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Wilmington Trust Corporation () reported fourth quarter 2010 net loss of $213.8 million or $2.35 per share compared with $369.9 million or $4.06 per share in the prior quarter and $15.7 million or 23 cents per share in the year-ago quarter. The results substantially lagged behind the Zacks Consensus Estimate of a loss of 51 cents per share.
For fiscal year 2010, Wilmington’s net loss stood at $738.3 million or $8.45 per share compared with $22.7 million or 33 cents per share in the year-ago period. This also compares unfavorably with the Zacks Consensus Estimate loss of $6.44 per share.
During the quarter, Wilmington had announced that it will merge with M&T Bank Corporation (MTB - Analyst Report). The stock-for-stock agreement is valued at about $351 million and is expected to close by the second quarter of 2011.
Wilmington’s results for the reported quarter were mainly hurt by lower net interest income, higher non-interest expenses, lower loan growth, increased levels of nonperforming loans and net charge-offs. However, an increase in non-interest income was among the positives.
Behind the Headlines
Wilmington’s total revenue for the quarter was $163.6 million, down 3.9% from the prior quarter and 8.2% from the prior-year quarter. Total revenue also missed the Zacks Consensus Estimate of $175.0 million.
For full-year 2010, the company’s total revenue came in at $623.8 million compared with $680.9 million in 2009 and also missed the Zacks Consensus Estimate of $699.0 million.
Net interest income before provision for loan losses was down 11.5% from the prior quarter and 23.1% from the prior-year quarter to $59.9 million. Net interest margin (NIM) fell 45 basis points (bps) from the prior quarter and 79 bps year over year to 2.33%.
The decline in NIM was the result of a decline in loan balances, liquidity additions funded by increases in core deposits and national brokered CD balances and an increase in non-accruing loans.
Average earning assets rose to $10.25 billion from $9.71 billion in the prior quarter and $9.95 billion in the year-ago quarter. However, rate of total earnings assets declined to 3.22% from 3.69% in the prior quarter and 4.10% in the year-ago quarter.
Non-interest income improved 1.1% sequentially and 3.4% year over year to $103.7 million.
Wilmington’s total non-interest expense was $202.6 million, up 32.1% from the prior quarter and 52.7% from the year-ago quarter. The increase was mainly attributable to merger-related costs, rise in the reserve for unfunded loan commitments and legal and other costs associated with loan workouts, recoveries, and dispositions.
Wilmington’s average core deposit balances were $7.08 billion, up 2.6% from the prior quarter and 5.0% from the year-ago quarter. Loan demand continued to be weak, resulting in total average loan balance to decline 7.4% from the prior quarter and 16.1% from the year-ago quarter to $7.52 billion.
Though Wilmington’s credit quality continued to deteriorate, it was a mixed bag during the quarter. Net charge-offs increased 41.6% sequentially to $205.2 million mainly due to a surge in commercial construction loans. Net charge-off ratio was 2.58%, up 84 bps from the prior quarter and 221 bps from the year-ago quarter.
Non-accruing loans were $1,009.6 million, up 11.4% from the prior quarter and 121.6% from the year-ago quarter. At the end of the reported quarter, total nonperforming assets grew 15.8% from the prior quarter and 120.7% year over year to $1,145.0 million.
Though provision for loan losses declined to $135.6 million from $281.5 million in the prior quarter, it increased from $82.8 million in the year-ago quarter. Similarly, as of December 31, 2010, the reserve for loan losses was $440.8 million compared with $510.4 million as of September 30, 2010 and $251.5 million as of December 31, 2009.
The loan loss reserve ratio was 5.86% at the end of the quarter compared with 6.28% as of September 30, 2010 and 2.80% as of December 31, 2009.
As of December 31, 2010, Wilmington’s total assets under management were $60.1 billion, up 2.9% from the prior quarter and 7.9% from the year-ago quarter. Total assets under administration also rose 2.1% from the prior quarter and 2.9% from the year-ago quarter to $152.9 billion.
However, at the end of the reported quarter, book value per share declined to $5.76 from $8.13 as of September 30, 2010 and $14.17 as of December 31, 2009. Also, Wilmington’s capital ratios fell during the reported quarter, with Tier 1 common capital ratio of 3.75% (down 190 bps sequentially and 315 bps year over year) and tangible equity to tangible asset ratio of 1.53% (down 198 bps sequentially and 389 bps year over year).
Wilmington has been facing reduced client activity and higher credit costs due to sluggish economic recovery. However, its merger with M&T will create a large lender in the eastern U.S. and the combined entity will become a large provider of wealth management. Also, the company is poised to benefit from its geographical expansion.
Wilmington currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. However, considering the fundamentals, we maintain a long-term Neutral recommendation on the shares.
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