press release. The remainder was the annual recurring first quarter dividend on some of these other assets, and we have sales like this from time to time.

They also included a $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 yearend 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 helped 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 asset sensitive nature of our balance sheet we're 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 Funds' spread has again widened to our benefit.

[Several interest], noninterest 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 fees. 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 debt], 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 operations.

As John mentioned, total expenses were virtually flat linked quarter, after normalizing the first quarter of 2008 and the fourth quarter of 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. The seasonality and payroll taxes and an increase in health benefits drove a -- health benefits expense drove a 10% increase in employee benefits compared to the fourth quarter. Occupancy expense was up 8% linked quarter, mainly related to special refunds and estimate adjustments in the fourth quarter of '07 related to property taxes and insurance.

New products and services contributed to increases in equipment and data processing expense. Other noninterest 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 a 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 repurchased 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?

Thanks, Tom.

One of the things that gives me a great deal of comfort during this current credit cycle is the culture that we've developed over time at Whitney. By following our review discipline 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.

Thanks, John.

At March 31st, 2008, NPAs were $151 million, with an NPA ratio of 1.96%. This represents a $92 million increase since June 30th, '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 nonperforming status we do not immediately charge it off, as you do with a consumer loan. We move it to a nonperforming 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've detailed in our releases the significant items impacting our nonperformers, 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, 4 credits, each in a different geographic market and each in a different industry, added $42 million since June 30th of '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've been immune to the economic issues impacting Florida and coastal Alabama. We haven't. At March 31st approximately half of our nonperforming assets were in Florida, with 30% in Louisiana, and 15% in Alabama.

What I'm trying to point out is that 4 or 5 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 low NPA reserve coverage ratio.

The same can be said about criticized credits, which includes our NPAs. Since June 30th, 2007 we have added $173 million to our criticized portfolio, which totaled $392 million at March 31st. Just to 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 4 credits, different from the last 4 I mentioned, each in a different market and each in a different industry, all only rated special mention are 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 alarming 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. [We drew over] our business results and are taking a reasonable level of manageable risk.

But 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 the need for a $14 million provision this quarter. I'm not going to tell you we will not have additional increases in NPAs next quarter or that we are certain we have addressed all the problems that could occur and 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.

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

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

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 distressed 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 credits, 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 in construction, energy service, and marine construction industries all are doing well in the current environment.

The rebuilding of our City continues, and we're 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've seen a decrease in both loans and deposits as a result of the declining economy. In addition, we've seen runoff in higher cost CDs acquired from merged banks. This change was expected as we migrated their pricing models to ours. We've also seen runoff in our Alabama CD portfolio. During the disruption from other bank mergers, principally late -- early last year, we offered some higher rate CDs to attract customers. These deposits are beginning to mature, and we're not continuing to pay-up for the deposits, but we do believe we've had some success in retaining the ultimate customer.

Across the Company we're focused on being the leading business bank in our markets, enhancing revenue from noninterest sources, and continually looking for ways to become more efficient.

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

(OPERATOR INSTRUCTIONS)

We'll take our first question from Brent Christ with Fox-Pitt.

Good afternoon.

Hey, Brent.

A couple of questions. First, in terms of the net interest margin, it looked like you guys, obviously, the margin I think held-up maybe 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 investments. Could you give us a sense of kind of what specifically you did, and what you were buying, and maybe to the extent that that helped buoy the margin a little bit this quarter?

Okay. Let me just start with a comment or two on the banking side, and then I'm going to ask Tom to talk more about the investment side of our business.

We, 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're 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're probably doing a little different this time, we've always tried to impose floors as rates go down to the level where they are now. This time, this cycle we're having more success in doing that, particularly on our real estate customers. The customers are glad to have a bank who is in the market, continuing to provide loans and liquidity, and when we ask them to compensate us reasonably by way of a floor, we've met with some pretty good success there.

Tom, you want to talk towards the investment portfolio?

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 laddered 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 then the LIBOR situation that John mentioned certainly helped us more than that.

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

Yes.

Yes.

Got you. And then switching gears for a second to credit quality. I appreciate the granularity by state, in terms of the NPAs and the 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 in reserves you specifically have kind of allocated to that 13% that is currently criticized?

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, a variety of consumer products, but like our process, overall, we are 83% commercial, and that's a similar profile in Florida where we're very heavily involved in commercial lending and in the real estate markets there.

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

Brent, part of it was normalizing 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 embarked upon a strategic planning process last year, and the Firm that we used, 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.

There were in excess of 250 benchmarks that covered the waterfront. I mean, they, everything from cash in 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've 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're more complicated, they're going to involve some process changes, and possibly even some investment in technology. But we're really pretty excited about it. We've committed to our Board that it's going to continue to be a 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 hasn't just been a hit-or-miss process, at all.

Okay. Great. Thanks a lot.

We'll hear next from John Pancari with JPMorgan.

Good afternoon.

Hey, John.

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

I'm not sure I have that at my fingertips, John, but you could probably go back and look at how the spread has behaved between quarter ends and make a good approximation.

27% of our loan portfolio is priced to LIBOR.

Right. Okay.

That should help you.

Yes. Okay. And do you -- are you able to provide us with a quarter -- actually, the monthly margin throughout this quarter?

No.

All right. Okay. And then on the loan growth side, I'm trying to get an idea of what you think would be, you know, your outlook there in terms of the growth, you can see in that portfolio by state? For example, Florida, do you expect that's likely to continue to see some shrinkage, just given the trends you're seeing there? And then the same thing around New Orleans, it looked like it was relatively modest. You had indicated about a 1% growth for that portfolio. Do you expect more of the same there, as well?

This is John Turner. We actually are experiencing some mixed results in Florida. We've seen growth in our loan portfolio in the Tampa Bay area, over the last six to nine months, we've actually seen a number of opportunities to make loans, obviously opportunities that meet our credit standards. In the Panhandle of Florida we've continued to see a reduction in our loan portfolio. And so I think it's mixed, and we would expect results from Florida to continue to be mixed.

In southwest Louisiana the economy is good, and we would expect it to continue to be good, just as it is in Houston. In New Orleans, specifically, we continue 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'll be opportunities both to make loans and gather deposits associated with that.

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

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

Okay. And then on your comment there on your loan growth that you're seeing in Tampa, what type of growth is that, I mean what -- is it real estate related, again?

It's typically been real estate related, but real estate opportunities that are generally where we're making loans, the repayment source is well defined and there, we're not making any land speculation loans, we're not making any land development loans today. Typically, are still real estate related, generally owner occupied real estate opportunities, the small businesses. We've seen a few national credit type tenant retail developments, as well, that we think meet our standards.

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

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

Well, this quarter we had $1.4 million from a sale of some land. And, you know, 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.

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

I'm sure we sold a little bit last year.

Right. Okay.

Some in the fourth quarter, yes.

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

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.

Okay. All right. Thank you.

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

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

Right. I think the number we said was that, if you look back over the last nine months that we've had 4 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 it would have been $42 million, so that's the number we were referring to, that we have 4 credits that do impact our numbers, and that's the granularity issue that we referred to earlier.

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

You know, we don't give guidance. I think that you can just look at the numbers and see that the first quarter did show some acceleration. If you look at the delinquency buckets that we have, though, they've actually improved as of 3-31 compared to 12-31, so that is the severity of delinquency is looking a little better as of 3-31.

There is going to be lumpiness, there are large credits in our portfolio, you're absolutely correct. I think what we've tried to point out also is that we're -- we've seen some of these large credits really from a variety of locations and industry types, because we don't want to give the impression that all of these numbers relate necessarily to a Florida real estate issue.

Okay. Okay. All right. And I just want to add, you know, 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? I know there was a question on the margin already. You, Tom, you 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 of a headwind going into this quarter in terms of the margin?

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

Okay. All right. Great. And thanks, separately, just thanks for doing the conference call. It's very helpful.

Sure.

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

Good afternoon, you guys.

Hello.

Good afternoon.

Can you just -- I know that you'd talked a little bit about it earlier, the reserve coverage ratios, but when I look at it you're at 66% of nonperforming 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?

Well, I think the message we have is that we really don't manage to that number in terms of managing the reserve. We're comfortable because as we look at the nonperformings, most of which are subject to our impairment analysis, we're comfortable with the reserves that are allocated to those credits on a one-on-one basis, and we use our methodology in determining the adequacy of the allowance 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.

Charlie. John Hope. Let me add something to that, just so you'll better understand the process. We joke from time to time that Lewis is the half empty guy in the Bank, and maybe the bankers, like me, are the half full guys in the Bank. Our process, our 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 arm's length calculation.

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

Well, you know, they are getting low, and you have less flexibility as you go down. Again, we'll be aggressive, and we tend to [deplete] the market down. But I tend to think other factors, like the position of LIBOR, will offset some of that, at least in the short term.

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?

Well, you know, 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.

So were there bonus accruals this quarter?

Well, sure.

But it -- just to a lesser extent than maybe normal?

But, remember, the incentive plans are designed to compensate for sales activity, and when you have a declining economy and a lower loan growth, levels -- the incentive plans should reflect that.

Yes.

But you also do have things where there 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.

And the other thing that we've not had time to talk about amongst ourselves yet is actually giving you some information about our headcount reductions, and I don't want to offer that today, but we will talk amongst ourselves as to whether it's appropriate. We have had a net reduction in headcount that's fairly substantial since last summer. I'm just not going to give you the number.

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

The degree of accruals, you mean for--?

Just the overall bonus accruals? I mean it sounds like they're less than average, but maybe not [zero]?

I mean, no, not any more so than you see in the financials.

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

Okay. All right. Thanks a lot.

Okay.

We'll go now to [Casey Ambac] with [Millennium].

Hi. Thanks very much for taking the questions. It seems like a lot of people just keep going back to your 66% coverage ratio between the NPAs and reserves, and the 5% watch list, so those are kind of concerning. Maybe you could talk a little bit about what percentage of your construction loans are in some form of a workout?

I don't have that.

Particularly, in Florida?

Yes, I don't have that number. We have some construction loan activity that is a concern to us, but I don't have that number at my fingertips in terms of a certain percentage.

Over 30%?

I wouldn't characterize it as that high but, again, I just don't have the number in front of me. And there are, of course, all types of construction activity, and you may be alluding just to single family, or land development, related to residential, or--?

Maybe I can try it this way, with the NPAs ramping in Florida, like they are, and with the reserves only at 1.19%, how do you plan on curing your NPAs?

We plan on -- you'll see some migration into [ORE], that's the unfortunate way you cure some of them, and then sell the assets, and you saw a little bit of increase in ORE this quarter, so that's the sad way that a bank resolves its problems. The others are working with borrowers, working with them to in, the case of real estate create economic value. That means selling real estate for many developers, and working them down over time. Again, we've also got C&I 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 to a performing status, so.

Okay. So you said two things here. One would be selling the assets at a loss and, two, would be working through a workout. For the first one, selling assets.

You might not sell them at a loss. If you look at our history, traditionally, when we have ORE we haven't sold property at a loss.

Okay. But I mean Florida property, it's 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 nonperforming assets in Florida?

I think that there is a lot of illiquidity in the property, and we'll have to be patient in working through some of them. I don't disagree with you, there's--.

Okay. And then the workout component, what -- you don't -- okay, because you can understand what we're saying here, that you have all these 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'd want to do that, but there's no liquidity, so you can't really sell assets. So the next part was what percent of your borrowers are in some form of workout, and you don't have the number there for us. So I guess back to my original question, how are you going to cure these assets?

I think you can see that we have a certain percentage of our assets classified, so we've told you that. So we're working with those clients, all of them, to enhance their situation as it relates to their banking relationship with 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 estate isn't, but --.

We need to make sure that you understand that when a loan becomes a nonperformer, we're required to revalue the loan relative to any underlying collateral, particularly appraised value for real estate. So by the time it shows up in our public numbers on nonperformers 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're willing to pass out today.

Okay. What do you -- what's your reserve to loans for your Florida franchise?

We don't calculate it that way. We do each loan in the workup and then we add them up into a total --.

But you can't segment that for us, reserve to loans for Florida?

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

What about your allocated reserves to your NPAs in Florida?

Well, again, it would be relatively meaningless.

Why would it be meaningless, though? If you had $100 million of NPAs in Florida, and you had $100 million of reserves, why would that be meaningless?

Well, I think what I guess I'm trying to say is our assessment of the reserve for a specific credit wouldn't necessarily help you understand the risk of loss in that credit. The -- what I would suggest you do is look at our net losses over time.

Okay. Good luck.

Thank you.

We'll move next to Bain Slack with KBW.

Hi, good afternoon.

Hey, Bain.

Hey, I was wondering, so with regard to your total NPAs, would you all be able to provide maybe an average write-down of that portfolio?

The average write-down?

Yes, for instance, you talked to us previously about the 4 credits that were put on at $42 million and now stand on at $36 million, and I think in the previous Q&A you all were just talking about how you do take your marks as some of these real estate loans are put on. So I didn't know if there was a way to approach this, to have an average write-down of the total NPA portfolio?

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

Okay.

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

Bain, I understand where you're going. It's really an interesting question, and I -- actually, I would really like to know the answer to it. But the question, 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 it is the timing that we would take a charge-off or a write-down. It may actually be on our books before it transfers into NPA or it is coincident with the transfer to NPA, as opposed to a later time. So it may be a difficult number to calculate, but we'll take a look, and if we think there's any value to it or if we can produce it in such a way that makes sense, we'll see what we can come-up with.

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

A dollar.

A dollar.

Actually, it's more like $17 or so.

It's $17.

Right.

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

$0.03.

$0.03.

It's something like that, yes.

Okay.

We're not trying to be cute, but we have a --

No, I understand.

Yes, it was all written down to basically $1 per property, and I don't know whether this particular piece of property was a piece of that property.

Yes, I mean, you may have a piece of property that's 10,000 acres, and we may sell-off a corner of it, or something like that.

Okay.

And we don't -- 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 aren't.

I understand. I appreciate it. Thank you, guys.

Thanks.

And our final question today will come from [Tom Dulhaney] with [Decade Capital].

Hi. Thanks for taking my question. I appreciate the detail on the criticized 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 where the remaining increase in criticized loans were between substandard and doubtful?

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

Okay. Thanks.

And, now, I'll turn the conference back to you for closing remarks.

Okay. Thank you, all, again, for participating in our first telephone conference call. It's a learning experience for us, and we'll try to react to what we heard today.

Let me close, though, by saying I can absolutely understand your concern about our Florida markets and the fact that we have operations in areas impacted by real estate. This inevitably leads to questions about our portfolio, and as we saw today intense focus on our ratios.

I hope that you now have a better understanding about our total portfolio and, as Lewis pointed out, that a 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're just commercial credits that for some reason or another, or coincidentally are having problems, at the same time, unrelated to the real estate market in Florida.

Second, I have confidence in our time-tested processes and in our strong credit culture. I may have mentioned this to some of you at times, but a month ago at our Board meeting, one of our Directors said, "Well, what are you doing different to react to the times and the circumstances?" And the answer to the question was, "Absolutely nothing. We're doing it the way that we've always done it." And we believe that we have adequately reserved for the losses that we could possibly see in our portfolio as of the first quarter this year.

We're aggressive in identifying our problems. I think probably all the banks are telling you that, but if you go back and look at our numbers over time, you'll see that that's exactly what our numbers will tell you.

We, Whitney is and will be a commercial and business Bank. We're proud of our customer relationships and our relationship bankers. We think it's 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 are having to take care of their balance sheets and their capital positions, and we're 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 [Gov 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 we'll 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.

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