Wilmington Remains Neutral - Analyst Blog
01 Abril 2011 - 6:45AM
Zacks
We continue to maintain our long-term “Neutral” recommendation
on Wilmington Trust Corporation (WL). Though the
company has been facing reduced client activity and higher credit
costs due to sluggish economic recovery, its impending merger with
M&T Bank Corp. (MTB) will create a large
lender in the eastern U.S., and the combined entity will become a
large provider of wealth management.
In November last year, Wilmington had announced that M&T
would acquire the company for a stock-for-stock deal for $351
million. As per the agreement, shareholders of the company will get
0.051372 shares of M&T common stock in exchange for each share
of Wilmington stock they hold.
M&T would also assume responsibility for $330 million of
TARP money. Hence, we believe that Wilmington will be able to
overcome its difficulties after the acquisition and garner a larger
market share.
Furthermore, given the increased client activity and savings
growth, Wilmington continues to witness modest growth in deposits.
Moreover, the company’s AUM has marked a record ascent since 2005
to $60.1 million in 2010. We expect these factors to drive further
growth once the economy rebounds.
Additionally, despite the challenging economic conditions,
Wilmington maintains a strong capital position. As of December 31,
2010, total risk-based capital ratio was 12.29%, Tier 1 risk-based
capital ratio was 7.51%, and Tier 1 leverage capital ratio was
6.02%, all exceeding the regulatory requirements for classification
as a well-capitalized institution.
On the flip side, there remains an increasing concern about
Wilmington’s exposure to construction loans. Within the
construction loan portfolio, which comprises 19% of loan portfolio
as of December 31, 2010, the majority of loans are for residential
construction/land development.
Over 55% of this project portfolio accounts for the Delaware
region that is marred by increased losses owing to deteriorating
credit quality as of December 31, 2010. Hence, with significant
weakness being witnessed in residential construction activity, we
anticipate increased levels of non-performing loans in the
forthcoming quarters.
Rise in expense has been an obstacle to Wilmington’s earnings
growth. Operating leverage has been minimal since 2005 driven by
higher levels of expense, expansions, system improvements and the
cost of increased compliance and risk management. These, in turn,
have created pressure on the margin growth.
Wilmington currently retains a Zacks #4 Rank, which translates
into a short-term ‘Sell’ rating. However, Signature
Bank (SBNY), one of Wilmington’s closest competitors,
retains a Zacks #3 Rank (short-term ‘Hold’ rating).
M&T BANK CORP (MTB): Free Stock Analysis Report
SIGNATURE BANK (SBNY): Free Stock Analysis Report
WILMINGTON TRST (WL): Free Stock Analysis Report
Zacks Investment Research
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