Keefe, Bruyette & Woods 2009 Regional Banking Conference
Ted T. Cecala Chairman and Chief Executive Officer March 5, 2009
1
Disclaimer
Forward-looking statement disclaimer
This presentation contains forward-looking statements that reflect our current expectations about our performance. These statements rely on a number of assumptions, estimates, expectations, and assessments of potential developments, and are subject to various risks and uncertainties that could cause our actual results to differ from our expectations. Our ability to achieve the results reflected in these statements could be affected adversely by, among other things, changes in national or regional economic conditions; changes in market interests rates; fluctuations in equity or fixed income markets; significant changes in banking laws or regulations; changes in accounting policies, procedures, or guidelines; increased competition for business; higher-than-expected credit losses; the effects of acquisitions; the effects of integrating acquired entities; a substantial and permanent loss of either client accounts and/or assets under management at Wilmington Trust and/or affiliate money managers Cramer Rosenthal McGlynn and Roxbury Capital Management; changes in the market values of securities in our investment portfolio; changes in regulatory, judicial, legislative, or tax treatment of business transactions; new litigation or developments in existing litigation; and economic uncertainty created by unrest in other parts of the world. Information and opinions expressed in this presentation are current as of March 5 2009, or the stated date of such information or opinions. Since we will not update the material in this presentation, the information and opinions in it may not be accurate after March 5, 2009. In 2008, we recorded non-cash impairment write-downs of $130.7 on investment securities and $66.9 million on the value of our investment in Roxbury Capital Management. This presentation includes amounts and statements that exclude these impairment charges in cases where we believe doing so provides investors with more relevant information about business trends and our continuing operations. Reconciliations that include and exclude these noncash charges are in our 2008 Annual Report to Shareholders, which is posted on wilmingtontrust.com in the Investor Relations section.
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Overview
105 years of experience and profitability
• • • • • •
Founded in 1903 by members of the du Pont family $12.3 billion in balance sheet assets $45.7 billion in assets under management1 Cash dividends paid every year since 1908 Headquartered in Delaware with offices in the U.S., Caribbean, and Europe Corporate strategies:
• • •
Invest in businesses that have the most potential for long term growth or high operating profit margins Be the market leader in each of our businesses Increase profitability without compromising our overall risk profile
1 Includes
At 31 December 2008.
Cramer Rosenthal McGlynn and Roxbury Capital Management. 3
Three interrelated businesses
Diversified mix of spread and fee income
Regional Banking
• Retail banking in Delaware • Commercial banking in: • Delaware • Eastern Pennsylvania • New Jersey • Maryland • Integrated banking and
wealth advisory services in mid-Atlantic region
Corporate Client Services
• Diversified trustee and
administrative services
Wealth Advisory Services
• Comprehensive services: • Asset management • Fiduciary services • Family office practice • Focus on clients with ≥ $10mm • Managing investment risk
is as important as increasing investment return
• Institutional investment
management
• Commercial banking focus
on closely held businesses with ≤ $250mm in sales
• Support for: • Capital markets • Special purpose entities • Retirement plans • Clients in 88 countries • Offices in United States,
Europe, & Caribbean
• Clients in all 50 states
and 35 other countries
• Offices in key HNW markets
4
Office locations in 2008
Wilmington Trust office locations in 2008
Minnesota Vermont Boston Stamford 5 offices in eastern Pennsylvania Las Vegas Phoenix 3 offices in southern California 4 offices on Florida's Treasure Coast 2 offices in Baltimore area Atlanta South Carolina Channel Islands Amsterdam New York 2 offices in central New Jersey 47 branches in Delaware Dublin London Frankfurt Luxembourg
Wilmington Trust office locations
Grand Cayman
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2008 review
2008 growth in all 3 businesses …
Regional Banking
• • • •
Added $1.1 billion of loans in 2008 Year-end balances up 14% to $9.6 billion Loan balances up 12% to $9.2 billion, on average Core deposit balances up 7% to $5.4 billion, on average
Corporate Client Services
• • •
Revenue up 34% to $132 million Includes retirement services acquisitions Growth from services that support tender option bonds, repacks, defaults, and bankruptcies
Wealth Advisory Services
• • •
Total revenue up 2% to $225 million Revenue growth vs. (38)% decline in S&P 500 Planning fees up 14% on strength of family office services
Noninterest income = 64% of 2008 total operating revenue 1
1
Operating net interest and noninterest income. Operating results exclude non-cash impairment charges. Excluding these charges provides more relevant information about our business trends and continuing operations. Percentage comparisons are full year 2008 vs. 2007.
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2008 review
… offset by economic conditions …
Market interest rate environment
•
Record-high loan growth offset by 400 bps decline in short-term rates
• •
Net interest margin fell 39 bps to 3.28% Net interest income (before provision) was 3% less than for 2007
Deterioration in mid-Atlantic regional economy
• •
Loan loss provision of $115 million vs. $28 million for 2007 Net charge-offs at high end of historical experience, but manageable
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2008 review
… and effects of accounting rules
Investment securities portfolio
• •
$97.0 million for pooled trust-preferred securities $33.7 million for perpetual preferred stocks, mainly Fannie Mae and Freddie Mac
Investment in Roxbury Capital Management
• •
Managed asset valuation declines and lower-than-expected results triggered impairment testing $66.9 million write-down in carrying value of investment
Total after-tax effect: $123.0 million reduction in net income
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2008 results
Operating profitability in a difficult environment
Twelve months ended December 31 Net interest income Provision for loan losses Noninterest income Noninterest income, excluding charges Noninterest expense, excluding charges Net income, excluding charges EPS (diluted), excluding charges Noninterest expense Net income EPS (diluted) Loan balances (on average) Net interest margin 2008 $357.7 $(115.5) $292.4 $423.1 $492.8 $99.4 $1.46 $559.7 $(23.6) $(0.36) $9,200.0 3.28% 2007 $368.9 $(28.2) $386.0 $386.0 $444.1 $182.0 $2.64 $444.1 $182.0 $2.64 $8,212.0 3.67%
Dollars in millions, except share amounts. Operating results exclude non-cash impairment charges. Excluding these charges provides more relevant information about our business trends and continuing operations.
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Regional Banking Services
44%
2008 contribution to operating revenue
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Regional Banking
Regional Banking in the mid-Atlantic region
In Delaware
5,550 middle-market firms in Pennsylvania
• Leading retail and commercial bank • 48 branch offices
In the mid-Atlantic region
3,225 middle-market firms in New Jersey
704 middle-market firms in Delaware
• • • •
Commercial banking only 9 sales offices outside Delaware No branch offices outside Delaware Bankers teamed with wealth advisors
Commercial banking focus
3,972 middle-market firms in Maryland
• Closely held businesses with •
≤ $250mm in annual sales Long-term client relationships
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Source: Dun & Bradstreet, January 2009.
Consistent loan growth
Diverse regional economy drives loan growth
$10.0
CAGR 1998 – 2008: 8.27%
In billions, on average
$7.5
$2.4
$2.8 $2.5 $1.7 $1.4 $2.6 $1.9 $1.7 $2.8 $2.5 $1.0 $1.2 $2.3 $1.5 $1.2 $2.5
$5.0 $2.5 $0.0
1998 1999 2000
$1.3 $0.2 $0.9 $1.8 $1.4 $0.3 $0.9 $2.0 $1.6 $0.4 $0.9 $2.2
$1.6 $0.4 $1.0 $2.2
$2.0 $0.4 $1.0 $2.2
$2.2 $0.6 $1.0 $2.2
$2.4 $0.7 $1.2 $2.2
2001
2002
2003
2004
2005
2006
2007
2008
Retail
Commercial mortgage
Commercial construction
C & I
CAGR = compound annual growth rate. 12
Commercial loans
Most commercial loans are ≤ $10 million and have floating rates
Commercial loan pricing
Commercial loans by size 10% 3% 10% 18% 36% 23%
12% 88%
Floating rate Fixed rate
Commercial floating rate loan pricing 6% Prime rate 30-day Libor Other
> $20 mm $5 mm - $10 mm $250,000 - $1 mm
$10 mm - $20 mm $1 mm - $5 mm < $250,000
37%
57%
As of 31 December 2008. 13
Loan portfolio focus
Loan portfolio snapshot
Loans by market Loans by category
At 31 December 2008. 14
Commercial loans
Commercial real estate exposure
• • •
Real estate exposure is in mid-Atlantic region Most construction loans are for single-family housing developments Most commercial mortgage loans are for owner-occupied properties
• • • • • •
Professional offices Light manufacturing/industrial Retail Changes in secondary market made our terms more comparable Less liquidity in secondary markets
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Commercial mortgage growth occurring because:
Auto industry exposure
Credit exposure to auto industry
• • • •
$450.3 million in outstandings to auto dealers in mid-Atlantic region $234.0 million of the $450.3 million is for floor plan (inventory) $113.2 million of the $450.3 million watchlisted or substandard $817.3 million in indirect auto loans
Indirect loans by category Indirect loans by market
8%
92%
15%
1%
46% 17% 21% Delaware Maryland Other Pennsylvania New Jersey
Auto
Loan balances as of 31 December 2008.
Other
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Consumer loans
Consumer loan portfolio snapshot
Consumer loans by market Consumer loans by category
$0.2 $0.1 $0.9 $0.5
Indirect Credit card
Home equity Other
Loan balances as of 31 December 2008. Dollars in billions. 17
Mid-Atlantic xxx regional economy
Mid-Atlantic housing market snapshot
House Price Index (quarter-to-quarter percent change) 2008 Q1 Delaware Pennsylvania United States (0.7) 0.7 (0.2) 2008 Q2 (1.0) (0.4) (1.4) 2008 Q3 (1.0) (1.5) (2.7) 2008 Q4 (3.1) (2.3) (4.4) Households entering foreclosure For the year Delaware Maryland Median sales price of existing single-family homes (in thousands) Philadelphia/Wilmington MSA Dover, Delaware MSA Baltimore/Towson MSA United States 2007 $234.9 $207.5 $286.1 $217.9 2008 $231.4 $206.2 $274.1 $197.1 Change (1)% (1)% (4)% (10)% New Jersey Pennsylvania United States
Source: RealtyTrac
2007 0.3 0.8 0.9 0.3 1.0
2008 0.7 1.4 1.8 0.7 1.8
Source: Federal Housing Finance Agency
Source: National Association of Realtors®
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Net charge-offs
Net charge-off ratio reflects economic downturn
1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
BHCPR = 88 bps
WL = 57 bps
Wilmington Trust
Bank Holding Company Performance Report
BHCPR data as of 30 September 2008. 19
Net interest margin
Margin performance across volatile rate cycles
7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
As of December 31, 2008: WL margin: 3.28% Libor: 1.43% Fed funds: 0.26%
WL net interest margin
Full-year net interest margin.
Fed funds effective rate
3-month Libor
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Corporate Client Services
22%
2008 contribution to operating revenue
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Retirement services acquisitions
Retirement business doubles capacity
AST Capital Trust Company acquired April 30, 2008
• • • • • • • • •
$28 billion in trust assets; 149 staff members in Phoenix and 30 staff members in Wilmington Added approximately $18 million of revenue in 2008 (approx. $27 million annualized)
UBS Fiduciary Trust Company acquired October 10, 2008 Access to UBS financial advisor platform UBSFTC’s back-office services outsourced to AST since 2007 6 staff members in New Jersey Adds approximately $38 million of revenue and $36 million of subadvisor expense (annualized)
We now: Act as custodian for more than $47 billion of retirement plan assets Serve more than 3,800 retirement and employee benefit plans
Both transactions non-dilutive to earnings in 2008
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Corporate Client Services
Product diversity, acquisition drive CCS growth
Corporate Client Services revenue Capital markets services Entity management services Retirement services Institutional investment & cash management Total Corporate Client Services revenue 2008 $48.1 $32.4 $37.4 $13.9 $131.8 2007 $42.9 $30.0 $12.9 $12.8 $98.6 Percent change from prior year 12% 8% 190% 9% 34%
Product diversity offsets capital markets weakness:
• •
Tender option bonds, corporate and municipal repacks, escrow administration Defaults, bankruptcies, restructurings Most CCS fees are based on the complexity of services provided, not asset valuations
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CCS growth
Steady growth in Corporate Client revenue
$150.0 $125.0 $100.0 $75.0 $50.0 $25.0 $0.0
$10.4 $7.0 $18.4 $8.2 $8.8 $23.4 $7.4 $10.6 $27.5 $5.7 $6.2 $12.4 $30.6 $7.1 $6.9 $17.3 $33.0 $6.7 $7.7 $20.9 $32.0 $8.1 $9.2 $22.6 $31.7 $7.7 $10.7 $23.6 $10.3 $11.5 $26.8
CAGR 1998 - 2008: 13.92%
$12.8 $12.9 $30.0
$13.9 $37.4
$32.4
$34.3
$37.0
$42.9
$48.1
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Capital Markets Entity Management Retirement Services Investment & Cash Management
Dollars in millions. CAGR = Compound annual growth rate. Investment & Cash Management revenue detail prior to 2000 not available.
Annual CCS revenue 2008 $131.8 2007 $98.6 Change 34%
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Wealth Advisory Services
34%
2008 contribution to operating revenue
Wealth Advisory Services
Volatile equity markets mask WAS growth
Wealth Advisory Services revenue Trust and investment advisory revenue Planning and other services revenue Mutual fund revenue Total Wealth Advisory revenue 2008 $152.0 $45.5 $27.2 $224.7 Percent change 2007 from prior year $158.6 $40.1 $21.4 $220.1 (4)% 14% 27% 2%
• • •
Trust and investment advisory fees are tied to financial market valuations Investment mix of managed assets: 38% equities, 33% fixed income, 29% other Most mutual fund fees are tied to money market valuations Planning fees are based on the complexity of services provided, not asset valuations
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Wealth Advisory growth
Steady growth in Wealth Advisory revenue
$250 $200 $150 $100 $50 $0 1998 1999 2000 2001 2002 2003 2004
2008 $224.7
$88.8 $98.1 $9.0 $12.7 $82.8 $10.6 $18.2 $80.8 $16.0 $20.8 $90.1 $21.0 $21.6
CAGR 1998 - 2008: 9.73%
$35.3 $25.4 $19.2 $30.4 $17.8 $20.2
$40.1 $21.4
$45.5 $27.2
$97.8
$111.0
$97.8
$136.5
$158.6
$152.0
2005
2007 $220.1
2006
2007
2008
Planning/other services Mutual fund services Trust/investment advisory
Dollar amounts in millions. CAGR = Compound annual growth rate. WAS revenue by component prior to 2000 not available.
Annual WAS revenue Change 2%
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Wealth Advisory expansion
Wealth Advisory sales double in 10 years
California Delaware Florida Georgia Maryland Massachusetts New York New Jersey Pennsylvania Family Office
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1998 sales $10.9 million
2008 sales: $24.9 million
NJ: 1% MA: 3% CA: 5% DE: 8% FL: 9%
FL: 9% DE: 86%
GA: 5% PA: 5% Family Office: 45% NY: 9%
MD: 3%
PA: 12%
Summary
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2009 focus
Four major areas of focus in 2009
Profitability
• •
Leverage 2008 momentum Curb expense growth
Loan portfolio
• • • •
Loan growth will continue Exposure remains in the mid-Atlantic region
Net interest margin Short-term market interest rates are 0.00% to 0.25% Asset-sensitive interest rate risk position
Capital management
• •
Remain well capitalized Explore balance sheet options
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2009 focus
2009 focus – profitability
• • •
Leverage 2008 momentum Improve client profitability Manage expenses
• •
Interest expense near 0% Staffing-related costs
• • • • •
No merit increases for staff at Level 12 or higher Non-sales staff incentives adjusted downward 20% - 40% No net increase expected in staffing levels Technology deployment may reduce staffing No wholesale staff reductions planned
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2009 focus
2009 focus – loan portfolio
• • •
Separate credit policy and asset review functions Conducted thorough portfolio review at year-end 2008 Commercial portfolio:
• • • • • •
Remains diversified within mid-Atlantic region Commercial mortgage growth due to secondary market conditions Indirect balances should decrease each month Continued residential mortgage and home equity lending Credit card portfolio is small and seasoned ($67 million)
Retail and consumer portfolios:
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2009 focus
2009 focus – net interest margin
• • •
Asset-sensitive interest rate risk position 2009 Q1 margin in 3.00% range Positive effects of earning assets
• • • •
Reprice existing portfolio Reduce investment securities portfolio
Deposit growth Market effect on liquidity when Fed exits credit facilities
33
2009 focus
2009 focus – capital management
• • • • • •
Remain well capitalized Raise tangible common equity ratio Replenish capital through earnings Make no cash acquisitions Pay dividends Balance sheet options
• • •
Investment securities portfolio Residential mortgages Loans secured with investments
CPP capital is a temporary source of capital
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Capital
Capital exceeds well-capitalized minimums
Regulatory capital ratios Total risk-based capital Tier 1 risk-based capital Tier 1 leverage capital December 31, 2008 13.97% 9.24% 8.77% December 31, 2007 11.21% 7.73% 7.18% Adequately capitalized minimum 8% 4% 4% Well capitalized minimum 10% 6% 5%
Capital initiatives in 2008:
• •
$330.0 million from sale of 330,000 shares of Series A preferred stock to U.S. Treasury under Capital Purchase Program (funds received December 12, 2008) $44.5 million net proceeds from issuance of 1.7 million shares under at-the-market offering of common stock (September 2008 to January 2009)
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2009 focus
2009 focus – Regional Banking
•
Client profitability
• • • • • •
Increase deposit balances Increase pricing/implement floors Continue to grow commercial balances in mid-Atlantic region Eliminate deposits that require securities for collateral
Loan growth Shrink investment securities portfolio
36
2009 focus
2009 focus – Corporate Client Services
• • • •
Leverage retirement services acquisitions Realign staff to support market opportunities Exit nonperforming products
•
CDO administration business closed at year-end 2008
Implement new technology to improve efficiency
37
2009 focus
2009 focus – Wealth Advisory Services
• • • •
Leverage 2008 momentum Improve client profitability Client retention Adjust incentive programs for non-sales staff/investment staff
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2009 focus
2009 focus – business line
Regional Banking
•
Improve client profitability • Increase deposits • Increase pricing • Implement floors Commercial loan growth • In mid-Atlantic region Shrink investment securities portfolio • Eliminate deposits that require securities for collateral
Corporate Client Services
• • •
Leverage retirement services acquisitions Realign staff to support market opportunities Exit nonperforming products • CDO administration business closed at year-end 2008 Implement technology to improve efficiency
Wealth Advisory Services
• • • •
Leverage 2008 momentum Improve client profitability Client retention Adjust incentive programs for non-sales staff and non-investment staff
• •
•
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r e c o g n i z i n g
w o r t h