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WIKI ANALYSIS
Whitney Holding Corporation (NASDAQ: WTNY) is a bank holding company headquartered in New Orleans, Louisiana. The company has over $11 billion in total assets[1] and generates over 80% of its total revenues through loan interest.[2] As of Quarter 3 2008, over half of Whitney's loan portfolio was based in Louisiana, where most loans were of commercial, financial, or agricultural nature.[3]
While WTNY's lending strategy has not included the issuance of sub-prime home mortgage loans[4] and no securities in the company's investment portfolio have been tied to sub-prime mortgages,[5] it has suffered severely increased loan charge-offs in 2008 and has opted to receive TARP funds from the United States Treasury.[6] In the deal executed on December 19, 2008, WTNY received $300 million from the Treasury in exchange for an equivalent amount of preferred stock.[6]
Additionally, WTNY has encountered turbulence associated with severe weather in the Gulf Coast region and hurricane season. In Q3 2008, for example, hurricanes Gustav and Ike cost the firm $2.1 million.[7] Hurricane Katrina and other 2005 storms forced Whitney to spend approximately $22 million on storm-related expenses from 2005 to 2007[8][9][10] and the company did not realize insurance coverage gains for these storms until Q3 2008..[7]
WTNY's net interest income has been in steady decline since the end of FY 2006[11] and has dropped sharply throughout 2008. In Q3 2008, net income was only $7.0 million, down 95.3% from the end of 2007 on an annualized basis.[12] Declining net interest revenue and net interest margin over the same period shows that WTNY's all-important loan portfolio is losing profitability because of increased loan charge-offs even as interest rates drop to historic lows.[13]
Business Overview
Whitney Holding Corporation is a holding company that operates Whitney National Bank. WTNY focuses on generating interest revenue with its $8.1 billion loan portfolio[14] but also generates some income through administrative fees and charges.[15] WTNY provides its banking services throughout the Gulf-coast region in Texas, Louisiana, Mississippi, Alabama, and Florida.[1] It also operates a branch on Grand Cayman in the British West Indies.[1]
During the first three quarters of 2008, WTNY saw an exponential increase in loan charge-offs and a decrease in its net interest margin. As more loans default and interest rates make drastic swings, WTNY has seen the value of its loans decrease and interest revenue dry up; in Q3 2008, the company only generated $7.0 million in net income:[16] a meager 0.26% return on average assets.[17]
Business and Financial Metrics
| 2005 | 2006 | 2007 | |
| Return on Average Assets[11] | 1.15% | 1.41% | 1.44% |
| Interest Income ($1ks)[11] | 468,085 | 616,371 | 661,105 |
| Net Interest Income ($1ks)[11] | 387,099 | 471,211 | 464,791 |
| Net Income ($1ks)[18] | 102,349 | 144,645 | 151,054 |
| Net Charge-Offs to Avg Loans[11] | 0.08% | 0.29% | 0.11% |
| Net Interest Margin[11] | 4.85% | 5.11% | 4.89% |
In 2007, net interest income fell 1.4% on a 7.3% increase in total interest revenue.[11] A drop in WTNY's net interest margin from 5.11% to 4.89% offset the increased interest revenue for the year and caused the net decrease.[11]
After the first three quarters in 2008, WTNY reported its loan portfolio at $8.1 billion, which had grown $492 million or 6% since year-end 2007 due to loan demand and customer development in the Texas and Louisiana markets.[14] While loan volume grew, however, net interest income decreased 5% from Q3 in 2007 due to significantly decreased net interest margin and increased loan charge-offs.[19] The lower NIM was attributable to the quick and drastic reduction in benchmark rates during this period; on September 30, 2008, approximately 31% of WTNY's loan portfolio was tied to the Libor benchmark and 25% tied to the prime rate.[20] The skyrocketing charge-offs resulted from a real estate market in decline - especially in WTNY's coastal Alabama and Florida markets.[21]
The majority of WTNY's loan portfolio is comprised of commercial real estate loans, which account for $3.6 billion, or 45% of the portfolio.[3] General commercial, financial, and agricultural loans were valued at $3.1 billion, or 38% of the total portfolio.[3] Over half of the WTNY loan portfolio - $4.4 billion - is based in Louisiana.[3]
Business Segments
Whitney's revenue stream can be broken into two sources: interest income and noninterest income.
Interest Income (83.9% of total revenue): Generating $661.1 million in 2007,[2] interest income is WTNY's primary source of revenue. In 2007, interest income came from:
- Interest and fees on loans: WTNY's primary business lies in issuing loans that generate revenue by charging interest and servicing fees. Consistently WTNY's largest source of income, interest and fees on loans contributed $555.0 million (or 84.0%) to total interest revenue in 2007.[2]
- Interest from taxable securities: WTNY generates revenue from investment in market-based securities. In 2007, these investments yielded $77.8 million, or 11.8% of total interest revenue.[2]
- Interest from federal funds sold and short-term investments: In 2007, WTNY generated interest income through the sale of federal funds, investing in US government agency discount notes, purchasing securities under resale agreements, and other short-term interest-bearing investments.[22] These operations earned WTNY $19.2 million, or 2.9% of total interest revenue for the year.[2]
- Interest from tax-exempt securities: Whitney Holding funds local and state governments and receives tax credits for its investments in affordable housing projects.[23] These operations generates $9.1 million, or 1.4% of total interest revenue, in tax-exempt income.[2]
Noninterest Income (16.1% of total revenue): In 2007, WTNY generated only $126.7 million from noninterest operations.[2] These include:
- Service charges on deposit accounts: $30.6 million (24.2% of total noninterest revenue)[2]
- Bank card fees: $16.5 million (13.0% of total noninterest revenue)[2]
- Trust service fees: $13.0 million (10.2% of total noninterest revenue)[2]
- Investment services income: $5.8 million (4.6% of total noninterest revenue)[24]
- Credit-related fees: $5.4 million (4.3% of total noninterest revenue)[24]
- ATM fees: $5.4 million (4.3% of total noninterest revenue)[24]
- Revenue from foreclosed assets: $5.1 million (4.0% of total noninterest revenue)[24]
- Secondary mortgage market operations: $4.9 million (3.8% of total noninterest revenue)[2]
- Other fees and charges: $4.8 million (3.8% of total noninterest revenue)[2]
- Other operating income: $35.2 million (27.8% of total noninterest revenue)[24]
Trends and Forces
Severe disruption in local and national real estate markets have resulted in whopping increases in net loan charge-offs
WTNY's Florida and coastal Alabama operating regions have fallen under severe stress;[21] this increases default rates for loans in those areas and increases the likelihood that the value of collected loan collateral is insufficient to prevent losses for WTNY. In Q3 2008, loans secured by residential-related real estate in Florida and coastal Alabama comprised approximately 9% of WTNY's overall loan portfolio.[21] Increased defaults and lost value in these loans and the rest of the loan portfolio drove annualized net charge-offs to average loans from 0.11% in 2007[11] to 1.22% by the third quarter of 2008.[25]
WTNY participating in Treasury's Capital Purchase Program
Whitney has chosen to receive TARP funds from the United States Treasury.[26] It completed a transaction on December 19, 2008, when it sold $300 million in preferred stock to the Treasury and issued a 10-year warrant granting the purchase of up to 2,631,579 shares of common stock[6] While this provides Whitney with extra capital that helps its business operations, the company has to pay the Treasury a 5% dividend on its preferred stock for the first five years after its issuance and 9% each year thereafter.[6] WTNY can cancel this payment if it redeems the preferred stock by paying 100% of the issue price and cumulative dividends owed after regulatory approval (which cannot be granted for at least three years).[27]
Unpredictable Gulf Coast storms can seriously disrupt WTNY's normal operations
The storms that have hit the Gulf Coast region in the past - especially Katrina and others in 2005 - have seriously disrupted normal economic activity;[28] this change in economic climate affects Whitney's loan recovery and incurs its own expenses. Hurricane Katrina forced Whitney to operate in "disaster response mode," under which it incurred unforeseen expenses for things like the establishment of back-up data processing centers, the lease of temporary facilities and equipment, temporary housing for employees, and the implementation of emergency communication with Whitney's customers.[8] Additionally, WTNY facilities and their contents were damaged and income from excess office space rental and parking facilities was disrupted.[8] Expenses related only to this year's storms totaled $4.4 million in 2005,[8] $16 million in 2006,[9] and $2 million in 2007.[10] The 2005 storms were also a major reason for the $38 million provision for credit losses in 2005.[9] In 2008, however, the company realized a $31.3 million gain from insurance claims related to the 2005 storms.[29]
Competition
Whitney Holding Corporation competes for client deposits and loan sales with other nearby regional banks as well as larger banks that operate in its markets.
Other Regional Banks
Notable regional bank competitors are:
- Regions Financial Corporation: Headquartered in Birmingham, Alabama, Regions Financial is a bank that competes with WTNY in the Texas, Louisiana, Mississippi, Alabama, and Florida markets.[30]
- Bancorp South: Financial holding company for BancorpSouth Bank; also competes with WTNY in Texas, Louisiana, Mississippi, Alabama, and Florida.[31]
- Trustmark Corporation: Provides competing banking services in WTNY's Florida, Mississippi, and Texas markets.[32]
Larger Banks
Whitney Holding also has to compete with nationally-scaled banks like Bank of America and Citigroup.
| Net Charge-Offs to Avg Loans | Net Interest Margin | Total Revenue ($1ks) | Net Income ($1ks) | |
|---|---|---|---|---|
| Whitney Holding Corporation(WTNY) | 0.11%[11] | 4.89%[11] | 787,786[11] | 151,054[11] |
| Regions Financing Tr I (RF) | 0.29%[33] | 3.79%[33] | 10,939,051[34] | 1,251,095[35] |
| BancorpSouth (BXS) | 0.14%[36] | 3.68%[37] | 1,033,041[38] | 137,943[38] |
| Trustmark (TRMK) | 0.23%[39] | 3.92%[40] | 705,590[40] | 108,595[40] |
References
- ↑ 1.0 1.1 1.2 WTNY 2007 10-K pg. 1
- ↑ 2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11 WTNY 2007 10-K pg. 46
- ↑ 3.0 3.1 3.2 3.3 3.4 WTNY 2008 Q3 10-Q pg. 25
- ↑ WTNY 2008 Q3 10-Q pg. 26
- ↑ WTNY 2008 Q3 10-Q pg. 30
- ↑ 6.0 6.1 6.2 6.3 Whitney Holding Corporation Press Release. Whitney Completes Capital Purchase Transaction With U.S. Treasury.
- ↑ 7.0 7.1 WTNY 2007 10-K pg. 20
- ↑ 8.0 8.1 8.2 8.3 WTNY 2005 10-K pg. 12
- ↑ 9.0 9.1 9.2 WTNY 2006 10-K pg. 15
- ↑ 10.0 10.1 WTNY 2007 10-K pg. 15
- ↑ 11.00 11.01 11.02 11.03 11.04 11.05 11.06 11.07 11.08 11.09 11.10 11.11 11.12 11.13 11.14 WTNY 2007 10-K pg. 12
- ↑ 12.0 12.1 Yahoo! Finance Income Statement: Whitney Holding Corp.
- ↑ Associated Press. Federal Funds Rate Record Low Point: Fed Makes Historic Cut.
- ↑ 14.0 14.1 WTNY 2008 Q3 10-Q pg. 20
- ↑ 15.0 15.1 WTNY 2008 Q3 10-K pg. 34
- ↑ WTNY 2008 Q3 10-Q pg. 2
- ↑ WTNY 2008 Q3 10-Q pg. 18
- ↑ WTNY 2007 10-K pg. 79
- ↑ WTNY 2008 Q3 10-Q pg. 21
- ↑ WTNY 2008 Q3 10-K pg. 36
- ↑ 21.0 21.1 21.2 WTNY 2008 Q3 10-Q pg. 44
- ↑ WTNY 2007 10-K pg. 54
- ↑ WTNY 2007 10-K pg. 39
- ↑ 24.0 24.1 24.2 24.3 24.4 WTNY 2007 10-K pg. 76
- ↑ WTNY 2008 Q3 10-Q pg. 18
- ↑ Associated Press. Whitney to apply to government investment program.
- ↑ WTNY 2008 Q3 10-Q pg. 23
- ↑ WTNY 2007 10-K pg. 9
- ↑ WTNY 2008 Q3 10-Q pg. 9
- ↑ Yahoo! Finance Profile: Regions Financial Corp.
- ↑ Yahoo! Finance Profile: Bancorp South, Inc.
- ↑ Yahoo! Finance Profile: Trustmark Corporation
- ↑ 33.0 33.1 RF 2007 10-K pg. 25
- ↑ Yahoo! Finance: RF Income Statement
- ↑ RF 2007 10-K pg. 78
- ↑ BXS 2007 10-K pg. 14
- ↑ BXS 2007 10-K pg. 28
- ↑ 38.0 38.1 BXS 2007 10-K pg. 23
- ↑ TRMK 2007 Annual Report pg. 60
- ↑ 40.0 40.1 40.2 TRMK 2007 Annual Report pg. 1
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