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 June 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 incorporation (I.R.S. Employer
or organization) Identification No.)
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
<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 June 30, 1999 - 33,144,714 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 12
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 25
Part II. Other Information
Item 1 - Legal Proceedings 27
Item 2 - Changes in Securities and Use of Proceeds 27
Item 3 - Defaults Upon Senior Securities 27
Item 4 - Submission of Matters to a Vote of Security Holders 27
Item 5 - Other Information 28
Item 6 - Exhibits and Reports on Form 8-K 28
Exhibit 11
Exhibit 27
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION (unaudited)
Wilmington Trust Corporation and Subsidiaries
---------------------------------------
June 30, December 31,
(in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 216,840 $ 204,579
---------------------------
Interest-bearing time deposits in other banks ---- ----
---------------------------
Federal funds sold and securities purchased
under agreements to resell 29,300 83,500
---------------------------
Investment securities available for sale:
U.S. Treasury and government agencies 986,126 796,665
Obligations of state and political subdivisions 7,103 7,186
Other securities 655,426 494,890
- ------------------------------------------------------------------------------------------------------
Total investment securities available for sale 1,648,655 1,298,741
---------------------------
Investment securities held to maturity:
U.S. Treasury and government agencies 12,485 29,098
Obligations of state and political subdivisions 8,008 8,098
Other securities 17,687 36,715
- ------------------------------------------------------------------------------------------------------
Total investment securities held to maturity (market values
were $38,364 and $74,480, respectively) 38,180 73,911
---------------------------
Loans:
Commercial, financial and agricultural 1,466,203 1,370,566
Real estate-construction 272,204 211,733
Mortgage-commercial 871,325 869,442
Mortgage-residential 888,246 857,626
Consumer 1,079,552 1,015,056
Unearned income (2,812) (4,790)
- ------------------------------------------------------------------------------------------------------
Total loans net of unearned income 4,574,718 4,319,633
Reserve for loan losses (75,493) (71,906)
- ------------------------------------------------------------------------------------------------------
Net loans 4,499,225 4,247,727
---------------------------
Premises and equipment, net 148,577 145,492
Goodwill and other intangible assets 156,298 138,682
Accrued interest receivable 42,257 38,266
Other assets 59,124 69,667
- ------------------------------------------------------------------------------------------------------
Total assets $6,838,456 $6,300,565
===========================
4
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $959,737 $912,066
Interest-bearing:
Savings 422,144 404,015
Interest-bearing demand 1,388,149 1,425,953
Certificates under $100,000 1,150,870 1,182,183
Certificates $100,000 and over 840,305 612,546
- ------------------------------------------------------------------------------------------------------
Total deposits 4,761,205 4,536,763
----------------------------
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 1,224,581 932,346
U.S. Treasury demand 83,802 18,944
- ------------------------------------------------------------------------------------------------------
Total short-term borrowings 1,308,383 951,290
----------------------------
Accrued interest payable 44,829 44,553
Other liabilities 19,978 53,750
Long-term debt 168,000 168,000
- ------------------------------------------------------------------------------------------------------
Total liabilities 6,302,395 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 70,604 67,047
Retained earnings 668,947 636,662
Accumulated other comprehensive income (16,633) 5,928
- ------------------------------------------------------------------------------------------------------
Total contributed capital and retained earnings 762,182 748,901
Less: Treasury stock, at cost, 6,119,459 and
5,935,072 shares, respectively (226,121) (202,692)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 536,061 546,209
----------------------------
Total liabilities and stockholders' equity $6,838,456 $6,300,565
============================
See Notes to Consolidated Financial Statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Wilmington Trust Corporation and Subsidiaries
----------------------------------------------------------------
For the three months ended For the six months ended
June 30, June 30,
----------------------------------------------------------------
(in thousands; except per share data) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INTEREST INCOME
Interest and fees on loans $ 89,636 $ 89,943 $ 176,837 $ 177,685
Interest and dividends on investment securities:
Taxable interest 20,237 24,266 37,593 47,492
Tax-exempt interest 190 214 380 450
Dividends 2,302 2,287 4,663 4,367
Interest on time deposits in other banks ---- ---- ---- ----
Interest on federal funds sold and securities
purchased under agreements to resell 366 413 646 648
- -------------------------------------------------------------------------------------------------------------------
Total interest income 112,731 117,123 220,119 230,642
----------------------------------------------------------------
Interest on deposits 33,650 39,485 67,483 75,692
Interest on short-term borrowings 14,597 15,394 27,577 33,292
Interest on long-term debt 2,763 2,027 5,519 2,027
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 51,010 56,906 100,579 111,011
----------------------------------------------------------------
Net interest income 61,721 60,217 119,540 119,631
Provision for loan losses (4,500) (5,000) (9,500) (10,000)
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 57,221 55,217 110,040 109,631
----------------------------------------------------------------
OTHER INCOME
Trust and asset management fees 36,007 32,147 72,086 62,152
Service charges on deposit accounts 5,948 5,262 11,374 10,607
Gain on business disposition ---- ---- ---- 5,503
Merchant discount fees 1,838 1,602 3,388 3,021
Other operating income 2,290 3,988 4,814 7,301
Securities gains 4 33 24 2
- -------------------------------------------------------------------------------------------------------------------
Total other income 46,087 43,032 91,686 88,586
----------------------------------------------------------------
Net interest and other income 103,308 98,249 201,726 198,217
----------------------------------------------------------------
OTHER EXPENSE
Salaries and employment benefits 34,221 33,723 68,013 68,458
Net occupancy 3,961 3,199 7,048 6,014
Furniture and equipment 5,675 4,858 10,088 8,943
6
<PAGE>
Stationery and supplies 1,498 1,299 3,059 2,699
Provision for litigation settlement ---- ---- ---- 5,500
Servicing and consulting fees 2,481 3,091 5,223 5,286
Advertising and public relations 1,705 1,444 3,289 2,677
Other operating expense 8,723 8,376 16,587 15,883
- -------------------------------------------------------------------------------------------------------------------
Total other expense 58,264 55,990 113,307 115,460
----------------------------------------------------------------
NET INCOME
Income before income taxes 45,044 42,259 88,419 82,757
Applicable income taxes 15,098 13,970 29,317 27,156
- -------------------------------------------------------------------------------------------------------------------
Net income $ 29,946 $ 28,289 $ 59,102 $ 55,601
================================================================
Net income per share:
basic $ 0.90 $ 0.84 $ 1.78 $ 1.66
================================================================
diluted $ 0.89 $ 0.82 $ 1.76 $ 1.61
================================================================
Weighted average shares outstanding:
basic 33,148 33,575 33,112 33,541
diluted 33,641 34,406 33,672 34,434
Cash dividends per share $ 0.42 $ 0.39 $ 0.81 $ 0.75
See Notes to Consolidated Financial Statements
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Wilmington Trust Corporation and Subsidiaries
--------------------------------
For the six months ended
June 30,
(in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 59,102 $ 55,601
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 9,500 10,000
Provision for depreciation 8,052 6,275
Amortization/(accretion) of investment securities available
for sale discounts and premiums ` 1,317 (538)
Accretion of investment securities held to maturity discounts
and premiums (37) (134)
Deferred income taxes 13,003 487
Gains on sales of loans (350) (387)
Securities gains (24) (2)
Decrease in other assets 7,851 6,088
Decrease in other liabilities (33,808) (15,688)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 64,606 61,702
--------------------------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 521,719 322,635
Proceeds from maturities of investment securities available for sale 159,726 279,444
Proceeds from maturities of investment securities held to maturity 36,288 136,788
Purchases of investment securities available for sale (1,067,924) (830,971)
Purchases of investment securities held to maturity (500) ----
Investments in affiliates (18,915) (52,509)
Gross proceeds from sales of loans 62,331 56,951
Purchases of loans (5,669) (1,095)
Net increase in loans (317,310) (274,044)
Net increase in premises and equipment (11,137) (12,601)
- --------------------------------------------------------------------------------------------------------
Net cash used for investing activities (641,391) (375,402)
--------------------------------
FINANCING ACTIVITIES
Net increase in demand, savings and interest-bearing demand deposits 27,996 171,962
Net increase in certificates of deposit 196,446 403,141
Net increase/(decrease) in federal funds purchased and securities sold
under agreements to repurchase 292,235 (288,083)
Net increase in U.S. Treasury demand 64,858 38,060
Proceeds from issuance of long-term debt ---- 125,000
Cash dividends (26,817) (25,149)
8
<PAGE>
Proceeds from common stock issued under employment benefit plans 13,753 7,092
Payments for common stock acquired through buybacks (33,625) (4,863)
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 534,846 427,160
--------------------------------
Increase/(decrease) in cash and cash equivalents (41,939) 113,460
Cash and cash equivalents at beginning of period 288,079 289,392
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 246,140 $ 402,852
================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 101,521 $ 112,598
Taxes 22,081 28,429
Loans transferred during the year:
To other real estate owned $ 1,236 $ 1,226
From other real estate owned 1,846 2,946
See Notes to Consolidated Financial Statements
</TABLE>
9
<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 that 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 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
<TABLE>
<CAPTION>
Financial data by segment for June 30, 1999 vs June 30, 1998 is as follows:
- -----------------------------------------------------------------------------------------------------------
Banking Fee-Based Funds
Six Months Ended June 30, 1999 (in thousands) business business management Totals
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 100,727 $ 10,878 $ 8,980 $ 120,585
Provision for loan losses (9,444) (56) ---- (9,500)
- -----------------------------------------------------------------------------------------------------------
Net interest income after provision 91,283 10,822 8,980 111,085
Trust and asset management fees:
Personal trust ---- 31,887 ---- 31,887
Corporate financial services ---- 22,631 ---- 22,631
Asset management ---- 17,937 ---- 17,937
Other operating income
Securities gains 19,201 941 415 20,557
---- ---- 24 24
- -----------------------------------------------------------------------------------------------------------
Net interest and other income 110,484 84,218 9,419 204,121
Other expense (62,696) (50,663) (1,241) (114,600)
- -----------------------------------------------------------------------------------------------------------
Segment profit from operations 47,788 33,555 8,178 89,521
Segment loss from infrequent events ---- (340) ---- (340)
- -----------------------------------------------------------------------------------------------------------
Segment profit before income taxes $ 47,788 $ 33,215 $ 8,178 $ 89,181
===========================================================================================================
Intersegment revenue $ 5,093 $ 3,750 $ 1,185 $ 10,028
Depreciation & amortization 5,069 3,353 139 8,561
Investment in equity method investees ---- 151,299 ---- 151,299
Segment average assets 4,148,200 681,864 3,144,426 7,974,490
Six Months Ended June 30, 1998 (in thousands)
- -----------------------------------------------------------------------------------------------------------
Net interest income $ 102,182 $ 12,182 $ 6,339 $ 120,703
Provision for loan losses (9,790) (210) ---- (10,000)
- -----------------------------------------------------------------------------------------------------------
Net interest income after provision 92,392 11,972 6,339 110,703
10
<PAGE>
Trust and asset management fees:
Personal trust ---- 29,895 ---- 29,895
Corporate financial services ---- 21,031 ---- 21,031
Asset management ---- 12,399 ---- 12,399
Other operating income 17,896 1,303 7,707 26,906
Securities losses ---- ---- 2 2
- -----------------------------------------------------------------------------------------------------------
Net interest and other income 110,288 76,600 14,048 200,936
Other expense (60,408) (48,449) (7,807) (116,664)
- -----------------------------------------------------------------------------------------------------------
Segment profit from operations 49,880 28,151 6,241 84,272
Segment profit from infrequent events ---- 59 ---- 59
- -----------------------------------------------------------------------------------------------------------
Segment profit before income taxes $ 49,880 $ 28,210 $ 6,241 $ 84,331
===========================================================================================================
Intersegment revenue $ 3,034 $ 1,615 $ 789 $ 5,438
Depreciation and amortization 3,974 2,734 95 6,803
Investment in equity method investees ---- 52,409 ---- 52,409
Segment average assets 3,798,196 531,746 3,123,461 7,453,403
</TABLE>
A reconciliation of reportable segment amounts to the Corporation's consolidated
balances is as follows:
- ------------------------------------------------------------------------------
Quarter ended June 30 (in thousands) 1999 1998
- ------------------------------------------------------------------------------
Revenue:
Total revenues for reportable segments $ 120,585 $ 120,703
Other revenues 93,036 90,233
Elimination of intersegment revenues (2,396) (2,719)
- ------------------------------------------------------------------------------
Total consolidated revenues before provision $ 211,225 $ 208,217
==========================
Profit or loss:
Total profit or loss for reportable segments $ 89,521 $ 84,272
Elimination of intersegment profits (1,102) (1,515)
- ------------------------------------------------------------------------------
$ 88,419 $ 82,757
==========================
Assets:
Total assets for reportable segments $ 7,974,490 $ 7,453,403
Other assets 227,899 217,170
Elimination of intersegment assets (1,740,617) (1,439,911)
Other assets not allocated to segments ---- ----
- ------------------------------------------------------------------------------
Consolidated total average assets $ 6,461,772 $ 6,230,662
==========================
11
<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 second quarter of 1999 was $29.9 million, or $.90 per share,
a 6% increase over the $28.3 million, or $.84 per share, reported for the second
quarter of last year. Diluted net income per share for the second quarter of
1999 was $.89, compared to $.82 for the second quarter of last year.
Total revenues for the second quarter of 1999 reached $107.8 million, a 4%
increase over the $103.2 million reported for the second quarter of 1998.
Net interest income for the second quarter of 1999 reached $61.7 million, a 3%
increase over the $60.2 million reported for the second quarter of last year.
The quarterly provision for loan losses of $4.5 million was less than the $5.0
million for the second quarter of 1998. The reserve for loan losses at
quarter-end was $75.5 million, $3.6 million, or 5%, above the $71.9 million
reported at December 31, 1998.
Noninterest income for the second quarter of 1999 was $46.1 million, a 7%
increase over the $43.0 million reported for the same quarter of last year.
Operating expenses for the second quarter of 1999 were $58.3 million, a 4%
increase above the $56.0 million reported for the second quarter of last year.
Return on assets for the six months ended June 30, 1999, on an annualized basis,
was 1.84%, above the 1.80% reported for the corresponding period a year ago.
Return on stockholders' equity, also on an annualized basis, was 22.12%, above
the 21.71% reported for the first six months of 1998.
STATEMENT OF CONDITION
- ----------------------
Total assets at June 30, 1999 were $6.84 billion, up $537.9 million, or 9%, over
the $6.30 billion reported at December 31, 1998. Total earning assets increased
$515.1 million, or 9%, over the same period of time, to $6.29 billion. Growth in
both the loan and investment portfolios contributed to these increases.
Total loans at June 30, 1999 were $4.57 billion, an increase of $255.1 million,
or 6%, over the December 31, 1998 level of $4.32 billion. Contributing to this
increase were commercial loans of $1.47 billion, which rose $95.6 million, or
7%, over their December 31, 1998 level; commercial construction loans of $272.2
million, which rose $60.5 million, or 29%; commercial mortgage loans of $871.3
million, which rose $1.9 million, or .2%; residential mortgage loans of $888.2
million, which rose $30.6 million, or 4%; and consumer loans of $1.08 billion,
which rose $64.5 million, or 6%.
The investment portfolio at June 30, 1999 was $1.69 billion, an increase of
$314.2 million, or 23%, over the December 31, 1998 level of $1.37 billion. 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 $172.8 million, or 21%, to $998.6 million, and
asset-backed securities, which increased $129.9 million, or 49%, to $395.3
million.
Interest-bearing liabilities at quarter-end were $5.28 billion, $533.9 million,
or 11%, above the year-end level of $4.74 billion. Total deposits during the
first six months of 1999 increased $224.4 million, while short-term borrowings
increased $357.1 million. A $227.8 million increase in certificates of deposit
12
<PAGE>
$100,000 and over was offset, in part, by a $37.8 million, or 3%, decrease in
interest-bearing demand account balances, and a $31.3 million, or 3%, decrease
in certificates of deposit less than $100,000. Federal funds purchased increased
$352.3 million, or 53%, to $1.02 billion, and U.S. Treasury demand balances rose
$64.9, million to $83.8 million.
Shareholders' equity at June 30, 1999 was $536.1 million, $10.1 million, or 2%,
below the year-end level. Earnings of $59.1 million and $13.8 million in new
stock issued during that period were more than offset by a $22.6 million
valuation reserve adjustment for the investment portfolio, $26.8 million in cash
dividends and $33.6 million for the stock buyback program.
NET INTEREST INCOME
- -------------------
Net interest income for the second quarter of 1999 on a fully tax-equivalent
("FTE") basis was $63.8 million. This was a $1.4 million, or 2%, increase over
the $62.4 million reported for the second quarter of 1998.
Interest income (FTE) for the second quarter of 1999 declined $4.5 million, or
4%, to $114.8 million from $119.3 million for the second quarter of 1998.
Contributing to this decrease was the declining rate environment, which offset
the effects of a $198.7 million increase in the average level of earning assets.
Interest revenues rose $5.5 million as a result of this increase in earning
assets. Offsetting this increase was a $10.0 million decrease in interest
revenues associated with the lower interest rates. The average rate earned on
the Corporation's earning assets during the second quarter of 1999 fell 57 basis
points, from 8.06% to 7.49%. The loan portfolio yield decreased 72 basis points,
to 8.04%, while the investment portfolio yield declined 45 basis points, to
5.98%.
Interest expense for the second quarter of 1999 declined $5.9 million, or 10%,
to $51.0 million from the $56.9 million reported for the second quarter of last
year. Interest expense declined $6.6 million due to a 59-basis point drop in the
average rate paid on interest-bearing liabilities. This decrease was offset, in
part, by a $701,000 increase in interest expense attributable to the $154.5
million increase in the average level of interest-bearing liabilities. The
average rate the Corporation paid for its funds during the second quarter of
1999 was 3.33%, compared to 3.85% for the second quarter of 1998.
The Corporation's net interest margin for the second quarter of 1999 was 4.16%,
down five basis points from the 4.21% reported for the second quarter of a year
ago. The decline was driven, in part, by customer movement from floating-rate
financing 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 also reduced the net interest margin. The
following three tables present comparative net interest income data and a
rate-volume analysis of changes in net interest income for the second quarters
and first six months of 1999 and 1998, respectively.
13
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY ANALYSIS OF EARNINGS
1999 Second Quarter 1998 Second 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 31,153 366 4.65 29,547 413 5.53
- ------------------------------------------------------------------- -------------------------
Total short-term investments 31,153 366 4.65 29,547 413 5.53
---------------------------------------------------------------------------------
U.S. Treasury and government
agencies 955,088 13,941 5.83 1,073,849 16,689 6.25
State and municipal 15,125 286 7.65 16,676 317 7.62
Preferred stock 164,344 2,770 6.81 146,732 2,781 7.79
Asset-backed securities 358,445 5,558 6.18 396,524 6,514 6.60
Other 91,348 1,139 5.01 104,872 1,458 5.59
- ------------------------------------------------------------------- -------------------------
Total investment securities 1,584,350 23,694 5.98 1,738,653 27,759 6.43
---------------------------------------------------------------------------------
Commercial, financial and
agricultural 1,427,631 28,107 7.80 1,266,682 27,014 8.45
Real estate-construction 261,784 5,611 8.47 167,293 3,970 9.39
Mortgage-commercial 870,538 19,012 8.64 902,684 21,656 9.50
Mortgage-residential 865,662 15,325 7.08 827,864 16,298 7.88
Consumer 1,061,560 22,652 8.53 971,271 22,148 9.12
- ------------------------------------------------------------------- -------------------------
Total loans 4,487,175 90,707 8.04 4,135,794 91,086 8.76
---------------------------------------------------------------------------------
Total earning assets $6,102,678 114,767 7.49 $ 5,903,994 119,258 8.06
=================================================================================
Funds supporting earning assets
Savings $ 421,928 1,837 1.75 $ 413,224 2,399 2.33
Interest-bearing demand 1,426,040 7,366 2.07 1,230,692 7,940 2.59
Certificates under $100,000 1,162,260 14,637 5.05 1,209,725 16,619 5.51
Certificates $100,000 and over 759,609 9,810 5.11 887,728 12,527 5.58
- ------------------------------------------------------------------- -------------------------
Total interest-bearing
deposits 3,769,837 33,650 3.57 3,741,369 39,485 4.21
---------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase 1,177,167 14,268 4.83 1,076,277 14,639 5.42
U.S. Treasury demand 37,192 329 3.50 57,409 755 5.20
- ------------------------------------------------------------------- -------------------------
Total short-term borrowings 1,214,359 14,597 4.79 1,133,686 15,394 5.41
---------------------------------------------------------------------------------
Long-term debt 168,000 2,763 6.58 122,670 2,027 6.61
- ------------------------------------------------------------------- -------------------------
14
<PAGE>
Total interest-bearing
liabilities 5,152,196 51,010 3.95 4,997,725 56,906 4.54
---------------------------------------------------------------------------------
Other noninterest funds 950,482 ---- ---- 906,269 ---- ----
- ------------------------------------------------------------------- -------------------------
Total funds used to support
earning assets $6,102,678 51,010 3.33 $5,903,994 56,906 3.85
=================================================================================
Net interest income/yield 63,757 4.16 62,352 4.21
Tax-equivalent adjustment (2,036) (2,135)
--------------- --------------
Net interest income $ 61,721 $ 60,217
=============== ==============
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>
15
<PAGE>
<TABLE>
<CAPTION>
YEAR-TO-DATE ANALYSIS OF EARNINGS
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 27,817 646 4.62 23,818 648 5.41
- ------------------------------------------------------------------- -------------------------
Total short-term investments 27,817 646 4.62 23,818 648 5.41
----------------------------------------------------------------------------------
U.S. Treasury and government
agencies 895,350 25,900 5.80 1,044,435 32,740 6.31
State and municipal 15,184 571 7.63 17,459 675 7.75
Preferred stock 166,529 5,583 6.79 136,181 5,290 7.99
Asset-backed securities 324,732 10,161 6.25 383,007 12,662 6.64
Other 91,931 2,338 5.11 100,111 2,804 5.63
- ------------------------------------------------------------------- -------------------------
Total investment securities 1,493,726 44,553 5.98 1,681,193 54,171 6.49
----------------------------------------------------------------------------------
Commercial, financial and
agricultural 1,405,641 54,590 7.74 1,232,365 52,909 8.56
Real estate-construction 245,936 10,540 8.55 159,541 7,459 9.29
Mortgage-commercial 871,669 38,179 8.73 904,330 42,621 9.38
Mortgage-residential 859,895 31,241 7.24 824,212 33,224 8.06
Consumer 1,038,348 44,386 8.60 965,101 43,795 9.13
- ------------------------------------------------------------------- -------------------------
Total loans 4,421,489 178,936 8.08 4,085,549 180,008 8.80
----------------------------------------------------------------------------------
Total earning assets $5,943,032 224,135 7.54 $5,790,560 234,827 8.12
==================================================================================
Funds supporting earning assets
Savings $ 415,117 3,805 1.85 $ 405,911 4,723 2.35
Interest-bearing demand 1,388,077 15,027 2.18 1,184,843 15,203 2.59
Certificates under $100,000 1,168,924 29,581 5.10 1,210,399 33,266 5.54
Certificates $100,000 and over 730,011 19,070 5.20 796,231 22,500 5.62
- ------------------------------------------------------------------- -------------------------
Total interest-bearing
deposits 3,702,129 67,483 3.66 3,597,384 75,692 4.23
----------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase 1,104,382 26,778 4.84 1,169,141 31,975 5.46
U.S. Treasury demand 32,877 799 4.83 49,994 1,317 5.24
- ------------------------------------------------------------------- -------------------------
Total short-term borrowings 1,137,259 27,577 4.84 1,219,135 33,292 5.45
----------------------------------------------------------------------------------
Long-term debt 168,000 5,519 6.57 83,055 2,027 4.88
- ------------------------------------------------------------------- -------------------------
16
<PAGE>
Total interest-bearing
liabilities 5,007,388 100,579 4.03 4,899,574 111,011 4.54
----------------------------------------------------------------------------------
Other noninterest funds 935,644 ---- ---- 890,986 ---- ----
- ------------------------------------------------------------------- -------------------------
Total funds used to support
earning assets $5,943,032 100,579 3.39 $5,790,560 111,011 3.85
==================================================================================
Net interest income/yield 123,556 4.15 123,816 4.27
Tax-equivalent adjustment (4,016) (4,185)
--------------- --------------
Net interest income $ 119,540 $ 119,631
=============== ==============
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>
17
<PAGE>
<TABLE>
<CAPTION>
RATE-VOLUME ANALYSIS OF NET INTEREST INCOME
--------------------------------------- ----------------------------------
For the three months ended June 30, For the six months ended June 30,
--------------------------------------- ----------------------------------
1999/1998 1999/1998
Increase (Decrease) Increase (Decrease)
due to change in due to change in
--------------------------------------- ----------------------------------
1 2 1 2
(in thousands) Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Time deposits in other banks $ ---- $ ---- $ ---- $ ---- $ ---- $ ----
Federal funds sold and
securities purchased under
agreements to resell 22 (69) (47) 109 (111) (2)
- ------------------------------------------------------------------------------------------------------------------------
Total short-term investments
22 (69) (47) 109 (111) (2)
-------------------------------------------------------------------------------
U.S. Treasury and
government agencies (1,748) (1,000) (2,748) (4,568) (2,272) (6,840)
State and municipal * (32) 1 (31) (95) (9) (104)
Preferred stock * 394 (405) (11) 1,283 (990) 293
Asset-backed securities (584) (372) (956) (1,876) (625) (2,501)
Other * (187) (132) (319) (227) (239) (466)
- ------------------------------------------------------------------------------------------------------------------------
Total investment securities (2,157) (1,908) (4,065) (5,483) (4,135) (9,618)
-------------------------------------------------------------------------------
Commercial, financial and
agricultural * 3,391 (2,298) 1,093 7,355 (5,674) 1,681
Real estate-construction 2,212 (571) 1,641 3,980 (899) 3,081
Mortgage-commercial * (761) (1,883) (2,644) (1,519) (2,923) (4,442)
Mortgage-residential 743 (1,716) (973) 1,426 (3,409) (1,983)
Consumer 2,053 (1,549) 504 3,316 (2,725) 591
- ------------------------------------------------------------------------------------------------------------------------
Total loans 7,638 (8,017) (379) 14,558 (15,630) (1,072)
- ------------------------------------------------------------------------------------------------------------------------
Total interest income $ 5,503 $(9,994) $ (4,491) $ 9,184 $(19,876) $(10,692)
===============================================================================
Interest expense:
Savings $ 51 $ (613) $ (562) $ 107 $ (1,025) $ (918)
Interest-bearing demand 1,261 (1,835) (574) 2,610 (2,786) (176)
Certificates under $100,000 (652) (1,330) (1,982) (1,139) (2,546) (3,685)
18
<PAGE>
Certificates $100,000 and over (1,807) (910) (2,717) (1,871) (1,559) (3,430)
- ------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits (1,147) (4,688) (5,835) (293) (7,916) (8,209)
-------------------------------------------------------------------------------
Federal funds purchased and
secruities sold under
agreements to repurchase 1,367 (1,738) (371) (1,768) (3,429) (5,197)
U.S. Treasury demand (266) (160) (426) (451) (67) (518)
- ------------------------------------------------------------------------------------------------------------------------
Total short-term
borrowings 1,101 (1,898) (797) (2,219) (3,496) (5,715)
-------------------------------------------------------------------------------
Long-term debt 747 (11) 736 2,056 1,436 3,492
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense $ 701 $ (6,597) $ (5,896) $ (456) $(9,976) $(10,432)
===============================================================================
Changes in net interest income $ 1,405 $ (260)
========= =========
</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.
19
<PAGE>
Noninterest Revenues and Operating Expenses
- -------------------------------------------
Noninterest revenues for the second quarter of 1999 were $46.1 million, an
increase of $3.1 million, or 7%, over those for the second quarter of a year
ago, due primarily to higher trust and asset management fees.
Trust and asset management fees for the second quarter of 1999 increased $3.9
million, or 12%, to $36.0 million. Asset management fees in the second quarter
rose $3.2 million, or 56%, to $8.8 million, due to the performance of our recent
asset manager affiliations. Personal trust fees in the second quarter rose
$671,000, or 4%, to $15.8 million. Corporate trust fees at $11.4 million were
unchanged from those for the second quarter of 1998. On a year-to-date basis,
trust and asset management fees were up $10.0 million, or 16%, over those of a
year ago, with asset management fees contributing two-thirds of that
improvement.
Service charges on deposit accounts for the second quarter were $5.9 million,
13% above those of a year ago. Increased transaction fees associated with
automated teller machine usage, overdrafts and returned items contributed to
this increase. For the first six months of 1999, service charges were $767,000,
or 7%, above those for the first six months of 1998.
There were no gains on disposition of businesses during the first half of 1999.
The first half of 1998 reflected a $5.5 million gain recorded on the disposition
of the mutual fund processing business.
Merchant discount fees for the second quarter of 1999 of $1.8 million were 15%
above those for the second quarter of 1998, due primarily to increased credit
card interchange fees.
Other operating income for the second quarter of 1999 was $2.3 million. This was
a decrease of $1.7 million, or 43%, from the $4.0 million reported for the
second quarter of 1998. Other operating income for last year included a
nonrecurring gain of $800,000 from the sale of fixed assets and a $500,000 gain
on disposition of OREO.
Operating expenses for the second quarter of 1999 increased $2.3 million, or 4%,
to $58.3 million. Total personnel expenses for the quarter increased $498,000,
or 2%, to $34.2 million. Contributing to this increase were higher health care
and pension expenses, which were offset, in part, by lower compensation expense.
Net occupancy expense rose $762,000, or 24%, due to costs associated with 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 office
to PGA Boulevard. Furniture and equipment expense for the quarter rose $817,000,
or 17%, as higher data processing maintenance costs and depreciation expense
reflected the Corporation's continued investment in new technology. Stationery
and supplies expenses increased $199,000, or 15%, to $1.5 million. There was no
provision for litigation settlement during the first half of 1999. The first
quarter of 1998 reflected a $5.5 million charge to earnings taken in connection
with the anticipated settlement of outstanding litigation. Servicing and
consulting fees of $2.5 million for the quarter were $610,000, or 20%, below
those of a year ago, but were unchanged year-to-date, as the Corporation
continues with it Year 2000 readiness efforts. The Corporation's efforts in
readying itself for the year 2000 are discussed on pages 22 through 25.
Advertising and public relations expenses for the quarter were $1.7 million, an
increase of $261,000, or 18%, and for the first six months of 1999 were
$612,000, or 23%, higher due to the acceleration of several programs which were
scheduled to begin later in the year. Other operating expense for the second
quarter was $8.7 million, an increase of $347,000, or 4%, due to higher travel
and entertainment expense, credit card fees and bank processing fees.
Income tax expense for the first six months of 1999 increased $2.2 million, or
8%, to $29.3 million. Approximately $1.5 million, or 69%, of this increase was
Federal income tax. The Corporation's effective tax rate for the first half of
1999 was 33.16%, compared to 32.81% for the first six months of 1998.
20
<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 25.18%. 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 second quarter of 1999 was
$4.5 million, $500,000, or 10%, below the amount provided for the second quarter
of 1998. The reserve for loan losses at June 30, 1999 was $75.5 million, an
increase of $3.6 million, or 5%, 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 six months of 1999 were $5.9 million, an increase of $163,000, or 3%,
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) June 30, 1999 December 31, 1998 June 30, 1998
- --------------------------------------------------------------------------------
Nonaccruing $34,764 $30,598 $28,564
Past due 90 days or more 28,369 18,558 21,730
- --------------------------------------------------------------------------------
Total $63,133 $49,156 $50,294
================================================
Percent of total loans at 1.38% 1.14% 1.19%
period-end
Other real estate owned $922 $1,532 $2,018
Nonaccruing loans at June 30, 1999 were $34.8 million, an increase of $4.2
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 June 30,
1999 was $922,000, a decrease of $610,000, or 40%, from the December 31, 1998
level of $1.5 million. Nonperforming assets (other real estate owned plus
nonaccrual loans) at June 30, 1999 totaled $35.7 million, or .78% of period-end
loans outstanding. This was an increase of $3.6 million, or 11%, 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
June 30, 1999, approximately $55.3 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.
21
<PAGE>
The reserve for loan losses at quarter-end was 2.17 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 second quarter of 1999 was 11.71%, and its core
(Tier 1) leveraged capital ratio was 6.33%. 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.
22
<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
23
<PAGE>
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
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 $22 million through June 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 $3.5 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. 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 are 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.
24
<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
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 June 30, 1999, that a gradual 250-basis point increase in market interest
rates would reduce net interest income by 3.5 over a one-year period. This
figure compares to a 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 June 30, 1999, that net interest income would increase .3% over
a one-year period. This figure compares to a 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.
25
<PAGE>
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 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 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 second 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 second quarter of 1999 totaled
$24.2 million, bringing the total for the year to $62.0 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 June 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 June 30,
1999, the Corporation was committed to interest rate floors with a total
notional amount of $325 million, unchanged from year-end 1998. The floors have
remaining maturities of between 1 and 36 months, with a weighted average
maturity of 12 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."
26
<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
At the Corporation's Annual Shareholders' Meeting held on May 20,
1999 (the "Annual Meeting"), the nominees for director the Corporation
proposed were elected. The votes cast for those nominees were as
follows:
For Withheld
------------------ -----------------
Carolyn S. Burger 27,025,952 171,939
Robert V. A. Harra, Jr. 27,008,300 189,591
Rex L . Mears 27,022,561 175,330
Leonard W. Quill 26,998,445 199,446
Robert W. Tunnell, Jr. 27,007,621 190,270
In addition, at the Annual Meeting, the Corporation's
shareholders approved the following proposals:
a. Approval of 1999 Long-Term Incentive Plan
-----------------------------------------
The 1999 Long-Term Incentive Plan, designed primarily to
assist the Corporation in attracting and retaining highly
competent officers and other key employees, is for a term
of four years and authorizes the issuance of up to
1,500,000 shares of the Corporation's common stock. The
vote in favor of that plan was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
25,082,170 1,871,142 244,579
b. Approval of Executive Incentive Plan
------------------------------------
The 1999 Executive Incentive Plan, designed to recognize
and reward executives for the achievement of corporate
performance goals, authorizes cash awards and the issuance
of up to 100,000 shares of the Corporation's common stock.
The vote in favor of that plan was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
25,836,928 1,055,975 304,988
27
<PAGE>
c. Ratification of Selection of Ernst & Young LLP as
Independent Public Accountants
------------------------------
The proposal to ratify the selection of the firm of Ernst
and Young LLP as the Corporation's independent public
accountants for the year ending December 31, 1999 was
approved by the Corporation's shareholders as follows:
FOR AGAINST ABSTAIN
--- ------- -------
27,050,673 55,308 91,910
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: August 13, 1999 /s/David R. Gibson
-------------------------------------
Name: David R. Gibson
Title: Senior Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
29
Exhibit 11
Statement Re Computation of Per Share Earnings
- ----------------------------------------------
Basic earnings per share of $.90 for the second quarter of 1999 were computed by
dividing net income of $29,947,473 by the weighted average number of shares of
common stock outstanding during the quarter of 33,148,046.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000872821
<NAME> WILMINGTON TRUST CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 216,840
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 29,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,648,655
<INVESTMENTS-CARRYING> 38,180
<INVESTMENTS-MARKET> 38,364
<LOANS> 4,574,718
<ALLOWANCE> 75,493
<TOTAL-ASSETS> 6,838,456
<DEPOSITS> 4,761,205
<SHORT-TERM> 1,308,383
<LIABILITIES-OTHER> 64,807
<LONG-TERM> 168,000
0
0
<COMMON> 39,264
<OTHER-SE> 496,797
<TOTAL-LIABILITIES-AND-EQUITY> 6,838,456
<INTEREST-LOAN> 176,837
<INTEREST-INVEST> 42,636
<INTEREST-OTHER> 646
<INTEREST-TOTAL> 220,119
<INTEREST-DEPOSIT> 67,483
<INTEREST-EXPENSE> 100,579
<INTEREST-INCOME-NET> 119,540
<LOAN-LOSSES> 9,500
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 113,307
<INCOME-PRETAX> 88,419
<INCOME-PRE-EXTRAORDINARY> 59,102
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,102
<EPS-BASIC> 1.78
<EPS-DILUTED> 1.76
<YIELD-ACTUAL> 4.15
<LOANS-NON> 34,764
<LOANS-PAST> 28,369
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 55,302
<ALLOWANCE-OPEN> 71,906
<CHARGE-OFFS> 7,646
<RECOVERIES> 1,733
<ALLOWANCE-CLOSE> 75,493
<ALLOWANCE-DOMESTIC> 62,155
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,338
</TABLE>
