Wilmington Trust Corporation (WL) Q2 2010 Earnings Conference Call July 23, 2010 10:00 AM ET Executives Ellen Roberts – VP, IR Don Foley – Chairman and CEO Dave Gibson – CFO Analysts Jeff Bronchick – RCB Investment Management Mac Hodgson – SunTrust Robinson Humphrey Tom Alonso – Macquarie Patrick O'Brien – Brown Advisory Chris McGratty – KBW Gerard Cassidy – RBC Capital Markets Matt Schultheis – Boenning and Scattergood Rob Russo – BLSA Steve Moss – Janney Montgomery Scott Andy Stapp – B. Riley & Co KC Ambrecht – Millenium Partners Presentation Operator
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And now I have to give you our forward-looking statement disclaimer. Our comments may contain forward-looking statements that reflect our current expectations about our performance. Our ability to achieve the results reflected in these statements could be affected adversely by changes in national or regional economic conditions, changes in market interest rates, fluctuations in equity or fixed income markets higher than expected credit losses, changes in the market values of securities and our investment portfolio and other factors described in disclosure documents we file publicly from time-to-time.With that I will turn it over to Don. Don Foley Good morning everyone and thank you for joining us today. I trust that you had seen our earnings release and that you have looked at the financials. We reported a lost $121 million for the quarter or $1.33 per share. Credit problems caused most of that loss. We also had $8 million security losses on our pooled trust preferred securities that were other than temporarily impaired. But credit was the main factor. As the provision for loan losses rose to $205 million, that's a significant increase than $77 million we reported last quarter. This was due to the economic pressures within our regional banking footprint, particularly in southern Delaware. We've seen some signs of improvement but they're very tentative and not widespread and conditions continue to stress some of our borrowers. In the second quarter, those pressures manifested themselves in the real estate appraisals that showed severe reductions in collateral valuations. And then in the updated financial records that we received from our borrowers which showed significant weakening in the wake of the prolonged recession. We responded to this environment by one, recognizing $131 million of loan losses, two, downgrading risk ratings which added $362 million to loans with substandard classifications and added $74 million to the reserve for loan losses. This brought the reserve to $374 million at June 30 or 4.46% of total loans outstanding.
Our intent to spend some time this morning talking about credit and what we're doing to reduce credit risk on our portfolio, but before we go more deeply into that subject, I wanted to step back for a moment and talk about what else happened in the quarter. As you know one of the things that sets Wilmington trust apart from other regional banks is our diversified business model and the fact that our sources of revenue are diversified between net interest income and non-interest income.Net interest income was even with last quarter but down from a year ago. Our loan balances are declining as new volume is slow. And attrition in the portfolio could reduce balances by another $200 million to $600 million by the end of this year. At the same time the percentage of our revenue that comes from non interest income has been rising steadily and that positive trend continued in the second quarter. In fact, we surpassed the $100 million mark in non interest income, a new benchmark for us. And after you strip out the loan loss provision and security losses, non interest income accounted for 59% of our total revenue, that's up from 56% from the year ago second quarter. The majority of our non interest income comes from our two fee-based businesses. That would Corporate Client Services and Wealth Advisory Services. Second quarter revenue from Corporate Client Services or CCS was $51 million. This was 7% higher than for the first quarter of this year, 24% higher than for the second quarter of last year and it was the first time quarterly CCS revenue topped $50 million. Global corporate trust services was the growth engine this quarter with revenues of $25 million. This was a 10% increase from last quarter and a 20% increase from the second quarter of last year.
That's a noteworthy achievement considering that the capital market activity overall remains fairly block luster. The growth in corporate global corporate trust revenue is coming from the fact that we're not an investment bank, nor do we lend to large corporations and because we are able to adapt quickly to changing needs in the marketplace such as the need for independent trustees, administrators and collateral agents and successor loan agency transactions and other types of successor transactions.Demand for new bankruptcy and default administration services has slowed, but that practice still account for large part of the growth in global corporate trust revenue. In fact the second quarter was a record high quarter for bankruptcy and default administration fees. Equipment leasing opportunities are also picking up in the second quarter and it's a good example of how the fees for many of CCS's services are annuity like in nature. But not all of CCS's fees had those same characteristic. And we estimate that approximately $1.4 million of global trust revenue reported in the second quarter may not recur in subsequent quarters. One final note about global corporate trust services. We saw these impressive growth rates even though the Greek debt crisis and conditions (ph) in Europe overall kept many transactions on the sideline this quarter. In the United States, financial markets were down for the quarter and that kept CCS retirement services revenue flat with the first quarter level around $22 million. Read the rest of this transcript for free on seekingalpha.com