<PAGE> 1
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, 2000
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
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(Exact name of registrant as specified in its charter)
Delaware 51-0328154
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890
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(Address of principal executive offices) (Zip Code)
(302) 651-1000
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(Registrant's telephone number, including area code)
Not Applicable
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(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> 2
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, 2000 - 32,360,815 shares
2
<PAGE> 3
Wilmington Trust Corporation and Subsidiaries
Form 10-Q
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 14
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 24
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 27
Item 6 - Exhibits and Reports on Form 8-K 27
Exhibit 11
Exhibit 27
</TABLE>
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF CONDITION (unaudited)
Wilmington Trust Corporation and Subsidiaries
<TABLE>
<CAPTION>
------------------------------
September 30, December 31,
(in thousands) 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 112,458 $ 225,145
------------------------------
Interest-bearing time deposits in other banks -- --
------------------------------
Federal funds sold and securities purchased
under agreements to resell 91,450 129,760
------------------------------
Investment securities available for sale:
U.S. Treasury and government agencies 863,515 997,799
Obligations of state and political subdivisions 14,048 4,732
Other securities 584,556 683,736
-------------------------------------------------------------------------------------------------------------
Total investment securities available for sale 1,462,119 1,686,267
------------------------------
Investment securities held to maturity:
U.S. Treasury and government agencies 11,157 11,960
Obligations of state and political subdivisions 6,695 7,244
Other securities 4,340 12,028
-------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity (market values
were $22,237 and $31,150, respectively) 22,192 31,232
------------------------------
Loans:
Commercial, financial and agricultural 1,699,439 1,521,336
Real estate-construction 398,850 303,734
Mortgage-commercial 943,379 919,297
Mortgage-residential 984,092 968,259
Consumer 1,262,731 1,108,945
Unearned income (583) (1,492)
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Total loans net of unearned income 5,287,908 4,820,079
Reserve for loan losses (76,180) (76,925)
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Net loans 5,211,728 4,743,154
------------------------------
Premises and equipment, net 128,085 132,160
Goodwill and other intangible assets, net of accumulated amortization
of $13,205 in 2000 and $9,700 in 1999 175,541 148,005
Accrued interest receivable 49,881 43,672
Other assets 49,564 62,549
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Total assets $ 7,303,018 $ 7,201,944
==============================
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
-------------------------------
September 30, December 31,
(in thousands) 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 994,718 $ 994,643
Interest-bearing:
Savings 356,740 393,750
Interest-bearing demand 1,296,484 1,397,574
Certificates under $100,000 951,255 1,067,729
Certificates $100,000 and over 1,695,344 1,515,788
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Total deposits 5,294,541 5,369,484
------------------------------
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 1,102,386 970,858
U.S. Treasury demand 70,227 95,000
Line of credit 18,000 25,000
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Total short-term borrowings 1,190,613 1,090,858
------------------------------
Accrued interest payable 77,729 56,012
Other liabilities 13,488 19,359
Long-term debt 168,000 168,000
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Total liabilities 6,744,371 6,703,713
------------------------------
Stockholders' equity:
Common stock ($1.00 par value) authorized
150,000,000 shares; issued 39,264,173 39,264 39,264
Capital surplus 72,344 70,749
Retained earnings 739,132 689,598
Accumulated other comprehensive income (22,100) (34,796)
-------------------------------------------------------------------------------------------------------------
Total contributed capital and retained earnings 828,640 764,815
Less: Treasury stock, at cost, 6,903,358 and
6,911,398 shares, respectively (269,993) (266,584)
-------------------------------------------------------------------------------------------------------------
Total stockholders' equity 558,647 498,231
------------------------------
Total liabilities and stockholders' equity $ 7,303,018 $ 7,201,944
==============================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
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) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
NET INTEREST INCOME
Interest and fees on loans $ 110,604 $ 93,236 $ 317,120 $ 270,073
Interest and dividends on investment securities:
Taxable interest 21,839 22,506 67,689 60,099
Tax-exempt interest 175 180 470 560
Dividends 2,234 2,413 7,058 7,076
Interest on time deposits in other banks -- -- -- --
Interest on federal funds sold and securities
purchased under agreements to resell 351 229 1,466 875
-------------------------------------------------------------------------------------------------------------------
Total interest income 135,203 118,564 393,803 338,683
------------------------------------------------------------
Interest on deposits 47,982 37,179 140,444 104,662
Interest on short-term borrowings 21,836 15,537 54,136 43,114
Interest on long-term debt 2,769 2,771 8,292 8,290
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Total interest expense 72,587 55,487 202,872 156,066
------------------------------------------------------------
Net interest income 62,616 63,077 190,931 182,617
Provision for loan losses (6,400) (4,000) (16,900) (13,500)
-------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 56,216 59,077 174,031 169,117
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OTHER INCOME
Advisory fees 41,301 37,102 121,818 109,188
Service charges on deposit accounts 6,459 6,553 18,891 17,927
Card fees 2,416 2,523 7,141 6,805
Sale of branch locations 6,082 -- 7,282 --
Other operating income 2,565 2,853 5,455 6,773
Securities gains (3,436) 821 (1,776) 845
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Total other income 55,387 49,852 158,811 141,538
------------------------------------------------------------
Net interest and other income 111,603 108,929 332,842 310,655
------------------------------------------------------------
OTHER EXPENSE
Salaries and employment benefits 38,861 38,654 119,383 106,667
Net occupancy 4,096 4,161 11,900 11,209
Furniture and equipment 6,033 5,631 17,280 15,719
Stationery and supplies 1,499 1,502 4,671 4,561
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C>
Servicing and consulting fees 2,025 1,830 5,579 4,915
Advertising and contributions 2,080 2,105 5,787 6,003
Other operating expense 9,933 9,078 29,517 27,194
-------------------------------------------------------------------------------------------------------------------
Total other expense 64,527 62,961 194,117 176,268
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NET INCOME
Income before income taxes 47,076 45,968 138,725 134,387
Applicable income taxes 15,986 15,242 46,591 44,559
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Net income $ 31,090 $ 30,726 $ 92,134 $ 89,828
============================================================
Net income per share:
basic $ 0.96 $ 0.94 $ 2.85 $ 2.72
============================================================
diluted $ 0.95 $ 0.92 $ 2.83 $ 2.68
============================================================
Weighted average shares outstanding:
basic 32,342 33,005 32,282 33,076
diluted 32,712 33,400 32,607 33,580
Cash dividends per share $ 0.45 $ 0.42 $ 1.32 $ 1.23
See Notes to Consolidated Financial Statements
</TABLE>
7
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Wilmington Trust Corporation and Subsidiaries
<TABLE>
<CAPTION>
------------------------------
For the nine months ended
September 30,
(in thousands) 2000 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 92,134 $ 89,828
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 16,900 13,500
Provision for depreciation 13,904 12,242
Amortization of investment securities available for sale
discounts and premiums 4,692 2,528
Accretion of investment securities held to maturity
discounts and premiums (11) (47)
Deferred income taxes 284 3,334
Securities losses/(gains) 1,776 (845)
Decrease/(increase) in other assets 11,973 (26,599)
Increase/(decrease) in other liabilities 9,292 (7,025)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 150,944 86,916
------------------------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 331,280 891,114
Proceeds from maturities of investment securities available for sale 213,852 221,925
Proceeds from maturities of investment securities held to maturity 9,051 39,850
Purchases of investment securities available for sale (307,614) (1,543,667)
Purchases of investment securities held to maturity -- (1,000)
Investments in affiliates (33,017) (27,658)
Gross proceeds from sales of loans 41,415 69,919
Purchases of loans (6,851) (7,070)
Net increase in loans (520,038) (388,181)
Net increase in premises and equipment (9,829) (13,693)
-----------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (281,751) (758,461)
------------------------------
FINANCING ACTIVITIES
Net (increase)/decrease in demand, savings and interest-bearing
demand deposits (138,025) 85,327
Net increase in certificates of deposit 63,082 443,356
Net increase in federal funds purchased and securities sold
under agreements to repurchase 124,528 129,707
Net (decrease)/increase in U.S. Treasury demand (17,773) 50,547
Net (decrease)/increase in line of credit (7,000) 20,000
Cash dividends (42,600) (40,729)
Proceeds from common stock issued under employment benefit plans 6,267 10,688
Payments for common stock acquired through buybacks (8,669) (62,632)
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C>
-----------------------------------------------------------------------------------------------------------------
Net cash (used for)/provided by financing activities (20,190) 636,264
------------------------------
Decrease in cash and cash equivalents (150,997) (35,281)
Cash and cash equivalents at beginning of period 354,905 288,079
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 203,908 $ 252,798
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 205,034 $ 157,356
Taxes 51,420 51,910
Loans transferred during the period:
To other real estate owned $ 1,770 $ 1,727
From other real estate owned 1,690 2,283
</TABLE>
See Notes to Consolidated Financial Statements
9
<PAGE> 10
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 1999.
Note 2 - Comprehensive Income
Total comprehensive income for the Corporation included net income and
the after-tax, unrealized gains and/or losses on the Corporation's investment
securities available-for-sale portfolio. For the three months ended September
30, 2000 and 1999, total comprehensive income, net of taxes, was $47,021,000 and
$30,695,000, respectively. For the nine months ended September 30, 2000 and
1999, total comprehensive income, net of taxes, was $104,830,000 and
$67,236,000, respectively.
Note 3 - Earnings Per Share
The following table sets forth the computation of basic and diluted net earnings
per share:
<TABLE>
<CAPTION>
-------------------------
For the nine months ended
September 30,
-------------------------
(in thousands; except per share data) 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Numerator
Net income $92,134 $89,828
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Denominator
Denominator for basic earnings per share - weighted-average shares 32,282 33,076
---------------------------------------------------------------------------------------------------------
Effect of dilutive securities:
Employee stock options 325 504
---------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share - adjusted weighted-average
shares and assumed conversions 32,607 33,580
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Basic earnings per share $ 2.85 $ 2.72
=========================================================================================================
Diluted earnings per share $ 2.83 $ 2.68
=========================================================================================================
</TABLE>
10
<PAGE> 11
Note 4 - Segment Reporting
For the purposes of reporting our results, we divide our business activities
into two segments. Our banking and fee-based segments comprise the services we
provide to customers. Previously we reported a funds management segment, which
included activities not directly customer-related, but which were undertaken
primarily for the Corporation's general purposes. Those activities included
management of the investment portfolio, funding and interest rate risk
management. Those activities now are reflected in the banking and fee-based
segments and the 1999 amounts have been restated to reflect this change.
The banking and fee-based segments are managed separately but have overlapping
markets, customers and systems. The Corporation's strategy to develop full
relationships across a broad product array allow these two segments to market
separate products and services to a common base of customers.
The banking segment includes lending, deposit-taking and branch banking in our
primary markets of Delaware, Pennsylvania and Maryland, along with institutional
deposit-taking on a national basis. Lending activities include commercial loans,
commercial and residential mortgages and construction and consumer loans.
Deposit products include demand checking, certificates of deposit, negotiable
order of withdrawal accounts and various savings and money market accounts.
The fee-based segment includes personal trust, asset management, mutual fund,
corporate trust and employee benefit plan services to individuals and
corporations in the United States and some 50 other countries. Personal trust
activities include trust services, private banking, estate settlement and tax
preparation. Asset management activities include a broad range of portfolio
management services, including fixed-income, short-term cash management and
contributions resulting from affiliations with Cramer Rosenthal McGlynn, LLC and
Roxbury Capital Management, LLC. Corporate trust activities include custody
services, trusteeships for capital leases, collateralized securities, corporate
restructurings and bankruptcies.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Corporation evaluates
performance based on profit or loss from operations before income taxes and
without including nonrecurring gains and losses. The Corporation generally
records intersegment sales and transfers as if the sales or transfers were to
third parties (i.e., at current market prices). Profit or loss from infrequent
events such as the sale of a business are reported separately for each segment.
11
<PAGE> 12
Financial data by segment for September 30, 2000 vs September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Banking Fee-Based
Year-to-Date September 30, 2000 (in thousands) Business Business Totals
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 167,351 $ 23,580 $ 190,931
Provision for loan losses (16,598) (302) (16,900)
------------------------------------------------------------------------------------------------------
Net interest income after provision 150,753 23,278 174,031
Total advisory fees:
Private client advisory services 3,277 70,683 73,960
Corporate financial services 1,655 35,903 37,558
Affiliate managers -- 15,780 15,780
Amortization of goodwill -- (5,480) (5,480)
Other operating income 30,391 1,178 31,569
Securities gains (1,776) -- (1,776)
------------------------------------------------------------------------------------------------------
Net interest and other income 184,300 141,342 325,642
Other expense (107,188) (86,929) (194,117)
------------------------------------------------------------------------------------------------------
Segment profit from operations 77,112 54,413 131,525
Segment gain from infrequent events 7,200 -- 7,200
------------------------------------------------------------------------------------------------------
Segment profit before income taxes $ 84,312 $ 54,413 $ 138,725
======================================================================================================
Intersegment revenue $ 1,419 $ (1,419) $ --
Depreciation and amortization 8,992 5,706 14,698
Investment in equity method investees -- 189,186 189,186
Segment average assets 5,815,521 1,378,416 7,193,937
Return on assets 1.29% 3.50% 1.71%
Return on stockholders' equity 20.48% 31.37% 23.71%
Pre-tax profit margin 39.54% 38.13% 38.97%
Efficiency ratio 50.26% 60.91% 54.53%
Year-to-Date September 30, 1999 (in thousands)
------------------------------------------------------------------------------------------------------
Net interest income $ 161,710 $ 20,906 $ 182,616
Provision for loan losses (13,323) (177) (13,500)
------------------------------------------------------------------------------------------------------
Net interest income after provision 148,387 20,729 169,116
Total advisory fees:
Private client advisory services 3,197 65,030 68,227
Corporate financial services 1,566 30,951 32,517
Affiliate managers -- 12,981 12,981
Amortization of goodwill -- (4,537) (4,537)
Other operating income 29,157 1,548 30,705
Securities gains 676 169 845
------------------------------------------------------------------------------------------------------
Net interest and other income 182,983 126,871 309,854
Other expense (100,015) (76,254) (176,269)
------------------------------------------------------------------------------------------------------
Segment profit from operations 82,968 50,617 133,585
Segment gain from infrequent events -- 800 800
------------------------------------------------------------------------------------------------------
Segment profit before income taxes $ 82,968 $ 51,417 $ 134,385
======================================================================================================
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
Intersegment revenue $ (213) $ 213 $ --
Depreciation and amortization 8,044 5,037 13,081
Investment in equity method investees -- 159,795 159,795
Segment average assets 5,411,723 1,171,653 6,583,376
Return on assets 1.37% 3.92% 1.82%
Return on stockholders' equity 19.63% 28.86% 22.36%
Pre-tax profit margin 41.18% 39.92% 40.69%
Efficiency ratio 49.64% 59.20% 53.37%
</TABLE>
A reconciliation of reportable segment amounts to the Corporation's consolidated
balances is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Year-to-Date September 30 (in thousands) 2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Total revenues for reportable segments $ 342,542 $ 323,355
Other revenues 7,200 800
Elimination of intersegment revenues -- --
-----------------------------------------------------------------------------------
Total consolidated revenues before provision $ 349,742 $ 324,155
===========================
Profit or loss:
Total profit or loss for reportable segments $ 138,725 $ 134,385
Elimination of intersegment profits -- --
-----------------------------------------------------------------------------------
$ 138,725 $ 134,385
===========================
Assets:
Total assets for reportable segments $7,193,937 $6,583,376
Other assets -- --
Elimination of intersegment assets -- --
-----------------------------------------------------------------------------------
Consolidated total average assets $7,193,937 $6,583,376
===========================
</TABLE>
13
<PAGE> 14
Wilmington Trust Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SUMMARY
-------
Net income for the third quarter of 2000 was $31.1 million, or $.96 per share, a
1% increase over the $30.7 million, or $.94 per share, reported for the third
quarter of 1999. Diluted net income per share for the third quarter of 2000 was
$.95, compared to $.92 for the third quarter of last year.
Total revenues for the third quarter of 2000 reached $118.0 million, a 4%
increase over the $112.9 million reported for the third quarter of 1999.
Net interest income for the third quarter of 2000 reached $62.6 million, a 1%
decrease from the $63.1 million reported for the third quarter of last year.
The quarterly provision for loan losses of $6.4 million was 60% higher than the
$4.0 million for the third quarter of 1999. The reserve for loan losses at
quarter-end was $76.2 million, $745,000, or 1%, below the $76.9 million reported
at December 31, 1999.
Noninterest income for the third quarter of 2000 was $55.4 million, an 11%
increase over the $49.9 million reported for the same quarter of last year.
Operating expenses for the third quarter of 2000 were $64.5 million, a 2%
increase above the $63.0 million reported for the third quarter of last year.
Return on assets for the nine months ended September 30, 2000, on an annualized
basis, was 1.71%, down from the 1.82% reported for the corresponding period a
year ago. Return on stockholders' equity, also on an annualized basis, was
23.71%, compared with 22.36% for the first nine months of 1999.
STATEMENT OF CONDITION
----------------------
Total assets at September 30, 2000 were $7.30 billion, $101.1 million above the
$7.20 billion reported at December 31, 1999. Total earning assets increased
$196.3 million over that period of time, to $6.86 billion, as decreases in
investment securities were offset by increases in the loan portfolio.
Total loans at September 30, 2000 were $5.29 billion, an increase of $467.8
million, or 10%, over the December 31, 1999 level of $4.82 billion. Contributing
to this increase were: commercial loans of $1.70 billion, which rose $178.1
million, or 12%, over their December 31, 1999 level; commercial construction
loans of $398.9 million, which rose $95.1 million, or 31%; residential mortgage
loans of $984.1 million, which rose $15.8 million, or 2%; and consumer loans of
$1.26 billion, which rose $153.8 million, or 14%. Over half of the loan
portfolio growth was from activity in the southeastern Pennsylvania market.
The investment portfolio at September 30, 2000 was $1.48 billion, a decrease of
$233.2 million, or 14%, from the December 31, 1999 level of $1.72 billion.
Contributing to this decrease were U.S. Treasury and government agency
securities, which decreased $135.1 million, or 13%, to $874.7 million; preferred
stocks, which decreased $43.9 million, or 31%, to $98.6 million; and
asset-backed securities, which decreased $68.7 million, or 19%, to $293.1
million.
Interest-bearing liabilities at quarter-end were $5.66 billion, $24.7 million
above the year-end level of $5.63 billion. Total deposits during the first nine
months of 2000 decreased $74.9 million, while short-term borrowings increased
$99.8 million. An increase of $179.6 million in certificates of deposit $100,000
14
<PAGE> 15
and over offset decreases in savings and interest-bearing demand accounts and
certificates of deposit $100,000 or less. Complementing this higher level of
national market certificates of deposit were increased levels of short-term
borrowings, primarily Federal funds purchased, which increased $153.0 million
over the prior year-end level to $184.7 million.
Shareholders' equity at September 30, 2000 was $558.6 million, $60.4 million, or
12%, over the 1999 year-end level. Earnings of $92.1 million, a $12.7 million
valuation reserve adjustment for the investment portfolio and $6.9 million in
new stock issued during that period were partially offset by $42.6 million in
cash dividends and the repurchase of $8.7 million of treasury stock.
NET INTEREST INCOME
-------------------
Net interest income for the third quarter of 2000 on a fully tax-equivalent
("FTE") basis was $64.5 million. This was a $550,000, or 1%, decrease from the
$65.1 million reported for the third quarter of 1999.
Interest income (FTE) for the third quarter of 2000 increased $16.6 million, or
14%, to $137.1 million from $120.5 million for the third quarter of 1999.
Contributing to this improvement was a $383.8 million increase in the average
level of earning assets, which added $9.1 million to interest revenues. This was
complemented by the higher interest rate environment, which added $7.5 million
to interest revenues for the quarter. The average rate earned on the
Corporation's earning assets during the third quarter of 2000 increased 51 basis
points, from 7.56% to 8.07%.
Interest expense for the third quarter of 2000 also increased, rising $17.1
million, or 31%, to $72.6 million. Interest-bearing liabilities, on average,
rose $401.2 million over their level of a year ago. This increase in
interest-bearing liabilities contributed an additional $6.1 million to interest
expense, while the higher rate environment added another $11.0 million to
quarterly interest expense. The average rate the Corporation paid for its funds
during the third quarter of 2000 was 5.01%, compared to 4.12% for the third
quarter of 1999.
The Corporation's net interest margin for the third quarter of 2000 was 3.80%,
28 basis points below the 4.08% reported for the third quarter of a year ago.
This decline was driven, in part, by the Corporation's increasing use of the
national certificate of deposit markets and Federal funds purchased to fund its
balance sheet growth. 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 of 2000 and 1999, respectively.
15
<PAGE> 16
QUARTERLY ANALYSIS OF EARNINGS
<TABLE>
<CAPTION>
2000 Third Quarter 1999 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 20,989 351 6.54 17,428 229 5.14
----------------------------------------------------------------------------- ---------------------------
Total short-term investments 20,989 351 6.54 17,428 229 5.14
---------------------------------------------------------------------------------
U.S. Treasury and government
agencies 905,187 13,992 6.00 991,511 14,864 5.89
State and municipal 13,622 243 7.22 14,412 282 7.93
Preferred stock 104,693 2,375 8.33 158,510 2,854 7.19
Asset-backed securities 311,663 4,988 6.18 388,085 6,140 6.22
Other 194,594 3,514 7.14 142,094 1,959 5.51
----------------------------------------------------------------------------- ---------------------------
Total investment securities 1,529,759 25,112 6.36 1,694,612 26,099 6.07
---------------------------------------------------------------------------------
Commercial, financial and
agricultural 1,586,943 35,476 8.77 1,432,059 28,612 7.84
Real estate-construction 385,514 9,457 9.60 278,861 6,365 8.93
Mortgage-commercial 940,322 20,888 8.69 879,705 19,338 8.60
Mortgage-residential 983,218 17,680 7.19 908,216 15,947 7.02
Consumer 1,219,631 28,129 9.14 1,071,665 23,953 8.84
----------------------------------------------------------------------------- ---------------------------
Total loans 5,115,628 111,630 8.60 4,570,506 94,215 8.12
---------------------------------------------------------------------------------
Total earning assets $6,666,376 137,093 8.07 $6,282,546 120,543 7.56
=================================================================================
Funds supporting earning assets
Savings $ 374,342 1,430 1.52 $ 415,125 1,807 1.73
Interest-bearing demand 1,306,118 7,481 2.28 1,351,980 7,373 2.16
Certificates under $100,000 964,535 12,164 5.02 1,133,085 14,159 4.96
Certificates $100,000 and over 1,602,632 26,907 6.57 1,048,284 13,840 5.17
----------------------------------------------------------------------------- ---------------------------
Total interest-bearing
deposits 4,247,627 47,982 4.45 3,948,474 37,179 3.72
---------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase 1,273,912 21,138 6.59 1,176,419 14,991 5.06
U.S. Treasury demand 42,103 698 6.49 37,522 546 5.69
----------------------------------------------------------------------------- ---------------------------
Total short-term
borrowings 1,316,015 21,836 6.59 1,213,941 15,537 5.08
---------------------------------------------------------------------------------
Long-term debt 168,000 2,769 6.59 168,000 2,771 6.60
----------------------------------------------------------------------------- ---------------------------
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total interest-bearing
liabilities 5,731,642 72,587 5.01 5,330,415 55,487 4.12
----------------------------------------------------------------------------------
Other noninterest funds 934,734 -- -- 952,131 -- --
----------------------------------------------------------------------- ---------------------------
Total funds used to support
earning assets $6,666,376 72,587 4.27 $6,282,546 55,487 3.48
===================================================================================
Net interest income/yield 64,506 3.80 65,056 4.08
Tax-equivalent adjustment (1,890) (1,979)
---------- ----------
Net interest income $ 62,616 $ 63,077
========== ==========
</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.
17
<PAGE> 18
YEAR-TO-DATE ANALYSIS OF EARNINGS
<TABLE>
<CAPTION>
Year-to-Date 2000 Year-to-Date 1999
--------------------------------------- ---------------------------------------
(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 32,419 1,466 5.94 24,315 875 4.75
----------------------------------------------------------------------------- ---------------------------
Total short-term investments 32,419 1,466 5.94 24,315 875 4.75
--------------------------------------------------------------------------------
U.S. Treasury and government
agencies 935,912 43,382 5.97 927,756 40,764 5.83
State and municipal 12,256 687 7.57 14,924 853 7.73
Preferred stock 117,366 7,690 8.07 163,827 8,437 6.92
Asset-backed securities 335,669 16,170 6.19 346,082 16,301 6.24
Other 197,634 10,039 6.74 108,836 4,297 5.27
----------------------------------------------------------------------------- ---------------------------
Total investment securities 1,598,837 77,968 6.28 1,561,425 70,652 6.01
--------------------------------------------------------------------------------
Commercial, financial and
agricultural 1,568,196 101,341 8.50 1,414,544 83,202 7.77
Real estate-construction 355,389 25,452 9.40 257,032 16,905 8.68
Mortgage-commercial 929,277 60,982 8.62 874,377 57,517 8.68
Mortgage-residential 981,951 52,572 7.14 876,179 47,188 7.16
Consumer 1,170,830 79,723 9.06 1,049,575 68,339 8.68
----------------------------------------------------------------------------- ---------------------------
Total loans 5,005,643 320,070 8.45 4,471,707 273,151 8.10
--------------------------------------------------------------------------------
Total earning assets $6,636,899 399,504 7.90 $6,057,447 344,678 7.55
================================================================================
Funds supporting earning assets
Savings $ 389,072 4,471 1.53 $ 415,119 5,612 1.81
Interest-bearing demand 1,338,460 21,780 2.17 1,375,913 22,400 2.18
Certificates under $100,000 995,722 36,469 4.89 1,156,846 43,740 5.06
Certificates $100,000 and over 1,647,856 77,724 6.20 837,268 32,910 5.18
----------------------------------------------------------------------------- ---------------------------
Total interest-bearing
deposits 4,371,110 140,444 4.25 3,785,146 104,662 3.68
--------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase 1,113,346 51,860 6.18 1,128,659 41,769 4.92
U.S. Treasury demand 50,561 2,276 5.91 34,442 1,345 5.15
----------------------------------------------------------------------------- ---------------------------
Total short-term borrowings 1,163,907 54,136 6.17 1,163,101 43,114 4.92
--------------------------------------------------------------------------------
Long-term debt 168,000 8,292 6.58 168,000 8,290 6.58
----------------------------------------------------------------------------- ---------------------------
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total interest-bearing
liabilities 5,703,017 202,872 4.71 5,116,247 156,066 4.06
-----------------------------------------------------------------------------------
Other noninterest funds 933,882 -- -- 941,200 -- --
---------------------------------------------------------------------------- ---------------------------
Total funds used to support
earning assets $6,636,899 202,872 4.01 $6,057,447 156,066 3.42
===================================================================================
Net interest income/yield 196,632 3.89 188,612 4.13
Tax-equivalent adjustment (5,701) (5,995)
---------- ----------
Net interest income $ 190,931 $ 182,617
========== ==========
</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.
19
<PAGE> 20
RATE-VOLUME ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
---------------------------------------- ---------------------------------------
For the three months ended September 30, For the nine months ended September 30,
---------------------------------------- ---------------------------------------
2000/1999 2000/1999
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 47 75 122 293 298 591
---------------------------------------------------------------------------------------------------------------------------------
Total short-term
investments 47 75 122 293 298 591
-------------------------------------------------------------------------------------
U.S. Treasury and
government agencies (1,147) 275 (872) 1,572 1,046 2,618
State and municipal * (15) (24) (39) (152) (14) (166)
Preferred stock * (823) 344 (479) (1,866) 1,119 (747)
Asset-backed securities (1,122) (30) (1,152) (11) (120) (131)
Other * 750 805 1,555 3,558 2,184 5,742
---------------------------------------------------------------------------------------------------------------------------------
Total investment
securities (2,357) 1,370 (987) 3,101 4,215 7,316
-------------------------------------------------------------------------------------
Commercial, financial and
agricultural * 3,052 3,812 6,864 8,938 9,201 18,139
Real estate-construction 2,394 698 3,092 6,391 2,156 8,547
Mortgage-commercial * 1,310 240 1,550 3,567 (102) 3,465
Mortgage-residential 1,323 410 1,733 5,670 (286) 5,384
Consumer 3,288 888 4,176 7,879 3,505 11,384
---------------------------------------------------------------------------------------------------------------------------------
Total loans 11,367 6,048 17,415 32,445 14,474 46,919
---------------------------------------------------------------------------------------------------------------------------------
Total interest income $ 9,057 $ 7,493 $ 16,550 $ 35,839 $ 18,987 $ 54,826
=====================================================================================
Interest expense:
Savings $ (177) $ (200) $ (377) $ (353) $ (788) $ (1,141)
Interest-bearing demand (249) 357 108 (611) (9) (620)
Certificates under $100,000 (2,101) 106 (1,995) (6,104) (1,167) (7,271)
Certificates $100,000 and over 7,324 5,743 13,067 31,958 12,856 44,814
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 4,797 6,006 10,803 24,890 10,892 35,782
----------------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase 1,233 4,914 6,147 (565) 10,656 10,091
U.S. Treasury demand 67 85 152 632 299 931
------------------------------------------------------------------------------------------------------------------------------------
Total short-term
borrowings 1,300 4,999 6,299 67 10,955 11,022
----------------------------------------------------------------------------------------
Long-term debt 0 (2) (2) 2 0 2
------------------------------------------------------------------------------------------------------------------------------------
Total interest expense $ 6,097 $ 11,003 $ 17,100 $ 24,959 $ 21,847 $ 46,806
========================================================================================
Changes in net interest income $ (550) $ 8,020
======== ========
</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.
21
<PAGE> 22
Non-interest Revenues and Operating Expenses
--------------------------------------------
Non-interest revenues for the third quarter of 2000 were $55.4 million, an
increase of $5.5 million, or 11%, over those for the third quarter of a year
ago, due primarily to higher trust and asset management fees.
Total advisory fees for the third quarter of 2000 increased $4.2 million, or
11%, over those for the third quarter of 1999, to $41.3 million. These
represented 36% of the Corporation's operating revenues for the third quarter of
2000, compared to 33% for the third quarter of 1999. Private client advisory
fees for the third quarter rose $1.5 million, or 6%, to $24.8 million. Fees from
corporate financial services for the third quarter increased $1.6 million, or
14%, to $12.5 million. Fees from affiliated asset managers rose $1.5 million, or
35%, to $5.9 million, due primarily to the contribution from growth-style
affiliate Roxbury Capital Management, whose assets under management reached
$14.2 billion, nearly double those at September 30, 1999.
Other operating income for the third quarter of 2000 was $11.1 million. This was
an increase of $5.7 million, or 106%, over the $5.4 million reported for the
third quarter of 1999. The Corporation recorded a non-operating gain of $6.1
million for the quarter on the sale of four retail branches in southeastern
Pennsylvania. These locations in Media, Lionville, Westtown and West Chester
included approximately $54.0 million in retail deposits. The Corporation
continues to service this market through its personal client advisory services
offices in Philadelphia, West Chester, Doylestown, Villanova and Haverford. In
the first quarter of 2000, the Corporation sold three retail branch locations on
the eastern shore of Maryland. A gain of $1.2 million was recorded for that
transaction. Service charges on deposit accounts for the third quarter were
$94,000 below those for the third quarter of 1999, but for the first nine months
of 2000 were $964,000, or 5%, above those for the first nine months of 1999.
Card fees for the third quarter of 2000 were $107,000 below those for the third
quarter of 1999, but for the first nine months of 2000 were $336,000, or 5%,
above those for the first nine months of 1999. Other operating income for the
quarter declined $288,000, or 10%. In addition, a $4 million loss was incurred
during the quarter on the sale of $110 million in fixed-rate investments with
average yields of less than 6%. This sale helped reduce exposure to further
interest rate changes.
Operating expenses for the quarter increased $1.6 million, or 2%, to $64.5
million. Total personnel expenses for the quarter increased $207,000, or 1%,
over those for the third quarter of 1999, to $38.9 million. Contributing to this
increase were higher compensation costs and expansion activity in California,
New York, Florida and Pennsylvania. Salaries and wages increased 1%, reflecting
higher bonus and incentive payments, partially offset by lower compensation
expense. Employment benefits expense rose 1% due to higher health insurance
costs. Servicing and consulting expenses for the third quarter were $2.0
million, an increase of $195,000, or 11%, over those for the third quarter of
last year. For the first nine months of 2000, those expenses were $5.6 million,
$664,000, or 14%, above the corresponding expenses for the first nine months of
1999. Other operating expense for the third quarter rose $855,000, or 9%, due to
increased loan origination expenses and processing fees.
Income tax expense for the third quarter of 2000 increased $744,000, or 5%, to
$16.0 million. The Corporation's effective tax rate for the third quarter of
2000 was 33.96%, compared to 33.16% for the third quarter of 1999.
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 deposits.
22
<PAGE> 23
The Corporation's quarter-end liquidity ratio, calculated in accordance with
regulatory requirements of the FDIC, was 20.37%. 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 2000 was
$6.4 million, $2.4 million, or 60%, higher than the amount provided for in the
third quarter of 1999. The reserve for loan losses at September 30, 2000 was
$76.2 million, a decrease of $745,000, or 1%, from the $76.9 million reported at
December 31, 1999. The reserve as a percentage of total period-end loans
outstanding was 1.44%, down from the year-end level of 1.60%. Net chargeoffs for
the third quarter of 2000 were $5.7 million, an increase of $2.6 million, or
84%, over those for the corresponding period of 1999, primarily for one credit
to a single borrower.
The following table presents the risk elements in the Corporation's loan
portfolio:
<TABLE>
<CAPTION>
Risk Elements (in thousands) September 30, 2000 December 31, 1999 September 30, 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccruing $43,665 $29,184 $31,839
Past due 90 days or more 19,111 16,520 21,187
---------------------------------------------------------------------------------------------------------------
Total $62,776 $45,704 $53,026
===============================================================
Percent of total loans at period-end 1.19% .95% 1.14%
Other real estate owned $ 656 $ 576 $ 976
</TABLE>
Nonaccruing loans at September 30, 2000 were $43.7 million, an increase of $14.5
million, or 50%, over the $29.2 million reported at December 31, 1999. 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, 2000 was $656,000, an increase of $80,000, or 14%, from the
December 31, 1999 level of $576,000. Nonperforming assets (other real estate
owned plus nonaccrual loans) at September 30, 2000 totaled $44.3 million, or
.84% of period-end loans outstanding. This was an increase of $14.6 million, or
49%, over the $29.8 million, or .62% of period-end loans outstanding, reported
at December 31, 1999. As a result of the Corporation's ongoing monitoring of its
loan portfolio, at September 30, 2000, approximately $45.4 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.
The reserve for loan losses at quarter-end was 1.74 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
23
<PAGE> 24
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 2000 was 10.41%, and its core
(Tier 1) leveraged capital ratio was 5.59%. The corresponding ratios at year-end
1999 were 10.67% and 5.65%, respectively. Both of these ratios are above 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
-----------------
Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities: Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," requires derivative instruments to
be carried at fair value on the balance sheet. These statements continue to
allow the hedging of various risks with derivative instruments and set forth
specific criteria to be used to determine when hedge accounting can be used. The
statements provide for changes in fair value or cash flows of both the
derivative and the hedged asset or liability to be recognized in earnings in the
same period. For derivative instruments not accounted for as hedges, changes in
fair value are also required to be recognized in earnings. The Corporation plans
to adopt the provisions of these statements, as amended, for its quarterly and
annual reporting beginning January 1, 2001, the statements' effective date. The
impact of adoption of SFAS No. 133 on the Corporation's financial position,
results of operations and cash flows is not presently determinable and will
depend on the financial position and the nature and purpose of the derivative
instruments in use at that time.
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
24
<PAGE> 25
scenarios in which interest rates gradually move up or down 250 basis points.
The simulation model projects, as of September 30, 2000, that a gradual
250-basis-point increase in market interest rates would reduce net interest
income by 5.0% over a one-year period. This figure compares to a projected
decrease at December 31, 1999 of 5.5%. If interest rates were to gradually
decrease 250 basis points, the simulation model projects, as of September 30,
2000, that net interest income would increase 3.0% over a one-year period. This
figure compares to a projected decrease at December 31, 1999 of 2.9%. 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 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 employs assumptions that reflect the historical
adjustment paths of the Corporation's retail deposit rates to changes in the
level of market interest rates. In addition, some of the Corporation's retail
deposit rates reach historic lows within the 250-basis-point decline scenario.
The Corporation's model freezes the rates for these deposit products when they
equal their historic lows. These model assumptions (asymmetrical adjustments and
rate floors based on 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 residential mortgage loan, CMO and asset-backed security balances are
driven by their 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 2000, 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 2000 totaled
$13.8 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, maximizing the number of funding sources and asset securitizations,
as well as utilizing off-balance-sheet measures such as interest rate swaps and
interest rate floors.
At September 30, 2000, the Corporation was committed to interest rate swaps with
a total notional amount of $8.4 million. The Corporation was not committed to
any interest rate swaps at year-end 1999. The swaps have remaining maturities of
57 months. At September 30, 2000, the Corporation was committed to interest rate
floors with a total notional amount of $200 million, down from $225 million at
year-end 1999. The floors have remaining maturities of between 18 and 58 months
with a weighted average maturity of 36 months. The net interest differential,
the amortization of the initial fees associated with the purchase
25
<PAGE> 26
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> 27
Part II. Other Information
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Change In Securities and Use of Proceeds
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.
<TABLE>
<CAPTION>
Exhibit Number Exhibit
-------------- -------
<S> <C>
11 Statement re computation of per share earnings
27 Financial data schedule
</TABLE>
27
<PAGE> 28
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 13, 2000 /s/ David R. Gibson
------------------------------------------
Name: David R. Gibson
Title: Senior Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
28
