FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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: 1-14659
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
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(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
<PAGE>
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of shares of issuer's common stock ($1.00 par value) outstanding at
September 30, 1999 - 32,565,207 shares
2
<PAGE>
Wilmington Trust Corporation and Subsidiaries
Form 10-Q
Index
Page
-------
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Statements of Condition 4
Consolidated Statements of Income 6
Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 26
Part II. Other Information
Item 1 - Legal Proceedings 28
Item 2 - Changes in Securities and Use of Proceeds 28
Item 3 - Defaults Upon Senior Securities 28
Item 4 - Submission of Matters to a Vote of Security Holders 28
Item 5 - Other Information 28
Item 6 - Exhibits and Reports on Form 8-K 28
Exhibit 11
Exhibit 27
3
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CONDITION (unaudited)
Wilmington Trust Corporation and Subsidiaries
----------------------------------
September 30, December 31,
1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $202,298 $204,579
----------------------------------
Interest-bearing time deposits in other banks ---- ----
----------------------------------
Federal funds sold and securities purchased
under agreements to resell 50,500 83,500
----------------------------------
Investment securities available for sale:
U.S. Treasury and government agencies 966,336 796,665
Obligations of state and political subdivisions 5,933 7,186
Other securities 720,097 494,890
- ---------------------------------------------------------------------------------------
Total investment securities available for sale 1,692,366 1,298,741
----------------------------------
Investment securities held to maturity:
U.S. Treasury and government agencies 12,194 29,098
Obligations of state and political subdivisions 7,843 8,098
Other securities 15,091 36,715
- ---------------------------------------------------------------------------------------
Total investment securities held to
maturity (market values were
$35,297 and $74,480, respectively) 35,128 73,911
----------------------------------
Loans:
Commercial, financial and agricultural 1,436,421 1,370,566
Real estate-construction 284,841 211,733
Mortgage-commercial 897,216 869,442
Mortgage-residential 935,344 857,626
Consumer 1,084,190 1,015,056
Unearned income (2,053) (4,790)
- ---------------------------------------------------------------------------------------
Total loans net of unearned income 4,635,959 4,319,633
Reserve for loan losses (76,400) (71,906)
- ---------------------------------------------------------------------------------------
Net loans 4,559,559 4,247,727
----------------------------------
Premises and equipment, net 146,943 145,492
Goodwill and other intangible assets 163,084 138,682
Accrued interest receivable 42,825 38,266
Other assets 94,963 69,667
- ---------------------------------------------------------------------------------------
Total assets $6,987,666 $6,300,565
==================================
4
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $1,043,539 $ 912,066
Interest-bearing:
Savings 403,381 404,015
Interest-bearing demand 1,380,441 1,425,953
Certificates under $100,000 1,109,035 1,182,183
Certificates $100,000 and over 1,129,050 612,546
- ---------------------------------------------------------------------------------------
Total deposits 5,065,446 4,536,763
----------------------------------
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 1,082,053 932,346
U.S. Treasury demand 69,491 18,944
- ---------------------------------------------------------------------------------------
Total short-term borrowings 1,151,544 951,290
----------------------------------
Accrued interest payable 43,263 44,553
Other liabilities 35,266 53,750
Long-term debt 168,000 168,000
- ---------------------------------------------------------------------------------------
Total liabilities 6,463,519 5,754,356
----------------------------------
Stockholders' equity:
Common stock ($1.00 par value) authorized
150,000,000 shares; issued 39,264,173 39,264 39,264
Capital surplus 70,738 67,047
Retained earnings 685,761 636,662
Accumulated other comprehensive income (16,664) 5,928
- ---------------------------------------------------------------------------------------
Total contributed capital and retained
earnings 779,099 748,901
Less: Treasury stock, at cost, 6,698,966 and
5,935,072 shares, respectively (254,952) (202,692)
- ---------------------------------------------------------------------------------------
Total stockholders' equity 524,147 546,209
----------------------------------
Total liabilities and stockholders'
equity $6,987,666 $6,300,565
==================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Wilmington Trust Corporation and
Subsidiaries
<TABLE>
<CAPTION>
----------------------------------------------------------------
For the three months ended For the nine months ended
September 30, September 30,
----------------------------------------------------------------
(in thousands; except per share data) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INTEREST INCOME
Interest and fees on loans $ 93,236 $ 90,333 $ 270,073 $ 268,018
Interest and dividends on investment securities:
Taxable interest 22,506 22,272 60,099 69,764
Tax-exempt interest 180 204 560 654
Dividends 2,413 2,147 7,076 6,514
Interest on time deposits in other banks ---- ---- ---- ----
Interest on federal funds sold and
securities purchased under
agreements to resell 229 655 875 1,303
- ----------------------------------------------------------------------------------------------------------------
Total interest income 118,564 115,611 338,683 346,253
-----------------------------------------------------------------
Interest on deposits 37,179 41,035 104,662 116,727
Interest on short-term borrowings 15,537 12,887 43,114 46,179
Interest on long-term debt 2,771 2,771 8,290 4,798
- ----------------------------------------------------------------------------------------------------------------
Total interest expense 55,487 56,693 156,066 167,704
-----------------------------------------------------------------
Net interest income 63,077 58,918 182,617 178,549
Provision for loan losses (4,000) (5,000) (13,500) (15,000)
- ----------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 59,077 53,918 169,117 163,549
-----------------------------------------------------------------
OTHER INCOME
Trust and asset management fees 37,102 32,203 109,188 94,355
Service charges on deposit
accounts 6,553 5,659 17,927 16,266
Gain on business disposition ---- ---- ---- 5,503
Card fees 2,522 2,114 6,805 6,057
Other operating income 2,854 2,593 6,773 8,972
Securities gains 821 4,745 845 4,747
- ----------------------------------------------------------------------------------------------------------------
Total other income 49,852 47,314 141,538 135,900
-----------------------------------------------------------------
Net interest and other income 108,929 101,232 310,655 299,449
-----------------------------------------------------------------
OTHER EXPENSE
Salaries and employment benefits 38,654 34,855 106,667 103,313
Net occupancy 4,161 3,391 11,209 9,405
Furniture and equipment 5,631 4,899 15,719 13,842
Stationery and supplies 1,502 1,483 4,561 4,182
6
<PAGE>
Provision for litigation
settlement ---- ---- ---- 5,500
Servicing and consulting fees 1,619 1,774 4,915 4,989
Advertising and contributions 2,105 1,915 6,003 5,141
Other operating expense 9,289 8,892 27,194 26,297
- ----------------------------------------------------------------------------------------------------------------
Total other expense 62,961 57,209 176,268 172,669
-----------------------------------------------------------------
NET INCOME
Income before income taxes 45,968 44,023 134,387 126,780
Applicable income taxes 15,242 14,792 44,559 41,948
- ----------------------------------------------------------------------------------------------------------------
Net income $ 30,726 $ 29,231 $ 89,828 $ 84,832
=================================================================
Net income per share:
basic $ 0.94 $ 0.87 $ 2.72 $ 2.53
=================================================================
diluted $ 0.92 $ 0.86 $ 2.68 $ 2.47
=================================================================
Weighted average shares oustanding:
basic 33,005 33,476 33,076 33,519
diluted 33,400 34,140 33,580 34,335
Cash dividends per share $ 0.42 $ 0.39 $ 1.23 $ 1.14
See Notes to Consolidated Financial Statements
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Wilmington Trust Corporation and Subsidiaries
------------------------------
For the nine months ended
September 30,
(in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 89,828 $ 84,832
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 13,500 15,000
Provision for depreciation 12,242 9,970
Amortization/(accretion) of investment securities
available for sale discounts and premiums 2,528 (1,359)
Accretion of investment securities held to maturity discounts
and premiums (47) (194)
Deferred income taxes 16,210 (3,521)
Gains on sales of loans (324) (588)
Securities gains (845) (4,747)
(Increase)/decrease in other assets (26,599) 19,875
Decrease in other liabilities (23,276) (4,147)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 83,217 115,121
------------------------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 891,114 658,114
Proceeds from maturities of investment securities available for sale 221,925 494,050
Proceeds from maturities of investment securities held to maturity 39,850 184,741
Purchases of investment securities available for sale (1,543,667) (1,097,803)
Purchases of investment securities held to maturity (1,000) ----
Investments in affiliates (27,658) (119,163)
Gross proceeds from sales of loans 70,243 81,300
Purchases of loans (7,070) (1,095)
Net increase in loans (388,181) (324,349)
Net increase in premises and equipment (13,693) (18,548)
- --------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (758,137) (142,753)
------------------------------
FINANCING ACTIVITIES
Net increase in demand, savings and interest-bearing
demand deposits 85,327 131,161
Net increase in certificates of deposit 443,356 226,916
Net increase/(decrease) in federal funds purchased and securities sold
under agreements to repurchase 149,707 (407,270)
Net increase in U.S. Treasury demand 50,547 13,057
Proceeds from issuance of long-term debt ---- 125,000
Cash dividends (40,729) (38,198)
Proceeds from common stock issued under employment benefit plans 14,063 11,892
8
<PAGE>
Payments for common stock acquired through buybacks (62,632) (23,042)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 639,639 39,516
------------------------------
(Decrease)/increase in cash and cash equivalents (35,281) 11,884
Cash and cash equivalents at beginning of period 288,079 289,392
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of period $ 252,798 $ 301,276
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 157,356 $ 165,654
Taxes 51,910 41,273
Loans transferred during the year:
To other real estate owned $ 1,727 $ 2,066
From other real estate owned 2,283 3,956
See Notes to Consolidated Financial Statements
</TABLE>
9
<PAGE>
Note 1 - Accounting and Reporting Policies
The accounting and reporting policies of Wilmington Trust Corporation (the
"Corporation"), a holding company that owns all of the issued and outstanding
shares of capital stock of Wilmington Trust Company, Wilmington Trust of
Pennsylvania, Wilmington Trust FSB and WT Investments, Inc., 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 that are of a normal recurring nature and
that 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 Shareholders for 1998.
Note 2 - Comprehensive Income
Accumulated other comprehensive income, as required by Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," is
representative of the Corporation's after-tax, unrealized gains and/or losses
included in the investment securities available-for-sale portfolio. The upward
movement in interest rates since December 31, 1998 resulted in temporary
declines in the market value of the Corporation's U.S. Treasury, government
agency and asset-backed securities portfolios.
Note 3 - Segment Reporting
Financial data by segment for September 30, 1999 vs September 30, 1998 is as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Banking Fee-based Funds
Year-to-Date September 30, 1999 (in thousands) business business management Totals
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 150,208 $ 16,104 $ 17,876 $ 184,188
Provision for loan losses (13,444) (56) --- (13,500)
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 136,764 16,048 17,876 170,688
Trust and asset management fees:
Personal trust ---- 48,430 ---- 48,430
Corporate financial services ---- 34,187 ---- 34,187
Asset management ---- 27,043 ---- 27,043
Other operating income 29,856 2,160 942 32,958
Securities gains ---- ---- 845 845
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest and other income 166,620 127,868 19,663 314,151
Other expense (95,958) (80,527) (1,629) (178,114)
- ---------------------------------------------------------------------------------------------------------------------------------
Segment profit from operations 70,662 47,341 18,034 136,037
Segment loss from infrequent events ---- 569 ---- 569
- ---------------------------------------------------------------------------------------------------------------------------------
Segment profit before income taxes $ 70,662 $ 47,910 $ 18,034 $ 136,606
=================================================================================================================================
Intersegment revenue $ 8,498 $ 5,681 $ 1,745 $ 15,924
Depreciation & amortization
7,699 5,073 208 12,980
Investment in equity method investees ---- 159,795 ---- 159,795
Segment average assets 4,187,812 704,058 3,250,262 8,142,132
10
<PAGE>
Year-to-Date September 30, 1998 (in
thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 154,887 $ 17,761 $ 7,501 $ 180,149
Provision for loan losses (14,767) (233) ---- (15,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 140,120 17,528 7,501 165,149
Trust and asset management fees:
Personal trust ---- 44,435 ---- 44,435
Corporate financial services ---- 31,713 ---- 31,713
Asset management ---- 19,825 ---- 19,825
Other operating income 27,799 1,641 8,143 37,583
Securities gains 1 --- 4,746 4,747
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest and other income 167,920 115,142 20,390 303,452
Other expense (93,367) (72,305) (8,292) (173,964)
- ----------------------------------------------------------------------------------------------------------------------------------
Segment profit from operations 74,553 42,837 12,098 129,488
Segment loss from infrequent events ---- 1,534 ---- 1,534
- ----------------------------------------------------------------------------------------------------------------------------------
Segment profit before income taxes $ 74,553 $ 44,371 $ 12,098 $ 131,022
==================================================================================================================================
Intersegment revenue $ 4,847 $ 2,999 $ 1,127 $ 8,973
Depreciation and amortization 6,244 4,349 161 10,754
Investment in equity method investees ---- 119,921 ---- 119,921
Segment average assets 3,833,971 553,336 3,026,410 7,413,717
</TABLE>
A reconciliation of reportable segment amounts to the Corporation's consolidated
balances is as follows:
<TABLE>
- -----------------------------------------------------------------------------------------
Year-to-Date September 30 (in thousands) 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Total revenues for reportable segments $ 184,188 $180,149
Other revenues 143,463 138,303
Elimination of intersegment revenues (3,496) (4,003)
- -----------------------------------------------------------------------------------------
Total consolidated revenues before provision $ 324,155 $314,449
===============================
Profit or loss:
Total profit or loss for reportable segments $ 136,606 $131,022
Elimination of intersegment profits (1,650) (2,708)
Infrequent events (569) (1,534)
- -----------------------------------------------------------------------------------------
$ 134,387 $126,780
===============================
</TABLE>
11
<PAGE>
Assets:
Total assets for reportable segments $ 8,142,132 $ 7,413,717
Other assets 225,328 216,920
Elimination of intersegment assets (1,784,084) (1,364,114)
Other assets not allocated to segments ---- ----
- -------------------------------------------------------------------------------
Consolidated total average assets $ 6,583,376 $ 6,266,523
===============================
A description of the Corporation's business lines is contained in Note 18 to its
consolidated financial statements in the Corporation's 1998 Annual Report to
Shareholders.
12
<PAGE>
Wilmington Trust Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
Operations
SUMMARY
- -------
Net income for the third quarter of 1999 was $30.7 million, or $.94 per share, a
5% increase over the $29.2 million, or $.87 per share, reported for the third
quarter of last year. Diluted net income per share for the third quarter of 1999
was $.92, compared to $.86 for the third quarter of last year.
Total revenues for the third quarter of 1999 reached $112.9 million, a 6%
increase over the $106.2 million reported for the third quarter of 1998.
Net interest income for the third quarter of 1999 reached $63.1 million, a 7%
increase over the $58.9 million reported for the third quarter of last year.
The quarterly provision for loan losses of $4.0 million was less than the $5.0
million for the third quarter of 1998. The reserve for loan losses at
quarter-end was $76.4 million, $4.5 million, or 6%, above the $71.9 million
reported at December 31, 1998.
Non-interest income for the third quarter of 1999 was $49.9 million, a 5%
increase over the $47.3 million reported for the same quarter of last year.
Operating expenses for the third quarter of 1999 were $63.0 million, a 10%
increase above the $57.2 million reported for the third quarter of last year.
Return on assets for the nine months ended September 30, 1999, on an annualized
basis, was 1.82%, above the 1.81% reported for the corresponding period a year
ago. Return on stockholders' equity, also on an annualized basis, was 22.36%,
above the 21.76% reported for the first nine months of 1998.
STATEMENT OF CONDITION
- ----------------------
Total assets at September 30, 1999 were $6.99 billion, up $687.1 million, or
11%, over the $6.30 billion reported at December 31, 1998. Total earning assets
increased $638.2 million, or 11%, over the same period of time, to $6.41
billion. Growth in both the loan and investment portfolios contributed to these
increases.
Total loans at September 30, 1999 were $4.64 billion, an increase of $316.3
million, or 7%, over the December 31, 1998 level of $4.32 billion. Contributing
to this increase were commercial loans of $1.44 billion, which rose $65.9
million, or 5%, over their December 31, 1998 level; commercial construction
loans of $284.8 million, which rose $73.1 million, or 35%; commercial mortgage
loans of $897.2 million, which rose $27.8 million, or 3%; residential mortgage
loans of $935.3 million, which rose $77.7 million, or 9%; and consumer loans of
$1.08 billion, which rose $69.1 million, or 7%.
The investment portfolio at September 30, 1999 was $1.73 billion, an increase of
$354.8 million, or 26%, over the December 31, 1998 level of $1.37 billion, as
the Corporation continued its efforts to replace securities sold during 1998.
Contributing to this increase were U.S. Treasury and government agency
securities, which increased $152.8 million, or 19%, to $978.5 million, and
asset-backed securities, which increased $117.6 million, or 44%, to $383.0
million.
Interest-bearing liabilities at quarter-end were $5.34 billion, $597.5 million,
or 13%, above the year-end level of $4.74 billion. Total deposits during the
first nine months of 1999 increased $528.7 million, or 12%, while short-term
borrowings increased $200.3 million, or 21%. A $516.5 million increase in
13
<PAGE>
certificates of deposit $100,000 and over was offset, in part, by a $45.5
million, or 3%, decrease in interest-bearing demand account balances, and a
$73.1 million, or 6%, decrease in certificates of deposit less than $100,000.
Federal funds purchased increased $198.2 million, or 30%, to $866.4 million, and
U.S. Treasury demand balances rose $50.5 million, to $69.5 million.
Shareholders' equity at September 30, 1999 was $524.1 million, $22.1 million, or
4%, below the year-end level. Earnings of $89.8 million and $14.1 million
(381,226 shares) in new stock issued during that nine-month period were more
than offset by a $22.6 million valuation reserve adjustment for the investment
portfolio, $40.7 million in cash dividends and $62.6 million (1,145,120 shares)
for the stock buyback program.
NET INTEREST INCOME
- -------------------
Net interest income for the third quarter of 1999 on a fully tax-equivalent
("FTE") basis was $65.1 million. This was a $4.0 million, or 7%, increase over
the $61.0 million reported for the third quarter of 1998.
Interest income (FTE) for the third quarter of 1999 increased $2.8 million, or
2%, to $120.5 million from $117.7 million for the third quarter of 1998.
Contributing to this increase was the effect of a $411.0 million increase in the
average level of earning assets, offset in part by the declining rate
environment. Interest revenues rose $9.3 million as a result of this increase in
earning assets. Offsetting this increase was a $6.5 million decrease in interest
revenues associated with the lower interest rates. The average rate earned on
the Corporation's earning assets during the third quarter of 1999 fell 39 basis
points from that for the third quarter of 1998, from 7.95% to 7.56%. The loan
portfolio yield decreased 45 basis points, to 8.12%, while the investment
portfolio yield declined 31 basis points, to 6.07%.
Interest expense for the third quarter of 1999 declined $1.2 million, or 2%, to
$55.5 million from the $56.7 million reported for the third quarter of last
year. Interest expense declined $5.5 million due to a 40-basis point drop in the
average rate paid on interest-bearing liabilities. This decrease was offset, in
part, by a $4.3 million increase in interest expense attributable to the $370.6
million increase in the average level of interest-bearing liabilities. The
average rate the Corporation paid for its funds during the third quarter of 1999
was 3.48%, compared to 3.83% for the third quarter of 1998.
The Corporation's net interest margin for the third quarter of 1999 was 4.08%,
down four basis points from the 4.12% reported for the third quarter of a year
ago. The decline was driven, in part, by customer movement to lower cost,
fixed-rate financing. In addition, the issuance of $125 million of subordinated
debt securities to fund investments in asset management firms, generating fee
income, has reduced the net interest margin further. The following three tables
present comparative net interest income data and a rate-volume analysis of
changes in net interest income for the third quarters and first nine months,
respectively, of 1999 and 1998.
14
<PAGE>
<TABLE>
QUARTERLY ANALYSIS OF EARNINGS
<CAPTION>
1999 Third Quarter 1998 Third 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 17,428 229 5.14 46,369 655 5.51
- ------------------------------------------------------------------------ ----------------------------
Total short-term investments 17,428 229 5.14 46,369 655 5.51
--------------------------------------------------------------------------------
U.S. Treasury and government
agencies 991,511 14,864 5.89 972,268 14,943 6.20
State and municipal 14,412 282 7.93 16,098 309 7.76
Preferred stock 158,510 2,854 7.19 140,846 2,503 7.24
Asset-backed securities 388,085 6,140 6.22 375,452 6,178 6.63
Other 142,094 1,959 5.51 109,118 1,573 5.80
- ------------------------------------------------------------------------ ----------------------------
Total investment securities 1,694,612 26,099 6.07 1,613,782 25,506 6.38
--------------------------------------------------------------------------------
Commercial, financial and
agricultural 1,432,059 28,612 7.84 1,285,342 27,355 8.35
Real estate-construction 278,861 6,365 8.93 198,006 4,780 9.45
Mortgage-commercial 879,705 19,338 8.60 882,862 20,551 9.11
Mortgage-residential 908,216 15,947 7.02 847,030 16,211 7.65
Consumer 1,071,665 23,953 8.84 998,178 22,662 8.98
- ------------------------------------------------------------------------ ----------------------------
Total loan 4,570,506 94,215 8.12 4,211,418 91,559 8.57
--------------------------------------------------------------------------------
Total earning assets $ 6,282,546 120,543 7.56 $ 5,871,569 117,720 7.95
================================================================================
Funds supporting earning assets
Savings $ 415,125 1,807 1.73 $ 411,756 2,350 2.26
Interest-bearing demand 1,351,980 7,373 2.16 1,246,393 8,000 2.55
Certificates under $100,000 1,133,085 14,159 4.96 1,216,805 16,812 5.48
Certificates $100,000 and over 1,048,284 13,840 5.17 966,967 13,873 5.61
- ------------------------------------------------------------------------ ----------------------------
Total interest-bearing
deposits 3,948,474 37,179 3.72 3,841,921 41,035 4.22
--------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase 1,176,419 14,991 5.06 896,347 12,182 5.39
U.S. Treasury demand 37,522 546 5.69 53,563 705 5.15
- ------------------------------------------------------------------------ ----------------------------
Total short-term borrowings 1,213,941 15,537 5.08 949,910 12,887 5.38
--------------------------------------------------------------------------------
Long-term debt 168,000 2,771 6.60 168,000 2,771 6.55
- ------------------------------------------------------------------------ ----------------------------
15
<PAGE>
Total interest-bearing
liabilities 5,330,415 55,487 4.12 4,959,831 56,693 4.52
------------------------------------------------------------------------------
Other noninterest funds 952,131 ---- ---- 911,738 ---- ----
- -------------------------------------------------------------------------- ----------------------------
Total funds used to support
earning assets $6,282,546 55,487 3.48 $5,871,569 56,693 3.83
==============================================================================
Net interest income/yield 65,056 4.08 61,027 4.12
Tax-equivalent adjustment (1,979) (2,109)
---------- ---------
Net interest income $ 63,077 $ 58,918
========== =========
</TABLE>
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.
16
<PAGE>
??
<TABLE>
YEAR-TO-DATE ANALYSIS OF EARNINGS
<CAPTION>
Year-to-Date 1999 Year-to-Date 1998
------------------------------------------ -------------------------------------
(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 24,315 875 4.75 31,418 1,303 5.44
- --------------------------------------------------------------------------- -------------------------------
Total short-term investments 24,315 875 4.75 31,418 1,303 5.44
---------------------------------------------------------------------------------------
U.S. Treasury and government
agencies 927,756 40,764 5.83 1,020,116 47,683 6.28
State and municipal 14,924 853 7.73 17,000 984 7.76
Preferred stock 163,827 8,437 6.92 137,753 7,793 7.73
Asset-backed securities 346,082 16,301 6.24 380,461 18,840 6.64
Other 108,836 4,297 5.27 103,146 4,377 5.69
- --------------------------------------------------------------------------- -------------------------------
Total investment securities 1,561,425 70,652 6.01 1,658,476 79,677 6.49
---------------------------------------------------------------------------------------
Commercial, financial and
agricultural 1,414,544 83,202 7.77 1,250,217 80,264 8.49
Real estate-construction 257,032 16,905 8.68 172,504 12,239 9.35
Mortgage-commercial 874,377 57,517 8.68 897,096 63,172 9.29
Mortgage-residential 876,179 47,188 7.16 831,902 49,435 7.93
Consumer 1,049,575 68,339 8.68 976,247 66,457 9.08
- --------------------------------------------------------------------------- -------------------------------
Total loans 4,471,707 273,151 8.10 4,127,966 271,567 8.79
---------------------------------------------------------------------------------------
Total earning assets $6,057,447 344,678 7.55 $5,817,860 352,547 8.06
=======================================================================================
Funds supporting earning assets
Savings $415,119 5,612 1.81 $ 407,881 7,073 2.32
Interest-bearing demand 1,375,913 22,400 2.18 1,205,585 23,203 2.57
Certificates under $100,000 1,156,846 43,740 5.06 1,212,559 50,078 5.52
Certificates $100,000 and over 837,268 32,910 5.18 853,768 36,373 5.62
- --------------------------------------------------------------------------- -------------------------------
Total interest-bearing
deposits 3,785,146 104,662 3.68 3,679,793 116,727 4.25
---------------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase 1,128,659 41,769 4.92 1,077,210 44,157 5.47
U.S. Treasury demand 34,442 1,345 5.15 51,197 2,022 5.21
- --------------------------------------------------------------------------- -------------------------------
Total short-term borrowings 1,163,101 43,114 4.92 1,128,407 46,179 5.46
---------------------------------------------------------------------------------------
Long-term debt 168,000 8,290 6.58 111,681 4,798 5.44
- --------------------------------------------------------------------------- -------------------------------
Total interest-bearing
liabilities 5,116,247 156,066 4.06 4,919,881 167,704 4.53
---------------------------------------------------------------------------------------
17
<PAGE>
Other noninterest funds 941,200 ---- ---- 897,979 ---- ----
- --------------------------------------------------------------------------- ----------------------------------
Total funds used to support
earning assets $6,057,447 156,066 3.42 $5,817,860 167,704 3.84
=======================================================================================
Net interest income/yield 188,612 4.13 184,843 4.22
Tax-equivalent adjustment (5,995) (6,294)
-------------------- --------------------
Net interest income $ 182,617 $ 178,549
==================== ======================
</TABLE>
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.
18
<PAGE>
<TABLE>
RATE-VOLUME ANALYSIS OF NET INTEREST INCOME
<CAPTION>
---------------------------------------- ---------------------------------------
For the three months ended September 30, For the nine months ended September 30,
---------------------------------------- ---------------------------------------
1999/1998 1999/1998
Increase (Decrease) Increase (Decrease)
due to change in due to change in
---------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2 1 2
(in thousands) Volume Rate Total Volume Rate Total
- --------------------------------------------------------------------------------------------------------------------------------
Interest income:
Time deposits in other banks $ ---- $ ---- $ ----- $ ----- $ ----- $ ------
Federal funds sold and
securities purchased under
agreements to resell (408) (18) (426) (293) (135) (428)
- --------------------------------------------------------------------------------------------------------------------------------
Total short-term
investments (408) (18) (426) (293) (135) (428)
------------------------------------------------------------------------------------------
U.S. Treasury and
government agencies 715 (794) (79) (3,789) (3,130) (6,919)
State and municipal * (33) 6 (27) (128) (3) (131)
Preferred stock * 381 (30) 351 1,648 (1,004) 644
Asset-backed securities 368 (406) (38) (1,493) (1,046) (2,539)
Other * 490 (104) 386 257 (337) (80)
- --------------------------------------------------------------------------------------------------------------------------------
Total investment
securities 1,921 (1,328) 593 (3,505) (5,520) (9,025)
------------------------------------------------------------------------------------------
Commercial, financial and
agricultural * 3,088 (1,831) 1,257 10,435 (7,497) 2,938
Real estate-construction 1,926 (341) 1,585 5,911 (1,245) 4,666
Mortgage-commercial * (72) (1,141) (1,213) (1,579) (4,076) (5,655)
Mortgage-residential 1,180 (1,444) (264) 2,626 (4,873) (2,247)
Consumer 1,663 (372) 1,291 4,980 (3,098) 1,882
- --------------------------------------------------------------------------------------------------------------------------------
Total loans 7,785 (5,129) 2,656 22,373 (20,789) 1,584
- --------------------------------------------------------------------------------------------------------------------------------
Total interest income $ 9,298 $(6,475) $ 2,823 $ 18,575 $ (26,444) $ (7,869)
==========================================================================================
Interest expense:
Savings $ 19 $ (562) $ (543) $ 126 $ (1,587) $ (1,461)
Interest-bearing demand 679 (1,306) (627) 3,274 (4,077) (803)
Certificates under $100,000 (1,156) (1,497) (2,653) (2,300) (4,038) (6,338)
19
<PAGE>
Certificates $100,000 and over 1,166 (1,199) (33) (703) (2,760) (3,463)
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 708 (4,564) (3,856) 397 (12,462) (12,065)
---------------------------------------------------------------------------------------
Federal funds purchased and
secruities sold under
agreements to repurchase 3,774 (965) 2,809 2,111 (4,499) (2,388)
U.S. Treasury demand (211) 52 (159) (662) (15) (677)
- ------------------------------------------------------------------------------------------------------------------------------
Total short-term
borrowings 3,563 (913) 2,650 1,449 (4,514) (3,065)
---------------------------------------------------------------------------------------
Long-term debt ---- ---- ---- 2,292 1,200 3,492
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense $ 4,271 $(5,477) $ (1,206) $ 4,138 $(15,776) $(11,638)
=======================================================================================
Changes in net interest income $ 4,029 $ 3,769
========= ===========
</TABLE>
* 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.
20
<PAGE>
Non-interest Revenues and Operating Expenses
- --------------------------------------------
Non-interest revenues for the third quarter of 1999 were $49.9 million, an
increase of $2.5 million, or 5%, over those for the third quarter of a year ago,
due primarily to higher trust and asset management fees. Excluding securities
gains, non-interest revenues for the third quarter of 1999 were $49.0 million,
compared to $42.6 million for the third quarter of 1998. This would reflect a
15% increase quarter-to-quarter and a 7% increase on a year-to-date basis.
Trust and asset management fees for the third quarter of 1999 increased $4.9
million, or 15%, to $37.1 million. Asset management fees in the third quarter
rose $2.1 million, or 30%, to $9.1 million, due to the performance of our recent
affiliations with the asset management firms Cramer Rosenthal McGlynn, LLC and
Roxbury Capital Management, LLC. Personal trust fees in the third quarter rose
$1.9 million, or 13%, to $16.5 million. Corporate trust fees increased $845,000,
or 8%, to $11.5 million. On a year-to-date basis, trust and asset management
fees were up $14.8 million, or 16%, over those of a year ago, with asset
management fees contributing over half of this improvement.
Service charges on deposit accounts for the third quarter of 1999 were $6.6
million, 16% above those for the third quarter a year ago. Increased transaction
fees associated with automated teller machine usage, overdrafts and returned
items contributed to this increase. For the first nine months of 1999, service
charges were $1.7 million, or 10%, above those for the first nine months of
1998.
Other operating income for the third quarter of 1999 was $5.4 million. This was
an increase of $669,000, or 14%, over the $4.7 million reported for the third
quarter of 1998. For the first nine months of 1999, other operating income was
$7.0 million, or 34%, below that for the corresponding period last year. Other
operating income for the first nine months of 1998 included non-recurring gains
of $5.5 million from the disposition of the mutual fund processing business,
$600,000 from the sale of fixed assets and a $593,000 gain on disposition of
OREO.
Operating expenses for the third quarter of 1999 increased $5.8 million, or 10%,
over those for the third quarter of 1998, to $63.0 million. Total personnel
expenses for the quarter increased $3.8 million, or 11%, to $38.7 million.
Contributing to this increase were higher levels of salaries and wage expense.
Net occupancy expense rose $770,000, or 23%, due to costs associated with the
new personal trust and private banking offices opened last year in New York and
California, as well as the relocation this year of our North Palm Beach,
Florida, office to PGA Boulevard. Furniture and equipment expense for the
quarter rose $732,000, or 15%, above that for the third quarter of last year, as
higher data processing maintenance costs and depreciation expense reflected the
Corporation's continued investment in new technology. Other operating expense
for the quarter rose $432,000, or 3%, to $13.0 million. For the first nine
months of 1999, other operating expense was $38.1 million, a decrease of $3.8
million, or 9%, below that for the first nine months of last year. There was no
provision for litigation settlement during the first nine months of 1999, while
the first quarter of 1998 reflected a $5.5 million charge to earnings taken in
connection with the anticipated settlement of outstanding litigation. Absent
this charge in 1998, other operating expense for the first nine months of 1999
increased $1.7 million, or 5%, above that for the first nine months of 1998.
Contributing to this increase for both the third quarter of 1999 and the
year-to-date were higher advertising, telephone, travel and entertainment and
card fee expenses. The Corporation continues to review aggressively methods of
streamlining processes and controlling expenses through internal restructuring
and the use of third-party providers.
Income tax expense for the first nine months of 1999 increased $2.6 million, or
6%, above that for the first nine months of 1998, to $44.6 million.
Approximately $1.6 million, or 61%, of this increase was Federal income tax. The
Corporation's effective tax rate for the first nine months of 1999 was 33.16%,
compared to 33.09% for the first nine months of 1998.
21
<PAGE>
Liquidity
- ---------
A financial institution's liquidity represents its ability to meet, in a timely
manner, cash flow requirements that may arise. Liquidity on the asset side of
the balance sheet is provided by the maturity and marketability of loans, money
market assets and investments. Liquidity on 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 25.35%. 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. 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 third quarter of 1999 was
$4.0 mllion, $1.0 million, or 20%, below the amount provided for the third
quarter of 1998. The reserve for loan losses at September 30, 1999 was $76.4
million, an increase of $4.5 million, or 6%, above the $71.9 million reported at
December 31, 1998. The reserve as a percentage of total period-end loans
outstanding was 1.65%, down slightly from the year-end level of 1.66%. Net
chargeoffs for the first nine months of 1999 were $9.0 million, an increase of
$97,000, or 1%, above those for the corresponding period of 1998.
The following table presents the risk elements in the Corporation's loan
portfolio:
Risk Elements (in thousands) September 30, December 31, September 30,
1999 1998 1998
- -------------------------------------------------------------------------------
Nonaccruing $31,839 $30,598 $30,848
Past due 90 days or more 21,187 18,558 14,097
- -------------------------------------------------------------------------------
Total $53,026 $49,156 $44,945
===============================================
Percent of total loans at 1.14% 1.14% 1.06%
period-end
Other real estate owned $976 $1,532 $1,848
Nonaccruing loans at September 30, 1999 were $31.8 million, an increase of $1.2
million over the $30.6 million reported at December 31, 1998. 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. Other real estate owned at September
30, 1999 was $976,000, a decrease of $556,000, or 36%, from the December 31,
1998 level of $1.5 million. Nonperforming assets (other real estate owned plus
nonaccrual loans) at September 30, 1999 totaled $32.8 million, or .71% of
period-end loans outstanding. This was an increase of $685,000, or 2%, over the
$32.1 million, or .74% of period-end loans outstanding, reported at December 31,
1998. As a result of the Corporation's ongoing monitoring of its loan portfolio,
at September 30, 1999, approximately $53.5 million of its loans were identified
that 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.
22
<PAGE>
The reserve for loan losses at quarter-end was 2.40 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 third quarter of 1999 was 11.08%, and its core
(Tier 1) leveraged capital ratio was 5.92%. The corresponding ratios at year-end
1998 were 12.47% and 6.61%, respectively. Both of these ratios are well in
excess of the current regulatory minimums of 8.00% and 4.00%, respectively.
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 is working to help assure that date-sensitive systems and
hardware are prepared for orderly transition to the year 2000 without disrupting
our customer accounts and operations. We believe we are prepared for the Year
2000 and that, based on our renovation, testing, contingency planning and
contacts with third parties, our systems will be able to process dates and
date-related information after December 31, 1999.
We began renovating business application systems in late 1995. Subsequently, the
Corporation established a Year 2000 Program Management Office to manage our Year
2000 project on an enterprise-wide basis. We have regular project reviews of our
Year 2000 efforts with a management steering team, and quarterly meetings with
senior management and the Board of Directors.
The Program Management Office
- -----------------------------
The Program Management Office is comprised of project leaders representing
information technology and each major business area, such as commercial banking,
personal banking, personal trust and private banking and corporate financial
services. This team coordinates the major initiatives and strategies in each
constituent's respective area. The initiatives include business risk/impact
analysis, information technology, credit risk, vendor management, investment
risk, communications and contingency planning.
The Corporation worked with an international consulting firm for approximately
six months to assist in its Year 2000 efforts. That firm assisted in
implementing the enterprise-wide Program Management Office and strategies to
help assure business area readiness, vendor readiness, external communication
and contingency planning.
23
<PAGE>
The Program Management Office Master Plan
- -----------------------------------------
The following is a description and status of each strategy in our Year 2000
program:
Information Technology
----------------------
We used a project approach the FDIC has endorsed to help assure continuity
and efficiency among all our project teams. The approach used the following
five steps: awareness, assessment, renovation, testing and implementation.
o RENOVATION: We have completed assessment and renovation of all of our
core critical hardware and software systems. We are continuing through
1999 to renovate some non-core systems that are low-critical internal
systems.
o TESTING: We have completed testing our core critical applications.
Additionally, we have tested our core applications and infrastructure
in a "time machine" environment, in which our mainframe and mid-range
computers actually processed in the December 31, 1999 to January 3,
2000 and February 28 to March 1, 2000 (leap year) environments. We
will continue through 1999 to test some non-core systems that are
low-critical.
o IMPLEMENTATION: As we have renovated applications, we have implemented
Year 2000 versions of software. As a result, the Year 2000 versions of
all our core systems are running in production today.
In preparing for the Year 2000, we have made technology investments
that will improve our ability to support our infrastructure and
deliver improved services to our customers. These include installing
standard NT desktop personal computers throughout our company, a new
wire transfer system, introduction of online banking and improvements
in infrastructure to support around-the-clock customer access.
o CLEAN MANAGEMENT: We also expect to assure that future modifications
to our software applications do not introduce new date-related
problems and provide any production support that may be necessary.
Credit Risk
- -----------
Our credit risk strategy includes assessing risks for existing commercial loan
relationships over $1 million and assessing all new loan relationships over $1
million. We have evaluated the need to establish additional loan loss reserves,
and do not presently recommend any changes. We will continue to monitor existing
relationships for Year 2000 readiness into the Year 2000.
Investment Risk
- ---------------
We have evaluated investment risk for trust accounts for which Wilmington Trust
has investment responsibility, as well as for the Corporation's own investment
portfolio. We have developed an investment risk strategy based on the different
types of holdings, such as equity, fixed-income or mutual funds.
Vendor Management
- -----------------
We have corresponded with providers of core services and products through
several mailings. We are continuing to assess key critical vendors, such as
power and telecommunication companies, with whom we are reviewing their systems
renovation, testing, implementation and contingency plans. We are monitoring the
status of critical vendors and have developed contingency plans where the
potential for vendors to impact the delivery of services to us is high. In
addition, the Corporation is monitoring the status of regulatory reviews of our
24
<PAGE>
major service providers. Where feasible, we have tested critical vendor-supplied
products, such as software, hardware and environmental systems such as air
conditioning and elevator systems.
Costs
- -----
The Corporation estimates that it spent $23.1 million through September 30, 1999
in outside and internal costs toward required modifications, upgrades and
replacements of its internal systems and testing. We presently anticipate
incurring an additional $2.0 million in 1999 and 2000 in outside and internal
costs. We expect these costs to continue to be funded through operating cash
flows.
We devoted approximately 30% of our available application programming and 21% of
our total internal information technology resources to the Year 2000 issue in
1998 and the first half of 1999. During the third quarter of 1999, our effort
required less than 10% of our total internal information technology resources.
We have deferred some other information technology projects pending resolution
of the Year 2000 issue, but do not believe those deferrals will have a material
adverse impact on our financial performance or results of operations.
Contingency Planning
- --------------------
We have assessed the potential impact of Year 2000 failures on our core business
functions and have developed contingency plans where that impact presents a high
risk. Business experts and management in each area have validated these plans to
ensure their appropriateness. We have incorporated enhancements made through
this process into finalized contingency plans.
As part of our contingency planning, we are monitoring our liquidity needs as
the Year 2000 approaches to assure that we have on hand sufficient cash to
support any changes in customer activity. In addition, we have supplemented our
normal contingency plans to insure the temporary availability of power at our
processing facilities.
We believe we are addressing all key components necessary to resolve the Year
2000 issue. Nevertheless, it is not possible to determine with complete
certainty that all Year 2000 issues affecting us or our vendors or customers are
identified and corrected, or the duration, severity or financial consequences of
any failure. The Corporation anticipates that it is possible that it may
experience certain operational inconsistencies and inefficiencies. This may
result in, among other things, temporary delays in processing customers' checks
and payments and other transactions, and could divert the Corporation's time and
attention and financial resources from ordinary business activities. The
Corporation also could experience the possible failure of certain systems, which
may require significant efforts to prevent or alleviate material business
disruptions.
Disclaimer
- ----------
The discussion above of the Corporation's efforts and expectations relating to
Year 2000 compliance include forward-looking statements. The Corporation's
ability to achieve Year 2000 compliance and the level of incremental costs
associated with that compliance could be adversely impacted by, among other
things, the availability and cost of programming and testing resources, vendors'
and customers' ability to modify proprietary software and unanticipated problems
identified in the ongoing compliance review.
25
<PAGE>
Additional Information
- ----------------------
Additional information about the Year 2000 issue is available at our Web site at
wilmingtontrust.com, or you can call us at (302) 651-1985. You can also send
your questions via fax to (302) 651-1990 or e-mail to
[email protected].
- ----------------------------
In addition, one of our regulators, the FDIC, has an informative site that
addresses the year 2000 and financial institutions for banking customers. You
can reach its site at FDIC.GOV/ABOUT/Y2K.
Accounting Pronouncements
- -------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 required adoption in all
quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." This
will delay the required adoption for one year. The Statement will require the
Corporation to recognize all derivatives on its balance sheet at their fair
value. Derivatives which are not hedges must be adjusted to fair value through
income. If a derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will be offset either against the
change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be recognized in earnings immediately. The Corporation has
not yet determined what the effect of SFAS No. 133 will be on the Corporation's
earnings or financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 using multiple interest rate scenarios. The
results are compared to net interest income projected using 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,
as of September 30, 1999, that a gradual 250-basis point increase in market
interest rates would decrease net interest income by 5.9% over a one-year
period. This figure compares to a corresponding projected decrease at December
31, 1998 of 1.6%. If interest rates were to gradually decrease 250 basis points,
the simulation model projects, as of September 30, 1999, that net interest
income would increase 2.8% over a one-year period. This figure compares to a
corresponding projected decrease at December 31, 1998 of 2.4%. The Corporation's
policy limits the permitted reduction in projected net interest income to 10%
over a one-year period, given a change in interest rates.
The preceding paragraph contains certain forward-looking statements regarding
the anticipated effects on the Corporation's net interest income resulting from
hypothetical changes in market interest rates. The assumptions 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.
26
<PAGE>
The Corporation's model has employed assumptions that reflect the historical
adjustment paths of the Corporation's retail deposit rates to changes in the
level of market interest rates. In prior model runs, some of the Corporation's
retail deposit rates reached historic lows within the 250-basis point decline
scenario. The Corporation's model would freeze the rates for these deposit
products when they equaled their historic lows. As actual interest rates on some
of the Corporation's retail deposit products reached, and in some cases fell
below, their historic low points, new assumptions were developed. These new
assumptions incorporate these recent changes in the structure of retail deposit
rates in the Corporation's market area and project new historic low points. As
was true in earlier simulations, the model freezes these rates when they reach
the new, lower level. These model assumptions (asymmetrical adjustments and rate
floors based on new 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 for 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 third quarter of 1999, the Corporation sold certain fixed-rate
residential mortgage loans into the secondary market. The primary goal of this
program is to reduce the risk that the average duration of these fixed-rate
residential mortgage loans would extend well beyond the duration that was
anticipated at origination, as frequently occurs during periods of rising
interest rates. Mortgage loans sold during the third quarter of 1999 totaled
$7.9 million, bringing the total sold for the year to $69.9 million.
Management reviews the Corporation's rate sensitivity regularly, and may employ
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 September 30, 1999, the Corporation was not committed to any interest rate
swaps, down from a total notional amount of $25 million at year-end 1998. At
September 30, 1999, the Corporation was committed to interest rate floors with a
total notional amount of $225 million, down from the $325 million at year-end
1998. The floors have remaining maturities of between 4 and 32 months, with a
weighted average maturity of 14 months. The net interest differential, 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."
27
<PAGE>
Part II. Other Information
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Change In Securities
Not Applicable
Item 3 - Defaults Upon Senior Securities
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
28
<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: November 12, 1999 /s/ David R. Gibson
----------------------------------------------
Name: David R. Gibson
Title: Senior Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
29
Statement Re Computation of Per Share Earnings
- ----------------------------------------------
Basic earnings per share of $.94 for the third quarter of 1999 were computed by
dividing net income of $30,726,459 by the weighted average number of shares of
common stock outstanding during the quarter of 33,005,137.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000872821
<NAME> WILMINGTON TRUST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 202,298
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 50,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,692,366
<INVESTMENTS-CARRYING> 35,128
<INVESTMENTS-MARKET> 35,297
<LOANS> 4,635,959
<ALLOWANCE> 76,400
<TOTAL-ASSETS> 6,987,666
<DEPOSITS> 5,065,446
<SHORT-TERM> 1,151,544
<LIABILITIES-OTHER> 78,529
<LONG-TERM> 168,000
0
0
<COMMON> 39,264
<OTHER-SE> 484,883
<TOTAL-LIABILITIES-AND-EQUITY> 6,987,666
<INTEREST-LOAN> 270,073
<INTEREST-INVEST> 67,735
<INTEREST-OTHER> 875
<INTEREST-TOTAL> 338,683
<INTEREST-DEPOSIT> 104,662
<INTEREST-EXPENSE> 156,066
<INTEREST-INCOME-NET> 182,617
<LOAN-LOSSES> 13,500
<SECURITIES-GAINS> 845
<EXPENSE-OTHER> 176,268
<INCOME-PRETAX> 134,387
<INCOME-PRE-EXTRAORDINARY> 89,828
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,828
<EPS-BASIC> 2.72
<EPS-DILUTED> 2.68
<YIELD-ACTUAL> 4.13
<LOANS-NON> 31,839
<LOANS-PAST> 21,187
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 53,547
<ALLOWANCE-OPEN> 71,906
<CHARGE-OFFS> 11,773
<RECOVERIES> 2,767
<ALLOWANCE-CLOSE> 76,400
<ALLOWANCE-DOMESTIC> 63,693
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 12,707
</TABLE>
