Wilmington Fails Expectations – Analyst Blog

Wilmington Trust Corporation (WL) reported a first quarter loss available to common shareholders of $33.8 million or 44 cents per share compared with an income of $17.2 million or 25 cents per share in the year-ago quarter. The results modestly lagged behind the Zacks Consensus Estimate of a loss of 4 cents.

 

Wilmington results reflected an increase in advisory and retirement services revenue, driven largely by growth in the corporate client services business. However, this was substantially offset by higher loan loss provisions that reduced net interest income and reflected higher levels of non-performing loans and charge-offs and credit risk rating downgrades, primarily due to the persistent weakness in the commercial construction portfolio. Moreover, securities’ losses due to other-than-temporary impairments of pooled trust-preferred securities along with preferred stock dividends also added to the sliding results.

 

Net interest and non-interest income decreased 45.6% year-over-year and 7.0%   from prior quarter to $93.3 million. Corporate client services income rose 21.2% year-over-year and 2.1% from prior quarter to $48.0 million, due to strong demand in retirement services. This was partially offset by wealth advisory services income that was $44.1 million, down 6.6% from prior quarter and 10.9% from the year-ago period due to mutual fund fee waivers and downward pressure on investment advisory and planning revenue.

 

During the reported quarter, Wilmington’s total non-interest expense was $131.5 million, up 0.7% from prior quarter and 3.9% from the year-ago quarter. Net interest margin decreased 9 basis points (bps) from the prior quarter but increased 16 bps year-over-year to 3.03%. This contraction resulted from the increase in non-performing loans, decrease in loan balances and yield declines in the investment securities portfolio. Wilmington reduced its full-time headcount by 2.7% from prior quarter and 4.2% year-over-year to 2,821 employees.

 

Wilmington’s average core deposit balances were $7.24 billion, up 23% from the year-ago quarter and 7% from the prior quarter. Total average loan balance was $8.83 billion, down 7% from the year-ago quarter and 2% from the prior quarter. Increases in commercial mortgage loan balance was offset by declines in commercial, financial and agricultural loan balances, as well as in indirect consumer loan balances.

 

 

Wilmington’s credit metrics revealed a mixed performance during the reported quarter. Net charge-offs were down $4.0 million from the prior quarter to $29.1 million, although weakness prevailed due to commercial construction loans. The net charge-off ratio was 0.33%, lower than 0.37% in the prior quarter but higher than 0.22% in the year-ago quarter. Non-accruing loans were $468.9 million, up $13.3 million from the prior quarter. The provision for loan losses decreased to $77.4 million from $82.8 million in the prior quarter, although this was a dramatic increase when compared with $29.5 million in the year-ago quarter.

 

At the end of the reported quarter, total non-performing assets increased 6.2% from prior quarter and 119.4% year-over-year to $550.9 million. The rate of total earning assets declined to 3.95% from 4.10% in the prior quarter and 4.27% in the year-ago quarter. Average earning assets declined to $10.0 billion from $11.1 billion in the year-ago-quarter but increased from $9.9 billion in the prior quarter.

 

As on March 31, 2010, the reserve for loan losses was $299.8 million as compared with $251.5 million as on December 31, 2009 and $167.0 million as on March 31, 2009. The loan loss reserve ratio rose to 3.44% as compared with 2.80% as on December 31, 2009 and 1.77% as on March 31, 2009.

 

As on March 31, 2010, total assets under management (AUM) were $56.9 billion, up 2.2% from the prior quarter and 32.9% from the year-ago quarter. Total assets under administration were $149.2 billion, up 0.4% from the prior quarter and 22.1% from the year-ago quarter.

 

At the end of the reported quarter, book value per share declined to $13.49 from $14.17 as on December 31, 2009 and $14.64 as on March 31, 2009.

 

During the reported quarter, Wilmington raised about $250 million through stock offering of its common shares, in order to increase capital and enhance its liquidity.

 

 

On April 23, 2010, the board of Wilmington declared a regular quarterly cash dividend of one cent per common share. The dividend will be paid on May 17, 2010, to shareholders of record as on May 3, 2010.

 

Wilmington has been severely marred by the ongoing weakness and volatility in the economy that has reduced client activity and increased the credit and other cost of operations. Moreover, the upheavals related to its real estate lending concentration have hampered the company’s growth model. We believe Wilmington needs to adopt a hyper-strategic and functional approach to keep pace with the industrial growth average; however, this appears to be a far-sighted goal.