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
Wilmington Trust Corporation (WL) Q2 2010 Earnings Conference Call July 23, 2010 10:00 AM ET
Operator
Greetings and welcome to the second quarter 2010 Wilmington Trust Corp conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Ms. Ellen Roberts, Vice President of Investor Relations for Wilmington Trust. Thank you, Ms. Roberts. You may now begin.
Ellen Roberts
Thank you, Jackie. Good morning, everybody. I'd like to welcome you and thank you for participating this morning. I'd like to remind you that the supporting materials for the items we discussed this morning are available on our website at www.wilmingtontrust.com. The call is being recorded. The replay details also are on our website.
Our agenda this morning features remarks from our Don Foley, our new Chairman and Chief Executive Officer, also with us this morning is our Chief Financial Officer, Dave Gibson. We'll begin with remarks from Mr. Foley. After conclusion of his remarks, Mr. Foley will take questions. I remind you that news reported maybe attending and all participants are permitted to ask questions.
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 accounts for a 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 recorded 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 the skittishness 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.
Compared to last year, however, retirement services revenue was up 30%. This is a direct results of two acquisitions that we made in 2008. Fees for these services were priced a little differently than other CCS services and that these fees are based largely on market valuations of retirement plan assets that we hold in custody, which means that this line of revenue will reflect movements in the financial market.
When market volatility reduces retirement plan asset valuations, the corresponding reduction in fees can offset the effects of the new business as well as the additional contributions that plan participants make and that's what's happened in the second quarter. Financial market volatility also had a negative effect on Wealth Advisory Services revenue for the second quarter.
In addition, the amount of revenue from planning and other services declined and we continued to waive fees on our money market mutual funds. Consequently at $41 million Wealth Advisory revenues was lower than for the trailing and year ago quarters. Declines in the financial markets reduced evaluation of assets in client portfolios which in turn reduced trust and investment advisory revenue and offset the effects of new business.
Trust and investment advisory revenue was 4% lower than for the trailing quarter, but that decrease stands up pretty well against the corresponding decreases that we saw in the major equity markets with the Dow down 9%, S&P down 11% and NASDAQ off 12%.
The business held its own amid much larger market decline. Planning and other services revenue was lower, because we substantially reduced our ownership position in Grant Tani, the Beverly Hills-based business management firm. We sold 80% of our ownership interest in Grant Tani back to the principals of that firm in the first quarter. Prior to that change Grant Tani contributed approximately $3 million to planning revenue each quarter.
On the mutual funds front, revenue actually increased slightly from the trailing quarter because the yields on some of our fund investments were somewhat higher. We continued to waive fees on our money market mutual funds however due to the effects of the low market interest rates that we see today. Mutual fund fee waivers reduced Wealth Advisory revenue by approximately $4 million for the second quarter and by more than $8 million year-to-date.
We do not expect to begin reinstating these fees until there is an increase in short-term market interest rates of at least 50 basis points. On the expense side of the equation there are few things I want to point out. First, we're breaking out the expenses we incur on OREO write downs and losses on the reserve we must set aside for unfunded lending commitments. This may seem confusion so let me try to explain it. Technically unfunded commitments such as letters of credits are not loans, so they're not factored into our loan loss reserve calculations. At the same time however, they are contractual commitments and we need to plan for the possibility that some of these commitments when funded might not be repaid.
So from an accounting standpoint, the way we do that is by recording an associated expense. Before now these expenses were included in the catch-all category of other expense. Since credit cost are significantly increasing our expenses, we decided to disclose these expenses separately. All told, our credit risk management efforts added $19 million of expense in the second quarter. The largest pieces included $5 million for OREO write downs and losses and $12 million for unfunded commitments.
As you can see last quarter, that number was less than $2 million. In addition to those expenses, there were other credit costs in our categories of expenses. The other expense line includes more than a $1 million of legal fees and other expenses related to loan workout and recoveries. This category also included $300,000 of property management and other expenses related to the OREO on our book. Finally the servicing and consulting line includes approximately $500,000 for independent credit reviews.
In total expenses for the second quarter were $154 million, an increase of almost $23 million or 17% from last quarter. The $19 million of credit cost I just enumerated accounted to the majority of that increase. If you strip out that $19 million, total expenses were $135 million, an increase of just 3% from last quarter.
In addition to the increase in credit cost, there was an increase in incentive and bonus expenses of just under $5 million. Some of this was related to my compensation package, most of it was for staff retention incentives payments that we accrued. Combined staff in related expenses that would be salaries, incentives and benefits were $75 million or about 48% of our total noninterest expense.
One another comment on expenses has to do with the sub advisor expense. This category includes expenses associated with the CCS retirement services business and the work we do with registered investment advisors. You will remember that retirement services revenue was 30% higher this quarter than for the 2009 second quarter and that accounts from most of the year-over-year increase in sub advisor expense.
That pretty much sums up expenses for the second quarter. There are few other second quarter highlights I'd like to point out. First our capital position remains strong. All of our regulatory capital continued to exceed the minimum set by the Federal Reserve to be considered well capitalized. Our capital ratio took a bit of a hit due to the elevated provision, but the fact remains that we are able to absorb a $205 million provision in the corresponding reductions in capital ratios were fewer than 100 basis points.
In addition our tier one common ratio remained well above 9%. Next our liquidity positioned improved. Core deposits were $6.8 billion in second quarter on average and comprised 83% of our funding for the quarter. This was an increase from the 82% we reported last quarter and from the 72% we reported for the second quarter of last year. And finally, net interest margin lows 12 basis points to 3.15%. Several factors contributed to this improvement. We got a little bump up and floating rate loan yields from the movement of the 30 day LIBOR.
We raised the rates on some loans, and our funding cost went down. As we had a decrease of more than 20% in our national brokerage CD balances. I should point out here that we do not believe this indicates a trend in the margins. We expect to be somewhat bumpy for the remainder of 2010, probably somewhere between 3 and 310 for the third and fourth quarter, that's assuming that there is no change in the short-term interest rate environment.
That pretty much covers the second quarter in a high level way. Now I'd like to return to credit. We are in elevated level of risk in the portfolio right now and we're working hard to de-risk that portfolio. I can assure you that the negative trends in our credit metrics have my full attention. What I would like to do this morning is talk about what happened in the second quarter, what we're doing about it and where we think we're headed.
Our sense is that the economic downturn hit Delaware later than it hit other areas. And it appears that our recovery will likewise lags the improvement seen elsewhere. To-date while Delaware's unemployment rate began to abate somewhat, we still have not seen any widespread sign of the economic improvement. Throughout the second quarter, appraisals continued to reflect significant declines and collateral valuations became more severe and the financial condition of some of our borrowers continued to weaken. Our evaluation of these indicators increased our estimates of potential loan losses and led us to take decisive action in recognizing losses, classifying loans in the internal risk rating analysis and increasing the reserve for loan losses.
Our recognition of losses resulted in a $135 million of charge-offs in the second quarter compared with $31 million in the first quarter. After recoveries, net charge-offs for the second quarter were $131 million more than four times higher than that of the first quarter. The net charge-off ratio went from 33 basis points for the first quarter to a 153 basis points for the second quarter, bringing it to 6% on an annualized basis.
Nearly two-thirds of the loans we charged off in the second quarter were commercial real estate construction loans. Most of these loans were for projects in southern Delaware, for parcels of land that are in various stages of development. In the internal risk rating analysis loans with watch list ratings increased $92 million and loans with substandard classifications increased $362 million.
As you know the substandard classification includes accruing as well as non-accruing loans and approximately 92% of the increase in substandard loans were loans that continue to accrue interest. Of the $362 million increase, $166.3 million was for commercial, financial and agricultural loans, a $149.1 million was for commercial real estate construction loans and $48.3 million for the commercial mortgage loans.
Consumer and other retail loans was substandard ratings decreased by $1.5 million in the second quarter. Obviously the risk rating downgrades and charge-off trends were critical factors in our loan loss reserve calculation. In addition, we looked at trends in loans, past due 90 days or more as well as non accruing loans. And even with the high degree of charge-offs non accruing loans continue to increase. We charged off $119 million of non accruing loans in the second quarter, but the inflow of new non accruing loans was $130 million.
Of these new non accruing loans approximately half were in commercial real estate and construction loans, approximately 25% were commercial, financial and agricultural loans and approximately 25% were commercial mortgage loans. More than half of the commercial mortgage loans in our portfolio for properties located in Delaware and more than half of the loans in the portfolio are for owner occupied properties. These properties are mainly low rise office buildings that has medical practices, law offices, accounting firms and other professional services.
In general – as a general rule, we do not fund high rise construction projects. After owner occupied properties the next highest concentration in commercial mortgage portfolio is for community shopping centers which accounts for less than 20% of the portfolio. These are not large scale shopping malls or big box stores, these properties typically are anchored by a grocery store or a drug store.
The rest of the commercial mortgage portfolio is diversified among a variety of commercial and industrial properties. Regarding the reserve calculation, all of these negative trends along with some qualitative judgments were made and that let us to add $74 million to loan loss reserve. This brought the reserve to $374 million as I said before 4.46% of total loans outstanding.
In comparison the loan loss reserve ratio for the first quarter was 3.44%. Let me very clear about what happened with credit in the second quarter. Our methodology for evaluating credit risk did not change in the second quarter. What changed were the data point supporting our evaluations. We saw a substantial amount of negative data but the magnitude of declines in collateral valuation, the negative trends in the financial conditions in some of our borrowers. The lack of widespread economic improvement in Delaware and the increases in loans past due 90 days or more and non-accruing loans.
In other words, the data points changed our conclusion. It was not our methodology. So while our methodology remain the same, there have been changes in some of the ways we think about credit risk. For example, we know that we need to watch some of the credits more closely and we have to look at some of them more frequently. In addition, we've taken steps to help us manage and reduce credit risk, we've added staff, made management changes, tightened underwriting standards and taken other action.
Let me give you some concrete example, stating with what we have done in the loan workout area. In 2008 we had eight staff in the workout group, over the past two years the volume of work activity in OREO has increased significantly. Today, we have 13 staff members working in the group, fastening the process of hiring four more.
So over the course of the last two years we've practically tripled the staff resources we devoted to loan workouts and that tracked to the increased activity in that area. In addition to adding workout staff, we developed specific workout plans for every non-performing loan in the portfolio. Also we've been working on disposition strategies especially for OREO and we're marketing OREO more aggressively.
We've seen some interest from investors and from some of the national home builders and we may be able to agree to a takedown structure with a purchaser takes only a small portion of the projects at a time. In terms of management changes at the end of 2009, we named a leader of the Mid-Atlantic banking market and we recently appointed a new manager of our Southern Delaware market.
In January of this year we tightened the maximum loan to value requirements on commercial construction loans and destruction limits on residential projects. For unimproved land we took the maximum LTV from 65% to 50%. For land development loans, we established separate LTV standards depending who handles the build out. On projects, the borrower intends to sell to a third-party, we took the maximum LTV from 75% to 70%.
We also established separate standards for various types of income producing properties. Until January, the maximum LTV for all income producing properties is 80%. Under the new standards we reduced that to 70% or special purpose income producing properties such as self storage facilities and hotels. We also lowered the construction limit on unsold single family homes from six homes to four homes.
We also engaged in independent third-party credit review firm to take an objective look at our policies, our procedures and our risk ratings. That firm completed its work in the second quarter and I'm pleased to report that they'll review an analysis affirmed our conclusions and ratings. Finally, our intent is to reduce our exposure to commercial construction and real estate loans, and our overall exposure in Delaware and this will happen as we continue to gain market share in Southeastern Pennsylvania, Central and Southern New Jersey and the Baltimore area.
When you look at the composition of the portfolio on a percentage basis however, these efforts will partially be forward by the overall decline in loan balances. Having said that all that, I'm not in a position to tell you what you want to hear. I cannot tell you that the problems I see and I cannot tell you when we might start to see things improve. We continue to evaluate all the data points available to us and what we did in the second quarter reflects our best assessment of conditions at this time and I believe it demonstrates that we're moving in the right direction.
We have the deal with the lingering effect for the weak economy. Until there is evidence of sustainable improvement in the regional economy and until appraisal starts to show, that collateral values are stabilizing, it's difficult to predict how quickly we will be able to put these problems behind us. In the mean time, we will continue to use the best risk management tools and analysis available and our rigorous of risks in our loan portfolio.
So in summary, this quarter was not what I would have preferred but I believe you can draw some important conclusions from our results. First, we're managing our way through a difficult economic environment and we're doing everything within our power to fee risk the loan portfolio. Second, the advantages of our diversified business model are clearly evident in the growth in non-interest income and its increasing prominent in our total revenue. Third, our prospects for growth are plentiful and positive especially in the CCS and the Wealth Advisory business. And fourth, our capital position remains strong.
Even after absorbing a $205 million provision, we're in very good shape in terms of our capital. We had a good story to tell, a truly differentiated business model, built on powerful legacy of service excellence, community commitment and client focus. Best of all we have an unparallel team of talented staff to tell that story. While I cannot predict the future, I believe we have what it takes to navigate back to a path of growth and sustained profitability. That is where Wilmington Trust has been from most of our 107 history and I expect we will be there again soon.
Thank you again for joining us today and I'll open it up now for questions.
Question-and-Answer Session
Operator
Thank you. (Operator Instructions) One moment please, while we poll for questions. Thank you, our first question is coming from Jeff Bronchick of RCB Investment Management.
Jeff Bronchick – RCB Investment Management
Good morning.
Don Foley
Good morning.
Jeff Bronchick – RCB Investment Management
We're a new shareholder. Don I – we haven't met, I don't know you're from home loan, so let me start with that, but I have to say that given the situation you're coming into, I think what you're opening speech was entirely inappropriate, and what shareholders really want to know is not your guess on when the economy is going to turn or a very specific analysis of things you guys should have been doing two or three years ago, but really on a very top level basis, what your approach is, what the analysis and plan is, what management changes you're going to make to address what in retrospect in embarrassment of a bank that this whole – this a real a serious credit incompetent on the bank side that is responsible for tanking the stock, to looting shareholders and putting you in a difficult position that you are, you have – this is your first change to address shareholders, you haven't said a word about serious changes that you're going to make in the credit culture of this company to really make it what it should be or what it had been in the past and that is what I would like to hear?
Don Foley
We're working quite hard internally here to make sure that we're tightening up our credit measurements that we're basically reviewing as many credits, we get our hands on to truly understand where clients are, we're evaluating that as closely as we can, we're developing workout strategies where there are problems. We are basically doing everything in our power to turn this portfolio around as quickly as possible. What would you think we're doing?
Jeff Bronchick – RCB Investment Management
I have got – so I heard two different changes in the management of two of your divisions, do you think you have the team internally to actually do this, or do you think you have to go outside further, I mean I'm just – I really question whether as an organization has what it takes to do this as efficiently as some of its peers, or is it now your in place and you've got the team and you can drive it just harder?
Don Foley
It's a mixture of all of that. We are looking for the best talent out there to help us through this problem. We've got a very dedicated team internally that is crunching away on these issues as we speak. There are some issues that we're going to be dealing with in terms of where we've got the holes in our team. We're out there actively recruiting for those peoples to fill those slots, we're looking for the best people that we can to fill that area.
Jeff Bronchick – RCB Investment Management
And this is my last chance, and then would hang the call, would you suggest that the things that you've announced and both as far as changes and policies as well as the numbers reported are quote, this is a thorough 100% review, we've got a plan, and we're marching to it or are you still early in the game here and this is your first shot at it and I mean this is just the third inning of a real systematic review of what we need to do to become a top quartile bank.
Don Foley
We're well advanced in this process, we've gone through a very significant portion of our existing policy – all of our existing loans that are out there. A very substantial portion of it has been reviewed already and we're already proactively dealing with the problems in that portfolio.
Jeff Bronchick – RCB Investment Management
Okay, I appreciate it and I would just again I think the problem with your predecessor was not – just taking your heads on and not biasing about some of the issues. Its everything you talked about, I thought like a time work like it was a middle of 2008 and I really do think that a much more open, honest focus on look, we screwed up, we're working on it, that should be your focus, not a (inaudible) today. I appreciate your time.
Don Foley
Thank you very much.
Operator
Thank you. Our next question is coming from Mac Hodgson of SunTrust Robinson Humphrey.
Mac Hodgson – SunTrust Robinson Humphrey
Good morning.
Don Foley
Hi Mac.
Mac Hodgson – SunTrust Robinson Humphrey
To jump in substandard and watch list I was pretty shocked and I mean combined those were 26% of loan book. How can we get comfortable, I know you highlighted the bulk of the increase in substandard are accruing, how can we get comfortable of it, that a large percentage of that won't – would come non accruing, but it just seems like with that huge increase there is a decent potential that a lot of that flows into nonaccrual.
Don Foley
92% of our substandard is basically is still accruing as we pointed out. Let me, if I might turn this over to Dave to just give you some of the, more of the penalty that substandard with some of those numbers.
Dave Gibson
Yes, thanks Mac, it's an excellent question. Obviously when we saw all the data that came in this quarter that made us evaluate our credits differently in terms of the financial health of those credits. The substandard accruing bucket, doesn't mean that's the slippery slope right through non-accrual but it does say that those credits have demonstrated some kind of weakness that we want to make sure that we are both monitoring very closely and aggressively managing those credits.
As well as reserving appropriately. One of the big changes that you saw in the reserve and provisioning this quarter relates to those substandard accruing dollars and that we've increased significantly the reserve based on the losses that we saw this quarter on those non-performing. And in any point in time we do have sort of the highest and highest risk category within that those buckets we monitor that very closely, we report that in terms of the serious doubt numbers that we report, that number was 80 some million, $82 million for the first quarter I think we're still running at those levels and those would be credits when we think have the highest probability of becoming nonaccrual in the future.
Now that doesn't mean they all do I don't think our experience has been about 42% of those – at some point have gone non accruing, but it's certainly not – we don't think predecessor to all those dollars going into non accruing. I think we – when you look at the breakdown, I think again Delaware based, this weakness in the economy and we're just being very cautious about how we're evaluating those credits given the economic environment and I think we're reserving appropriately given that risk.
Mac Hodgson – SunTrust Robinson Humphrey
And on the increase in substandard, the largest driver by category was commercial?
Dave Gibson
Yes.
Mac Hodgson – SunTrust Robinson Humphrey
I was surprised to see that, I would have thought it would've been mostly construction. Are you guys seeing….
Don Foley
Well, of that increase about $77 million was actually related to construction and some of the operating companies that are in the construction business in Delaware. So there is a high correlation to that they weren't perhaps the build out of the projects themselves for the operating companies and related to those construction firms and they have – in some cases diversified businesses, but given the weakness on the other side of their portfolio we're putting those credits in substandard as well in terms of their whole relationship.
Mac Hodgson – SunTrust Robinson Humphrey
And can you clarify the total amount of commercial credits that are like that, that are basically tied to the construction industry?
Dave Gibson
That was $77 million of the $160 some million increase.
Mac Hodgson – SunTrust Robinson Humphrey
No, of the total commercial portfolio, I mean are there other, the commercial loans that are tied to construction?
Dave Gibson
There are other loans that are tied to construction, I don't have that grand total because, I mean you have across all kinds of industries that touch construction whether it would be a plumbing supply or electrical company, you have a variety of businesses that all ultimately may touch construction in some way. That's a follow-up, I have to get lot more detail.
Mac Hodgson – SunTrust Robinson Humphrey
Okay, just one more question and I'll jump off. On the deferred tax asset, Dave, could you quantify what it was at the end of the quarter, I mean (inaudible) in a three year.
Dave Gibson
Yes, I think the question earlier about DTAs is whether this evaluation allowance needed. Really we don't believe there is evaluation needed. We're in the process of completing our '09 returns and amending '08 and because of the losses that we have and significant carry backs, we think we're going to be able to actually monetize most, if not of all of our DTAs, so that number will be almost zero once we do that.
I think going forward any DTA issue we have is really going to be driven by whether we would have continuing losses.
Mac Hodgson – SunTrust Robinson Humphrey
So the – did you guys say that net DTA is zero or will be zero?
Dave Gibson
It’s – depending on these returns, we think we can get our net DTA to a very low number, yes. It may not be zero but it's going to $10 million or so or $15 million. So it's a significant benefit, a tax benefit to us going back to those years.
Mac Hodgson – SunTrust Robinson Humphrey
And that was driven by just the aggressive charge-offs?
Don Foley
Well, it's the losses that we've had and being able to carry those back to our stronger years of '07 and '08 and getting refunds.
Mac Hodgson – SunTrust Robinson Humphrey
Okay, thanks.
Operator
Thank you. Our next question is coming from Tom Alonso of Macquarie.
Tom Alonso – Macquarie
Good morning everybody.
Don Foley
Good morning.
Tom Alonso – Macquarie
Actually just on that last issue with the tax, we're being able to carry that back to taxes years that are still open. Would we see any impact on that on the income statement, would there be a reduced tax in a year if you do, when you become profitable or it should be a cash thing between you and the IRS if you will?
Don Foley
Its primarily cash, there is no income impact on that.
Tom Alonso – Macquarie
Okay, so it would be cash to the holding company?
Don Foley
That is correct.
Tom Alonso – Macquarie
Okay, all right.
Don Foley
And some it may have to be down streamed to the bank because of the nature of the way the ownership is and where the -- occurrences of losses.
Tom Alonso – Macquarie
Okay. On that point was there any capital downstream for the bank this quarter?
Don Foley
No there was not at the bank.
Tom Alonso – Macquarie
Okay. I think that's all I have for now. I have to jump back, I wasn't expecting they got answered so quick, so I'm a little discombobulated, I'll jump back in the queue.
Don Foley
That's great. Thank you.
Tom Alonso – Macquarie
Thanks.
Operator
Thank you. Our next question is coming from Patrick O'Brien of Brown Advisory.
Patrick O'Brien – Brown Advisory
Guys I was just looking at the composition of the commercial construction and land is 23% which is up a couple of ticks from a year ago, but lands are most vulnerable aspect of commercial construction, how come that hasn't taken it on the chin, those numbers should have strong, I would have expected.
Dave Gibson
I think we obviously left land and land development. Land only is actually a small number part of our portfolio and a lot of the charge-offs that we’ve seen in reduction have to do with land and land development projects. So I think the valuation declines have been in that category.
Patrick O'Brien – Brown Advisory
They have but why does it show up as still 23% up from 21%?
Dave Gibson
Well I think that's just a nature of the declining balance sheet and the denominator going in that total number (ph).
Patrick O'Brien – Brown Advisory
That means it’s decline in parallel with all the other commercial construction but that doesn't make any sense, that should be the biggest decline of any category.
Dave Gibson
Well, I think it’s declining in lock step with the decline in the overall construction book.
Patrick O'Brien – Brown Advisory
Well, that is not a logical answer. Anyway, the other thing is, when you referred to southern Delaware, is that Rehoboth, Bethany, mostly shore kind of property?
Don Foley
It’s primarily -- no, it's not the shore property, it’s inland, Sussex county.
Patrick O'Brien – Brown Advisory
Okay, so what's the use of property, what sort of properties are they?
Don Foley
Single family development projects, basically to accommodate the retirement population that would be coming, as we would anticipate coming from the north.
Patrick O'Brien – Brown Advisory
I mean that stuff, hasn't that turned down a long time ago, I mean M&T (ph) was talking about anything over on the Eastern shore as having been extremely weak and this is two years ago.
Don Foley
We started to see it among our portfolios staring in late 2008, early 2009. So we're a little later than they were.
Patrick O'Brien – Brown Advisory
Okay. Anyway, thanks guys.
Don Foley
Okay.
Operator
Thank you. Our next question is coming from Chris McGratty of KBW.
Chris McGratty – KBW
Hi good morning guys.
Don Foley
Good morning.
Chris McGratty – KBW
Just a quick question on the DTA, I'm a little – I am still confused, Dave when we talked recently you said there was around $80 million GAAP DTA at March 30, is that right?
Dave Gibson
Yes.
Chris McGratty – KBW
Okay, now where is that? I know you guys thinking be able to show positive evidence in some future earnings results, but where is that number today?
Dave Gibson
Well, I think the change is that we've actually implemented tax strategies to monetize those and actually reduced that DTA to a very small number. So the difference is not -- the fact that there is positive evidence, the fact is that is we're going to get those DTAs much lower because we're going to get cash….
Chris McGratty – KBW
So that's the $10 million to $15 million that's….
Dave Gibson
That's it.
Don Foley
That's correct.
Chris McGratty – KBW
Okay. In terms of the expense run rate, of the roughly $90 million of credit expenses, did you offer I mean, I maybe have missed it, did you offer any guidance on where those numbers would be next quarter?
Dave Gibson
We did not. I think the biggest number there is the reserve for unfunded commitments.
Don Foley
Those are credit and so forth.
Dave Gibson
And I would hope that that number is not going to be that kind of number going forward but, it's difficult to predict.
Chris McGratty – KBW
Okay, and maybe my last question, there were some outflows in non interest bearing deposits and part of that I think related you said to the CCS business, was it all related to CCS?
Don Foley
Yes it was.
Chris McGratty – KBW
Okay, and maybe last on TARP, you guys have talked about eventually repaying TARP maybe probably next year. can you talk about the impact it’s having on maybe your fee income businesses? I think last quarter you said there was minimal effects but I was wondering with this quarter's loss and TARP resolutions are still outstanding where you stand on maybe losing any business on your fees.
Don Foley
I think we'd characterize it but over the second quarter we did not see any appreciable impacts relating to the fact that we had TARP outstanding in our fee businesses. It was a very minimal impact if any.
Chris McGratty – KBW
And then can you update us on timing and the way you plan to repay TARP?
Don Foley
We certainly have the resources to do so but we realized that we're going to have to wait improvement in our own performance with regards to our loan portfolio before we would be in a position to do that. Well we're going to have to normalize our earnings as well and so both of those factors we're going to see some improvement before we'll be able to repay the TARP.
Chris McGratty – KBW
And that's -- and you still think liquidity currently will be sufficient to repay or you think you'll have to come back to raise a little bit of capital?
Don Foley
No, we still think we'll have more than enough sufficient liquidity to handle that repayment at that time.
Chris McGratty – KBW
All right. Thank you.
Operator
Thank you. Our next question is coming from Gerard Cassidy of RBC.
Gerard Cassidy – RBC Capital Markets
Thank you. On the reserved for the unfunded commitments that you guys built up, I am curious Dave, how come that didn't go through the reserve line versus the expense line. Why did you have to put it through the expense line?
Dave Gibson
Well, you're building a reserve on the balance sheet and you will only get there through the expense line unfortunately. So we are expensing the $11 million or so and building a basic on the liability side of the balance sheet. So it's not a realized loss or anything, it's just building a reserve against those unfunded commitments.
Gerard Cassidy – RBC Capital Markets
Right, but how come it didn't go through the loan loss provision line I guess is right, if it…
Dave Gibson
That's the accounting and you just have to separate because they technically are not loan outstanding, they're off balance sheet commitments. So the accounting rules, believe I don't make these rules up, but those are rules, so it's a separate reserve.
Gerard Cassidy – RBC Capital Markets
Okay, have you guys lost any of your bigger customers in the CCS business or anything like that because of the problems in the credit portfolio?
Don Foley
No we have not Gerry. We are basically, all of our clients are sticking with us in this process.
Gerard Cassidy – RBC Capital Markets
And the fees that you mentioned that are one time in nature, that's kind of the first time I've heard that from Wilmington, is that something that's been around in the past and you just haven't really talked about it.
Don Foley
We have I think in the past have indicated to the community that the nature of the their business is largely one of transactions, some of them have shorter tails than others but for the most part they're out there very diligently getting a new business to replace that on continuous basis. So it really has an impact bottom line at all.
Dave Gibson
Yes and I think Gerard these are just couple of special situation that were, the fees were significant, we have a constant stream of inflows and outflows of transactions and many of our accounts are annuity and pay us annually but there are always a portion of our business that comes from special assignments in onetime fee.
Gerard Cassidy – RBC Capital Markets
In regards to the non interest bearing demand deposits, there is the seasonal falloff that you've experienced in the past like you did this year, it looks a little steeper this year but do you expect to regain most of those deposits by the end of the year or is there some permanent change here.
Don Foley
Gerard that's really the result of a very large deposit we have from a CCS client in the first quarter. They essentially had IO cash they needed to keep in a demand account for variety of reasons and that towards the end of the first quarter that money was put to use in a business and so that's not unusual for transactions to happen like that for CCS. It was unusually large amount of money, so I am not anticipating we're going to have another huge opportunity like that but we're not in that business.
Gerard Cassidy – RBC Capital Markets
And one final question, Don I think you mentioned in your comments about, on credit when you guys looked at going through this review with the outside consultants, number of the customers, conditions to have deteriorated which forced you maybe to put aside some of these reserves, the appraisals were updated and they were lower, therefore the reserves have to be build, how much of what you guys did was due to recent deterioration either in values or your customers balance sheet versus poor credit administration, when this should have been done a year ago when it was obvious to many people that the credit, the commercial real estate markets were having problems than in your neck of the woods.
Dave Gibson
This is Dave, I would not describe this to poor administration I think that the cycle of the methodologies, there was appraisal values causes to particularly on our nonaccrual loans increased a lot of expectations and make those have those charge-offs in terms of determining their collateral dependency. Those higher losses then get rolled back into our methodology, in terms of expected loss rates. And when you roll those in their particular with some of the downgrades we saw in the drift of risk ratings and we added a significant amount of dollars to the reserve because of the higher expected loss numbers going back into our formulas.
So you take a loss on probably 20% change into non accruing loans, that probably equated to about $60 million extra loss, and then we rolled that back into our formulas, we've increased the amount of reserve we hold against particularly the substandard bucket quite significantly.
Gerard Cassidy – RBC Capital Markets
I see, when you guys looked at the appraisals the ones that were lowered in this examination that you guys did how – what was the typical life of when the appraisal was last updated, was it six months ago, year ago, two years ago?
Don Foley
It was about a year in duration, between the two.
Gerard Cassidy – RBC Capital Markets
Yes, now going forward are you going to change them to shorter time period, are you still comfortable with 12 months?
Don Foley
No in many cases we're shortening the appraisal cycle so that basically it could go to – as needed but most will probably go to a six month cycle.
Gerard Cassidy – RBC Capital Markets
Okay, and just circling back to the deposits again, regarding the decline, one customer have about a third of the non interest bearing deposits, or was that accumulation of more than one customer?
Dave Gibson
No that was a very large single transaction in excess of $600 million.
Gerard Cassidy – RBC Capital Markets
Thank you.
Don Foley
Okay.
Operator
Thank you. Our next question is coming from Matt Schultheis of Boenning and Scattergood.
Matt Schultheis – Boenning and Scattergood
Hi good morning gentlemen.
Dave Gibson
Good morning Matt.
Matt Schultheis – Boenning and Scattergood
Couple of quick questions. You said that you had gone through a substantial percentage of loans in your most recent review, how many if you can quantify that and perhaps more importantly in what time period, in other words, did you go through everything this quarter or are we talking you went through them all within the past nine months.
Don Foley
This is on a continuous basis we're running these reviews. We're in a cycle to review, at least 70% of our portfolio balances this year, we're well along in that review process and so on a portion basis you have an idea of how many loans we've been looking at, and what sort of size they have been.
Matt Schultheis – Boenning and Scattergood
Okay. Generally speaking and probably most importantly with construction. What was the loss of similarity on loans that have been resolved by, completely charge-offs, and some cases paid down or however or what are the aggregate loss?
Dave Gibson
Aggregate losses are running around 49%.
Matt Schultheis – Boenning and Scattergood
Okay and I think Gerard talked about the fact that so that's getting reflected in your reserve for these new loans that you – the $362 million added to substandard, that's the new, at least for those, that portion of loans.
Don Foley
That's correct. That number is up from maybe a number we would seen in the past in the somewhere in the range of about 35%.
Matt Schultheis – Boenning and Scattergood
Okay and lastly you said that you're expecting loan attrition to $200 million to $600 million by the end of the year. Is this, you guys forcing people out that you think are little marginal or is this just kind of the way you see loan demand going.
Don Foley
The way we see loan demand going along with the idea that certain loans are rolling off in the normal course of business.
Matt Schultheis – Boenning and Scattergood
Okay, so you're not taking a guy who is coming in who has a weaker balance sheet and saying you were a LIBOR 2 and now your LIBOR 5 and if you don't look (inaudible).
Dave Gibson
I think we always see the opportunities to price our credits relative to the risk. So I think we have floors in place that we've instituted over the last year or so. I think we are pricing appropriately I wouldn't call it a diligent kind of process.
Matt Schultheis – Boenning and Scattergood
Okay, well (inaudible) but thanks for your time and speak with you soon.
Don Foley
Thank you.
Operator
Thank you. Our next question is coming from Rob Russo (ph) of BLSA (ph).
Rob Russo – BLSA
Hi good morning.
Don Foley
Good morning.
Rob Russo – BLSA
I wanted to ask you that the Wealth Advisory business. I think this quarter in terms of revenues would be the lowest quarter since either 2004, 2005 depending on how we treat the Grant Tani revenue. So I guess what is going on in that business, by where comparison I think northern trust over the same period it's been there PFFP is up 25%. So what's the difference there, are you losing business and are there issues in that business?
Dave Gibson
While we've mentioned two factors that whereas its very sensitive to assets under management and the volatility in the financial markets that we're serving there, and so if you see the equity market is going down we're going to be marginally impacted by that because that will reduce the size of the asset from the management.
We've also been taking on the order of magnitude of that $18 million, $16 million lost revenue due to the fact that our mutual funds basically are in an interest rate environment that makes it primitively expensive to charge an additional fee on those low interest number and so we have foregone that revenue to as a courtesy to our clients. So those are two of the major factors and then as you hit upon it the Grand Tani is having an impact on an annualized basis of about $12 million.
Matt Schultheis – Boenning and Scattergood
Okay, but I mean in terms of the waived fees, I think that's an issue for everybody. Are you gaining new customers, have you had any large customers leave, I mean.
Don Foley
We have not had any large customers leave and we are gaining customer client's yes.
Matt Schultheis – Boenning and Scattergood
Okay, I mean it's just – it's an important part of your pretax reposition profits and rebuilding that so.
Don Foley
I mean one of the things that you're probably aware was the nature of the assets that we have under management are largely weighted towards fixed income and EFT strategies and so therefore typically we would be adversely impacted in the comparative basis because of the fact that we're large, more largely concentrated in strategies towards fixed income in ETF – EFT.
Matt Schultheis – Boenning and Scattergood
And so in terms of fixed income stress tightening over the quarter, is that sort of the explanation for assets under management holding up and fee is going down?
Don Foley
That is correct.
Matt Schultheis – Boenning and Scattergood
Okay. Thank you.
Operator
Thank you. Our next question is coming from Steve Moss of Janney Montgomery Scott.
Steve Moss – Janney Montgomery Scott
Hi good morning.
Don Foley
Good morning.
Steve Moss – Janney Montgomery Scott
I guess, a couple of things, one with regard to your expected loan outflows over the next couple of quarters, where do you expect to be the largest source of outflows?
Dave Gibson
I think we see Steve in the consumer side, we're run $20 million a month of just in terms of the natural attrition, new volume of indirect (inaudible) is pretty light. The balance would be in the various commercial lines. So we'll continue to see pay downs of, really across the board in all of our lines, the upper end of that range is probably more driven in the commercial mortgage area, where if the secondary markets continue to improve we may get some larger pay downs as clients go to the secondary markets with their projects.
Steve Moss – Janney Montgomery Scott
Okay and then I guess with regard to construction loan balances, where would guys expect to see that move over the next couple of quarters?
Dave Gibson
I don't have a specific number for you, I think you're continued to see declines as we get pay downs and obviously that the demand is very weak there.
Steve Moss – Janney Montgomery Scott
Alright, I guess should we expect to see any bulk loan sales on that side or is perhaps use of partnerships in moving those balances up the door?
Don Foley
We're going to be looking at fuller ray of alternatives of what's available to us, yes.
Steve Moss – Janney Montgomery Scott
Okay and then with regard to the loan loss reserves here in the billed this quarter and going forward, what are your expectations?
Dave Gibson
In terms, I'm sorry Steve.
Steve Moss – Janney Montgomery Scott
How much more of a build should we expect on with regards to loan loss reserve?
Dave Gibson
Yes I think that question is really going to be driven by non-performing asset levels, I think we have done a very fair job assigned to assess valuation risk, that throughout the portfolio in terms of appraisals we have in this market climate. It's difficult to predict the volume being offered performing assets, but they're going to be highly correlated in terms of the retaining reserve bill (ph).
Steve Moss – Janney Montgomery Scott
Okay, and then with regard to going back to deferred tax asset issue you mentioned you're monetizing your current deferred tax assets, but going forward what are your tax plan strategy that you're undertaking, and did I hear you correctly that there could be an issue with regard to realizing tax benefits in future quarters?
Don Foley
Well I think that's going to be driven by our results. Obviously if we can return to profitability, the DTA is not an issue, I think it would only come up, should we have any large loss periods going forward. So I think the best tax strategy is to return to profitability.
Steve Moss – Janney Montgomery Scott
Okay, thank you.
Operator
Thank you. Our next question is coming from Andy Stapp of B. Riley & Co.
Andy Stapp – B. Riley & Co
Good morning.
Dave Gibson
Good morning Andy.
Andy Stapp – B. Riley & Co
You gave some color on your overall loan review, but I was just curious what's your – what percentage of portfolio you're outside loan review completed?
Dave Gibson
To do some numbers on that the outside (inaudible) that we used reviewed something in the order magnitude of $935 million of our loan portfolio was largely concentrated in the construction commercial real estate portfolio. We wanted to make sure that they were able to reaffirm the rating that we had already put on that portfolio and thankfully they did do that. They also reviewed our procedures and policies to make sure that they're in full compliance with state of the art procedures and basically they found that was very slight tweaking that we were in full compliance and our policies and procedures were absolutely are .
Andy Stapp – B. Riley & Co
Okay, what extend did you try to kitchen sink (ph) quarter and get some of your issues behind you, for example did you increase your unallocated reserves significantly?
Dave Gibson
I think we, as I tried to describe the profits we took a collateral valuations that got rolled into our expected loss rates for the rest of the portfolio which added significant dollars to our reserve. You had the normal reserved in for down rates in risk ratings. We did increase our judgmental factors that we used based on the trends that we saw in risk, that negative risk ratings as well as valuations. So there is objectivity in any kind of reserving process and particularly when it comes to values and risk ratings we are leaning towards being less optimistic than we were in terms of how we build the reserve.
Andy Stapp – B. Riley & Co
Okay. And speaking of reserves do you plan to build reserves for the balance sheet over the – balance of the year and if so can you provide whatever color you can on the magnitude.
Dave Gibson
I really can't comment on the magnitude issue again. It's going to be driven by at this point by growth in our performing assets.
Andy Stapp – B. Riley & Co
Okay, was any of the increase in your incentive comp nonrecurring?
Don Foley
With any of the, I'm sorry?
Andy Stapp – B. Riley & Co
Any of the increase in the incentive comp for example you had said there is some type of incentive comp related to your hire, was that like a onetime signing bonus or anything like that?
Don Foley
Yes I am sorry, I didn't know who was talking to mike, particular comp mine (ph) was the one time, it relates to the benefits that I would perk on for my transfer, from ITT (ph).
Andy Stapp – B. Riley & Co
Okay, and how much was that?
Don Foley
$1.8 million.
Andy Stapp – B. Riley & Co
Okay. And could you provide some color on why you determined at the 90 day delinquency loans should not go onto nonaccrual status?
Don Foley
Well we actually look at those loan by loan and there was a group of loans that for variety of reasons the renewal process is taking longer than expected. They are current on interest, but technically because they have matured, they are past due to their principal. We are in the process there and expect to renew those very soon and those are in terms of risk ratings, will be returned to performing status but as a technical matter matured loan is past due principal and if it takes us a little longer to negotiate that renewal in some times we're negotiating rate and we're negotiating collateral and other things in the normal course of business it just takes a little bit longer.
Andy Stapp – B. Riley & Co
Okay. Thank you.
Operator
Thank you. Our next question is coming from KC Ambrecht of Millenium Partners
KC Ambrecht – Millenium Partners
Hi, thanks very much for taking the question. I had a couple of questions first on the balance sheet and then the pretax operating profit, pre provision operating profit. Just on the DTA, has the auditor signed off on this because right now as of last quarter, it looks like the DTA was a $175 million. Is that where it is right now after this quarter?
Dave Gibson
No, and we are working very, very closely with KPMG (ph) on all of this and we feel very comfortable with where we are.
KC Ambrecht – Millenium Partners
What's the current DTA right now?
Dave Gibson
Before, before our amended returns it was 204, and we think that number is going to be down significantly.
KC Ambrecht – Millenium Partners
$100 million?
Dave Gibson
Less than 15. It's a significant adjustment to our minute (ph) returns.
KC Ambrecht – Millenium Partners
Okay, so the DTA is going to be less than $15 million.
Dave Gibson
That's where our point is.
KC Ambrecht – Millenium Partners
Okay, that's good. And then the just mechanically I know other companies had this issues like (inaudible) quarter, I mean you're now in a three year loss position.
Dave Gibson
That's correct.
KC Ambrecht – Millenium Partners
So how – like how do we get comfortable that the auditors aren't going to make you write it down next quarter?
Don Foley
Again I think that's very fact in pencils (ph), and I think we have a lots of positive evidence in terms of our business model and future prospects for operating income. I think the – as I mentioned earlier, the largest negative thing that would happen is we would have a large loss. And at this point I am not going to say that is not going to happen but that would derive that biggest risk. It's just the absolute numbers.
KC Ambrecht – Millenium Partners
Okay, because I know you guys are trying to get ahead of your credit but even with the actions you've taken today the MTAs are still going up and the reserve to your substandard loans are actually going down. The right, your reserve to substandard loans right now are 25%, it's a lowest it's been since ever.
Don Foley
Well I think.
KC Ambrecht – Millenium Partners
So I am just wondering, how I mean that's just so you were saying hopefully we don't have another large loss but I mean, the credit is going the wrong way, I mean we could easily have this quarter again next quarter or in two quarters no?
Don Foley
Well I think that's a pretty simple analysis, I think it's a little complex question I think the substandard accruing credits, we essentially have doubled our allocation of reserve to those substandard loans based on appraisals so.
KC Ambrecht – Millenium Partners
You got to remember that, people have been asking this question since you guys did the capital raise and even a month ago when Ted left, everybody asked if Ted was okay and you said you were fine, you were fine and fine and you come out with this $140 million loss, whatever it is and that's why people are going back and saying why can't you have more losses when your reserves are still only 25% of your substandard loan? That – I mean that you guys won't see that?
Don Foley
KC, all I can point to is that we've done a very rigorous job at pushing these valuations to our process.
KC Ambrecht – Millenium Partners
Okay then just on the income statement and then I'll end it there. It looks like your PPOP is down around $20 million a quarter now, I mean we're getting NII (ph) of $70 million because of dollar is shrinking continue to shrink pretty aggressively, and the margin is down and then we'll give you $100 million on the net interest – noninterest revenues and non interest expenses are 150, so you are at 170, with non interest expenses at 150, so about $20 million PPOP, that's $80 million a year. Is that about right?
Dave Gibson
KC you just threw a whole lot of numbers at me.
KC Ambrecht – Millenium Partners
Well I'm just saying your pretax pre provision operating profit, looks like its $20 million a quarter, is that what you're getting?
Dave Gibson
No we get a lot higher number than that, so I think it would be best if I talk to you and walk to that kind of detailed math separately.
KC Ambrecht – Millenium Partners
Okay and then just one last thing, the book value the tangible book is 799 now (inaudible)?
Dave Gibson
Well our book value is 12.
KC Ambrecht – Millenium Partners
No the tangible book.
Dave Gibson
I don't have – KC I haven't calculated that number today.
KC Ambrecht – Millenium Partners
Okay, thanks very much guys.
Operator
Thank you. Our next question comes from Tom Alonso of Macquarie.
Tom Alonso – Macquarie
Thanks for taking the follow-up guys. Just – real quickly on the charge-offs and sort of the commentary, I mean in prior quarters when we're talking about credit, a lot of times we would hear that we'd like to work with borrowers just because something goes empty it doesn't mean we're going to have a loss. I just want to get a sense if you guys changed sort of the way you've looked at that or now you're going to be more aggressive without moving stuff, if you feel that somebody's marginal you're (inaudible) side of caution and actually charge something down.
Dave Gibson
I think that's very much the case based on these appraisals. The prospects of the gap between where they were operating and the valuation decline has just gotten way much larger than we could see a path forward, continuing to operate, so I think that has helped make our judgment that its best to charge those off and move forward.
Tom Alonso – Macquarie
Okay, fair enough. And then earlier in the call Don, you said that you guys charged off a $119 million of non accruing loans, but you added a $130 to the inflow.
Don Foley
Yes, that's fact (ph).
Tom Alonso – Macquarie
Is that – was that $119 million, on stock (ph) that was already on non performing status and then the difference is, well I guess charge offs about $131 million so the difference is on the new stuff that flowed in.
Don Foley
That is correct.
Dave Gibson
As well as consumer.
Don Foley
Yes.
Tom Alonso – Macquarie
Okay. So then new stuff that flowed is just reserved, there is no actual charge-offs on it?
Dave Gibson
There were some charge-offs but at this point we're still in an evaluation process, we reserved significantly against those. But we're in that process of evaluating whether we're going to charge them down.
Tom Alonso – Macquarie
Okay, fair enough. And then just I know you gave out the percent of loans, it's very variable (ph) but what percent has floors of the variable rate book, what percent has floors.
Dave Gibson
I think that number is something like 60% in that range.
Tom Alonso – Macquarie
Okay. And those are around where, in terms of the rates.
Dave Gibson
4%.
Tom Alonso – Macquarie
Okay. So you need about what, about what to burn those in terms of rate hikes?
Don Foley
Well we've saying, it would take 50 basis points before we would start seeing some of the loans reprised upward and it would be 75 before we start feeling the full affect of those rates.
Tom Alonso – Macquarie
Okay, great. Thanks and then just one last and I think you guys talked about this before, in the Wealth Advisory business, the fee income, how much of that is based on the valuation at the end of the first quarter and how much is based on valuations at the end of the second quarter?
Dave Gibson
It's done on a monthly role, so.
Tom Alonso – Macquarie
Okay.
Dave Gibson
Full month.
Tom Alonso – Macquarie
So it's basically average over the quarter than is.
Don Foley
That is correct.
Tom Alonso – Macquarie
Okay, that's all I have, thanks guys.
Dave Gibson
Thank you.
Operator
Thank you. Our last question is coming from Mac Hodgson of SunTrust Robinson Humphrey.
Mac Hodgson – SunTrust Robinson Humphrey
Hey thanks for the follow-up, just two quick ones. One the reappraisals, if you can give us an average, what was kind of the average decline value that you saw on year-over-year appraisals?
Dave Gibson
19%.
Mac Hodgson – SunTrust Robinson Humphrey
Just 19%, okay. and then on the review Don, I think you mentioned at least 70%, I guess maybe the target was at least 70% of the portfolio balances reviewed by the end of the year, we're along the way, just wondered if you can get a little bit more specific on the commercial real estate construction book, how much of those balances and then described or reviewed as of the end of the second quarter?
Don Foley
If I recall correctly, that percentage is a lot higher as I already mentioned, that was a portfolio that we have been putting quite a bit of effort into and making sure that it's properly valued. I would not be surprised if we had numbers north of 85% on that one I think.
Mac Hodgson – SunTrust Robinson Humphrey
Okay.
Dave Gibson
And we also risk rate the reviews Mac, so that higher risk portfolios get reviewed on a more continuous basis.
Mac Hodgson – SunTrust Robinson Humphrey
Okay and are you still looking for a chief risk officer?
Don Foley
We have – we are expecting the risk officer to be coming on board sometime in early August.
Mac Hodgson – SunTrust Robinson Humphrey
Any other hires that you planned?
Don Foley
We have, you know that we've hired people in the credit valuation space, we're building up there, we're building up our workout area. We're putting a lot of talent into trying to work through this – the workout portion of this portfolio.
Mac Hodgson – SunTrust Robinson Humphrey
Okay, thank you.
Don Foley
Thank you.
Operator
Thank you. There are no further questions at this time. I would like to hand the floor back over to management for any closing comments.
Don Foley
We appreciate your patience, but we wanted to make sure that you understood that Wilmington Trust is a fundamentally strong institution at this time, that my priority is to return our company to profitability and generate sustained growth. We're dealing aggressively with the lingering effects of a weak economy in the housing markets that is a relatively weak. I think the results today that we reported will demonstrate that we're marching along in trying to get our hands around that particular portfolio.
In addition to increase in the loan loss reserve, lowering our risk ratings and recognizing losses, we made management changes in lending and the credit review area. We added credit review and loan workout staffs and we're continually progressively worked through different strategies on our portfolio. We're taking decisive actions in loan losses now in order to de-risk the portfolio and accelerate our return to profitability. And then despite the challenges on the credit side there are many positive takeaways that illustrate the underlying strength of our organization.
Many of those are focused in the credit, the fee income business. Our liquidity has improved and our net margins are increasing. While no one can predict when the economy will turn for the better. We believe we can manage the credit challenges effectively over the coming months and begin to position the company to capitalize fully on its many strength. We appreciate your time and thank you very much.
Operator
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!