United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended March 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For The Transition Period From ____________ to ___________
Commission File Number: 0-25442
WILMINGTON TRUST CORPORATION
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0328154
- ------------------------------ -----------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(302) 651-1000
----------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
Number of shares of issuer's common stock ($1.00 par value) outstanding at
March 31, 1998 - 33,525,837 shares
<PAGE>
Wilmington Trust Corporation and Subsidiaries
Form 10-Q
Index
Page
----
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Statements of Condition 3
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 20
Part II. Other Information
Item 1 - Legal Proceedings 21
Item 2 - Changes in Securities and Use of Proceeds 21
Item 3 - Defaults Upon Senior Securities 21
Item 4 - Submission of Matters to a Vote of Security Holders 21
Item 5 - Other Information 21
Item 6 - Exhibits and Reports on Form 8-K 21
Exhibit 11
Exhibit 27
2
<PAGE>
CONSOLIDATED STATEMENTS OF CONDITION (unaudited)
Wilmington Trust Corporation and Subsidiaries
--------------------------
March 31, December 31,
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 295,229 $ 239,392
--------------------------
Interest-bearing time deposits in other banks ---- ----
--------------------------
Federal funds sold and securities purchased
under agreements to resell 45,000 50,000
--------------------------
Investment securities available for sale:
U.S. Treasury and government agencies 865,122 790,519
Obligations of state and political subdivisions 8,006 8,007
Other securities 540,103 517,877
- --------------------------------------------------------------------------------
Total investment securities available for sale 1,413,231 1,316,403
--------------------------
Investment securities held to maturity:
U.S. Treasury and government agencies 193,014 219,136
Obligations of state and political subdivisions 9,579 12,743
Other securities 86,157 101,128
- --------------------------------------------------------------------------------
Total investment securities held to maturity
(market values were $289,730 and $333,812,
respectively) 288,750 333,007
--------------------------
Loans:
Commercial, financial and agricultural 1,259,117 1,207,930
Real estate-construction 154,820 145,097
Mortgage-commercial 911,091 884,146
Mortgage-residential 825,838 813,116
Consumer 953,939 954,486
Unearned income (9,098) (10,840)
- --------------------------------------------------------------------------------
Total loans net of unearned income 4,095,707 3,993,935
Reserve for loan losses (66,051) (63,805)
- --------------------------------------------------------------------------------
Net loans 4,029,656 3,930,130
--------------------------
Premises and equipment, net 139,428 135,129
Other assets 177,051 118,290
- --------------------------------------------------------------------------------
Total assets $6,388,345 $6,122,351
==========================
3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 881,320 $ 792,513
Interest-bearing:
Savings 410,885 358,008
Interest-bearing demand 1,190,927 1,134,996
Certificates under $100,000 1,211,797 1,247,302
Certificates $100,000 and over 648,079 636,211
- --------------------------------------------------------------------------------
Total deposits 4,343,008 4,169,030
--------------------------
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 1,323,703 1,246,287
U.S. Treasury demand 57,761 61,290
- --------------------------------------------------------------------------------
Total short-term borrowings 1,381,464 1,307,577
--------------------------
Other liabilities 102,133 99,737
Long-term debt 43,000 43,000
- --------------------------------------------------------------------------------
Total liabilities 5,869,605 5,619,344
--------------------------
Stockholders' equity:
Common stock ($1.00 par value) authorized
150,000,000 shares; issued 39,191,848
and 39,191,848 shares, respectively 39,192 39,192
Capital surplus 62,828 62,511
Retained earnings 588,820 573,570
Accumulated other comprehensive income 8,106 7,504
- --------------------------------------------------------------------------------
Total contributed capital and retained
earnings 698,946 682,777
Less: Treasury stock, at cost, 5,666,011 and
5,713,735 shares, respectively (180,206) (179,770)
- --------------------------------------------------------------------------------
Total stockholders' equity 518,740 503,007
--------------------------
Total liabilities and stockholders'
equity $6,388,345 $6,122,351
==========================
See Notes to Consolidated Financial Statements
4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Wilmington Trust Corporation and Subsidiaries
---------------------------
For the three months ended
March 31,
---------------------------
(in thousands; except per share data) 1998 1997
- --------------------------------------------------------------------------------
NET INTEREST INCOME
Interest and fees on loans $87,742 $82,107
Interest and dividends on investment securities:
Taxable interest 23,226 16,844
Tax-exempt interest 236 413
Dividends 2,080 1,938
Interest on time deposits in other banks ---- ----
Interest on federal funds sold and securities
purchased under agreements to resell 235 343
- --------------------------------------------------------------------------------
Total interest income 113,519 101,645
--------------------------
Interest on deposits 36,207 30,945
Interest on short-term borrowings 17,898 14,705
Interest on long-term debt ---- 337
- --------------------------------------------------------------------------------
Total interest expense 54,105 45,987
--------------------------
Net interest income 59,414 55,658
Provision for loan losses (5,000) (4,500)
- --------------------------------------------------------------------------------
Net interest income after provision
for loan losses 54,414 51,158
--------------------------
OTHER INCOME
Trust and asset management fees 30,005 25,913
Service charges on deposit accounts 5,345 4,679
Gain on business disposition 5,503 ----
Other operating income 4,732 4,964
Securities gains/(losses) (31) 1
- --------------------------------------------------------------------------------
Total other income 45,554 35,557
--------------------------
Net interest and other income 99,968 86,715
--------------------------
OTHER EXPENSE
Salaries and employment benefits 34,735 31,507
Net occupancy 2,815 2,853
Furniture and equipment 4,085 3,630
Stationery and supplies 1,400 1,458
Provision for litigation settlement 5,500 ----
Other operating expense 10,935 10,250
5
<PAGE>
- --------------------------------------------------------------------------------
Total other expense 59,470 49,698
--------------------------
NET INCOME
Income before income taxes 40,498 37,017
Applicable income taxes 13,186 12,096
- --------------------------------------------------------------------------------
Net income $ 27,312 $ 24,921
==========================
Net income per share:
basic $ 0.82 $ 0.74
==========================
diluted $ 0.79 $ 0.72
==========================
Weighted average shares outstanding:
basic 33,507 33,868
diluted 34,462 34,510
Cash dividends per share $ 0.36 $ 0.33
See Notes to Consolidated Financial Statements
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Wilmington Trust Corporation and Subsidiaries
------------------------------
For the three months ended
March 31,
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 27,312 $ 24,921
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 5,000 4,500
Provision for depreciation 2,876 2,524
Amortization of investment securities
available for sale discounts and premiums 96 852
Accretion of investment securities
held to maturity discounts and premiums (71) (8)
Deferred income taxes (339) 1,776
Losses on sales of loans 128 90
Securities losses/(gains) 31 (1)
Increase in other assets (6,252) (1,718)
Increase/(decrease) in other liabilities 2,396 (5,616)
- --------------------------------------------------------------------------------
Net cash provided by
operating activities 31,177 27,320
---------------------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities
available for sale 39,812 ----
Proceeds from maturities of investment
securities available for sale 92,355 237,738
Proceeds from maturities of investment
securities held to maturity 44,297 20,035
Purchases of investment securities available
for sale (228,150) (256,592)
Investment in affiliate (52,509) ----
Gross proceeds from sales of loans 22,891 5,446
Purchases of loans (1,095) ----
Net increase in loans (126,450) (64,121)
Net increase in premises and equipment (7,175) (7,900)
- --------------------------------------------------------------------------------
Net cash used for investing
activities (216,024) (65,394)
---------------------------
FINANCING ACTIVITIES
Net increase/(decrease) in demand, savings and
interest-bearing demand deposits 197,615 (38,036)
Net decrease in certificates of deposit (23,637) (101,059)
Net increase in federal funds purchased and
securities sold under agreements to repurchase 77,416 82,108
Net (decrease)/increase in U.S. Treasury demand (3,529) 11,024
Cash dividends (12,062) (11,184)
Proceeds from common stock issued under
employment benefit plans 2,796 1,867
Payments for common stock acquired through
buybacks (2,915) (9,875)
- --------------------------------------------------------------------------------
7
<PAGE>
Net cash provided by/(used for)
financing activities 235,684 (65,155)
-------------------------
Increase/(decrease) in cash and cash equivalents 50,837 (103,229)
Cash and cash equivalents at beginning of period 289,392 365,423
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 340,229 $ 262,194
=========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 57,638 $ 52,067
Taxes 813 1,027
Loans transferred during the year:
To other real estate owned $ 105 $ 1,651
From other real estate owned 2,011 1,239
See Notes to Consolidated Financial Statements
8
<PAGE>
Notes to Consolidated Financial Statements
Wilmington Trust Corporation and Subsidiaries
Note 1 - Accounting and Reporting Policies
The accounting and reporting policies of Wilmington Trust Corporation
(the "Corporation"), a holding company which owns all of the issued and
outstanding shares of capital stock of Wilmington Trust Company, Wilmington
Trust of Pennsylvania and Wilmington Trust FSB, conform to generally accepted
accounting principles and practices in the banking industry for interim
financial information. The information for the interim periods is unaudited and
includes all adjustments which are of a normal recurring nature and which
management believes to be necessary for fair presentation. Results of the
interim periods are not necessarily indicative of the results that may be
expected for the full year. This note is presented and should be read in
conjunction with the Notes to the Consolidated Financial Statements included in
the Corporation's Annual Report to Stockholders for 1997.
Note 2 - Comprehensive Income
Effective January 1, 1998, the Corporation adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. The statement requires, among other
things, unrealized gains or losses on the Corporation's available-for-sale
securities, which prior to adoption were reported separately in shareholders'
equity, to be included in comprehensive income. The adoption of SFAS No. 130 had
no impact on the Corporation's net income or shareholders' equity.
For the three months ended March 31, 1998 and 1997, total comprehensive
income, net of taxes, was $27,914,000 and $21,762,000, respectively.
Note 3 - Contingent Liabilities
The Corporation recorded a $5.5 million provision in the first quarter
of 1998 in connection with the anticipated settlement of litigation described in
footnote 9 of the Corporation's Annual Report to Stockholders for 1997.
Note 4 - Sale of Mutual Fund Servicing
The Corporation's first quarter results reflect the recognition of a
gain of $5.5 million as a result of the transfer by Rodney Square Management
Corporation, an indirect subsidiary of the Corporation ("RSMC"), to PFPC, Inc.,
an indirect subsidiary of PNC Bank, N.A., of its interest in certain agreements
under which RSMC provided accounting, administrative, custody, distribution
and/or transfer agency services to mutual funds.
Note 5 - Subsequent Events
On April 24, 1998, WT Investments, Inc., an indirect subsidiary of the
Corporation ("WTI"), entered into an agreement with Roxbury Capital Management,
an asset management firm headquartered in Santa Monica, California ("Roxbury"),
and its principals. Under the agreement, a new entity, Roxbury Capital
Management, LLC ("RCM"), will assume Roxbury's investment management business.
Roxbury performs investment management services relating to large-capitalization
stocks for institutional and individual clients. WTI will obtain a preferred
profits interest in RCM, with the balance of those profits being retained by
Roxbury and its current owners. Options to acquire additional ownership
interests in RCM will be distributed to key employees. The Corporation will be
able to purchase additional ownership interests from its equity owners upon the
occurrence of a number of specified events, including the termination of
employment, death, disability or retirement of the individual. Closing is
subject to the satisfaction of several customary conditions.
On May 4, 1998, the Corporation issued $125 million in subordinated
debentures due on May 1, 2008, and bearing interest at a rate of 6.625% per
annum payable semi-annually on May 1 and November 1.
9
<PAGE>
Wilmington Trust Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SUMMARY
- -------
Net income for the first quarter of 1998 was $27.3 million, a record for first
quarter earnings, and a 10% increase over the $24.9 million reported for the
first quarter of 1997. Earnings per share for the first quarter of 1998 were
$.82, up 11% from the $.74 reported for the first quarter of 1997. Earnings per
share on a diluted basis were $.79, up 10% from the $.72 for the first quarter
of 1997.
Net interest income for the first quarter of 1998 reached $59.4 million, an
increase of $3.8 million, or 7%, over the first quarter of 1997, primarily on
the strength of increases in the Corporation's loan and investment portfolios.
The quarterly provision for loan losses of $5.0 million was an increase
of $500,000, or 11%, over the first quarter 1997 provision. Net chargeoffs were
$2.8 million for the quarter, compared to $3.5 million for the first quarter of
1997. The reserve for loan losses at March 31, 1998 was $66.1 million, or 1.61%
of period-end loans outstanding, up 4% over the $63.8 million, or 1.60% of
period-end loans outstanding, reported at December 31, 1997.
Noninterest income for the first quarter of 1998 rose $10.0 million, or 28%, to
$45.6 million on the strength of higher trust and asset management fees, which
increased $4.1 million, or 16%, over those for the first quarter of 1997,
together with a $5.5 million gain from the sale of the Corporation's mutual fund
servicing business.
Operating expenses for the first quarter of 1998 rose $9.8 million, or 20%, to
$59.5 million due primarily to higher personnel expense, which increased $3.2
million, or 10%, and a $5.5 million provision for anticipated settlement costs
of pending litigation.
Return on assets for the three months ended March 31, 1998, on an annualized
basis, was 1.81%, down from the 1.87% reported for the corresponding period a
year ago. Return on stockholders' equity, also on an annualized basis, was
21.81%, up over the 21.67% reported for the first three months of 1997.
STATEMENT OF CONDITION
- ----------------------
Total assets at March 31, 1998 were $6.39 billion, up $266.0 million, or 4%,
over the year-end 1997 level of $6.12 billion. Total earning assets at March 31,
1998 were $5.84 billion, an increase of $149.3 million, or 3%, over the $5.69
billion reported at year-end 1997.
Total loans at March 31, 1998 were $4.10 billion, an increase of $101.8 million,
or 3%, over the $3.99 billion at December 31, 1997. Commercial loans accounted
for half of this increase, rising $51.2 million, or 4%, to $1.26 billion;
commercial mortgage loans rose $26.9 million, or 3%, to $911.1 million; and
residential mortgage loans rose $12.7 million, or 2%, to $825.8 million. The
investment portfolio rose $52.6 million, or 3%, to $1.70 billion as U.S.
Treasury and government agency securities increased $48.5 million, or 5%.
Additional securities were added to the Corporation's investment portfolio to
leverage the Corporation's expanding capital base.
Interest-bearing liabilities were $4.89 billion at quarter-end, up $159.1
million, or 3%, over the year-end level of $4.73 billion, as higher levels of
both interest-bearing deposits and Federal funds purchased provided funding for
the Corporation's balance sheet growth. Savings account balances increased $52.9
10
<PAGE>
million, or 15%, to $410.9 million while interest-bearing demand account
balances increased $55.9 million, or 5%, to $1.19 billion. Offsetting these
increases, in part, was a decrease of $35.5 million, or 3%, in certificates of
deposit under $100,000, to $1.21 billion. Noninterest-bearing demand account
balances were $881.3 million, an increase of $88.8 million, or 11%, over the
year-end levels. Complementing these increases were Federal funds purchased,
which rose $80.3 million, or 8%, to $1.12 billion.
Stockholders' equity at March 31, 1998 was $518.7 million, an increase of $15.7
million, or 3%, over the year-end level as first quarter earnings of $27.3
million, $2.8 million in new stock issued in connection with stock option
exercises and a $600,000 valuation reserve adjustment for the investment
portfolio were offset, in part, by $12.1 million in cash dividends and $2.9
million for the Corporation's stock buyback program.
NET INTEREST INCOME
- -------------------
Net interest income for the first quarter of 1998 on a fully tax-equivalent
("FTE") basis was $61.4 million. This was a $3.5 million, or 6%, increase over
the $57.9 million reported for the first quarter of 1997.
Interest income (FTE) for the first quarter of 1998 rose $11.6 million, or 11%,
to $115.5 million from $103.9 million for the first quarter of 1997.
Contributing to this increase was a $609.7 million increase in the average level
of earning assets for the first quarter of 1998 versus the corresponding period
last year. Interest revenues rose $10.7 million as a result of this increase in
the average level of earning assets. Complementing this $10.7 million increase
was an $880,000 increase in interest revenues associated with the higher
interest rate environment. The average prime lending rate for the first quarter
of 1998 was 8.50%, 25 basis points higher than the 8.25% for the first quarter
of 1997.
Interest expense for the first quarter of 1998 increased $8.1 million, or 18%,
to $54.1 million. Contributing to this increase in interest expense was a $613.7
million increase in the average level of interest-bearing liabilities. The
increase in interest expense associated with this higher level of
interest-bearing liabilities was $7.1 million. The higher rate environment
contributed another $1.0 million to the increase in interest expense. The
average rate the Corporation paid for funding during the first quarter of 1998
was 3.85%, 19 basis points higher than the 3.66% paid for the first quarter of
1997.
The Corporation's net interest margin for the first quarter of 1998 was 4.33%,
down 24 basis points from the 4.57% reported for the first quarter a year ago.
This decrease was primarily attributable to the increase in the Corporation's
investment portfolio, which carries narrower interest rate spreads than the loan
portfolio. The following two tables present comparative net interest income data
and a rate-volume analysis of changes in net interest income for the first
quarters of 1998 and 1997.
11
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY ANALYSIS OF EARNINGS
1998 First Quarter 1997 First Quarter
---------------------------------------- ------------------------------------
(in thousands; rates on Average Income/ Average Average Income/ Average
tax-equivalent basis) balance expense rate balance expense rate
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Time deposits in other banks $ ---- $ ---- ----% $ ---- $ ---- ----%
Federal funds sold and
securities purchased under
agreements to resell 18,027 235 5.21 25,066 343 5.47
- ------------------------------------------------------------------- -----------------------------
Total short-term investments 18,027 235 5.21 25,066 343 5.47
----------------------------------------------------------------------------
U.S. Treasury and government
agencies 1,014,697 16,051 6.37 817,588 13,045 6.38
State and municipal 18,249 283 6.22 31,889 641 8.10
Preferred stock 125,514 2,509 8.23 131,525 2,324 7.11
Asset-backed securities 369,338 6,148 6.69 192,636 2,906 6.03
Other 95,296 1,346 5.68 88,307 1,203 5.46
- ------------------------------------------------------------------- -----------------------------
Total investment securities 1,623,094 26,337 6.54 1,261,945 20,119 6.38
----------------------------------------------------------------------------
Commercial, financial and
agricultural 1,197,666 25,895 8.66 1,214,949 26,032 8.58
Real estate-construction 151,703 3,489 9.20 124,441 2,860 9.20
Mortgage-commercial 905,995 20,975 9.26 873,870 20,462 9.37
Mortgage-residential 820,520 16,926 8.25 689,854 13,381 7.76
Consumer 958,861 21,647 9.13 876,051 20,731 9.58
- ------------------------------------------------------------------- -----------------------------
Total loans 4,034,745 88,932 8.84 3,779,165 83,466 8.86
-------------------------------------------------------------------------------
Total earning assets $5,675,866 115,504 8.18 $5,066,176 103,928 8.23
===============================================================================
Funds supporting earning assets
Savings $ 398,517 2,324 2.37 $ 395,974 2,355 2.41
Interest-bearing demand 1,138,486 7,263 2.59 1,035,728 6,329 2.48
Certificates under $100,000 1,211,081 16,647 5.57 1,221,214 17,207 5.71
Certificates $100,000 and over 703,718 9,973 5.67 378,299 5,054 5.34
- ------------------------------------------------------------------- ----------------------------
Total interest-bearing
deposits 3,451,802 36,207 4.24 3,031,215 30,945 4.13
-------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase 1,263,038 17,336 5.49 1,066,431 14,117 5.30
U.S. Treasury demand 42,496 562 5.29 45,964 588 5.12
- ------------------------------------------------------------------ ----------------------------
Total short-term borrowings 1,305,534 17,898 5.48 1,112,395 14,705 5.29
-------------------------------------------------------------------------------
Long-term debt 43,000 ---- ---- 43,000 337 3.18
- ------------------------------------------------------------------- ----------------------------
12
<PAGE>
Total interest-bearing
liabilities 4,800,336 54,105 4.54 4,186,610 45,987 4.43
-------------------------------------------------------------------------------
Other noninterest funds 875,530 ---- ---- 879,566 ---- ----
- -------------------------------------------------------------------- ----------------------------
Total funds used to support
earning assets $5,675,866 54,105 3.85 $5,066,176 45,987 3.66
===============================================================================
Net interest income/yield 61,399 4.33 57,941 4.57
Tax-equivalent adjustment (1,985) (2,283)
------------ ------------
Net interest income $ 59,414 $ 55,658
============ ============
Average rates are calculated using average balances based on historical cost and do not reflect the market valuation
adjustment required by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective January 1, 1994.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
RATE-VOLUME ANALYSIS OF NET INTEREST INCOME
-------------------------------------------
For the three months ended March 31,
-------------------------------------------
1998/1997
Increase/(Decrease)
due to change in
-------------------------------------------
1 2
(in thousands) Volume Rate Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Time deposits in other banks $ ---- $ ---- $ ----
Federal funds sold and
securities purchased under
agreements to resell (96) (12) (108)
- ------------------------------------------------------------------------------------------------
Total short-term investments
(96) (12) (108)
--------------------------------------------
U.S. Treasury and
government agencies 3,028 (22) 3,006
State and municipal * (273) (85) (358)
Preferred stock * (156) 341 185
Asset-backed securities 2,641 601 3,242
Other * 91 52 143
- ------------------------------------------------------------------------------------------------
Total investment
securities 5,331 887 6,218
--------------------------------------------
Commercial, financial and
agricultural * (366) 229 (137)
Real estate-construction 629 ---- 629
Mortgage-commercial * 742 (229) 513
Mortgage-residential 2,500 1,045 3,545
Consumer 1,956 (1,040) 916
- ------------------------------------------------------------------------------------------------
Total loans 5,461 5 5,466
- ------------------------------------------------------------------------------------------------
Total interest income $ 10,696 $ 880 $ 11,576
===========================================
Interest expense:
Savings $ 237 $ 19 $ 256
Interest-bearing demand 628 306 934
Certificates under $100,000 (674) (173) (847)
Certificates $100,000 and over 4,344 575 4,919
14
<PAGE>
- ------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 4,535 727 5,262
-------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase 2,605 614 3,219
U.S. Treasury demand (44) 18 (26)
- ------------------------------------------------------------------------------------------------
Total short-term
borrowings 2,561 632 3,193
-------------------------------------------
Long-term debt ---- (337) (337)
- ------------------------------------------------------------------------------------------------
Total interest expense $ 7,096 $ 1,022 $ 8,118
===========================================
Changes in net interest income $ 3,458
=========
* Variances are calculated on a fully tax-equivalent basis, which includes the effects of any
disallowed interest expense.
1
Changes attributable to volume are defined as change in average balance multiplied by the prior year's
rate.
2
Changes attributable to rate are defined as a change in rate multiplied by the average balance in the
applicable period of the prior year. A change in rate/volume (change in rate multiplied by change in
volume) has been allocated to the change in rate.
</TABLE>
15
<PAGE>
Noninterest Revenues and Operating Expenses
- --------------------------------------------
Noninterest revenues for the first quarter of 1998 rose $10.0 million, or
28%, to $45.6 million.
Trust and asset management fees contributed $4.1 million, or 41%, of this
increase, rising 16% over the first quarter of last year to $30.0 million.
Personal trust fees rose $2.4 million, or 20%, to $14.7 million. Corporate trust
fees rose $1.1 million, or 13%, to $9.6 million, and asset management fees rose
$500,000, or 10%, to $5.7 million.
Service charges on deposit accounts increased $700,000, or 14%, to $5.3 million,
while other operating income rose $5.3 million, or 106%, to $10.2 million due,
in part, to a $5.5 million gain from the sale of the Corporation's mutual fund
servicing business. Absent this gain, noninterest revenues increased $4.5
million, or 13%, over the $35.6 million reported for the first quarter of 1997.
Operating expenses for the first quarter of 1998 were $59.5 million, $9.8
million, or 20%, above those for the first quarter of 1997. Personnel expenses
for the quarter rose $3.2 million, or 10%, over those for the first quarter of
1997, to $34.7 million. Contributing to this increase was a $1.4 million, or 7%,
increase in salaries and wages and a $1.0 million, or 20%, increase in bonus and
incentive payments. Other operating expense for the quarter rose $6.2 million,
or 60%, to $16.4 million. A significant component of this increase was a $5.5
million provision established in connection with the anticipated settlement of
litigation described in Footnote 9 of the Corporation's Annual Report to
Stockholders for 1997. The balance of the increase was attributable to higher
levels of consulting and advertising fees.
Interest Rate Sensitivity
- -------------------------
Net interest income is an important determinant of the Corporation's financial
performance. Through interest rate sensitivity management, the Corporation seeks
to maximize the growth of net interest income on a consistent basis by
minimizing the effects of fluctuations associated with changing market interest
rates.
The Corporation employs simulation models to measure the effect of variations in
interest rates on net interest income. The composition of assets, liabilities
and off-balance-sheet instruments and their respective repricing and maturity
characteristics are evaluated in assessing the Corporation's exposure to changes
in interest rates.
Net interest income is projected over a two-year period using multiple interest
rate scenarios. The results are compared to net interest income projected over
the same time period based on stable interest rates. The Corporation's model
employs interest rate scenarios in which interest rates gradually move up or
down 250 basis points. The simulation model projects that, as of March 31, 1998,
a 250 basis point increase in market interest rates would reduce net interest
income by 3.7% in the first year and 9.6% in the second year. These figures
compare to corresponding decreases of 2.6% and 6.6% in the first and second
years, respectively, at December 31, 1997. If interest rates were to decrease
250 basis points, the simulation model projects that net interest income would
increase 1.1% in the first year but decrease 3.1% in the second year. This
compares to an increase of 1.1% in the first year and a decrease of 1.1% in the
second year at December 31, 1997. The Corporation's policy limits the permitted
reduction in net interest income to 10% in the first one-year period given a
decrease in interest rates of 250 basis points.
The preceding paragraph contains certain forward-looking statements within the
meaning of and made pursuant to the safe harbor provisions of the Private
Litigation Securities Reform Act of 1995 regarding the anticipated effects on
the Corporation's net interest income resulting from hypothetical changes in
market interest rates.
16
<PAGE>
The assumptions that the Corporation uses regarding the effects of changes in
interest rates on the adjustment of retail deposit rates and the balances of
residential mortgages, asset-backed securities and collateralized mortgage
obligations (CMOs) play a significant role in the results the simulation model
projects. The adjustment paths are not assumed to be symmetrical.
The Corporation's model also employs assumptions that reflect the historical
adjustment paths of the Corporation's retail deposit rates to changes in the
level of market interest rates. In addition, some of the Corporation's retail
deposit rates reach historic lows within the 250-basis point decline scenario.
The Corporation's model freezes the rates for these deposit products when they
equal their historic lows. These model assumptions (asymmetrical adjustments and
rate floors based on historic lows) limit the extent to which deposit rates are
expected to adjust in a declining rate scenario and contribute to the projected
simulation results.
Changes in the balances of residential mortgages, CMOs and asset-backed
securities are driven by contractual obligations and prepayments. While
contractual obligations are not typically influenced by changes in interest
rates, prepayment activity (including refinancing) can shift dramatically with
changes in interest rates. The Corporation's prepayment assumptions are based on
industry estimates for loans with similar coupons and remaining maturities. A
250-basis point decline in interest rates can lead to a significant increase in
prepayments when available reinvestment opportunities of similar risk carry
lower returns. Conversely, should interest rates rise 250 basis points, the same
balances are not likely to prepay at the same rate, but instead are likely to
lengthen in effective maturity as debtors elect not to prepay and to retain
these now below-market credit terms as long as possible. Holders of mortgages,
asset-backed securities and CMOs are left with returns below those prevailing in
the current environment. This prepayment-driven effect also contributes to the
projected simulation results.
During the first quarter of 1998, the Corporation sold certain fixed-rate
residential mortgage loans into the secondary market. The primary goal of this
program was to eliminate the risk that the average lives of these fixed-rate
residential mortgage loans would extend beyond their anticipated durations, as
frequently occurs during periods of rising interest rates. Total mortgage loans
sold during the first quarter of 1998 were $23.0 million.
Management reviews the Corporation's interest rate sensitivity regularly, and
uses a variety of strategies as needed to adjust that sensitivity. These include
changing the relative proportions of fixed-rate and floating-rate assets and
liabilities, as well as utilizing off-balance-sheet measures such as interest
rate swaps and interest rate floors.
At March 31, 1998, the Corporation was committed to interest rate swaps with a
total notional amount of $275 million, unchanged from year-end 1997. The swaps
have remaining maturities of between 0 and 25 months, with a weighted average
maturity of 10 months. At March 31, 1998, the Corporation was committed to
interest rate floors with a total notional amount of $325 million, unchanged
from year-end 1996. The floors have remaining maturities of between 16 and 51
months, with a weighted average maturity of 27 months. The net interest
differential, and the amortization of the initial fees associated with the
purchase of the floors and any gains recorded on sale are reported under the
caption "Interest and fees on loans" and are recognized over the lives of the
respective instruments. See "Net Interest Income."
17
<PAGE>
Liquidity
- -------------
A financial institution's liquidity represents its ability to meet, in a timely
manner, cash flow requirements that may arise. Liquidity of the asset side of
the balance sheet is provided by the maturity and marketability of loans, money
market assets and investments. Liquidity of the liability side of the balance
sheet is usually provided through a stable base of core deposits.
The Corporation's quarter-end liquidity ratio, calculated in accordance with
regulatory requirements of the FDIC, was 27.51%. Management believes that
maturities of the Corporation's investment securities, other readily marketable
assets and external sources of funds offer more than adequate liquidity to meet
any cash flow requirements that may arise. Sources of funds have historically
consisted of deposits, amortization and prepayments of outstanding loans,
maturities of investment securities, borrowings, and interest income. On May 4,
1998, the Corporation issued $125 million of subordinated debentures bearing
interest at the rate of 6.625% per annum and payable on May 1, 2008. Management
monitors the Corporation's existing and projected liquidity requirements on an
ongoing basis and implements appropriate strategies when deemed necessary.
Asset Quality and Loan Loss Provision
- -------------------------------------
The Corporation's provision for loan losses for the first quarter of 1998 was
$5.0 million, an increase of $500,000, or 11%, over the $4.5 million provided
for the first quarter of 1997. The reserve at March 31, 1998 was $66.1 million,
an increase of $2.3 million, or 4%, over the $63.8 million reported at December
31, 1997. The reserve as a percentage of total period-end loans outstanding was
1.61%, up slightly over the year-end level of 1.60%. Net chargeoffs for the
first quarter of 1998 were $2.8 million, down $700,000, or 21%, from the first
quarter of 1997.
The following table presents the risk elements in the Corporation's loan
portfolio:
Risk Elements (in March 31, December 31, March 31,
thousands) 1998 1997 1997
- --------------------------------------------------------------------------------
Nonaccruing $28,819 $28,669 $37,811
Restructured --- --- ---
Past due 90 days or more 19,253 15,523 20,612
- --------------------------------------------------------------------------------
Total $48,072 $44,192 $58,423
====================================================
Percent of total loans at
period-end 1.17% 1.11% 1.53%
Other real estate owned $1,832 $3,738 $5,543
Nonaccruing loans at March 31, 1998 were $28.8 million, an increase of $150,000
over the $28.7 million reported at December 31, 1997. Other real estate owned,
which is reported as a component of other assets in the Consolidated Statements
of Condition, consists of assets that have been acquired through foreclosure.
These assets are recorded on the books of the Corporation at the lower of their
cost or the estimated fair value less cost to sell, adjusted periodically based
upon current appraisals. Nonperforming assets (other real estate owned plus
nonaccrual loans) at March 31, 1998 totaled $30.7 million, or .7% of period-end
loans outstanding. This was a decrease of $1.8 million, or 5%, from the $32.4
million, or .8% of period-end loans outstanding, reported at December 31, 1997.
As a result of the Corporation's ongoing monitoring of its loan portfolio, at
March 31, 1998, approximately $9.1 million of its loans were identified which
are either currently performing in accordance with their terms or are less than
90 days past due but for which, in management's opinion, serious doubt exists as
to the borrowers' ability to continue to repay their loans in full on a timely
basis.
18
<PAGE>
The reserve for loan losses at quarter-end was 2.29 times the level of
nonaccrual loans. Management believes the reserve is adequate, based upon
currently available information. The Corporation's determination of the adequacy
of its reserve is based upon an evaluation of its classified loans and other
assets, past loss experience, current economic and real estate market conditions
and any regulatory recommendations.
Capital Resources
- -----------------
A strong capital position provides a margin of safety for both depositors and
stockholders, enables a financial institution to take advantage of profitable
opportunities and provides for future growth. The Corporation's total risk-based
capital ratio at the end of the first quarter of 1998 was 11.06%, and its core
(Tier 1) leveraged capital ratio was 7.44%. The corresponding ratios at year-end
1997 were 12.38% and 8.58%, respectively. Both of these ratios are well in
excess of the current regulatory minimums of 8.00% and 4.00%, respectively.
Reflecting the Corporation's performance and favorable outlook, in April the
Corporation increased the quarterly dividend by 8% to 39 cents per share. This
raises the per-share annual dividend rate to $1.56 and marks the seventeenth
consecutive year in which dividends have been increased.
Management monitors the Corporation's capital position and will make adjustments
as needed to insure that the capital base will satisfy existing and impending
regulatory requirements, as well as meet appropriate standards of safety and
provide for future growth.
Other Information
- ------------------
Year 2000 Issue
The Corporation has established a company-wide task force which reviewed all
computer-based systems and applications and developed a company-wide action plan
for the year 2000 date change. This includes modifications to existing software
and/or the acquisition of new software. In addition, the Corporation could
possibly be affected by the year 2000 issue to the extent other entities not
affiliated with it are unsuccessful in addressing this issue. The Corporation
has initiated formal communications with its significant vendors and customers
to determine the extent to which those entities could impact the Corporation by
failing to remediate their own year 2000 issues. There can be no guaranty that
the operating systems of other companies will be converted in a timely manner or
that remediation costs or difficulties would not have an adverse effect on the
Corporation.
The Corporation anticipates primarily utilizing internal resources to reprogram
and test its software for required year 2000 modifications. The Corporation
anticipates completing these system modifications by December 31, 1998. The
total cost for the year 2000 project, including costs and time associated with
the impact of third-party year 2000 issues, has not been finalized. These costs,
which will be expensed as incurred, are to be funded through operating cash
flows.
The preceding two paragraphs contain certain forward-looking and cautionary
statements within the meaning of and pursuant to the safe harbor provisions of
the Private Litigation Securities Reform Act of 1995.
19
<PAGE>
Accounting Pronouncements
- -------------------------
In June 1997, the Financial Standards Accounting Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which requires financial disclosure and descriptive information about reportable
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports. This
statement is effective for periods beginning after December 15, 1997 and
requires the restatement of all prior periods presented. However, it is not
required to be applied for interim reporting in the initial year of application.
Upon adoption, this statement will result in additional financial statement
disclosures.
Acquisition of Interest in Investment Advisor
- ---------------------------------------------
On April 24, 1998, WT Investments, Inc., an indirect subsidiary of the
Corporation ("WTI"), entered into an agreement with Roxbury Capital Management,
an asset management firm headquartered in Santa Monica, California ("Roxbury"),
and its principals. Under this agreement, a new entity, Roxbury Capital
Management, LLC ("RCM"), will assume Roxbury's investment management business.
Roxbury performs investment management services relating to large-capitalization
stocks for institutional and individual clients. The firm has a staff of 52
employees and currently manages over $4 billion in assets on a discretionary
basis.
Closing is subject to the satisfaction of several customary conditions. At
closing, WTI will obtain a preferred profits interest in RCM, with the balance
of those profits being retained by Roxbury for its current owners. Options to
acquire additional ownership interest in RCM will be distributed to key
employees. The Corporation will be able to purchase additional ownership
interests in RCM from its equity owners upon the occurrence of a number of
specified events, including the termination of employment, death, disability or
retirement of the individual.
RCM will be managed by a board of seven managers. Initially, the board will
consist of five people designated by Roxbury and its principals and two people
designated by WTI. WTI will be entitled to elect a majority of the board when it
acquires a majority of the equity interests in RCM.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See the discussion under the caption "Interest Rate Sensitivity" above.
20
<PAGE>
Part II. Other Information
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Change In Securities and Use of Proceeds
On January 17, 1998, the Corporation issued to a total of 16 individuals
not full-time employees of the Corporation non-statutory stock options to
acquire a total of 10,000 shares of its stock at an exercise price of
$62.375 per share. These options are first exercisable three years after
grant and terminate ten years after grant, and were issued under the
Corporation's 1996 Long-Term Incentive Plan in reliance on the exemption
provided by Section 4(2) under the Securities Act of 1933. The proceeds
from the exercise of these options will be used for general corporate
purposes. The shares underlying the options are anticipated to be
registered on Form S-3 to be filed with the Securities and Exchange
Commission.
Item 3 - Defaults Upon Senior Securities and Use of Proceeds
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
The exhibits listed below are being filed as part of this report. These
exhibits will be made available to any shareholder upon receipt of a
written request therefor, together with payment of $.20 per page for
duplicating costs.
Exhibit Number Exhibit
- -------------- ----------------------------------------------
11 Statement re computation of per share earnings
27 Financial data schedule
The Corporation filed a Report on Form 8-K on April 24, 1998 reporting
certain developments under Item 5.
21
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1998 /s/ Ted T. Cecala
---------------------------------------------
Name: Ted T. Cecala
Title: Chairman of the Board and
Chief Executive Officer
Date: May 14, 1998 /s/ David R. Gibson
---------------------------------------------
Name: David R. Gibson
Title: Senior Vice President and
Chief Financial Officer
22
Exhibit 11
Statement Re Computation of Per Share Earnings
- -------------------------------------------------------------
Earnings per share of $.82 for the first quarter of 1998 were computed by
dividing net income of $27,311,847 by the weighted average number of shares of
common stock outstanding during the quarter of 33,506,598.
23
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 195,229
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 45,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,413,231
<INVESTMENTS-CARRYING> 288,750
<INVESTMENTS-MARKET> 289,730
<LOANS> 4,095,707
<ALLOWANCE> 66,051
<TOTAL-ASSETS> 6,388,345
<DEPOSITS> 4,343,008
<SHORT-TERM> 1,381,464
<LIABILITIES-OTHER> 102,133
<LONG-TERM> 43,000
0
0
<COMMON> 39,192
<OTHER-SE> 479,548
<TOTAL-LIABILITIES-AND-EQUITY> 6,388,345
<INTEREST-LOAN> 87,742
<INTEREST-INVEST> 25,542
<INTEREST-OTHER> 235
<INTEREST-TOTAL> 113,519
<INTEREST-DEPOSIT> 36,207
<INTEREST-EXPENSE> 54,105
<INTEREST-INCOME-NET> 59,414
<LOAN-LOSSES> 5,000
<SECURITIES-GAINS> (31)
<EXPENSE-OTHER> 59,470
<INCOME-PRETAX> 40,498
<INCOME-PRE-EXTRAORDINARY> 27,312
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,312
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.79
<YIELD-ACTUAL> 4.33
<LOANS-NON> 28,819
<LOANS-PAST> 19,253
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 9,107
<ALLOWANCE-OPEN> 63,805
<CHARGE-OFFS> 3,395
<RECOVERIES> 641
<ALLOWANCE-CLOSE> 66,051
<ALLOWANCE-DOMESTIC> 54,832
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 11,219
</TABLE>
