If there was a bright spot in Whitney Holding Corp.'s announcement last week that its chargeoffs and loan-loss provision rose substantially in the second quarter, it is that nonperforming loans are not piling up as quickly as they had in previous quarters.
Nonperformers did rise — to at least 2% of total loans — but the pace of the increase slowed, which analysts who follow the $10.8 billion-asset New Orleans company said could be sign that its loan problems have reached their peak. A substantial amount of Whitney's loans are in Florida and coastal Alabama, which have been among the areas hardest hit by the real estate downturn.
"The good news is, nonperforming assets didn't increase as fast as they had in the first and fourth quarter," said Bain Slack, a senior vice president at KBW Inc.'s Keefe Bruyette & Woods Inc. "That's good news for the margins for this bank."
Still, analysts said it would probably be another quarter or two before they know whether Whitney's asset quality improves.
"One quarter doesn't make a trend," said Jeff Davis, an analyst at First Horizon National Corp.'s FTN Midwest Securities. "They will have to string a few quarters together for the Street to come to the conclusion" that the credit cycle has turned.
That could be too long for some investors to wait. In heavy trading, Whitney's shares fell 8% Friday, to close at $16.52. Its stock has lost roughly 40% of its value since early February.
Whitney warned after the market closed Thursday that it expects to charge off $15 million to $18 million for the second quarter and that its loan-loss provision would be $33 million to $37 million, up from $14 million in the first quarter.
It also said that nonperforming assets had risen by $8 million to $12 million, or 2% to 2.05% of total loans, from 1.96% the quarter before.
From the fourth to the first quarter, the nonperforming loan ratio rose 32 basis points.
Analysts said they expect Whitney to report a second-quarter profit when it reports results on July 24, though, given the size of the loss provision, it will most certainly be lower than the $29.9 million first-quarter profit or the $35 million earned in last year's second quarter.
Whitney declined to comment Friday on the pre-announcement of second-quarter results, but in a press release chairman and chief executive officer John C. Hope 3rd said the company is seeing "continued and increasing pressures in the Florida and coastal Alabama markets."
He added that, toward the end of the quarter, "we began to see more rapidly deteriorating conditions in a few commercial and industrial credits in Louisiana that had been included in our watch list for a number of quarters."
Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said that, though he was encouraged by the slower pace of increases in nonperforming loans, he was surprised by the magnitude of the loan-loss provision.
"The credit costs were over double what we thought," he said. "The good news is, they are building reserves. The bad news is, they are probably going to need those reserves."
FTN Midwest's Mr. Davis said the announcement did not address how much of the new reserves were for loans already classified as problematic or whether the company sees more problem loans in the pipeline, which would help illuminate any improvement in credit quality.
"It would be a positive to some extent that the increased reserve building was related more to the existing criticized list," he said.
