Wilmington Underperforms - Analyst Blog

Wilmington Trust Corporation (WL) reported a fourth quarter loss available to common shareholders of $15.7 million or 23 cents per share compared to a loss of $69.4 million or $1.02 per share in the year-ago quarter. The results lagged behind the Zacks Consensus Estimate of a gain of 4 cents.
 
Wilmington results reflected increases in advisory 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 risk rating downgrades, primarily in the commercial construction portfolio. Moreover, securities’ losses due to other-than-temporary impairments of pooled trust-preferred securities along with preferred stock dividends and discount accretion also added to the sliding results.
 
Net interest and non-interest income increased 161.3% year-over-year but declined 15.5% sequentially to $93.3 million. Corporate client services income rose 18% year-over-year and 7% sequentially to $46.8 million, due to strong demand in global corporate trust services. This was partially offset by wealth advisory services income that was $47.4 million, up 3% sequentially but down 12% from the year-ago period due to mutual fund fee waivers and downward pressure on investment advisory revenue.
 
During the reported quarter, Wilmington’s total non-interest expense was $130.6 million, down 1% from the year-ago quarter but up 3% from the sequential quarter. The net interest margin decreased 7 basis points sequentially and 19 basis points year-over-year to 3.12%. This contraction was caused by the increase in non-performing loans and by yield declines in the investment securities portfolio. Wilmington reduced its full-time headcount by 1.6%, both sequentially and annually, to 2,898 employees.
 
Wilmington’s average core deposit balances were $6.74 billion, up 22% from the year-ago quarter and 1% from the sequential quarter. Total average loan balances were $8.99 billion, down 7% from the year-ago quarter and 1% from the sequential quarter. Increases in commercial mortgage loan balances were offset by declines in commercial, financial, and agricultural loan balances, as well as in indirect consumer loan balances.
 
Credit Quality

Wilmington’s credit metrics turned in a weak performance during the reported quarter. Net charge-offs were up $11.3 million sequentially to $33.1 million, primarily due to the increase in commercial construction loans. The net charge-off ratio was 0.37%, higher than 0.24% in the sequential quarter and 0.27% in the year-ago quarter. Non-accruing loans were $455.6 million, up $88.1 million from the sequential quarter. The provision for loan losses increased to $82.8 million from $38.7 million in the sequential quarter. The rate of total earning assets declined to 4.10% from 4.23% in the sequential quarter and 5.13% in the year-ago quarter. Average earning assets declined to $9.94 billion from $9.98 billion in the sequential quarter and $11.3 billion in the year-ago-quarter.
 
For full year 2009, total operating earnings were $45.4 million or 39 cents per share. The net loss available to common shareholders was $22.7 million or 33 cents per share, compared to 24.5 million or 36 cents per share in 2008. Net interest and non-interest income decreased 11.6% year-over-year to $472.8 million. Total non-interest expense increased 4% from 2008 to $512.5 million. The provision for loan losses increased to $205.0 million from $115.5 million in 2008. The net charge-off ratio of 1.21% was higher than 0.57% in 2008.
 
At Dec 31, 2009, the reserve for loan losses was $251.5 million, compared to $201.8 million at Sep 30, 2009 and $157.1 million at Dec 31, 2008. The loan loss reserve ratio rose to 2.80%, compared to 2.24% at Sep 30, 2009 and 1.63% at Dec 31, 2008. At the end of 2009, book value per share was $14.17, compared to $14.65 at the end of 2008.
 
Dividend

On Jan 28, 2010, the Board of Wilmington declared a regular quarterly cash dividend of one cent per common share. The dividend will be paid on Feb 18, 2010, to shareholders of record as on Feb 8, 2010.
 
Wilmington has been severely marred by the ongoing weakness and volatility in the economy that has reduced client activity and increased the credit cost and other costs of operations. Moreover, in 2009, both S&P and Moody’s lowered their outlook on the company to negative and downgraded the ratings based on the upheavals related to its real estate lending concentration. This has also hampered the company’s growth model. We believe Wilmington requires a hyper-strategic and functional approach to keep pace with the industrial growth average, which however, appears to be a far-sighted goal. Hence we retain our cautious outlook on Wilmington in the near to the medium-term.
 
 

Read the full analyst report on "WL"
Zacks Investment Research