-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DGC2o2QFJVc1QgT/2DG55BvyTjHFGhNT3AWNRduKPOwKE/tsNTRIQNC1r/fhUM17 okGYi+sXGtDb2SnfbEhmhA== 0000893220-04-001653.txt : 20040809 0000893220-04-001653.hdr.sgml : 20040809 20040809145331 ACCESSION NUMBER: 0000893220-04-001653 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILMINGTON TRUST CORP CENTRAL INDEX KEY: 0000872821 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 510328154 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14659 FILM NUMBER: 04960920 BUSINESS ADDRESS: STREET 1: RODNEY SQUARE NORTH STREET 2: 1100 NORTH MARKET ST CITY: WILMINGTON STATE: DE ZIP: 19890-0001 BUSINESS PHONE: 3026518378 MAIL ADDRESS: STREET 1: 1100 NORTH MARKET STREET CITY: WILMINGTON STATE: DE ZIP: 19890-0001 10-Q 1 w99442e10vq.txt FORM 10-Q WILMINGTON TRUST CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 2004 ------------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ---------------------- to ------------------------ Commission File Number: 1-14659 -------------------------------------------------------- WILMINGTON TRUST CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 51-0328154 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) RODNEY SQUARE NORTH, 1100 NORTH MARKET STREET, WILMINGTON, DELAWARE 19890 - ----------------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code) (302) 651-1000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NONE - -------------------------------------------------------------------------------- (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 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of June 30, 2004 ------------------------------ ------------------------------- COMMON STOCK - PAR VALUE $1.00 66,372,579 WILMINGTON TRUST CORPORATION AND SUBSIDIARIES SECOND QUARTER 2004 FORM 10-Q TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1 Financial Statements (unaudited) Consolidated Statements of Condition 1 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 3 Quantitative and Qualitative Disclosures About Market Risk 43 Item 4 Controls and Procedures 45 PART II. OTHER INFORMATION Item 1 Legal Proceedings 45 Item 2 Changes in Securities and Use of Proceeds 46 Item 3 Defaults upon Senior Securities 46 Item 4 Submission of Matters to a Vote of Security Holders 46 Item 5 Other Information 47 Item 6 Exhibits and Reports on Form 8-K 47
Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. CONSOLIDATED STATEMENTS OF CONDITION (unaudited) Wilmington Trust Corporation and Subsidiaries
--------------------------- June 30, December 31, (in millions) 2004 2003 - ----------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 402.6 $ 210.2 --------------------------- Federal funds sold and securities purchased under agreements to resell 67.5 3.8 --------------------------- Investment securities available for sale: U.S. Treasury and government agencies 416.9 470.0 Obligations of state and political subdivisions 11.0 12.9 Other securities 1,398.8 1,392.3 - ----------------------------------------------------------------------------------------------------------- Total investment securities available for sale 1,826.7 1,875.2 --------------------------- Investment securities held to maturity: Obligations of state and political subdivisions 3.0 3.1 Other securities 0.5 1.1 - ----------------------------------------------------------------------------------------------------------- Total investment securities held to maturity (market values of $3.7 and $4.5, respectively) 3.5 4.2 --------------------------- Loans: Commercial, financial, and agricultural 2,408.7 2,275.2 Real estate-construction 695.9 699.8 Mortgage-commercial 1,195.8 1,078.2 - ----------------------------------------------------------------------------------------------------------- Total commercial loans 4,300.4 4,053.2 --------------------------- Mortgage-residential 447.6 489.6 Consumer 1,132.1 1,077.1 Secured with liquid collateral 603.1 605.4 - ----------------------------------------------------------------------------------------------------------- Total retail loans 2,182.8 2,172.1 --------------------------- Total loans net of unearned income 6,483.2 6,225.3 Reserve for loan losses (92.5) (89.9) - ----------------------------------------------------------------------------------------------------------- Net loans 6,390.7 6,135.4 ---------------------------
1 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Premises and equipment, net 152.5 152.3 Goodwill, net of accumulated amortization of $29.8 in 2004 and 2003 268.7 243.2 Other intangible assets, net of accumulated amortization of $12.6 in 2004 and $11.1 in 2003 28.7 24.0 Accrued interest receivable 37.4 39.5 Other assets 111.3 132.4 - --------------------------------------------------------------------------------------------------------- Total assets $ 9,289.6 $8,820.2 =========================
2 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004
--------------------------- June 30, December 31, (in millions) 2004 2003 - ----------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing demand $ 1,207.2 $1,025.5 Interest-bearing: Savings 373.4 369.0 Interest-bearing demand 2,296.5 2,364.1 Certificates under $100,000 762.7 788.3 Local CDs $100,000 and over 155.5 130.3 - ----------------------------------------------------------------------------------------------------------- Total core deposits 4,795.3 4,677.2 National CDs $100,000 and over 1,627.0 1,900.0 - ----------------------------------------------------------------------------------------------------------- Total deposits 6,422.3 6,577.2 --------------------------- Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 1,434.9 820.5 U.S. Treasury demand 64.1 48.3 Line of credit -- 8.0 - ----------------------------------------------------------------------------------------------------------- Total short-term borrowings 1,499.0 876.8 --------------------------- Accrued interest payable 20.9 23.6 Other liabilities 121.6 134.5 Long-term debt 398.0 407.1 - ----------------------------------------------------------------------------------------------------------- Total liabilities 8,461.8 8,019.2 --------------------------- Minority interest 1.4 0.2 --------------------------- Stockholders' equity: Common stock ($1.00 par value) authorized 150,000,000 shares; issued 78,528,346 78.5 78.5 Capital surplus 67.9 54.6 Retained earnings 983.8 948.4 Accumulated other comprehensive loss (33.5) (16.1) - ----------------------------------------------------------------------------------------------------------- Total contributed capital and retained earnings 1,096.7 1,065.4 Less: Treasury stock, at cost, 12,155,767 and 12,465,014 shares, respectively (270.3) (264.6) - ----------------------------------------------------------------------------------------------------------- Total stockholders' equity 826.4 800.8 --------------------------- Total liabilities and stockholders' equity $ 9,289.6 $8,820.2 ===========================
See Notes to Consolidated Financial Statements 3 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 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 millions; except per share data) 2004 2003 2004 2003 - --------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME Interest and fees on loans $ 74.0 $ 76.9 $ 146.8 $ 154.0 Interest and dividends on investment securities: Taxable interest 15.6 15.7 31.6 29.3 Tax-exempt interest 0.1 0.3 0.4 0.5 Dividends 1.9 1.7 3.7 3.5 Interest on federal funds sold and securities purchased under agreements to resell -- 0.1 0.1 0.2 - --------------------------------------------------------------------------------------------------------------------------- Total interest income 91.6 94.7 182.6 187.5 ---------------------------------------------------------------- Interest on deposits 12.3 16.9 25.5 35.7 Interest on short-term borrowings 3.8 3.9 7.0 7.0 Interest on long-term debt 3.3 3.7 6.1 6.3 - --------------------------------------------------------------------------------------------------------------------------- Total interest expense 19.4 24.5 38.6 49.0 ---------------------------------------------------------------- Net interest income 72.2 70.2 144.0 138.5 Provision for loan losses (3.2) (5.9) (8.8) (10.8) - --------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 69.0 64.3 135.2 127.7 ---------------------------------------------------------------- NONINTEREST INCOME Advisory fees: Wealth Advisory Services: Trust and investment advisory fees 26.9 23.2 53.7 46.0 Mutual fund fees 4.9 5.6 10.1 11.3 Other service fees 5.6 4.3 13.2 9.4 - --------------------------------------------------------------------------------------------------------------------------- Total Wealth Advisory Services 37.4 33.1 77.0 66.7 ---------------------------------------------------------------- Corporate Client Services: Capital markets services 8.3 7.6 16.2 13.9 Entity management services 5.4 5.3 10.9 10.2 Retirement services 3.2 2.3 5.9 4.7 Cash management services 1.5 1.3 3.3 2.6 - --------------------------------------------------------------------------------------------------------------------------- Total Corporate Client Services 18.4 16.5 36.3 31.4 ---------------------------------------------------------------- Cramer Rosenthal McGlynn 2.5 1.1 4.6 1.8 Roxbury Capital Management 0.2 (1.2) 0.4 (2.1) - --------------------------------------------------------------------------------------------------------------------------- Advisory fees 58.5 49.5 118.3 97.8
4 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Amortization of affiliate other intangibles (0.5) (0.3) (0.8) (0.6) - --------------------------------------------------------------------------------------------------------------------------- Advisory fees after amortization of affiliate other intangibles 58.0 49.2 117.5 97.2 ---------------------------------------------------------------- Service charges on deposit accounts 8.1 7.8 16.3 15.1 Loan fees and late charges 1.2 2.4 2.9 4.4 Card fees 2.3 2.4 4.4 5.0 Other noninterest income 0.6 1.2 1.8 2.5 - --------------------------------------------------------------------------------------------------------------------------- Total noninterest income 70.2 63.0 142.9 124.2 ---------------------------------------------------------------- Net interest and noninterest income 139.2 127.3 278.1 251.9 ---------------------------------------------------------------- NONINTEREST EXPENSE Salaries and wages 32.4 31.2 64.8 61.0 Incentives and bonuses 6.4 4.3 14.7 13.7 Employment benefits 10.0 8.9 20.9 18.5 Net occupancy 5.0 5.0 10.3 10.4 Furniture, equipment, and supplies 7.8 7.3 15.4 14.7 Advertising and contributions 2.8 2.8 4.4 4.6 Servicing and consulting fees 5.0 3.9 9.6 7.9 Travel, entertainment, and training 2.3 1.9 4.0 3.4 Originating and processing fees 2.0 1.8 4.1 3.6 Other noninterest expense 8.7 10.0 17.4 18.9 - --------------------------------------------------------------------------------------------------------------------------- Total noninterest expense 82.4 77.1 165.6 156.7 ---------------------------------------------------------------- NET INCOME Income before income taxes and minority interest 56.8 50.2 112.5 95.2 Income tax expense 19.9 17.4 39.6 32.8 - --------------------------------------------------------------------------------------------------------------------------- Net income before minority interest 36.9 32.8 72.9 62.4 Minority interest 0.4 0.2 0.8 0.4 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 36.5 $ 32.6 $ 72.1 $ 62.0 ================================================================ Net income per share: Basic $ 0.55 $ 0.50 $ 1.09 $ 0.94 ================================================================ Diluted $ 0.54 $ 0.49 $ 1.07 $ 0.94 ================================================================ Weighted average shares outstanding: Basic 66,309 65,790 66,234 65,741 Diluted 67,454 66,195 67,474 66,184
See Notes to Consolidated Financial Statements 5 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Wilmington Trust Corporation and Subsidiaries
--------------------------- For the six months ended June 30, --------------------------- (in millions) 2004 2003 - --------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 72.1 $ 62.0 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 8.8 10.8 Provision for depreciation and other amortization 9.4 9.5 Amortization of other intangible assets 1.5 1.2 Minority interest in net income 0.8 0.4 Amortization of investment securities available for sale discounts and premiums 6.9 6.3 Deferred income taxes (0.7) (1.0) Originations of residential mortgages available for sale (40.1) (94.4) Gross proceeds from sales of residential mortgages 40.9 96.5 Gains on sales of residential mortgages (0.8) (2.1) (Increase)/decrease in other assets 21.4 4.4 Decrease in other liabilities (5.8) (31.3) - --------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 114.4 62.3 --------------------------- INVESTING ACTIVITIES Proceeds from sales of investment securities available for sale 6.7 0.2 Proceeds from maturities of investment securities available for sale 657.3 598.1 Proceeds from maturities of investment securities held to maturity 0.7 0.2 Purchases of investment securities available for sale (649.3) (1,218.0) Investments in affiliates (16.3) (7.0) Purchases of residential mortgages (5.2) (2.4) Net increase in loans (258.9) (44.5) Purchases of premises and equipment (26.2) (14.1) Dispositions of premises and equipment 16.8 7.9 - --------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (274.4) (679.6) ---------------------------
6 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 FINANCING ACTIVITIES Net increase in demand, savings, and interest-bearing demand deposits 118.5 243.1 Net decrease in certificates of deposit (273.4) (91.9) Net increase in federal funds purchased and securities sold under agreements to repurchase 614.4 400.6 Net increase/(decrease) in U.S. Treasury demand 15.8 (9.4) Proceeds from issuance of long-term debt -- 260.3 Maturity of long-term debt (9.1) -- Net decrease in line of credit (8.0) (10.0) Cash dividends (36.7) (34.5) Distributions to minority shareholders (0.8) (0.5) Proceeds from common stock issued under employment benefit plans, net of income taxes 10.6 6.6 Payments for common stock acquired through buybacks (15.2) (0.5) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 416.1 763.8 ------------------------- Increase in cash and cash equivalents 256.1 146.5 Cash and cash equivalents at beginning of period 214.0 248.9 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 470.1 $ 395.4 ========================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 41.4 $ 50.0 Taxes 47.0 38.0 In conjunction with the acquisition of Balentine & Company, LLC, Cramer Rosenthal McGlynn, LLC, Roxbury Capital Management, LLC, and Camden Partners Holdings, LLC, liabilities were assumed as follows: Fair value of assets acquired $ 18.0 $ 6.9 Goodwill acquired 13.2 -- Common stock issued (12.9) -- Cash paid (18.3) (6.9) - ------------------------------------------------------------------------------------------------------------------- Liabilities assumed $ -- $ -- =========================
See Notes to Consolidated Financial Statements 7 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Notes to Unaudited Consolidated Financial Statements Note 1 - Stock-based Compensation Plans - --------------------------------------- At June 30, 2004, the Corporation had three types of stock-based compensation plans, which are described in "Note 15" to the "Consolidated Financial Statements" included in the Corporation's 2003 Annual Report to Shareholders. The Corporation applies Accounting Principles Board (APB) Opinion No. 25 and related interpretations in accounting for these plans. No stock-based compensation cost has been recognized in the accompanying consolidated financial statements for those plans. If compensation cost for the Corporation's three types of stock-based compensation plans had been determined based on the fair value at the grant dates for awards under those plans consistent with the methods outlined in Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the Corporation's net income would have been as follows:
------------------------------------------------------------ For the three months ended For the six months ended June 30, June 30, ------------------------------------------------------------ (in millions, except per share amounts) 2004 2003 2004 2003 - -------------------------------------------------------------------------------------------------------------------- Net income: As reported $ 36.5 $ 32.6 $ 72.1 $ 62.0 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1.9) (1.4) (2.6) (1.8) - -------------------------------------------------------------------------------------------------------------------- Pro forma net income $ 34.6 $ 31.2 $ 69.5 $ 60.2 Basic earnings per share: As reported $ 0.55 $ 0.50 $ 1.09 $ 0.94 Pro forma 0.52 0.47 1.05 0.92 Diluted earnings per share: As reported $ 0.54 $ 0.49 $ 1.07 $ 0.94 Pro forma 0.51 0.47 1.03 0.91
The Corporation made grants of restricted stock to certain employees. The value of these awards is amortized into compensation expense over the applicable vesting period. Forfeitures are recorded as incurred. During the restriction period, award holders have the rights of stockholders, including the right to vote and receive cash dividends, but they cannot transfer ownership. The Corporation recognized expense in connection with restricted stock awards for the three- and six-month periods ended June 30, 2004, of $0.0 million and $0.1 million, respectively. 8 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Note 2 - 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, WT Investments, Inc. (WTI), Rodney Square Management Corporation, Wilmington Trust (UK) Limited, and Balentine Holdings, Inc., conform to accounting principles generally accepted in the United States of America 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 for the interim periods are not necessarily indicative of the results that may be expected for the full year. The consolidated financial statements presented herein should be read in conjunction with the "Notes to Consolidated Financial Statements" included in the Corporation's 2003 Annual Report to Shareholders. Certain prior year amounts have been reclassified to conform to current year presentation. Note 3 - Comprehensive Income - ----------------------------- The following table depicts other comprehensive income as required by SFAS No. 130:
-------------------------------------------------------- For the three months ended For the six months ended June 30, June 30, -------------------------------------------------------- (in millions) 2004 2003 2004 2003 - ----------------------------------------------------------------------------------------------------------------------- Net income $ 36.5 $ 32.6 $ 72.1 $ 62.0 Other comprehensive income, net of income taxes: Net unrealized holding gains/(losses) on securities (24.8) 6.3 (17.2) 5.8 Reclassification adjustment for derivative gains included in net income (0.1) (0.1) (0.1) (0.1) Foreign currency translation adjustments -- 0.2 (0.1) 0.1 -------------------------------------------------------- Total comprehensive income $ 11.6 $ 39.0 $ 54.7 $ 67.8 ========================================================
9 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Note 4 - Earnings Per Share - ---------------------------- The following table sets forth the computation of basic and diluted net earnings per share:
------------------------------------------------------ For the three months ended For the six months ended June 30, June 30, ------------------------------------------------------ (in millions; except per share data) 2004 2003 2004 2003 - -------------------------------------------------------------------------------------------------------------- Numerator: Net income $ 36.5 $ 32.6 $ 72.1 $ 62.0 - -------------------------------------------------------------------------------------------------------------- Denominator: Denominator for basic earnings per share - weighted-average shares 66.3 65.8 66.2 65.7 - -------------------------------------------------------------------------------------------------------------- Effect of dilutive securities: Employee stock options 1.2 0.4 1.3 0.5 - -------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 67.5 66.2 67.5 66.2 - -------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 0.55 $ 0.50 $ 1.09 $ 0.94 ============================================================================================================== Diluted earnings per share $ 0.54 $ 0.49 $ 1.07 $ 0.94 ============================================================================================================== Cash dividends per share $ 0.285 $ 0.27 $ 0.555 $ 0.525
The number of anti-dilutive stock options excluded was 1.0 million for the three- and six-month periods ended June 30, 2004. The number of anti-dilutive stock options excluded was 2.7 million for the three- and six-month periods ended June 30, 2003. Note 5 - Segment Reporting - --------------------------- For the purposes of segment reporting, the Corporation discusses its business in four segments. There is a segment for each of the Corporation's three businesses, which are Regional Banking, Wealth Advisory Services, and Corporate Client Services, as well as a segment for Affiliate Money Managers. This segment reporting methodology was first implemented for the three and nine months ended September 30, 2003, and included in the Form 10-Q the Corporation filed with the Securities and Exchange Commission on November 14, 2003. Segment reporting for the three months and six months ended June 30, 2003, has been revised to reflect that change, and all prior period amounts have been restated accordingly. The new methodology employs activity-based costing principles to assign corporate overhead expenses to each segment. In addition, funds transfer pricing concepts are used to credit and charge segments for funds provided and funds used. The Regional Banking segment includes lending, deposit-taking, and branch banking in the Corporation's primary banking markets of Delaware, southeastern Pennsylvania, and Maryland's Eastern Shore. It also includes 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. 10 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 The Wealth Advisory Services segment includes financial planning, asset management, investment counseling, trust services, estate settlement, private banking, tax preparation, mutual fund services, broker-dealer services, and insurance services. Results from Balentine & Company are fully consolidated in the Wealth Advisory Services segment. The Corporate Client Services segment includes a variety of trust, custody, and administrative services that support capital markets transactions, entity management, and retirement plan assets. Results of SPV Management Limited are fully consolidated in the Corporate Client Services segment. The Affiliate Money Managers segment includes contributions from Cramer Rosenthal McGlynn (CRM) and Roxbury Capital Management (RCM), which are based on the Corporation's partial ownership interest in each firm. Services provided by these two affiliates include fixed income and equity investing services and investment portfolio management services. Neither CRM's or RCM's results are consolidated in the Corporation's financial statements. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in "Note 1" to the "Consolidated Financial Statements" in the Corporation's 2003 Annual Report to Shareholders. 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 (e.g., at current market prices). Profit or loss from infrequent events, such as the sale of a business, is reported separately for each segment. 11 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Financial data by segment for the quarters ended June 30, 2004, and June 30, 2003, is as follows:
- -------------------------------------------------------------------------------------------------------------------- Wealth Corporate Affiliate Regional Advisory Client Money Quarter ended June 30, 2004 (in millions) Banking Services Services Managers Totals - -------------------------------------------------------------------------------------------------------------------- Net interest income $ 65.3 $ 5.9 $ 2.1 $ (1.1) $ 72.2 Provision for loan losses (3.1) (0.1) -- -- (3.2) - -------------------------------------------------------------------------------------------------------------------- Net interest income after provision 62.2 5.8 2.1 (1.1) 69.0 Advisory fees: Wealth Advisory Services 0.5 34.6 2.3 -- 37.4 Corporate Client Services 0.2 -- 18.2 -- 18.4 Affiliate Money Managers -- -- -- 2.7 2.7 - -------------------------------------------------------------------------------------------------------------------- Advisory fees 0.7 34.6 20.5 2.7 58.5 Amortization of other intangibles -- (0.1) (0.2) (0.2) (0.5) - -------------------------------------------------------------------------------------------------------------------- Advisory fees after amortization of of other intangibles 0.7 34.5 20.3 2.5 58.0 Other noninterest income 10.3 1.5 0.4 -- 12.2 - -------------------------------------------------------------------------------------------------------------------- Net interest and noninterest income 73.2 41.8 22.8 1.4 139.2 Noninterest expense (35.7) (31.2) (15.5) -- (82.4) - -------------------------------------------------------------------------------------------------------------------- Segment profit before income taxes $ 37.5 $ 10.6 $ 7.3 $ 1.4 $ 56.8 ==================================================================================================================== Depreciation and amortization $ 5.3 $ 2.0 $ 1.4 $ 0.2 $ 8.9
- -------------------------------------------------------------------------------------------------------------------- Wealth Corporate Affiliate Regional Advisory Client Money Quarter ended June 30, 2003 (in millions) Banking Services Services Managers Totals - -------------------------------------------------------------------------------------------------------------------- Net interest income $ 63.1 $ 6.5 $ 2.8 $ (2.2) $ 70.2 Provision for loan losses (5.7) (0.2) -- -- (5.9) - -------------------------------------------------------------------------------------------------------------------- Net interest income after provision 57.4 6.3 2.8 (2.2) 64.3 Total advisory fees: Wealth Advisory Services 0.7 30.0 2.4 -- 33.1 Corporate Client Services 0.3 -- 16.2 -- 16.5 Affiliate Money Managers -- -- -- (0.1) (0.1) - -------------------------------------------------------------------------------------------------------------------- Advisory fees 1.0 30.0 18.6 (0.1) 49.5 Amortization of other intangibles -- (0.1) (0.2) -- (0.3) - -------------------------------------------------------------------------------------------------------------------- Advisory fees after amortization of of other intangibles 1.0 29.9 18.4 (0.1) 49.2 Other noninterest income 12.9 0.4 0.5 ---- 13.8 - --------------------------------------------------------------------------------------------------------------------
12 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Net interest and noninterest income 71.3 36.6 21.7 (2.3) 127.3 Noninterest expense (34.2) (27.9) (15.0) ---- (77.1) - -------------------------------------------------------------------------------------------------------------------- Segment profit before income taxes $ 37.1 $ 8.7 $ 6.7 $ (2.3) $ 50.2 ==================================================================================================================== Depreciation and amortization $ 5.7 $ 1.9 $ 1.4 $ 0.1 $ 9.1
- ----------------------------------------------------------------------------------------------------------------------- Wealth Corporate Affiliate Regional Advisory Client Money Year-to-Date June 30, 2004 (in millions) Banking Services Services Managers Totals - ----------------------------------------------------------------------------------------------------------------------- Net interest income $ 129.6 $ 12.4 $ 4.4 $ (2.4) $ 144.0 Provision for loan losses (8.5) (0.3) -- -- (8.8) - ----------------------------------------------------------------------------------------------------------------------- Net interest income after provision 121.1 12.1 4.4 (2.4) 135.2 Total advisory fees: Wealth Advisory Services 1.0 71.0 5.0 -- 77.0 Corporate Client Services 0.5 -- 35.8 -- 36.3 Affiliate Money Managers -- -- -- 5.0 5.0 - ----------------------------------------------------------------------------------------------------------------------- Advisory fees 1.5 71.0 40.8 5.0 118.3 Amortization of other intangibles -- (0.2) (0.3) (0.3) (0.8) - ----------------------------------------------------------------------------------------------------------------------- Advisory fees after amortization of of other intangibles 1.5 70.8 40.5 4.7 117.5 Other noninterest income 23.0 1.7 0.7 -- 25.4 - ----------------------------------------------------------------------------------------------------------------------- Net interest and noninterest income 145.6 84.6 45.6 2.3 278.1 Noninterest expense (69.8) (64.1) (31.7) -- (165.6) - ----------------------------------------------------------------------------------------------------------------------- Segment profit before income taxes $ 75.8 $ 20.5 $ 13.9 $ 2.3 $ 112.5 ======================================================================================================================= Depreciation and amortization $ 10.7 $ 3.9 $ 2.8 $ 0.4 $ 17.8 Investment in equity method investees -- -- -- 254.1 254.1 Segment average assets 7,366.1 1,146.3 202.7 242.5 8,957.6
- --------------------------------------------------------------------------------------------------------------------- Wealth Corporate Affiliate Regional Advisory Client Money Year-to-Date June 30, 2003 (in millions) Banking Services Services Managers Totals - --------------------------------------------------------------------------------------------------------------------- Net interest income $ 124.4 $ 12.5 $ 5.3 $ (3.7) $ 138.5 Provision for loan losses (10.5) (0.3) -- -- (10.8) - --------------------------------------------------------------------------------------------------------------------- Net interest income after provision 113.9 12.2 5.3 (3.7) 127.7 Total advisory fees: Wealth Advisory Services 1.3 60.5 4.9 -- 66.7 Corporate Client Services 0.7 -- 30.7 -- 31.4 Affiliate Money Managers -- -- -- (0.3) (0.3) - ---------------------------------------------------------------------------------------------------------------------
13 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Advisory fees 2.0 60.5 35.6 (0.3) 97.8 Amortization of other intangibles -- (0.2) (0.3) (0.1) (0.6) - --------------------------------------------------------------------------------------------------------------------- Advisory fees after amortization of of other intangibles 2.0 60.3 35.3 (0.4) 97.2 Other noninterest income 25.3 0.9 0.8 -- 27.0 - --------------------------------------------------------------------------------------------------------------------- Net interest and noninterest income 141.2 73.4 41.4 (4.1) 251.9 Noninterest expense (69.2) (58.4) (29.1) -- (156.7) - --------------------------------------------------------------------------------------------------------------------- Segment profit before income taxes $ 72.0 $ 15.0 $ 12.3 $ (4.1) $ 95.2 ===================================================================================================================== Depreciation and amortization $ 10.3 $ 3.8 $ 2.7 $ 0.2 $ 17.0 Investment in equity method investees -- -- -- 245.2 245.2 Segment average assets 6,860.9 1,058.3 203.2 242.1 8,364.5
Note 6 - Derivative and Hedging Activities - ------------------------------------------ From time to time, the Corporation enters into interest rate swap and interest rate floor contracts to manage interest rate risk and to reduce the impact of fluctuations in interest rates of identifiable asset categories, principally floating-rate commercial loans and commercial mortgage loans. When the index is equal to or above the strike rate, no payments are made or received by the Corporation. Swaps are contracts to exchange, at specified intervals, the difference between fixed- and floating-rate interest amounts computed on contractual notional principal amounts. The Corporation employs interest rate swaps so that clients may convert floating-rate loan payments to fixed-rate loan payments without exposing the Corporation to interest rate risk. In these arrangements, the Corporation retains the credit risk associated with the potential failure of counter-parties. The Corporation also uses interest rate swaps to manage interest rate risk associated with its issues of long-term subordinated debt. At June 30, 2004, the Corporation had entered into a total of $988.1 million notional amount of interest rate swaps as follows: - - $306.5 million of swaps were associated with loan clients for whom the Corporation exchanged floating rates for fixed rates. - - To offset the exposure from changes in the market value of those swaps, $306.5 million of swaps were made with other financial institutions that exchanged fixed rates for floating rates. - - $375.0 million of swaps associated with the Corporation's long-term subordinated debt issues were made with other financial institutions. Changes in the fair value that are determined to be ineffective are also recorded in "Other noninterest income" in the Consolidated Statements of Income. The effective portion of the change in fair value is recorded in "Other comprehensive income" in the Consolidated Statements of Condition. For the second quarter of 2004, approximately $77,100 of gains, resulting from the sale of floors in 2001, in "Accumulated other comprehensive income" were reclassified to earnings. 14 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 During the 12 months ending June 30, 2005, approximately $308,400 of gains in "Accumulated other comprehensive income" are expected to be reclassified to earnings. The Corporation does not hold or issue derivative financial instruments for trading purposes. Note 7 - Goodwill and Other Intangible Assets - --------------------------------------------- A summary of goodwill and other intangible assets is as follows:
June 30, 2004 December 31, 2003 ---------------------------------------------------------------------------------------- Gross Net Gross Net carrying Accumulated carrying carrying Accumulated carrying (in millions) amount amortization amount amount amortization amount - ---------------------------------------------------------------------------------------------------------------------------------- Goodwill (nonamortizing) $ 298.5 $ 29.8 $ 268.7 $ 273.0 $ 29.8 $ 243.2 ======================================================================================== Other intangibles Amortizing: Mortgage servicing rights $ 7.7 $ 4.5 $ 3.2 $ 7.2 $ 4.0 $ 3.2 Customer lists 24.9 5.8 19.1 19.1 4.8 14.3 Acquisition costs 1.7 1.7 -- 1.7 1.7 -- Other intangibles 0.7 0.7 -- 0.7 0.6 0.1 Nonamortizing Other intangible assets 6.4 -- 6.4 6.4 -- 6.4 - ---------------------------------------------------------------------------------------------------------------------------------- Total other intangibles $ 41.4 $ 12.7 $ 28.7 $ 35.1 $ 11.1 $ 24.0 ========================================================================================
Amortization expense of other intangible assets for the three months and six months ended June 30 is as follows:
---------------------------------------------------------- For the three months ended For the six months ended June 30, June 30, ---------------------------------------------------------- (in millions) 2004 2003 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Amortization expense $ 0.8 $ 0.6 $ 1.5 $ 1.2
The estimated amortization expense of other intangible assets for each of the five succeeding fiscal years is as follows:
Estimated annual amortization expense (in millions) - ------------------------------------------------------------------------------------------------------------------------------------ For the year ended December 31, 2005 $ 3.7 For the year ended December 31, 2006 3.5 For the year ended December 31, 2007 2.8 For the year ended December 31, 2008 2.3 For the year ended December 31, 2009 2.1
15 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 The changes in the carrying amount of goodwill for the six months ended June 30 are as follows:
2004 ----------------------------------------------------------------------- Wealth Corporate Affiliate Regional Advisory Client Money (in millions) Banking Services Services Managers Total - ------------------------------------------------------------------------------------------------------------ Balance as of January 1, 2004 $ 3.8 $ 4.4 $ 7.8 $ 227.2 $ 243.2 Goodwill acquired -- 13.2 -- 12.3 25.5 - ------------------------------------------------------------------------------------------------------------ Balance as of June 30, 2004 $ 3.8 $ 17.6 $ 7.8 $ 239.5 $ 268.7 =======================================================================
2003 ----------------------------------------------------------------------- Wealth Corporate Affiliate Regional Advisory Client Money (in millions) Banking Services Services Managers Total - ------------------------------------------------------------------------------------------------------------ Balance as of January 1, 2003 $ 3.8 $ 4.4 $ 7.2 $ 224.8 $ 240.2 Goodwill acquired -- -- -- 6.9 6.9 Increase in carrying value due to foreign currency translation adjustments -- -- 0.2 -- 0.2 - ------------------------------------------------------------------------------------------------------------ Balance as of June 30, 2003 $ 3.8 $ 4.4 $ 7.4 $ 231.7 $ 247.3 =======================================================================
The goodwill acquired in 2004 includes $12.9 million recorded in connection with the payment of a portion of the purchase price for the Corporation's interest in Balentine Delaware Holding Company, LLC, $12.3 million recorded in connection with an increase in WTI's equity interest in Cramer Rosenthal McGlynn, and $0.3 million recorded in connection with the Balentine Delaware Holding Company, LLC acquisition of the remaining interests in Balentine & Company of Tennessee, LLC. The goodwill acquired in 2003 includes $6.7 million recorded in connection with increases in WTI's equity interest in Cramer Rosenthal McGlynn and $0.2 million recorded in connection with increases in WTI's equity interest in Camden Partners Holdings. 16 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 The following table lists other intangible assets acquired during the six months ended June 30.
2004 2003 --------------------------------------------------------------------------------------- Weighted Weighted average average amortization amortization Amount Residual period Amount Residual period (in millions) assigned value in years assigned value in years - ------------------------------------------------------------------------------------------------------------------------------ Mortgage servicing rights $ 0.5 -- 8 $ 0.8 -- 8 Customer lists 5.6 -- 20 -- -- -- Customer list increase in carrying value due to foreign currency translation adjustments 0.1 -- -- -- -------------------- ------------------- $ 6.2 -- $ 0.8 -- ==================== ===================
A proforma summary of goodwill and other intangible assets, including the additional amounts related to the Corporation's acquisition of the remaining interests in Balentine Delaware Holding Company, LLC, on July 1, 2004, and described under the caption "Subsequent Event" on page 42, is as follows:
July 1, 2004 December 31, 2003 ----------------------------------------------------------------------------------------- Gross Net Gross Net carrying Accumulated carrying carrying Accumulated carrying (in millions) amount amortization amount amount amortization amount - ---------------------------------------------------------------------------------------------------------------------------------- Goodwill (nonamortizing) $ 358.9 $ 29.8 $ 329.1 $ 273.0 $ 29.8 $ 243.2 ======================================================================================== Other intangibles Amortizing: Mortgage servicing rights $ 7.7 $ 4.5 $ 3.2 $ 7.2 $ 4.0 $ 3.2 Customer lists 31.7 5.8 25.9 19.1 4.8 14.3 Acquisition costs 1.7 1.7 -- 1.7 1.7 -- Other intangibles 0.7 0.7 -- 0.7 0.6 0.1 Nonamortizing Other intangible assets 6.4 -- 6.4 6.4 -- 6.4 - ---------------------------------------------------------------------------------------------------------------------------------- Total other intangibles $ 48.2 $ 12.7 $ 35.5 $ 35.1 $ 11.1 $ 24.0 ========================================================================================
17 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Note 8 - Components of Net Periodic Benefit Cost - ------------------------------------------------ The following table reflects the net periodic benefit cost of the pension plan, supplemental executive retirement plan (SERP), and other postretirement benefits for the three and six months ended June 30, 2004, and 2003. Descriptions of these plans are contained in "Note 15" to the "Consolidated Financial Statements" in the Corporation's Annual Report to Shareholders for 2003.
Pension benefits SERP benefits Postretirement benefits For the three months ended ----------------------------------------------------------------------------- June 30, 2004 (in millions) 2004 2003 2004 2003 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------- Components of net periodic benefit cost: Service cost $ 1.6 $ 1.6 $ 0.1 $ 0.1 $ 0.3 $ 0.2 Interest cost 2.1 2.7 0.3 0.3 0.6 0.6 Expected return on plan assets (2.8) (3.4) -- -- -- -- Amortization of transition obligation/(asset) (0.2) (0.3) -- -- -- -- Amortization of prior service cost 0.2 0.3 0.1 0.1 -- -- Recognized actuarial (gain)/loss 0.2 -- 0.1 -- 0.2 0.1 - ------------------------------------------------------------------------------------------------------------------------------- Net periodic benefit cost $ 1.1 $ 0.9 $ 0.6 $ 0.5 $ 1.1 $ 0.9 ============================================================================= Employer contributions $ -- $ -- $ 0.1 $ 0.1 $ 0.9 $ 0.8
Pension benefits SERP benefits Postretirement benefits For the six months ended ----------------------------------------------------------------------------- June 30, 2004 (in millions) 2004 2003 2004 2003 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------- Components of net periodic benefit cost: Service cost $ 3.1 $ 3.2 $ 0.3 $ 0.3 $ 0.5 $ 0.5 Interest cost 4.4 5.5 0.5 0.6 1.4 1.2 Expected return on plan assets (5.6) (6.8) -- -- -- -- Amortization of transition obligation/(asset) (0.4) (0.5) -- -- -- -- Amortization of prior service cost 0.4 0.5 0.2 0.1 -- -- Recognized actuarial (gain)/loss 0.4 -- 0.2 0.1 0.3 0.3 - ------------------------------------------------------------------------------------------------------------------------------- Net periodic benefit cost $ 2.3 $ 1.9 $ 1.2 $ 1.1 $ 2.2 $ 2.0 ============================================================================= Employer contributions $ -- $ 15.0 $ 0.2 $ 0.2 $ 1.9 $ 1.5 Expected annual contributions -- 0.5 3.8
18 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Note 9 - Temporarily Impaired Investment Securities - --------------------------------------------------- At June 30, 2004, the Corporation's investment portfolio had an estimated market value of $1.3 billon and gross unrealized losses of $32.1 million. Although the negative impact of recent corporate scandals on credit spreads and credit quality has improved, a rise in the benchmark interest rates precipitated by an improving economy and inflation concerns has caused market values to decline across all sectors of investments. A continuation of rising rates will adversely impact the fair value of fixed rate securities and create additional unrealized losses. This impairment is temporary and will correct itself when the cyclical nature of the economy causes rates to decline. The following table shows the estimated market value and gross unrealized loss of debt and marketable equity securities that are temporarily impaired.
Less than 12 months 12 months or longer Total --------------------------------------------------------------------------------------- Estimated Estimated Estimated market Unrealized market Unrealized market Unrealized (in millions) value losses value losses value losses - ----------------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 2004 Other securities: U.S. Treasury and government agencies $ 248.9 $ 2.7 $ -- $ -- $ 248.9 $ 2.7 Preferred stock 32.8 2.9 4.7 0.5 37.5 3.4 Mortgage-backed securities 835.0 14.4 60.5 10.4 895.5 24.8 Other debt securities 99.2 0.8 49.8 0.4 149.0 1.2 - ---------------------------------------------------------------------------------------------------------------------------------- Total temporarily impaired securities $ 1,215.9 $ 20.8 $ 115.0 $ 11.3 $ 1,330.9 $ 32.1 ======================================================================================
Note 10 - Accounting Pronouncements - ----------------------------------- FIN No.46R: On December 24, 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities (FIN 46R or the Interpretation)," which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. This Interpretation replaces Interpretation No. 46, "Consolidation of Variable Interest Entities (FIN 46)," which was issued on January 17, 2003. FIN 46R requires that an enterprise review its degree of involvement in an entity to determine if consolidation of the entity is required or if disclosures are required about an enterprise's level of involvement in the entity. Public companies must apply either FIN 46 or FIN 46R to entities considered to be special-purpose entities for periods ending after December 15, 2003. Application by public companies for all other types of entities is required in financial statements for periods ending after March 15, 2004. The application of this Interpretation did not have a material impact on the Corporation's consolidated earnings, financial condition, or equity, nor has there been any requirement for disclosure under the Interpretation. SFAS No. 148: In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for an entity that voluntarily changes to the fair value-based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that Statement to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, this Statement amends APB Opinion No. 28, "Interim Financial Reporting," to require disclosure about those effects in 19 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 interim financial statements. The requirements for SFAS No. 148 are effective for financial statements for fiscal years ended and interim periods beginning after December 15, 2002. The Corporation uses the "intrinsic value" approach to accounting for stock-based compensation as permitted under APB Opinion No. 25. The Corporation has adopted the disclosure provisions of SFAS No. 148. The disclosure provisions had no impact on the Corporation's consolidated earnings, financial condition, or equity. On March 31, 2004, the FASB issued an exposure draft that would eliminate the use of the intrinsic-value method of accounting for stock-based compensation for fiscal years beginning after December 15, 2004. The Statement is expected to be finalized in the fourth quarter of 2004 and a final effective date established at that time. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. COMPANY OVERVIEW - ---------------- The Corporation is a financial services holding company with a diversified mix of three businesses - Wealth Advisory Services, Corporate Client Services, and Regional Banking - which it delivers through its primary wholly owned subsidiaries: - - Wilmington Trust Company, a Delaware-chartered bank and trust company that has engaged in commercial and trust banking activities since 1903. Wilmington Trust Company is the 15th largest personal trust provider in the United States and the largest full-service bank in Delaware, with 43 branch offices throughout the state. - - Wilmington Trust of Pennsylvania, a Pennsylvania-chartered bank and trust company. Wilmington Trust of Pennsylvania has offices in center city Philadelphia, Doylestown, Villanova, and West Chester. - - Wilmington Trust FSB, which serves as the platform for the Corporation's activities beyond Delaware and Pennsylvania. Wilmington Trust FSB offices are located in California, Florida, Georgia, Maryland, Nevada, and New York. The Corporation and its affiliates also have offices in the Cayman Islands, the Channel Islands, and London, and other affiliates in Dublin and Milan. Through its subsidiaries, the Corporation engages in fiduciary, wealth management, investment advisory, financial planning, insurance, broker-dealer, and deposit taking services, and residential, consumer, commercial, and construction lending. The Wealth Advisory Services business provides a variety of financial planning and asset management services for high-net-worth individuals and families throughout the United States and in many foreign countries. The Corporate Client Services business provides a variety of specialty trust and administrative services for national and multinational institutions. The Regional Banking business targets consumer clients in the state of Delaware and commercial clients throughout the Delaware Valley region. In its commercial banking business, the Corporation targets family-owned or closely held businesses with annual sales of up to $250 million where there are opportunities to develop advisory as well as lending relationships. The Corporation and its subsidiaries are subject to regulation by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Delaware Department of Banking, the Pennsylvania Department of Banking, and certain other federal and state authorities. In addition to its wholly owned subsidiaries, the Corporation holds ownership interests in two affiliate money managers: - - Cramer Rosenthal McGlynn, LLC (CRM), which is a New-York based value-style manager; and - - Roxbury Capital Management, LLC (RCM), which is a Santa Monica-based growth-style manager. For the purposes of segment reporting, the income, expenses, and assets that the Corporation receives from CRM and RCM are combined into one segment. For more information about segment reporting, please refer to "Note 5" of the "Notes to Consolidated Financial Statements" in this report. 20 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 SUMMARY OF RESULTS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2004 - -------------------------------------------------------------------------- Strong results in each of the Corporation's businesses produced double-digit growth in net income and earnings per share for the second quarter and first six months of 2004. This performance was achieved opposite higher expenses and a lower net interest margin for both periods. Each business engaged new clients and developed additional business with existing clients. Results from the affiliate money managers improved significantly. The economy continued to rebound. Interest rates remained stable and equity markets stayed above their prior-year levels for both periods. Loan balances continued to grow and credit quality measures were among the strongest in the Corporation's history. For the second quarter of 2004, net income was $36.5 million and earnings per share, on a diluted basis, were $0.54. These were increases of 12.0% and 10.2%, respectively, from the 2003 second quarter. Highlights of the 2004 second quarter included: - - A 13.0% increase in Wealth Advisory Services income; - - An 11.5% increase in Corporate Client Services income; - - Record high assets under management at affiliate money manager Cramer Rosenthal McGlynn and a doubling of income from that firm; - - Continued profitability at affiliate money manager Roxbury Capital Management; - - The 13th consecutive quarter of increases in loan balances, which reached $6.42 billion, on average, and rose 6.3% from the second quarter of last year; - - Core deposit balances that rose 4.7% to $4.49 billion, on average; - - Stabilization in the net interest margin of 3.52%, which was 10 basis points lower than for the 2003 second quarter but only 1 basis point lower than for the 2004 first quarter; - - Exceptionally strong credit quality, with a net charge-off ratio of 3 basis points; and - - A moderate rise in expenses as the Corporation continued to invest for future business growth. Second quarter 2004 results followed the strong first quarter performance and combined to produce year-to-date net income of $72.1 million, which was 16.3% higher than for the first six months of 2003. For the first six months of 2004, earnings per share, on a diluted basis, were $1.07. This was 13.8% higher than for the first half of 2003. In addition to record levels of loan growth and double-digit increases in advisory income, year-to-date 2004 increases reflected the comparative weakness of the first quarter of 2003. During that quarter, the growth in loan balances and the advisory businesses were offset by the low interest rate environment, lower equity market levels, a loss in affiliate money manager income, and continued compression in the net interest margin. On an annualized basis, second quarter 2004 results produced a return on average assets of 1.63% and a return on average stockholders' equity of 17.82%. These were increases from the 2003 annualized second quarter returns of 1.53% and 17.04%, respectively. In April 2004 the Corporation announced its 23rd consecutive year of increases in the cash dividend. The quarterly cash dividend was raised by 5.6% from $0.27 per share to $0.285 per share, or $1.14 per share on an annualized basis. STATEMENT OF CONDITION - ---------------------- This section discusses changes in the balance sheet for the period between December 31, 2003, and June 30, 2004. All balances referenced in this section are period-end balances unless otherwise noted. 21 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 ASSETS - ------ Total assets rose 5.3% to $9.29 billion as a result of higher balances in earning assets, including the commercial loan portfolio and the investment securities portfolio. Earning assets increased 3.4% to $8.38 billion. Approximately 95% of the growth in earning assets was due to an increase in loan balances of $257.9 million. INVESTMENT SECURITIES - --------------------- On a percentage basis, the composition of assets within the investment portfolio remained relatively unchanged, as the following table illustrates.
COMPOSITION AT PERIOD-END 2004 Q2 2003 Q4 2003 Q2 - ----------------------------------- ------- ------- ------- Mortgage-backed securities and collateralized mortgage obligations 52% 52% 52% U.S. treasuries 11% 11% 17% Corporate issues 14% 14% 11% U.S. government agencies 13% 13% 10% Money market preferred stocks 6% 8% 8% Municipal bonds 1% 1% 1% Other 3% 1% 1%
At June 30, 2004, approximately 98% of the mortgage-backed securities in the portfolio were invested in fixed-rate instruments with terms of 15 years or less. Management believes that duration and risk can be managed more effectively by investing in mortgage-related instruments than by retaining individual residential mortgage loans on the balance sheet. The average life of mortgage-backed instruments in the investment portfolio was 4.67 years at June 30, 2004, and the duration was 4.54. The corresponding life and duration at December 31, 2003, were 4.50 and 4.50, respectively. At June 30, 2004, the average life of the total investment portfolio was 6.67 years and the duration was 3.07. In comparison, at December 31, 2003, the average life was 5.67 years and the duration was 2.81. The increases in average life and duration reflected the rising interest rate environment. Most of the changes were associated with callable agency securities and management's assumptions that these instruments will be held to maturity due to higher interest rates. In addition, certain short-duration U.S. Treasury securities matured and were replaced with longer-duration mortgage-backed securities. LOAN BALANCES - ------------- The strength of the economy throughout the Delaware Valley region, in which the Regional Banking business is concentrated, helped propel loan balances to a record high of $6.48 billion at June 30, 2004. This was an increase of 4.1% and it was achieved opposite an 8.6% decline in residential mortgage balances. The $42.0 million decline in residential mortgage balances was due to prepayments, refinancings, and the Corporation's ongoing practice of selling new residential mortgage production into the secondary market rather than retaining the risk on the balance sheet. The Corporation continues to be among the leading residential mortgage originators in Delaware. Factors in the loan growth included the broad diversification and relative health of the Delaware Valley economy and the commercial banking focus on family-owned or closely held businesses with annual sales of up to $250 million, where the opportunity exists for a wealth advisory as well as banking relationship. 22 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 In Delaware, the unemployment rate of 3.7% remained well below the national rate of 5.6%. The housing market continued to expand, especially in the southern counties and beach resorts. These areas are experiencing an influx of people who are choosing to relocate to Delaware because of the state's mid-Atlantic location, its proximity to the New York/Washington, D.C. corridor, and its favorable tax climate. U.S. Census Bureau statistics list Delaware as the fifth most popular state in the nation for attracting residents aged 65 or older. Economic indicators constructed by the Federal Reserve Bank of Philadelphia signaled growth in Pennsylvania's economy through the beginning of next year. The Pennsylvania Leading Economic Index rose from 2.5 in April to 3.7 in May (the most recent period for which data were available). The June issue of the Philadelphia Federal Reserve's "Business Outlook Survey" reported positive employment indicators and expansion in the region's manufacturing sector. The Corporation remained the market leader among full-service banks in Delaware, and continued to grow loan balances in southeastern Pennsylvania. COMMERCIAL LOANS - ---------------- The Corporation conducts commercial banking activities throughout the Delaware Valley region, which management describes as the state of Delaware, geographically adjacent areas along the I-95 corridor from Princeton, New Jersey, to Baltimore, Maryland, and Maryland's Eastern Shore. The commercial portfolio accounted for almost all of the growth in total loan balances. At June 30, 2004, commercial loan balances were $4.30 billion, which was $247.2 million, or 6.1%, higher than at December 31, 2003. The Delaware market and the southeastern Pennsylvania market each generated approximately 40% of the commercial loan growth. Commercial loan balances are reported in three categories: - - Commercial, financial, and agricultural loans (commercial and industrial loans, or C and I); - - Commercial construction/real estate loans (CRE); and - - Commercial mortgage loans. Most of the commercial loan growth was in C and I balances, which were $2.41 billion at June 30, 2004. This was an increase of $133.5 million, or 5.9%, from year-end 2003. This growth was fueled by automobile floor plan loans, as dealers borrowed to support inventory needs for the traditionally strong summer selling season. In addition, the upturn in Pennsylvania's manufacturing sector and rising metal prices led to higher construction-related and light manufacturing borrowings. Commercial mortgage balances at June 30, 2004, were $1.19 billion. This was $117.6 million, or 10.9%, more than at year-end 2003. In large part, the increase reflected refinancing activity for new as well as existing clients, and included residential, retail, hotel, restaurant, agricultural, industrial park, and education-related projects. Much of the growth was generated by activity in southern Delaware and on Maryland's Eastern Shore. CRE balances were $695.9 million at June 30, 2004, which was a slight decline from the $699.8 million recorded at December 31, 2003. RETAIL LOANS - ------------ The Corporation's retail banking activities are concentrated in the state of Delaware. At June 30, 2004, total retail loans were $2.18 billion, which was an increase of $10.7 million from December 31, 2003. Retail loans are reported in three categories: - - Residential mortgage loans; - - Consumer loans; and - - Loans secured by liquid collateral. These loans are associated primarily with Wealth Advisory Services clients throughout the United States. 23 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Total retail loans increased on the strength of consumer lending. Residential mortgage loans and loans secured by liquid collateral declined, while consumer balances rose by 5.1%, or $55.0 million, to $1.13 billion. The growth in consumer balances was due to higher indirect auto lending and home equity lines of credit, both of which benefited from intensified marketing efforts. RESERVE FOR LOAN LOSSES - ----------------------- The reserve for loan losses increased 2.9% to $92.5 million. Changes in the reserve reflected the growth in loan balances and the Corporation's internal risk rating analysis, reserve methodology, and net charge-off experience. The loan loss reserve ratio was 1.43% at June 30, 2004, which was 1 basis point lower than at December 31, 2003. For more information about credit quality, please refer to the "Asset Quality" section of this report. LIABILITIES - ----------- Total liabilities increased by 5.5%, or $442.6 million, to $8.46 billion. Most of the increase resulted from higher short-term borrowings that were used to fund loan growth. DEPOSIT BALANCES - ---------------- Changes in deposit balances reflect trends in the retail banking business as well as in funding strategies that management employs when loan demand exceeds core deposit balances. Changes in core deposit balances provide the better measure of trends in the retail banking business. Core deposit balances include certificates of deposit (CDs) under $100,000 and local CDs $100,000 and over. These CDs reflect client-driven balances. Changes in other deposits and short-term borrowings reflect funding strategies. Other deposits include national CDs $100,000 and over, which are purchased funds and not indicative of client activity. For more information about funding sources, please refer to the "Liquidity" section of this report. Decisions on whether to use national CDs or short-term borrowings typically are made on the basis of the most favorable rate. As a result, increases in national CD balances are frequently offset by corresponding decreases in short-term borrowings, and vice-versa. This was the case in the first half of 2004, when a $622.2 million increase in short-term borrowings was offset partially by a $273.0 million decrease in national CD balances. Core deposit balances at June 30, 2004, were $4.79 billion, which was $118.1 million, or 2.5%, higher than at December 31, 2004. Almost all of this increase was due to higher noninterest-bearing demand deposit balances, which primarily are associated with Corporate Client Services clients who use the Corporation's cash management and paying agent services. It is not unusual for the funds associated with the Corporate Client business to be deposited for short periods of time, particularly over period-ends. As a result, management regards core deposit balances on average as a better indicator of trends in deposit balances. On an average balance basis, core deposit balances for the six months ended June 30, 2004, were slightly higher than for the year ended December 31, 2003. Although core deposit growth gained momentum in the 2004 second quarter, it was dampened on a year-to-date basis due to a first-quarter 2004 decline in CD balances. 24 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 STOCKHOLDERS' EQUITY - -------------------- Stockholders' equity at June 30, 2004, was $826.4 million. This was a 3.2% increase from the December 31, 2003, amount of $800.8 million. For more information about this increase and the share buyback program, please refer to the "Capital Resources" section of this report. INCOME STATEMENT - ---------------- This section compares the Corporation's income and expenses for the second quarter and first six months of 2004 with those of the corresponding periods of 2003. For the second quarter of 2004, net income was $36.5 million and earnings per share, on a diluted basis, were $0.54. These were increases of 12.0% and 10.2%, respectively, from the 2003 second quarter. For the first six months of 2004, net income totaled $72.1 million and diluted earnings per share were $1.07. These were increases of 16.3% and 13.8%, respectively, from the first six months of 2003. The increases were attributable to higher revenue from each of the Corporation's businesses, improved results from the two affiliate money managers, a stable net interest margin, and a lower provision for loan losses. The size of the increase also was a reflection of the comparative weakness of the 2003 first quarter. SOURCES OF INCOME - ----------------- The Corporation has two sources of revenue: - - Net interest income. Net interest income is the difference between the interest revenue received on earning assets, such as loans and investments, and the interest paid on liabilities, such as deposits and short-term borrowings. Net interest income is generated primarily by banking and funding activities. - - Noninterest income. Noninterest income consists primarily of income from the advisory businesses, which comprise Wealth Advisory Services, Corporate Client Services, and the two affiliate money managers, Cramer Rosenthal McGlynn and Roxbury Capital Management. Noninterest income also includes service charges on deposit accounts, loan fees and late charges, card fees, securities gains (or losses), and other noninterest income. These two sources of revenue generate a diversified stream of income that enables the Corporation to deliver consistent profitability and growth, with low volatility, in a variety of economic conditions. The table below shows changes in the mix of income sources and demonstrates that: - - Advisory income is the predominant source of noninterest income; - - The percentage contribution from noninterest sources of income is rising; and - - The Corporation's sources of income are diversified and balanced. Advisory and total noninterest income as a percentage of combined net interest and noninterest income - ------------------------------------------------------------------------------
FOR THE PERIOD ENDED 2004 Q2 2003 Q2 2004 YTD 2003 YTD - ------------------------------------- ------- ------- -------- -------- Advisory income (after amortization) 41.7% 38.6% 42.3% 38.6% Total noninterest income 50.4% 49.5% 51.4% 49.3% Net interest income (after provision) 49.6% 50.5% 48.6% 50.7%
25 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 NET INTEREST INCOME, EXPENSES, AND MARGIN - ----------------------------------------- Stability in market interest rates helped bring the pace of growth in net interest income more in line with the pace of growth in loan balances. The end of June 2004 marked the first completion of a 12-month cycle without a change in market interest rates since 1994. The consistency in interest rates helped slow the declines in the net interest margin, but the disparity between the yield on earning assets and the cost of funds used to support those assets continued to cause margin compression. Record-high loan growth helped mitigate the disparity. Net interest income (after the provision for loan losses) was 7.3% higher for the 2004 second quarter than for the year-ago second quarter. In comparison, loan balances were higher by 6.9% at June 30, 2004, than they were at June 30, 2003. Year to date, net interest income (after the provision for loan losses) was 5.9% higher than for the first half of 2003. In comparison, loan balances at June 30, 2004, were 4.1% more than they were at December 31, 2003. To compute the net interest margin, the Corporation divides net interest income on a fully tax-equivalent (FTE) basis by average total earning assets. On an FTE basis, net interest income for the 2004 second quarter was $73.4 million, compared with $71.4 million for the 2003 second quarter. Total earning assets were $8.29 billion, on average, for the 2004 second quarter, which was $424.0 million, or 5.4%, higher than for the year-ago second quarter. For the 2004 second quarter, the net interest margin was 3.52%. This was 10 basis points lower than for the year-ago second quarter and 1 basis point lower than for the 2004 first quarter. For the first half of 2004, net interest income on an FTE basis was $146.4 million, compared with $141.0 million for the first half of 2003. Total earning assets were $8.26 billion, on average, for the first half of 2004, compared with $7.67 billion, on average, for the first half of 2003. Year to date, the net interest margin was 3.52%. This was 16 basis points lower than for the first six months of 2003. Compared to the year-ago second quarter, the average yield on earning assets fell 41 basis points, but the average cost of funds fell only 31 basis points. Compared to the first half of 2003, the average yield on earning assets fell 50 basis points, but the average cost of funds was only 34 basis points lower. Yields on the investment portfolio, on average, fell 19 basis points for the quarter and 36 basis points for the year to date. In comparison, the corresponding increases in the portfolio size were 3.6% and 15.3%, respectively. Loan yields, on average, were 49 basis points lower for the quarter even though loan balances rose 6.3%. Year-to-date loan yields, on average, were 54 basis points lower, opposite a 5.9% increase in year-to-date loan balances. The decline in loan yields continued to outpace the corresponding adjustments to core deposit pricing. The cost of core interest-bearing deposits for the 2004 second quarter, on average, was 72 basis points. This was a historic low and was 5 basis points less than the previous historic low of 77 basis points, which was the cost for the 2004 first quarter. Compared with the year-ago second quarter cost of core interest-bearing deposits, it was a decline of 33 basis points, on average. Year to date, the cost of core interest-bearing deposits, on average, was 75 basis points. The corresponding cost for the first half of 2003 was 1.11%. The following tables present comparative net interest income data and rate/volume analyses for the second quarters and first halves of 2004 and 2003. 26 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 QUARTERLY ANALYSIS OF EARNINGS
2004 Second Quarter 2003 Second Quarter ------------------------------------- --------------------------------- (in millions; rates on Average Income/ Average Average Income/ Average tax-equivalent basis) balance expense rate balance expense rate - ------------------------------------------------------------------------------------------------------------------------ Earning assets Federal funds sold and securities purchased under agreements to resell $ 16.3 $ -- 1.09% $ 38.4 $ 0.1 1.32% U.S. Treasury and government agencies 430.0 3.7 3.50 528.8 4.3 3.29 State and municipal 14.2 0.2 8.71 16.6 0.4 9.01 Preferred stock 119.5 2.2 7.42 120.1 2.2 7.40 Mortgage-backed securities 989.4 10.0 3.94 888.8 9.8 4.47 Other 305.9 2.3 3.07 240.9 1.8 2.93 - ----------------------------------------------------------------------- --------------------- Total investment securities 1,859.0 18.4 3.96 1,795.2 18.5 4.15 -------------------------------------------------------------------------- Commercial, financial, and agricultural 2,361.1 25.0 4.20 2,190.8 24.6 4.45 Real estate-construction 735.2 8.3 4.46 590.8 6.8 4.56 Mortgage-commercial 1,169.2 14.1 4.76 1,054.6 14.6 5.47 - ----------------------------------------------------------------------- --------------------- Total commercial loans 4,265.5 47.4 4.40 3,836.2 46.0 4.75 -------------------------------------------------------------------------- Mortgage-residential 459.3 7.0 6.05 604.7 10.2 6.77 Consumer 1,097.6 16.2 5.92 1,031.4 17.2 6.68 Secured with liquid collateral 597.6 3.8 2.49 565.4 3.9 2.73 - ----------------------------------------------------------------------- --------------------- Total retail loans 2,154.5 27.0 5.00 2,201.5 31.3 5.69 -------------------------------------------------------------------------- Total loans net of unearned income 6,420.0 74.4 4.60 6,037.7 77.3 5.09 -------------------------------------------------------------------------- Total earning assets $ 8,295.3 92.8 4.45 $ 7,871.3 95.9 4.86 ========================================================================== Funds supporting earning assets Savings $ 379.5 0.1 0.13 369.4 0.1 0.15 Interest-bearing demand 2,319.4 2.2 0.37 2,127.0 2.4 0.45 Certificates under $100,000 762.7 3.7 1.95 851.5 6.0 2.80 Local CDs $100,000 and over 133.5 0.5 1.54 139.6 0.6 1.78 - ----------------------------------------------------------------------- --------------------- Total core interest- bearing deposits 3,595.1 6.5 0.72 3,487.5 9.1 1.05 National CDs $100,000 and over 1,980.9 5.8 1.16 1,979.5 7.8 1.56 - ----------------------------------------------------------------------- --------------------- Total interest-bearing deposits 5,576.0 12.3 0.88 5,467.0 16.9 1.23 -------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 1,139.5 3.8 1.35 985.3 3.9 1.54 U.S. Treasury demand 12.4 -- 0.80 8.4 -- 1.04 - ----------------------------------------------------------------------- --------------------- Total short-term borrowings 1,151.9 3.8 1.34 993.7 3.9 1.54 --------------------------------------------------------------------------
27 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Long-term debt 405.3 3.3 3.21 407.9 3.7 3.62 - ----------------------------------------------------------------------- ---------------------- Total interest-bearing liabilities 7,133.2 19.4 1.08 6,868.6 24.5 1.42 ------------------------------------------------------------------------- Other noninterest funds 1,162.1 -- -- 1,002.7 -- -- - ----------------------------------------------------------------------- --------------------- Total funds used to support earning assets $ 8,295.3 19.4 0.93 $ 7,871.3 24.5 1.24 ========================================================================= Net interest income/yield 73.4 3.52 71.4 3.62 Tax-equivalent adjustment (1.2) (1.2) -------- ------ Net interest income $ 72.2 $ 70.2 ======== ======
In order to ensure the comparability of yields and rates and their impact on net interest income, average rates are calculated using average balances based on historical cost and do not reflect the market valuation adjustment required by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." 28 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 YEAR-TO-DATE ANALYSIS OF EARNINGS
Year-to-Date 2004 Year-to-Date 2003 ------------------------------------- ---------------------------------- (in millions; rates on Average Income/ Average Average Income/ Average tax-equivalent basis) balance expense rate balance expense rate - -------------------------------------------------------------------------------------------------------------------------- Earning assets Federal funds sold and securities purchased under agreements to resell $ 16.5 $ 0.1 1.05% $ 31.2 $ 0.2 1.35% U.S. Treasury and government agencies 447.7 7.7 3.47 495.0 8.4 3.49 State and municipal 14.5 0.6 8.63 16.6 0.7 8.99 Preferred stock 119.9 4.4 7.42 117.1 4.5 7.54 Mortgage-backed securities 999.0 20.3 4.03 766.4 17.6 4.67 Other 297.7 4.3 2.93 234.2 3.6 3.05 - ----------------------------------------------------------------------- ------------------------ Total investment securities 1,878.8 37.3 3.97 1,629.3 34.8 4.33 ---------------------------------------------------------------------------- Commercial, financial, and agricultural 2,343.1 49.4 4.18 2,202.8 49.7 4.49 Real estate-construction 730.1 16.4 4.44 567.8 12.9 4.51 Mortgage-commercial 1,136.2 27.5 4.79 1,031.4 28.8 5.55 - ----------------------------------------------------------------------- ------------------------ Total commercial loans 4,209.4 93.3 4.39 3,802.0 91.4 4.78 ---------------------------------------------------------------------------- Mortgage-residential 470.5 14.3 6.06 626.7 21.3 6.79 Consumer 1,084.4 32.4 5.98 1,029.9 34.6 6.77 Secured with liquid collateral 600.1 7.6 2.50 549.2 7.7 2.80 - ----------------------------------------------------------------------- ------------------------ Total retail loans 2,155.0 54.3 5.03 2,205.8 63.6 5.79 ---------------------------------------------------------------------------- Total loans net of unearned income 6,364.4 147.6 4.61 6,007.8 155.0 5.15 ---------------------------------------------------------------------------- Total earning assets $ 8,259.7 185.0 4.46 $7,668.3 190.0 4.96 ============================================================================ Funds supporting earning assets Savings $ 375.8 0.3 0.13 $ 363.4 0.3 0.19 Interest-bearing demand 2,293.2 4.2 0.37 2,095.1 4.9 0.46 Certificates under $100,000 771.0 7.8 2.04 863.0 12.6 2.93 Local CDs $100,000 and over 134.2 1.0 1.49 145.4 1.4 1.88 - ----------------------------------------------------------------------- ------------------------ Total core interest-bearing deposits 3,574.2 13.3 0.75 3,466.9 19.2 1.11 National CDs $100,000 and over 2,102.4 12.2 1.14 2,022.6 16.5 1.62 - ----------------------------------------------------------------------- ------------------------ Total interest-bearing deposits 5,676.6 25.5 0.89 5,489.5 35.7 1.30 ---------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 1,016.3 7.0 1.36 882.6 7.0 1.59 U.S. Treasury demand 12.1 -- 0.78 8.2 -- 1.02 - ----------------------------------------------------------------------- ------------------------ Total short-term borrowings 1,028.4 7.0 1.35 890.8 7.0 1.58 ----------------------------------------------------------------------------
29 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Long-term debt 408.0 6.1 3.01 284.9 6.3 4.45 - ----------------------------------------------------------------------- ----------------------- Total interest-bearing liabilities 7,113.0 38.6 1.08 6,665.2 49.0 1.47 ---------------------------------------------------------------------------- Other noninterest funds 1,146.7 -- -- 1,003.1 -- -- - ----------------------------------------------------------------------- ----------------------- Total funds used to support earning assets $ 8,259.7 38.6 0.94 $7,668.3 49.0 1.28 ============================================================================ Net interest income/yield 146.4 3.52 141.0 3.68 Tax-equivalent adjustment (2.4) (2.5) -------- ------- Net interest income $ 144.0 $ 138.5 ======== =======
In order to ensure the comparability of yields and rates and their impact on net interest income, average rates are calculated using average balances based on historical cost and do not reflect the market valuation adjustment required by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." 30 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 RATE-VOLUME ANALYSIS OF NET INTEREST INCOME
---------------------------------------------------------------------------------- For the three months ended June 30, For the six months ended June 30, -------------------------------------- --------------------------------------- 2004/2003 2004/2003 Increase (Decrease) Increase (Decrease) due to change in due to change in -------------------------------------- --------------------------------------- 1 2 1 2 (in millions) Volume Rate Total Volume Rate Total - -------------------------------------------------------------------------------------------------------------------------------- Interest income: Federal funds sold and securities purchased under agreements to resell $ (0.1) $ 0.0 $ (0.1) $ (0.1) $ 0.0 $ (0.1) --------------------------------------------------------------------------------- U.S. Treasury and government agencies (0.7) 0.1 (0.6) (0.7) 0.0 (0.7) State and municipal * 0.0 (0.2) (0.2) (0.1) 0.0 (0.1) Preferred stock * -- -- -- 0.1 (0.2) (0.1) Mortgage-backed securities 1.4 (1.2) 0.2 5.9 (3.2) 2.7 Other * 0.4 0.1 0.5 0.9 (0.2) 0.7 - ------------------------------------------------------------------------------------------------------------------------------- Total investment securities 1.1 (1.2) (0.1) 6.1 (3.6) 2.5 --------------------------------------------------------------------------------- Commercial, financial, and agricultural * 1.9 (1.5) 0.4 3.1 (3.4) (0.3) Real estate-construction 1.6 (0.1) 1.5 3.6 (0.1) 3.5 Mortgage-commercial * 1.6 (2.1) (0.5) 2.9 (4.2) (1.3) - ------------------------------------------------------------------------------------------------------------------------------- Total commercial loans 5.1 (3.7) 1.4 9.6 (7.7) 1.9 --------------------------------------------------------------------------------- Mortgage-residential (2.5) (0.7) (3.2) (5.3) (1.7) (7.0) Consumer 1.1 (2.1) (1.0) 1.8 (4.0) (2.2) Secured with liquid collateral 0.2 (0.3) (0.1) 0.7 (0.8) (0.1) - ------------------------------------------------------------------------------------------------------------------------------- Total retail loans (1.2) (3.1) (4.3) (2.8) (6.5) (9.3) --------------------------------------------------------------------------------- Total loans net of unearned income 3.9 (6.8) (2.9) 6.8 (14.2) (7.4) - ------------------------------------------------------------------------------------------------------------------------------- Total interest income $ 4.9 $ (8.0) $ (3.1) $ 12.8 $ (17.8) $ (5.0) --------------------------------------------------------------------------------- Interest expense: Interest-bearing demand $ 0.2 $ (0.4) $ (0.2) $ 0.5 $ (1.2) $ (0.7) Certificates under $100,000 (0.6) (1.7) (2.3) (1.3) (3.5) (4.8) Local CDs $100,000 and over -- (0.1) (0.1) (0.1) (0.3) (0.4) - -------------------------------------------------------------------------------------------------------------------------------
31 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Total core interest-bearing deposits (0.4) (2.2) (2.6) (0.9) (5.0) (5.9) National CDs $100,000 and over -- (2.0) (2.0) 0.7 (5.0) (4.3) - ------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits (0.4) (4.2) (4.6) (0.2) (10.0) (10.2) --------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 0.6 (0.7) (0.1) 1.1 (1.1) -- - ------------------------------------------------------------------------------------------------------------------------------- Total short-term borrowings 0.6 (0.7) (0.1) 1.1 (1.1) -- --------------------------------------------------------------------------------- Long-term debt 0.0 (0.4) (0.4) 2.7 (2.9) (0.2) - ------------------------------------------------------------------------------------------------------------------------------- Total interest expense $ 0.2 $ (5.3) $ (5.1) $ 3.6 $ (14.0) $ (10.4) --------------------------------------------------------------------------------- Changes in net interest income $ 4.7 $ (2.7) $ 2.0 $ 9.2 $ (3.8) $ 5.4 =================================================================================
* 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 a 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. NONINTEREST INCOME Double-digit increases in advisory income were recorded for the 2004 second quarter as well as year-to-date. A combination of higher demand for Wealth Advisory and Corporate Client Services, market appreciation, and stronger results from the affiliate money managers caused the increases. The advisory businesses are discussed in greater detail below. Among the other sources of noninterest income, service charges on deposit accounts were higher on a second quarter and year-to-date basis because the volume of returned items increased, due partly to a fee increase that was instituted in the second quarter of 2003. Loan fees and late charges declined on a quarterly and year-to-date basis as prepayment penalties declined in anticipation of a rise in interest rates. ASSETS UNDER MANAGEMENT - ----------------------- Assets under management are generated by the advisory businesses. The following table compares changes in assets under management at Wilmington Trust and the two affiliate money managers. 32 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Changes in assets under management (AUM) - ----------------------------------------
AUM AT PERIOD-END (IN BILLIONS) 2004 Q2 2003 Q4 2003 Q2 - ------------------------------- ------- ------- ------- Wilmington Trust $24.2 $24.4 $22.7 Cramer Rosenthal McGlynn $ 5.5 $ 4.7 $ 3.8 Roxbury Capital Management $ 3.2 $ 3.2 $ 3.3 Total $32.9 $32.3 $29.8
At Wilmington Trust, most managed assets are in personal trusts that are structured around wealth planning, preservation, and transition considerations. Changes in the level of managed assets reflect trust distributions and terminations as well as business flows and financial market movements. The primary business of the two affiliate money managers is asset management, and changes in managed asset amounts reflect business flows and financial market movements. Approximately 77% of the assets managed by Wilmington Trust are associated with the Wealth Advisory Services business. These assets are invested in a mix of instruments designed to help Wealth Advisory clients generate income and minimize taxes. The following table compares changes in the investment mix. Changes in the investment mix of managed assets at Wilmington Trust - -------------------------------------------------------------------
INVESTMENT MIX AT PERIOD-END 2004 Q2 2003 Q4 2003 Q2 - ---------------------------- ------- ------- ------- Equities 52% 55% 53% Fixed income 24% 25% 27% Cash and equivalents 11% 9% 11% Mutual funds 8% 7% 6% Other assets 5% 4% 3%
WEALTH ADVISORY SERVICES - ------------------------ Income from the Wealth Advisory Services business was $37.4 million for the 2004 second quarter and $77.0 million year-to-date. Compared to the corresponding periods in 2003, these were increases of 13.0% and 15.4%, respectively. Wealth Advisory Services income is reported in three categories: - - Trust and investment advisory fees. These fees are tied to movements in the financial markets. Approximately 75% of these fees are associated with equity market valuations. - - Mutual fund fees. Approximately 95% of these fees are tied to money market mutual funds, and do not reflect equity market movements. - - Other service fees. These fees are from financial planning, estate settlement, and other services. These fees are based on the level and complexity of the services provided, not on asset valuations, and can vary widely in amount. Portions of these fees may be nonrecurring. Because other service fees reflect client demand at any given point in time, it is not unusual for them to fluctuate up or down from period to period. These fees are recorded on the income statement on page 4 of this report. Trust and investment advisory fees continued to account for more than two-thirds of Wealth Advisory Services income. Fees from these services recorded double-digit increases for the 2004 second quarter and first six months in comparison to the corresponding year-ago periods. This was due to new business development, strong demand for independent investment consulting services, and market appreciation. 33 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Other service fees rose dramatically. Comparing the 2004 second quarter and first six months with the corresponding year-ago periods, other service fees increased 30.2% and 40.4%, respectively. In addition, several of the financial and estate plans that were completed during the first quarter of 2004 were highly complex in nature, and commanded higher fees. Mutual fund fees declined on a quarter-versus-quarter as well as year-over-year basis, as client demand increased for investments that generate higher returns. CORPORATE CLIENT SERVICES - ------------------------- Income from the Corporate Client Services business was $18.4 million for the 2004 second quarter and $36.3 million year-to-date. Compared to the corresponding periods in 2003, these were increases of 11.5% and 15.6%, respectively. All components of the Corporate Client Services business recorded income that was higher than for the corresponding year-ago periods. Corporate Client Services income is reported in four categories: - - Capital markets services. This component of the business provides trust and administrative services that support the structured finance industry, and includes such projects as asset-backed securitizations, issues of pooled trust-preferred securities, large equipment leasing, and structures associated with companies in distressed financial conditions. Fees for these services are priced according to the complexity of the activity performed and are not related to financial market performance. Most of the capital markets services are performed under multiyear contracts. - - Entity management services. This component provides administrative services for legal entities in jurisdictions that offer favorable legal and tax environments. These services include accounting, regulatory and tax filings, providing independent directors for an entity, and other activities. As is the case with capital markets services, fees for these services depend on the scope of the activity provided, are not tied to financial market performance, and are performed under multiyear contracts. - - Retirement services. This component provides trust and custody services for institutional defined contribution retirement plans. The majority of the income from this component is related to the value of the retirement plan assets held in custody by the Corporation. - - Cash management services. Fees for these services are associated with cash management services performed in conjunction with the capital markets and entity management components. These fees are recorded on the income statement on page 4 of this report. Capital markets services continued to generate the largest portion of total Corporate Client Services income. For the 2004 second quarter and first six months, capital markets income was 9.2% and 16.5% higher, respectively, than for the corresponding year-ago periods. These increases were due to strong demand for traditional debt issues, issues of trust-preferred securities, mortgage-backed securitizations, and credit-card-receivables securitizations. Entity management services income increased due to higher demand in the Caribbean and Europe, where the market for such services is less mature than it is in the United States. In addition, demand for U.S.-based entities was stronger than in recent periods, reflecting a resumption of activity following the adoption of new regulatory and accounting standards. Increases in the retirement services component were attributable to the acquisition of new business as well as market appreciation. CRAMER ROSENTHAL MCGLYNN - ------------------------ Assets under management at Cramer Rosenthal McGlynn (CRM) reached $5.5 billion at June 30, 2004. This was 44.7% higher than at June 30, 2003; 17.0% higher than at December 31, 2003; and the highest amount ever recorded by the value-style manager. Net new business as well as market appreciation contributed to the increases. This propelled the income recorded from CRM to $2.5 million for the 2004 second quarter and $4.6 million year-to-date. These amounts were more than double the amounts recorded for the corresponding periods of 2003. 34 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 The amount of income recorded from CRM is based on the Corporation's ownership interest in the firm, which was 77.24% at June 30, 2004. In comparison, the Corporation held a 69.14% interest at June 30, 2003, and a 69.14% at December 31, 2003. CRM's results are not consolidated in the Corporation's financial statements. Despite the high percentage of its position, the Corporation does not hold a controlling interest in CRM. CRM retains certain management controls, including veto powers. ROXBURY CAPITAL MANAGEMENT - -------------------------- Income recorded for growth-style manager Roxbury Capital Management (RCM) reflected the firm's return to profitability. Second quarter 2004 income from RCM was $200,000; the year-to-date amount was $400,000. In comparison, a loss of $1.2 million was recorded for RCM for the 2003 second quarter, and a loss of $2.1 million was recorded for the first six months of 2003. RCM's assets under management at June 30, 2004, declined slightly from the June 30, 2003, and December 31, 2003, levels. Although RCM continued to attract new assets to its small- and mid-capitalization products, these additions were not sufficient to offset account terminations in the large capitalization product. Results recorded for RCM represent the Corporation's ownership interest in the firm. At June 30, 2004, that interest consisted of 41.23% of RCM's common shares and 30% of its gross revenue, which was equal to the level at December 31, 2003. At June 30, 2003, the Corporation's ownership position consisted of 41.04% of RCM's common shares and 30% of its gross revenue. NONINTEREST EXPENSE - ------------------- Noninterest expense reflects the costs that the Corporation incurs in the course of normal operations. It includes expenses associated with employment, occupancy, supplies, advertising, third-party providers, and other items. Noninterest expenses totaled $82.4 million for the 2004 second quarter and $165.6 million year-to-date. These were increases of 6.9% and 5.7%, respectively, from the corresponding year-ago periods. This was in line with plan and reflected higher costs associated with staff, expansion, and technology in support of business growth. Staffing-related expenses accounted for 83.0% of the quarter-versus-quarter increase, and 80.9% of the year-over-year increase. Salaries and wages rose because the number of full-time equivalent staff members was 54 more than at the end of the 2003 second quarter, and 66 more than at year-end 2003. Incentives and bonuses increased due to higher sales levels in each of the Corporation's businesses. Employment benefits expense reflected rising health insurance and pension costs. The increases in furniture, equipment, and supplies expense were attributable to technology projects. The Corporation converted its desk-top operating system, which added depreciation costs. At the end of May 2004, the Corporation completed its conversion to a third-party trust accounting system, which will cause costs to rise by approximately $1 million per quarter for the 2004 third and fourth quarters. Only one month of this expense was recorded for the 2004 second quarter. Training on the new systems caused travel, entertainment, and training expenses to increase. The increases in servicing and consulting fees were due to strong demand for multi-manager investment consulting capabilities, which led to additional payments to third-party investment advisors. Other operating expenses declined for the quarter as well as year-to-date, as lower legal costs offset higher audit costs and expenses associated with meeting the requirements of Section 404 of the Sarbanes-Oxley Act. 35 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 HEADCOUNT - --------- At June 30, 2004, full-time equivalent (FTE) headcount was 2,373. In comparison, at June 30, 2003, FTE headcount was 2,319. At December 31, 2003, FTE headcount was 2,307. INCOME TAXES - ------------ Income tax expense totaled $19.9 million for the 2004 second quarter and $39.6 million year-to-date. The Corporation's effective tax rate for the 2004 second quarter was 35.03%, compared with 34.66% for the 2003 second quarter. The changes reflected higher state income taxes due to higher income, especially from the affiliate money managers. LIQUIDITY - --------- The Corporation manages its liquidity to ensure that its cash flows are sufficient to support its operating, investing, and financing activities. Liquidity management enables the Corporation to meet increases in demand for loans or other assets, and decreases in deposits or other funding sources. Liquidity is affected by the proportion of funding that is provided by core deposits and stockholders' equity. The Corporation's sources of funding include deposit balances; cash that is generated by the investment and loan portfolios; short- and long-term borrowings, which include national certificates of deposit in amounts of $100,000 and more and term federal funds; internally generated capital; and other credit facilities. Among the Corporation's available sources of funds is the Federal Home Loan Bank of Pittsburgh, of which Wilmington Trust Company is a member. Wilmington Trust Company has $1.3 billion in available borrowing capacity secured by collateral. In addition, at June 30, 2004, the Corporation had $75 million in available borrowing capacity through two lines of credit that are maintained with major U.S. financial institutions. In April 2003 the Corporation added another source of funding by issuing $250 million of long-term subordinated debt. The issue was for general corporate purposes and the proceeds were invested initially in mortgage-backed securities. At June 30, 2004, the balance of the investment portfolio was $1.83 billion. The investment portfolio is expected to generate approximately $600 million of cash over the next 12 months. For the 2004 second quarter, the proportion of loan funding provided by core deposits - demand deposits, interest-bearing demand deposits, and certificates of deposit - was 60.54%, compared with 60.20% for the 2003 second quarter and 62.75% for the 2003 fourth quarter. The Corporation is a guarantor for a portion of two line-of-credit obligations of affiliate money manager Cramer Rosenthal McGlynn (CRM). The Corporation's guaranty portion is representative of its ownership interest in CRM, which at June 30, 2004, was 77.24%. The guaranty is for two lines of credit, at LIBOR plus 2%, which total $8 million and will expire on December 6, 2004. At June 30, 2004, the balance of these two lines was zero. Management continuously monitors the Corporation's existing and projected liquidity requirements, and believes that its standing in the national markets will enable it to obtain additional funding in a timely and cost-effective manner, should the need arise. A significant change in the Corporation's financial performance or credit ratings could reduce the availability of funding or increase the cost of such funding. ASSET QUALITY, LOAN LOSS RESERVE, AND LOAN LOSS PROVISION - --------------------------------------------------------- Credit quality was exceptionally strong in the second quarter and first six months of 2004. Lower levels of net charge-offs, the net charge-off ratio, nonperforming assets, period-end loans past due 90 days, the loan loss reserve ratio, and the provision for loan losses 36 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 reflected the high quality of the credit portfolio, as did the higher level of loans rated pass by management's internal risk rating analysis. The composition of the loan portfolio remained well diversified and relatively unchanged. The Corporation makes the vast majority of its loans within the Delaware Valley region and it rarely makes commercial loans outside of its target client market of family-owned or closely held businesses. This geographic focus enables management to remain cognizant of economic and other external factors that may affect credit quality. In the 2004 second quarter, credit quality measures were enhanced by recoveries, which were $900,000 higher than for the second quarter of 2003, and $700,000 higher than for the fourth quarter of 2003. This increase was associated primarily with a previously charged-off loan to a client in the construction industry. In addition, credit quality measures for the 2003 second quarter and year-end reflected a large credit that was transferred to nonaccruing status at the end of the 2003 first quarter. This credit was associated with a single client in the family entertainment business. Portions of this credit were paid down and charged off during 2003. Management regards the net charge-off ratio as the true indicator of credit quality. For the 2004 second quarter, net charge-offs were $1.9 million and the net charge-off ratio was 3 basis points. Compared with the year-ago second quarter, this was a decline of $2.5 million and 4 basis points. Compared to the fourth quarter of 2003, this was a decline of $4.5 million and 7 basis points. On an annualized basis, the net charge-off ratio at June 30, 2004, was 20 basis points. This was lower than at this time last year, when the annualized net charge-off ratio was 28 basis points. For the full-year 2003, the net charge-off ratio was 27 basis points. The following table provides six- and 12-month comparisons of changes in net charge-offs.
NET CHARGE-OFFS FOR THE PERIOD ENDED 2004 Q2 2003 Q4 2003 Q2 - ------------------------------------ ------- ------- ------- Net charge-off ratio 3 basis points 10 basis points 7 basis points Net charge-offs $1.9 million $6.4 million $4.4 million
The following table presents six- and 12-month comparisons of other risk elements of credit risk.
NONPERFORMING ASSETS FOR THE PERIOD ENDED 2004 Q2 2003 Q4 2003 Q2 - ----------------------------------------- ------- ------- ------- Nonaccruing loans (in millions) $41.8 $45.4 $60.4 Loans past due 90 days or more (in millions) $ 5.0 $ 5.6 $ 7.1 Total (in millions) $46.8 $51.0 $67.5 Percentage of period-end loans 0.72% 0.82% 1.11% Other real estate owned (in millions) $ 0.2 $ 1.4 $ 3.2
Other real estate owned declined for the fifth consecutive quarter. This was due to the successful work out during the past 12 months of a Maryland beach resort residential project that first was classified as OREO in December 2002. Of the loans past due 90 days or more at June 30, 2004, approximately 69% were in the commercial loan portfolio; 15% were in the residential mortgage portfolio; and 16% were consumer loans. At December 31, 2003, the corresponding ratios were 39%, 37%, and 24%. The corresponding ratios at June 30, 2003, were 68%, 17%, and 15%. The provision for loan losses reflected the charge-off experience in the second quarter of 2004. The reserve for loan losses was increased concomitant with the growth in loan balances. The following table presents six- and 12-month comparisons of changes in these measures of credit quality.
FOR THE PERIOD ENDED 2004 Q2 2003 Q4 2003 Q2 - -------------------- ------- ------- ------- Provision for loan losses (in millions) $ 3.2 $ 5.0 $ 5.9 Reserve for loan losses (in millions) $92.5 $89.9 $87.6 Loan loss reserve ratio 1.43% 1.44% 1.44%
37 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Year to date, the 2004 provision totaled $8.8 million, which was a decline of $2.0 million from the 2003 year-to-date provision of $10.8 million. The reserve for loan losses reflects management's best estimate, based on subjective judgments regarding how collectible loans within the portfolio are, of known and inherent estimated losses. In calculating the reserve, the Corporation evaluates micro- and macro-economic factors, historical net loss experience, delinquency trends, and movements within the internal risk rating classifications, among other things. Management reassesses the reserve on a quarterly basis as part of the regular application of the reserve methodology. The process that is used to calculate the reserve has provided a high degree of reserve adequacy over an extended period of time, and management believes that it is sound. To accommodate growth in loan balances, a portion of the reserve is allocated to new loans within the parameters of the reserve methodology. At June 30, 2004, in light of the levels of past due, nonaccruing, and problem loans, management believed that the reserve for loan losses was a reasonable assessment of estimated and inherent losses in the loan portfolio. The portion of the reserve allocated to new loans was relatively unchanged. At June 30, 2004, approximately $6.1 million, or 6.6%, of the reserve for loan losses was unallocated. In comparison, approximately $6.1 million, or 6.8%, of the reserve was unallocated at December 31, 2003. At June 30, 2003, approximately $6.1 million, or 7.0%, of the reserve was unallocated. Management's quarterly internal analysis of credits showed that more than 96% of the loans in the portfolio were rated pass. The percentage of loans with pass ratings has been higher than 92% since 1998 and higher than 95% since 2000. The internal analysis has four classifications, which are: - - Pass, which identifies loans with no current potential problems; - - Watchlist, which identifies potential problem credits; - - Substandard, which identifies problem credits with some probability of loss; and - - Doubtful, which identifies problem credits with a higher probability of loss. The definitions of problem and potential problem credits are consistent with the classifications used by regulatory agencies. The following table presents six- and 12-month comparisons of changes in the internal risk rating analysis.
FOR THE PERIOD ENDED 2004 Q2 2003 Q4 2003 Q2 - -------------------- ------- ------- ------- Pass 96.24% 95.83% 95.62% Watchlist 2.19% 2.58% 2.60% Substandard 1.31% 1.27% 1.23% Doubtful 0.26% 0.32% 0.55%
To minimize the impact on credit quality of economic and other factors, management endeavors to maintain a loan portfolio that is well diversified across commercial and consumer lines and industry sectors. The following table presents six- and 12-month comparisons of changes in loan portfolio composition.
LOAN PORTFOLIO COMPOSITION FOR THE PERIOD ENDED 2004 Q2 2003 Q4 2003 Q2 - ----------------------------------------------- ------- ------- ------- Commercial/financial/agricultural 37% 37% 37% Commercial real estate construction 11% 11% 10% Commercial mortgage 18% 17% 17% Residential mortgage 7% 8% 10% Consumer 18% 17% 17% Secured by liquid collateral 9% 10% 9%
38 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Management continually monitors the entire loan portfolio to identify potential problem loans and to avoid disproportionately high concentrations of loans to any one borrower or industry sector. Integral parts of this process include a regular analysis of all past-due loans and the identification of loans that management doubts will be repaid on a timely basis. Changes in the regional economy or other external factors could impair the ability of some borrowers to repay their loans. Such an environment would cause management to anticipate increases in nonperforming assets, credit losses, and the provision for loan losses. At June 30, 2004, management identified approximately $27.2 million of loans that it doubted would be repaid on a timely basis, even though those loans were performing in accordance with their terms or were less than 90 days past due. This compares with $28.5 million of such loans at December 31, 2003, and $30.4 million of such loans at June 30, 2003. CAPITAL RESOURCES - ----------------- The Corporation's capital continued to increase and its capital ratios continued to exceed the Federal Reserve Board's minimum guidelines during the first half of 2004. The annualized capital generation rate for the first half of 2004 was 8.9%, compared with an annualized rate of 7.4% for the first half of 2003 and a rate of 8.7% for the 2003 full year. Stockholders' equity rose 3.2%, or $25.6 million, to $826.4 million. Between December 31, 2003, and June 30, 2004, additions to capital included: - - $35.4 million, which reflected earnings of $72.1 million net of $36.7 million in cash dividends; - - $10.0 million from the issue of common stock under employment benefit plans; and - - $12.9 million in common stock issued in connection with the payment of a portion of the purchase price for Balentine Delaware Holding Company, LLC, the Corporation's investment counseling firm. These additions were offset partially by $32.6 million in reductions, which consisted of: - - $17.2 million in unrealized losses on securities, net of taxes; - - $15.2 million for the repurchase of shares; - - $0.1 million in foreign currency exchange adjustments; - - a reclassification adjustment of $0.1 million for derivative and securities gains included in net income, net of income taxes. During the 2004 second quarter, the Corporation purchased 219,518 shares of its stock at an average price of $35.44 and a total cost of $7.8 million. Year to date, 420,421 shares were repurchased at an average price of $36.06 and a total cost of $15.2 million. Since the current 8-million-share program began in April 2002, 504,790 shares have been bought back at a total cost of $17.6 million. The Corporation's capital ratios continued to exceed the Federal Reserve Board's minimum guidelines for both well-capitalized and adequately capitalized institutions. These guidelines are intended to reflect the varying degrees of risk associated with different on- and off-balance sheet items. The following table compares the Corporation's ratios to the guidelines.
ADEQUATELY WELL- CAPITALIZED CAPITALIZED CAPITAL RATIO JUNE 30, 2004 DECEMBER 31, 2003 MINIMUM MINIMUM ------------- ------------- ----------------- ----------- ----------- Total risk-based capital 12.55% 12.45% 8% 10% Tier 1 risk-based capital 7.53% 7.46% 4% 6% Tier 1 leverage capital 6.30% 6.34% 4% 5%
On April 15, 2004, the Corporation's Board of Directors raised the quarterly cash dividend from $0.27 to $0.285 per share. This was an increase of 5.6%. The Corporation has paid cash dividends on its common stock every year since 1908, paid quarterly cash dividends every year since 1916, and increased the dividend every year since 1982. 39 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 Management reviews the Corporation's capital position and makes adjustments as needed to assure that the capital base is sufficient to satisfy existing and impending regulatory requirements, to meet appropriate standards of safety, and to provide for future growth. OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS - ---------------------------------------------------------- In its day-to-day operations, the Corporation employs various financial instruments that generally accepted accounting principles deem to be off-balance sheet arrangements. Under regulatory guidelines, these instruments are considered for the purpose of calculating risk-based capital ratios. Some of these instruments, such as stand-by and performance letters of credit, unfunded loan commitments, unadvanced lines of credit, and interest rate swaps, do not appear on the Corporation's balance sheet. Other instruments, such as long-term debt obligations, are included on the Corporation's balance sheet. The Corporation employs interest rate swaps so that clients may convert floating-rate loan payments to fixed-rate loan payments without exposing the Corporation to interest rate risk. In these arrangements, the Corporation retains the credit risk associated with the potential failure of counter-parties. The Corporation also uses interest rate swaps to manage interest rate risk associated with its issues of long-term subordinated debt. At June 30, 2004, the Corporation had entered into a total of $988.1 million of interest rate swaps as follows: - - $306.5 million of swaps were associated with loan clients for whom the Corporation exchanged floating rates for fixed rates. - - To offset the exposure from changes in the market value of those swaps, $306.5 million of swaps were made with other financial institutions that exchanged fixed rates for floating rates. - - $375.0 million of swaps associated with the Corporation's long-term subordinated debt issues were made with other financial institutions. The Corporation has two outstanding loans that total $35.5 million from the Federal Home Loan Bank of Pittsburgh. These funds were used to construct Wilmington Trust Plaza, the Corporation's operations center in Wilmington, Delaware, which was completed in 1998. Many of the Corporation's branch offices in Delaware, and all of its offices outside Delaware, are leased. Lease commitments, net of sublease arrangements, for these locations totaled $48.3 million at June 30, 2004. At June 30, 2004, the Corporation was the guarantor of two obligations of affiliate money manager Cramer Rosenthal McGlynn (CRM). The guaranty is for 77.24%, which represents the Corporation's current ownership interest in CRM, of two lines of credit totaling $8 million, which will expire on December 6, 2004. At June 30, 2004, the liquidity exposure of the Corporation that was associated with letters of credit, unfunded loan commitments, and unadvanced lines of credit was $3.07 billion. The following table summarizes the obligations referenced above and the periods over which they extend.
MORE CONTRACTUAL OBLIGATION PAYMENTS LESS THAN 1 - 3 3 - 5 THAN 5 DUE BY PERIOD (in millions) TOTAL 1 YEAR YEARS YEARS YEARS - ------------------------------- ------ --------- ----- ----- ------ Long-term debt obligations $578.0 $22.8 $75.8 $198.9 $280.5 Operating lease obligations $ 48.3 $ 6.5 $18.3 $ 14.4 $ 9.1 Guaranty obligations $ 8.0 $ 8.0 -- -- -- Total $634.3 $37.3 $94.1 $213.3 $289.6
The long-term debt obligations in the table above refer to the Corporation's two outstanding subordinated debt issues and its Federal Home Loan Bank advances. The first debt issue, in the amount of $125 million, was issued in 1998, is due in 2008, and was used in the acquisitions of affiliate money managers CRM and Roxbury Capital Management (RCM). The second debt issue, in the amount of $250 million, was issued in 2003, is due in 2013, and was for general liquidity purposes. All of these debt issues are included in the "Long-term debt" line of the Corporation's balance sheet. 40 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 In addition, the acquisition agreements for CRM and RCM permit principal members and certain key employees of each firm, subject to certain restrictions, to put their interests in their respective firms to the Corporation. For more information on these acquisition agreements, please refer to "Note 1" of the "Notes to Consolidated Financial Statements" in the Corporation's 2003 Annual Report to Shareholders. INFLATION - --------- The Corporation's asset and liability structure is substantially different from that of an industrial company, since virtually all of the assets and liabilities of a financial institution are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a bank holding company's performance. Interest rates do not necessarily move in the same direction or at the same magnitude as the prices of goods and services. The impact, therefore, of inflation on a bank holding company's financial performance is indeterminable. OTHER INFORMATION - ----------------- Accounting pronouncements - ------------------------- Please refer to "Note 10" to the "Consolidated Financial Statements" in this report for a discussion of the impact of recent accounting pronouncements on the Corporation's financial condition and results of operations. Critical accounting policies and estimates - ------------------------------------------ Management's discussion and analysis of the Corporation's financial condition and results of operations are based on the consolidated financial statements of the Corporation, which are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the related disclosures of contingent assets and liabilities at the date of the financial statements and during the reporting period. Management evaluates those estimates on an ongoing basis, including those estimates related to the reserve for loan losses, stock-based employee compensation, affiliate fee income, impairment of goodwill, recognition of Corporate Client Services fees, loan origination fees, and mortgage servicing assets. Management bases its estimates on historical experience and other factors and assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect its more significant judgments and the estimates that are used in preparation of the consolidated financial statements and relate to the reserve for loan losses, stock-based employee compensation, and impairment of goodwill. Reserve for loan losses: The Corporation maintains a reserve for loan losses that is management's best estimate of known and inherent estimated losses, based on subjective judgments regarding the collectibility of loans within the portfolio. The reserve is reduced by actual credit losses, and is increased by the provision for loan losses and recoveries from loans previously charged-off. Personnel independent of the various lending functions evaluate the reserve on a quarterly basis. The level of the reserve is determined by assigning specific amounts to individually identified problem credits. A general amount is reserved for all other loans. In evaluating the reserve, management gives specific consideration to current micro- and macro-economic factors, historical net loss experience, current delinquency trends, and movement within the internal risk rating classification system. The methodology used to determine the necessary level of the reserve has been applied on a basis consistent with prior periods. A portion of the reserve is not specifically allocated to the individual components of the portfolio, and represents probable or inherent losses that could be caused by certain business conditions not accounted for otherwise. Typically, business conditions, including current economic and market conditions, portfolio complexity, payment performance, loan portfolio risk rating migration, the level of serious doubt loans, litigation impact, and bankruptcy trends, are the core of the unallocated reserve position. The determination of the reserve is inherently subjective, and it requires material estimates, including with respect to the amounts and timing of future cash flows expected to be received on impaired loans, that may be susceptible to significant 41 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 change. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that increases to the reserve will not be necessary if the quality of loans deteriorates as a result of the factors discussed above. Management believes that it uses the best information available to make determinations about the reserve and that it has established its existing reserve for loan losses in accordance with generally accepted accounting principles. If circumstances differ substantially from the assumptions used in making those determinations, future adjustments to the reserve may be necessary and results of the Corporation's operations could be affected. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's banking affiliates' reserve for losses on loans. These agencies may require the Corporation to recognize additions to the reserve based on their judgments about information available to them at the time of their examination. Stock-based employee compensation: The Corporation accounts for its stock-based employee compensation plans under the "intrinsic value" approach, in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, rather than the "fair value" approach prescribed in Statement of Financial Accounting Standards (SFAS) No. 123. The "intrinsic value" approach limits the compensation expense to the excess of a stock option's market price on the grant date over the option's exercise price. Since the Corporation's stock-based employee compensation option plans have exercise prices equal to market values on the grant date, no compensation expense is recognized in the financial statements. The "fair value" approach under SFAS No. 123 takes into account the time value of the option and will generally result in compensation expense being recorded upon grant. Each year since the inception of SFAS No. 123, the Corporation has disclosed, in the notes to the financial statements contained herein and in its Annual Report to Shareholders, what the earnings impact would have been had the Corporation elected the "fair value" approach under SFAS No. 123. Future earnings would be impacted if any change in generally accepted accounting principles were to limit the continued use of the "intrinsic value" approach. The Financial Accounting Standards Board (FASB) is considering such changes, which were outlined in an exposure draft dated March 31, 2004. Upon their finalization, the new rules would require that options be expensed beginning in 2005. Impairment of goodwill: Through a series of acquisitions, the Corporation has accumulated goodwill with a net carrying value of $268.7 million at June 30, 2004. Through 2001, this goodwill was subject to periodic amortization in accordance with the provisions of APB No. 17, "Intangible Assets." This treatment provided for a gradual reduction in the book value of the assets over their useful lives. Amortization could be changed if later events and circumstances warranted a revised estimate of the useful lives of the assets. Additionally, under APB No. 17, estimations of value and future benefits could indicate that the unamortized cost should be reduced, which would result in a reduction in net income. The 2002 adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," eliminated the requirement to amortize goodwill, and substituted impairment testing in its place. The purpose of impairment testing is to ensure that an amount presented in the financial statements for goodwill does not exceed its actual fair value. A methodology that is consistent with how the acquired entity or business was originally valued is to be utilized in testing for impairment on an annual basis. If this testing indicates that the fair value of the asset is less than its book value, an impairment expense must be recorded. There may be more volatility in reported income than under the previous standard, because impairment losses are likely to occur irregularly and in varying amounts. A major portion of the goodwill on the Corporation's books is related to certain of its affiliate asset manager acquisitions. A decline in the fair value of the investment in any of these firms could result in an impairment expense. SUBSEQUENT EVENT - ---------------- On July 1, 2004, the Corporation consummated a transaction that accelerated 100% of the earn-out payments to which the minority owners of Balentine Delaware Holding Company, LLC (LLC) would have been entitled in 2005, 2006, and 2007. In addition, in this transaction, the Corporation purchased the remaining limited liability company interests in the LLC from the minority owners. The Corporation initially had acquired 80% of the limited liability company interests in the LLC in 2002. As a result of this transaction, the LLC became a wholly owned subsidiary of the Corporation. The LLC's financial statements were already consolidated with those of the Corporation. Payment for the earn-out was in the form of 967,000 shares of restricted stock of the Corporation that may not be sold for at least three years. Payment for the remaining limited liability company interests in the LLC was in the form of a cash payment made at closing. 42 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 CAUTIONARY STATEMENT - -------------------- Estimates, predictions, opinions, or statements of belief in this report might be construed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of such statements could relate to identification of trends, statements about the adequacy of the reserve for loan losses, credit quality, the impact of FASB pronouncements on the Corporation, and the effects of asset sensitivity, interest rate changes, and information concerning market risk described in the "Quantitative and Qualitative Disclosures About Market Risk" section of this report. Forward-looking statements are based on current expectations and assessments of potential developments. The Corporation's ability to achieve the results reflected in those statements could be affected by, among other things, changes in national or regional economic conditions, changes in market interest rates, significant changes in banking laws or regulations, increased competition the Corporation's businesses, higher-than-expected credit losses, the effects of acquisitions and integration of acquired businesses, unanticipated changes in regulatory, judicial, or legislative tax treatment of business transactions, and economic uncertainty created by unrest in other parts of the world. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE SENSITIVITY AND MARKET RISK - ----------------------------------------- Management considers interest rate risk to be the most significant market risk for the Corporation. Interest rate risk is the exposure to adverse changes in the Corporation's net income as a result of changes in interest rates, both in the level of change and in the pace at which it occurs. Fluctuations in interest rates impact net interest income, which is an important determinant of the Corporation's financial performance. Through management of its interest rate risk, 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. In other words, management's objective is for growth in net interest income to be generated by changes in loans and deposits, not by changes in market interest rates. At the same time, management's intent is to prevent market interest rate changes from reducing net interest income by 10% or more within any 12-month period. To assess the Corporation's interest rate risk, management considers a number of balance sheet risks and market variables, which include: - - the mix of assets, liabilities, and off-balance sheet instruments; - - their respective repricing and maturity characteristics; - - the level of market interest rates; and - - other external factors. Management uses computer-based modeling to quantify these variables and simulate their impact on net interest income. The simulations compare multiple interest rate scenarios against a stable interest rate environment. As a general rule, the model employs scenarios in which rates gradually move up or down 250 basis points over a period of 12 months. One of the external factors that must be taken into consideration is the inability of certain interest rates to decline further. One such example is the targeted federal funds rate, which was 1.00% from June 25, 2003, until June 30, 2004, when the Federal Reserve Board raised it to 1.25%. Given this scenario, management considered a declining scenario of 250 basis points to be unreasonable, since a decline of that magnitude would create negative interest rates in the model. Instead, until June 30, 2004, the declining rate scenario employed a gradual downward move of only 100 basis points, at which point the federal funds rate would equal zero. Following the rate increase on June 30, 2004, the declining rate scenario mirrored the change and employed a gradual downward move of 125 basis points. The rising rate scenario remained able to accommodate a 250-basis-point upside move. 43 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 The following table presents how the simulation model projected the impact of gradual and sustained interest rate changes on net interest income over 12-month periods beginning June 30, 2004, and December 31, 2003.
IMPACT OF CHANGING INTEREST FOR THE 12 MONTHS BEGINNING FOR THE 12 MONTHS BEGINNING RATES ON NET INTEREST INCOME 6/30/04 12/31/03 - ---------------------------- ------- -------- Gradual 250 basis point increase 5.08% 6.14% Gradual 125 basis point decrease (4.48)% (5.33)%
The preceding paragraphs contain certain forward-looking statements regarding the anticipated effects on the Corporation's net interest income resulting from hypothetical changes in market interest rates. The assumptions the Corporation uses regarding the effects of changes in interest rates on the adjustment of retail deposit rates and the prepayment of residential mortgages, asset-backed securities, and collateralized mortgage obligations play a significant role in the results the simulation model projects. Rate and prepayment assumptions used in the Corporation's simulation model differ for both assets and liabilities in rising, as compared to declining, interest rate environments. Nevertheless, these assumptions are inherently uncertain and, as a result, the simulation model cannot predict precisely the impact of changes in interest rates on net interest income. Management reviews the exposure to interest rate risk regularly, and may employ a variety of strategies as needed to adjust its sensitivity. This includes changing the relative proportions of fixed-rate and floating-rate assets and liabilities; changing the number and maturity of funding sources; securitizing assets; and utilizing such derivative contracts as interest rate swaps and interest rate floors. OTHER RISKS FINANCIAL MARKET RISK - --------------------- Financial market risk is the risk of exposure to adverse changes in the Corporation's noninterest income as a result of changes to the economic valuation of assets which the Corporation manages or holds in custody on behalf of clients. Such changes in valuation could be driven by the equity markets, the fixed income markets, or both. Certain components of the noninterest income from the Wealth Advisory Services business and the Corporate Client Services business are based on fees that are tied directly to the market valuation of assets that the Corporation manages or holds in custody on behalf of clients. Income from the affiliate managers is based entirely on financial market valuations. The following table presents changes in the percentage of noninterest income for the Wealth Advisory and Corporate Client Services businesses that were associated directly with financial market valuations. Percentage of noninterest income based on financial market valuations - ---------------------------------------------------------------------
FOR THE PERIOD ENDED 2004 Q2 2004 YTD 2003 Q2 2003 YTD -------------------- ------- -------- ------- -------- Wealth Advisory Services 53.9% 52.3% 52.6% 51.7% Corporate Client Services 25.5% 25.3% 21.8% 23.2%
For more information about the percentage of noninterest income that is tied to financial market valuations, please refer to the section on "Noninterest income" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. OPERATIONAL RISK - ---------------- Operational risk is the risk of unexpected losses attributable to human error, systems failures, fraud, or inadequate internal controls and procedures. This risk is mitigated through a system of internal controls that are designed to keep operating risk at a level appropriate to the Corporation's standards, in view of the risks inherent in the markets and businesses in which the Corporation is engaged. 44 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 The system of internal controls includes policies and procedures that require the proper authorization, approval, documentation, and monitoring of transactions. Each business unit is responsible for complying with the Corporation's policies and applicable regulations, and is responsible for establishing specific procedures to do so. Each business unit as well as the Corporation's internal auditors monitors the overall effectiveness of the system of internal controls on an ongoing basis. FIDUCIARY RISK - -------------- Fiduciary risk is the risk of loss that may occur if the Corporation were to breach a fiduciary duty to a client. To limit this risk, the Corporation has established policies and procedures to reduce the risk that obligations to clients would not be discharged faithfully or in compliance with applicable legal and regulatory requirements. These policies and procedures provide guidance and establish standards related to the creation, sale, and management of investment products, trade execution, and counterparty selection. Business units have the primary responsibility for adhering to the policies and procedures applicable to their businesses. ITEM 4. CONTROLS AND PROCEDURES The Chairman of the Board and Chief Executive Officer of the Corporation and its Chief Financial Officer conducted an evaluation of the effectiveness of the Corporation's disclosure controls and procedures as of the end of the period covered by this report, pursuant to Securities Exchange Act Rule 13a-14. Based on that evaluation, the Chairman of the Board and Chief Executive Officer and the Chief Financial Officer concluded that the Corporation's disclosure controls and procedures are effective in alerting them on a timely basis to material information about the Corporation (including its consolidated subsidiaries) required to be included in the periodic filings it makes with the Securities and Exchange Commission. The Corporation implemented a new trust accounting system during the second quarter of 2004. There were no other significant changes in the Corporation's internal controls during the second quarter of 2004 or in other factors that could significantly affect those controls subsequent to the date of that evaluation. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Corporation and its subsidiaries are subject to various legal proceedings that arise from time to time in the ordinary course of their businesses and operations. Some of these proceedings seek relief or damages in amounts that may be substantial. Because of the complex nature of some of these proceedings, it may be a number of years before they ultimately are resolved. While it is not feasible to predict the outcome of these proceedings, management does not believe the ultimate resolution of any of them will have a materially adverse effect on the Corporation's consolidated financial condition. Further, management believes that some of the claims may be covered by insurance, and has advised its insurance carriers of the proceedings. In the second quarter of 2004, the Securities and Exchange Commission reached settlements with Wilmington Trust Company on two separate matters that took the form of cease-and-desist orders. In one settlement, which was associated with the Corporate Client Services business, the Corporation incurred a $125,000 penalty. That order related to certain recordkeeping and reporting requirements in the registered transfer agent business. The second settlement, which was associated with the Wealth Advisory Services business, pertained to account statements provided to a third-party investment adviser for a custody account. No penalty was assessed for the second settlement. 45 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS. ISSUER PURCHASES OF EQUITY SECURITIES The following table shows changes in issuer purchases of equity securities.
(d) Maximum Number (or Approximate (c) Total Number Dollar Value) of (a) Total (b) of Shares (or Shares (or Units) Number of Average Units) Purchased that May Yet Be Shares (or Price Paid as Part of Publicly Purchased Under Units) per Share (or Announced Plans the Plans or Period Purchased Unit) or Programs Programs Month #1 April 1, 2004 - April 30, 2004 219,518 $ 35.44 219,518 7,495,210 Month #2 May, 1, 2004 - May 31, 2004 -- -- -- 7,495,210 Month #3 June 1, 2004 - June 30, 2004 -- -- -- 7,495,210 Total 219,518 $ 35.44 219,518 7,495,210
In April 2002, the Corporation announced a plan to repurchase 8 million shares of its stock. 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 April 15, 2004 (the Annual Meeting), the nominees for directors of the Corporation proposed were elected. The votes cast for those nominees were as follows:
FOR WITHHELD Charles S. Crompton Jr. 54,492,566.372 499,214.253 R. Keith Elliott 52,900,819.660 2,090,960.965 Stacey J. Mobley 54,522,873.117 468,907.508 H. Rodney Sharp III 54,512,570.330 479,210.295
46 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 The terms of Carolyn S. Burger, Ted T. Cecala, Richard R. Collins, Robert V.A. Harra Jr., Rex L. Mears, Hugh E. Miller, David P. Roselle, Thomas P. Sweeney, and Robert W. Tunnell Jr. continued after the Annual Meeting. In addition, at the Annual Meeting, the Corporation's shareholders approved the Corporation's 2004 Employee Stock Purchase Plan. That plan, designed to assist the Corporation's staff members in becoming shareholders of the Corporation, is for a term of four years and authorizes the issuance of up to 800,000 shares of the Corporation's common stock. The vote in favor of that plan was as follows:
FOR AGAINST ABSTAIN 40,128,898.486 1,397,691.199 403,033.940
At the Annual Meeting, the Corporation's shareholders also approved the 2004 Executive Incentive Plan. The plan offers added incentive for the Corporation's senior executives to achieve targeted performance goals. The vote in favor of that plan was as follows:
FOR AGAINST ABSTAIN 37,094,508.557 4,147,202.362 687,912.706
ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit Number Exhibit - ------ ------- 3.1 Amended and Restated Certificate of Incorporation of the Corporation(1) 3.2 Amended and Restated Bylaws of the Corporation(2) 10.60 2004 Employee Stock Purchase Plan (3) 10.61 2004 Executive Incentive Plan (3) 10.62 Purchase Agreement dated as of June 30, 2004, among Balentine Holdings, Inc., Robert M. Balentine, B. Clayton Rolader, Jeffrey P. Adams, Robert E. Reiser, Jr., Gary B. Martin, Wesley A. French, Michael E. Wolf, The 1999 Balentine Family Trust, The Robert M. Balentine Insurance Trust, Marcia M. Murray, S. Brittain Ellis Prigge, Dorsey D. Farr, Wilmington Trust Company as Trustee of the Griffin Trust, Southern Highlands Reserve, Inc., WT Investments, Inc., and Wilmington Trust Corporation(3) 99.1 Section 302 Certifications(3) 99.2 Section 906 Certification(3)
- ------------------------------ (1) Incorporated by reference to the corresponding exhibit to the Annual Report on Form 10-K of Wilmington Trust Corporation filed on March 30, 1996. (2) Incorporated by reference to the corresponding exhibit to the Annual Report on Form 10-K of Wilmington Trust Corporation filed on March 27, 2003. (3) Filed herewith. The Corporation filed current reports on Form 8-K on April 15, 2004, and April 23, 2004, reporting certain developments under Item 5, and a current report on Form 8-K on April 16, 2004, under Item 12 reporting its financial condition and results of operations for the first quarter of 2004. 47 Wilmington Trust Corporation Form 10-Q for the quarterly period ended June 30, 2004 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. WILMINGTON TRUST CORPORATION Date: August 9, 2004 /s/ Ted T. Cecala ----------------------------------- Name: Ted T. Cecala Title: Chairman of the Board and Chief Executive Officer (Authorized Officer) Date: August 9, 2004 /s/ David R. Gibson ----------------------------------- Name: David R. Gibson Title: Executive Vice President and Chief Financial Officer (Principal Financial Officer) 48 EX-10.60 3 w99442exv10w60.txt 2004 EMPLOYEE STOCK PURCHASE PLAN 2004 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.60 WILMINGTON TRUST CORPORATION 2004 EMPLOYEE STOCK PURCHASE PLAN 1. Purpose. The purpose of Wilmington Trust Corporation's 2004 Employee Stock Purchase Plan (the "Plan") is to provide all regular employees of Wilmington Trust Corporation (the "Company") and those of its subsidiaries that may be designated as participating companies by the Company's Board of Directors from time to time an opportunity to purchase shares of the Company's common stock, par value $1 per share ("Common Stock"), through annual offerings to be made from time to time for the duration of the Plan; and to foster interest in the Company's success, growth, and development. The Company intends that the Plan qualify as an "Employee Stock Purchase Plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Plan's provisions shall be construed to extend and limit participation in a manner consistent with the requirements of that section of the code. 2. Eligibility. a. Any Employee shall be eligible to participate in the Plan as of the beginning of the Plan year coincident with or next following the completion of at least one month of continuous service with one or more Employers, subject to the limitations imposed by Section 423(b) of the Code. b. Any provision of the Plan to the contrary notwithstanding, no Employee shall be granted an option: (1) If, immediately after that grant, the Employee would own shares, and/or hold outstanding options to purchase shares, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company; or (2) That permits an Employee rights to purchase shares under all employee stock purchase plans of the Company and its subsidiaries to accrue at a rate that exceeds $25,000 of the fair market value of the shares (determined at the time that option is granted) for each calendar year in which those stock options are outstanding at any time. 3. Offerings. The Company will make one or more annual offerings to Employees to purchase stock hereunder. The terms and conditions of each such offering shall specify the number of shares that may be purchased thereunder. The fixed term of any offering shall include a Purchase Period of specified duration, during which (or during that period thereof during which an Employee may elect to participate) the amounts received by an Employee as Base Salary shall constitute the measure of that Employee's participation in the offering. 4. Participation. An Employee who is, on the effective date of any offering, eligible to participate in that offering, may participate by completing and forwarding a "Payroll Deduction Authorization for Purchase of Wilmington Trust Corporation Stock" form to the designated payroll location. Payroll deductions for a Participant shall commence on the date when the authorization for a payroll deduction becomes effective and end on the termination date of the offering to which that authorization applies, unless terminated sooner by the Participant in accordance with Paragraph 8 below. 5. Payroll Deductions. A Participant's payroll deduction authorization shall authorize deductions each payday during a Purchase Period at a rate not to exceed 10% of the Participant's Base Salary at the beginning of that Purchase Period but, at a minimum, at a rate that will accumulate an amount equal to the offering price of at least five shares by the end of the Purchase Period. a. All payroll deductions made for a Participant shall be credited to a bookkeeping account under the Plan. A Participant may not make separate cash payments into that account. b. A Participant may at any time prospectively decrease the amount authorized to be deducted per period, provided the minimum deduction required above is maintained. That change may not become effective sooner than the next pay period ending after receipt of the form by the appropriate payroll location. Notwithstanding anything to the contrary contained herein, a Participant may reduce payroll deductions hereunder only once during any Purchase Period. c. A Participant may discontinue participation in the Plan in accordance with Paragraph 8 below. 6. Granting of an Option. a. In any offering hereunder, each Participant shall be granted an option, on the Date of Offering, for as many full shares of Common Stock as he or she elects to purchase with the payroll deductions credited to the Participant's account during the Purchase Period, based on the option price for the Purchase Period, as described in Subparagraph 6(b) below. b. The option price per share of shares purchased with payroll deductions made for a Participant during any Purchase Period shall be the lower of: (1) Eighty-five percent of the last sale price of the Common Stock on the first day of the Purchase Period or, if there was no such reported sale of Common Stock on that date, on the next preceding date on which there was such a reported sale; or (2) Eighty-five percent of the last sale price of the Common Stock on the last day of the Purchase Period or, it there was no such reported sale of Common Stock on that date, on the next preceding date on which there was such a reported sale. 7. Exercise of Option. a. As of the last day of the Purchase Period for any offering, the account of each Participant shall be totaled and the option price determined. If a Participant has sufficient funds (including interest credited on his or her account at the rate computed in accordance with Paragraph 9 below) to purchase five or more full shares at the option price, that Participant shall be deemed to have exercised the option to purchase the number of shares for which he or she has subscribed at that price, and his or her account shall be charged for the number of shares so purchased. b. Participation in an offering will not bar an Employee from participating in any subsequent offering hereunder. Payroll deductions may be made under each offering to the extent the Employee authorizes, subject to the maximum and minimum limitations for that offering imposed hereby. A separate account shall be maintained for each Participant with respect to each offering. Any unused balance in a Participant's account at the end of a Purchase Period shall be refunded, with interest computed in accordance with Paragraph 9 below. c. If a Participant does not accumulate sufficient funds in his or her account to purchase at least five shares during a Purchase Period, the Participant thereupon shall be deemed to have withdrawn from that offering, and his or her account will be refunded, with interest computed in accordance with Paragraph 9 below. d. The shares of Common Stock purchased by a Participant upon the exercise of his or her option in accordance herewith shall not include fractional shares. Amounts credited to a Participant's account which would have been used to purchase fractional shares shall be refunded to the Participant, with interest computed in accordance with Paragraph 9 below. 2 8. Withdrawal. a. A Participant may withdraw all payroll deductions credited to an account hereunder at any time before the end of a Purchase Period by giving the Company written notice. All payroll deductions credited to that account shall be paid to the Participant, with interest computed in accordance with Paragraph 9 below, promptly after receipt of notice of withdrawal, and no further payroll deductions shall be made for that Participant in respect of that offering. b. Except as provided in the following sentence, an Employee's withdrawal from the Plan shall not have any effect upon his or her eligibility to participate in any succeeding offering hereunder; provided that Section 16 Officers who make withdrawals or otherwise cease participation in the Plan during any Purchase Period shall be precluded from re-participation in the Plan until the next Purchase Period that begins at least six months after that withdrawal or cessation of participation. c. If an Employee retires or otherwise terminates employment, no payroll deduction shall be made from any pay due and owing at that time, and the balance in the Employee's account shall be paid to the Employee, with interest computed in accordance with Paragraph 9 below or, at the Employee's election, used to purchase Common Stock in accordance with Paragraph 7 above. d. If an Employee dies, that Employee's beneficiary may elect to withdraw the balance in his or her account, with interest computed in accordance with Paragraph 9 below, or apply it to the purchase of the appropriate number of full shares of Common Stock at a price determined in accordance with Paragraph 6 above, using the date of death as though it were the last day of the Purchase Period. Any balance in that account remaining after that purchase shall be paid, with interest computed in accordance with Paragraph 9 below, to the person or persons entitled thereto in accordance with Paragraph 12 below. 9. Interest. Each Participant's account shall be credited with interest at the rate in effect from time to time on statement savings accounts of Wilmington Trust Company that may not be accessed by check. 10. Stock. a. The shares to be sold to Participants hereunder are to be authorized and unissued shares of Common Stock, or issued shares of Common Stock that the Company has reacquired and holds in its treasury. The maximum number of shares that shall be made available for sale hereunder during all offerings shall be 800,000 shares, subject to adjustment upon changes in the Company's capitalization as provided in Paragraph 14 below. b. None of the rights or privileges of a stockholder of the Company shall exist with respect to shares purchased hereunder until the end of the Purchase Period with respect to which those shares were acquired. c. If in any offering Employees subscribe for more shares than remain available under the Plan, the shares in that offering shall be allocated pro rata among employees by multiplying the number of shares remaining under the Plan by a fraction, the numerator of which is the number of shares the Employee subscribed for in that offering and the denominator of which is the number of shares all Employees subscribed for in that offering. d. Shares to be delivered to an Employee hereunder will be registered in the Employee's name or, if directed by written notice to Wilmington Trust Company's Human Resources Department before the end of a Purchase Period, in the names of the Employee and one other person, as joint tenants with rights of survivorship, to the extent permitted by applicable law. 11. Administration. The Plan shall be administered by a committee (the "Committee") consisting of not less than 3 three members who shall be appointed by the Company's Board of Directors. Each member of the Committee shall be either a director, an officer, or an Employee of an Employer. The Committee shall be vested with full authority to make, administer, and interpret rules and regulations that it deems necessary or desirable to administer the Plan. Any determination, decision, interpretation, administration, or application hereof shall be final, conclusive, and binding upon all Participants and any and all persons claiming under or through any Participant. 12. Designation of Beneficiary. A Participant may file with Wilmington Trust Company's Human Resources Department a written designation of a beneficiary who is to receive any shares and/or cash for the Participant's credit hereunder in the event of that Participant's death before the delivery of those shares and/or cash. The Participant may change that designation at any time by providing written notice to Wilmington Trust Company's Human Resources Department. Upon the death of a Participant and receipt by Wilmington Trust Company's Human Resources Department of proof of the Participant's death and the identity and existence of a beneficiary validly designated hereunder, the Company shall deliver those shares and/or that cash to the executor or administrator of the Participant's estate. If no such executor or administrator has been appointed to the Company's knowledge, the Company may, in its discretion and in such form as the Committee may prescribe, deliver those shares and/or that cash to the Participant's spouse or to any one or more dependents, or relatives of the Participant. If no spouse, dependent or relative is known to the Company, then the Company may, in its discretion and in such form as the Committee may prescribe, deliver those shares and/or that cash to such other person as the Committee may designate. No such designated beneficiary shall, before the death of the Participant by whom the beneficiary has been designated, acquire any interest in the shares and/or cash credited to the Participant hereunder. 13. Transferability. No rights with respect to the exercise of any option or to receive shares hereunder may be assigned, transferred, pledged, or otherwise disposed of by an Employee. Options granted hereunder are not transferable by an Employee otherwise than by will or the laws of descent and distribution, and are exercisable during an Employee's lifetime only by the Employee. 14. Changes in Capitalization. The number and kind of shares subject to outstanding options hereunder, the purchase price of those options, and the number and kind of shares available for options subsequently made available hereunder shall be adjusted appropriately to reflect any stock dividend, stock split, combination, or exchange of the Company's shares, merger, consolidation, or other change in the Company's capitalization with a similar substantive effect upon the Plan or options granted or to be granted hereunder. The Committee shall have the power and sole discretion to determine the nature and amount of the adjustment to be made in each case. 15. Use of Funds. All payroll deductions received or held by an Employer hereunder may be used by the Employer for any corporate purpose, and the Employer shall not be obligated to segregate those payroll deductions. 16. Government Regulations. The Company's obligations to sell and deliver the Company's stock hereunder are subject to the approval of any governmental authority required in connection with the authorization, issuance, or sale of that stock. The Company's Board of Directors may, in its discretion, require as conditions to the exercise of any option granted hereunder that the shares of Common Stock reserved for issuance upon the exercise of the option have been duly listed, upon official notice of issuance, on a stock exchange or the National Association of Securities Dealers Automated Quotation System, and that either: 4 a. A Registration Statement with respect to those shares is effective under the Securities Act of 1933; or b. The Participant has represented at the time of purchase, in form and substance satisfactory to the Company, that he or she intends to purchase those shares for investment and not for resale or distribution. 17. Amendment or Termination. Unless terminated sooner by the Company's Board of Directors, the Plan shall terminate automatically as of May 31, 2008. The Company's Board of Directors may terminate or amend the Plan at any time. No such termination shall affect options previously granted hereunder. No such amendment may make any change in any option theretofore granted hereunder that would adversely affect the rights of any Participant, nor be made without the prior approval of a majority of the shares of the Company's outstanding stock if that approval would be required by law, including if that amendment would: a. Permit the sale of more shares than are authorized under Paragraph 10 above; or b. Permit payroll deductions at a rate in excess of 10% of a Participant's Base Salary. 18. No Employment Rights. The Plan does not, directly or indirectly, create any right for the benefit of any Employee or class of Employees to purchase any shares hereunder, or create in any Employee or class of Employees any right with respect to continuation of employment by the Company or any direct or indirect subsidiary thereof. The Plan shall not be deemed to interfere in any way with the right of the Company or any direct or indirect subsidiary thereof to terminate, or otherwise modify, an Employee's employment at any time. 19. Governing Law. Delaware law, other than the conflict-of-laws provisions of that law, shall govern all matters relating to the Plan, except as that law is superseded by the laws of the United States. 20. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the following meanings: a. "Base Salary" means regular straight-time earnings, excluding payments for overtime, incentive compensation, bonuses, and other special payments except to the extent the Committee specifically approves including any such item. b. "Committee" means the committee established pursuant to Paragraph 11 above to administer the Plan. c. "Date of Offering" shall be the first day of each Purchase Period. d. "Employee" shall mean any person, including an officer, who is customarily employed by an Employer for 15 hours or more per week and for more than five months in a calendar year. e. "Employer" means the Company and any subsidiary company designated as a participating company by the Company's Board of Directors, 15% or more of the voting stock of which is owned directly or indirectly by the Company. f. "Participant" means an Employee who has agreed to participate in an offering and has met the requirements of Paragraph 4 above. g. "Purchase Period" means each of the periods during which a Participant may purchase Common Stock pursuant to any particular offering hereunder. h. "Section 16 Officers" means officers of the Company, or of any subsidiary of the Company 25% or more of the voting stock of which is owned directly or indirectly by the Company, designated as Section 16 Officers by resolution of the Board of Directors of the Company from time to time. 5 EX-10.61 4 w99442exv10w61.txt 2004 EXECUTIVE INCENTIVE PLAN 2004 EXECUTIVE INCENTIVE PLAN EXHIBIT 10.61 WILMINGTON TRUST CORPORATION 2004 EXECUTIVE INCENTIVE PLAN 1. Purpose. The purpose of the Wilmington Trust Corporation (the "Company") 2004 Executive Incentive Plan (the "Incentive Plan") is to provide senior management annual awards that recognize and reward the achievement of performance goals. 2. Effective Date of Plan. The Incentive Plan shall be effective as of January 1, 2004, but any payments under the Incentive Plan to individuals a portion of whose compensation would be subject to Section 162(m) of the Internal Revenue Code and the related regulations ("Section 162(m)") and that the Company desires to deduct ("Section 162(m) Participants") shall be made contingent on the Incentive Plan's approval by the Company's shareholders. 3. Plan Administrator. The Company's Compensation Committee shall administer the Incentive Plan. The Compensation Committee consists of members appointed by the Board of Directors from time to time. Each member of the Compensation Committee shall be an "outside director" within the meaning of Section 162 (m). The Compensation Committee shall have full power and authority, subject to the provisions of the plan and applicable law, to (a) establish, amend, suspend, or waive rules and regulations and appoint agents it deems necessary or advisable for the plan's proper administration, (b) construe, interpret, and administer the plan and any instrument or agreement relating to the plan, and (c) make all other determinations and take all other actions necessary or advisable for the plan's administration. Unless the Incentive Plan expressly provides otherwise, each determination the Compensation Committee makes and each action it takes pursuant to the plan or any instrument or agreement relating to the plan (x) shall be within the Compensation Committee's sole discretion, (y) may be made at any time, and (z) shall be final, binding, and conclusive for all purposes on all persons, including participants in the plan, their legal representatives, and beneficiaries and employees of the Company and its subsidiaries. 4. Eligibility. The Chief Executive Officer, the President, and other senior officers of the Company and its subsidiaries are eligible to participate in the Incentive Plan if the Compensation Committee designates them. 5. Awards. 5.1 For each calendar year (a "Plan Year"), at such times as the Compensation Committee determines, it shall establish the basis and terms of participation of participants who are not Section 162(m) Participants. In doing so, the Compensation Committee may establish one or more quantitative or qualitative performance or other goals or criteria as the basis for awarding executives bonuses under the Incentive Plan. 5.2 For Section 162(m) Participants, within 90 days after the commencement of each Plan Year, the Compensation Committee shall designate: a. The officers who will be deemed Section 162(m) Participants for that Plan Year; b. The Financial Criteria that will apply to awards to Section 162(m) Participants for the Plan Year; and c. The Performance Goals the Company must meet for Section 162(m) Participants to earn awards for the Plan Year and a payout matrix or formula for those Financial Criteria and Performance Goals. After the 90th day of a Plan Year, the Compensation Committee may designate newly-hired officers as participants in the Plan for that Plan Year. The Performance Goals for those additional Section 162(m) Participants will be established before 25% of the days remaining in that partial Plan Year have expired. Any participant who terminates employment, either voluntarily or involuntarily, before awards are paid for a Plan Year will be ineligible for an award under the Plan. However, the Compensation Committee may, in its sole and complete discretion, determine to pay an award if termination was due to death, disability, retirement, or a Change in Control of the Corporation, but: x. No such payment shall be made to any participant for a Plan Year before awards for that Plan Year are payable generally; and y. No such payment shall be made to any Section 162(m) Participant unless the Performance Goals established for that participant have been attained. For purposes hereof, the term "Change in Control" means any of the events described below, directly or indirectly or in one or more series of transactions: (1) Approval by Wilmington Trust Company's ("WTC's") or the Company's stockholders of a consolidation or merger of WTC or the Company with any third party (including a single person or entity or a group of persons or entities acting in concert) not wholly-owned, directly or indirectly, by WTC or the Company (a "Third Party"), unless WTC or the Company is the entity surviving that merger or consolidation; (2) Approval by WTC's or the Company's stockholders of a transfer of all or substantially all of the assets of WTC or the Company to a Third Party or of a complete liquidation or dissolution of WTC or the Company; (3) Any person, entity, or group which is a Third Party, without prior approval of WTC's or the Company's Board of Directors, by itself or through one or more subsidiaries: (a) Acquires beneficial ownership of 15% or more of any class of WTC's or the Company's voting stock; (b) Acquires irrevocable proxies representing 15% or more of any class of WTC's or the Company's voting stock; (c) Acquires any combination of beneficial ownership of voting stock and irrevocable proxies representing 15% or more of any class of WTC's or the Company's voting stock; (d) Acquires the ability to control in any manner the election of a majority of WTC's or the Company's directors; or (e) Acquires the ability to exercise a controlling influence over the management or policies of WTC or the Company, directly or indirectly; or (4) Any election occurs of persons to the Company's Board of Directors that causes a majority of that Board of Directors to consist of persons other than (x) persons who were members of that Board of Directors on February 29, 1996 (the "Effective Date") and/or (y) persons who were nominated for election as members of that Board of Directors by the Company's Board of Directors (or a committee thereof) at a time when the majority of that Board of Directors (or that committee) consisted of persons who were members of the Company's Board of Directors on the Effective Date. However, any person nominated for election by the Company's Board of Directors (or a committee thereof), a majority of whom are persons described in clauses (x) and/or (y), or are persons who were themselves nominated by that Board of Directors (or a committee thereof), shall be deemed for this purpose to have been nominated by a Board of Directors 2 composed of persons described in clause (x) above. However, a Change in Control shall not include any of the events described above if they (i) occur in connection with the appointment of a receiver or conservator for WTC or the Company, provision of assistance under Section 13(c) of the Federal Deposit Insurance Act (the "FDI Act"), the approval of a supervisory merger, a determination that WTC is in default as defined in Section 3(x) of the FDI Act, insolvent or in an unsafe or unsound condition to transact business, or, with respect to any participant, the suspension, removal, and/or temporary or permanent prohibition by a regulatory agency of that participant from participating in WTC's or the Company's business or (ii) are the result of a Third Party inadvertently acquiring beneficial ownership or irrevocable proxies or a combination of both for 15% or more of any class of WTC's or the Company's voting stock, and that Third Party as promptly as practicable thereafter divests itself of the beneficial ownership or irrevocable proxies for a sufficient number of shares so that the Third Party no longer has beneficial ownership or irrevocable proxies or a combination of both for 15% or more of any class of WTC's or the Company's voting stock. 6. Financial Criteria. For each Plan Year, the Compensation Committee shall designate one or more financial criteria (the "Financial Criteria") set forth in this Section 6 for use in determining awards for Section 162(m) Participants for that Plan Year. Financial Criteria shall consist of one or more of the following financial measures: income, net income, growth in income or net income, earnings per share, growth in earnings per share, cash flow measures, return on equity, return on assets, return on investment, loan loss reserves, market share, fees, growth in fees, assets, growth in assets, stockholder return, stock price, achievement of balance sheet or income statement objectives, expenses, reduction in expenses, chargeoffs, nonperforming assets, loan loss reserves, market share, and overhead ratio. Any of the Financial Criteria may be company-wide or on a departmental, divisional, regional, or individual basis. In addition, any of the Financial Criteria may be measured in absolute terms, by reference to internal performance targets, or as compared to another company or companies, and may be measured by the change in that performance target compared to a previous period. The Compensation Committee retains the discretion to determine whether an award will be paid under any one or more of the Financial Criteria. 7. Performance Goals. For each Plan Year, the Compensation Committee shall establish specific, objective performance goals (the "Performance Goals"), the outcome of which is substantially uncertain at the time they are established, for each of the Financial Criteria the Compensation Committee designates for that Plan Year against which actual performance is to be measured to determine the amount of awards to Section 162(m) Participants. Performance Goals the Compensation Committee establishes may be described by means of a matrix or formula providing for goals resulting in the payment of awards under the plan. 8. Determination and Payment of Awards. 8.1. As soon as practicable after the end of a Plan Year, the Compensation Committee will determine the amount of the award each participant has earned. For Section 162(m) Participants, that determination will be made based on application of the criteria specified in Section 6. However, the Compensation Committee may, in its sole and absolute discretion, reduce the amount that would otherwise be payable under the Incentive Plan. Payments will be made promptly after the Compensation Committee determines the amount of the awards unless payment of an award has been deferred pursuant to Section 10.6. The Compensation Committee's determination with respect to Section 162(m) Participants must include its certification in writing that the Performance Goals and any other terms of the award were satisfied. Minutes of the Compensation Committee's meeting or 3 any action by written consent shall satisfy the written certification requirement. 8.2. The Corporation shall pay awards under the Incentive Plan in cash, stock, restricted stock, restricted stock units, "phantom stock" units, or other types of awards valued in whole or in part by reference to, or otherwise based on, shares of the Company's stock. Subject to the provisions hereof, the Compensation Committee shall have the sole and absolute discretion to determine the persons to whom and the time or times at which those awards are made, the number of shares to be granted pursuant thereto, if any, and all other conditions of those awards. Any award other than cash shall be confirmed by an award agreement. The award agreement shall contain provisions the Compensation Committee determines are necessary or appropriate to carry out the intent hereof with respect to the award. Any awards may be represented in whole or in part by certificated shares or uncertificated shares, at the Compensation Committee's sole discretion. The Compensation Committee may grant awards in respect of up to a total of 300,000 shares of stock under the Incentive Plan. 8.3. Notwithstanding anything to the contrary contained herein, the maximum dollar amount with respect to which awards may be granted under the Incentive Plan for any Plan Year to any participant may not exceed $3,000,000. 8.4. In addition to the terms and conditions specified in the award agreement, awards shall be subject to the following: (a) Any shares subject to awards may not be sold, assigned, transferred, pledged, or otherwise encumbered before the date on which those shares are issued or, if later, the date on which any applicable restriction, performance, or deferral period lapses; (b) If specified in the award agreement, the recipient of an award shall be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the shares covered by that award, and the Compensation Committee may, in its sole and absolute discretion, provide in the award agreement that those amounts be reinvested in additional shares; (c) The award agreement shall contain provisions dealing with the disposition of the award in the event of the termination of the participant's employment before the exercise, realization, or payment of the award. The Compensation Committee may, in its sole and absolute discretion, waive any of the restrictions imposed with respect to any award; and (d) Shares issued as a bonus pursuant hereto shall be issued for the consideration the Compensation Committee determines is appropriate, in its sole and absolute discretion, but rights to purchase shares shall be priced at least 100% of the market value per share on the date the award is granted. 9. Taxes. If the Compensation Committee deems it necessary or desirable, the Company shall be entitled to withhold (or secure payment from a participant in lieu of withholding) the amount of any withholding or other tax required by law to be withheld or that the Company pays (1) with respect to any amount payable and/or shares issuable under that participant's award or (2) with respect to any income recognized upon the lapse of restrictions applicable to an award. The Company may defer payment or issuance of the cash, shares or units upon the grant, exercise or vesting of an award unless indemnified to its satisfaction against any liability for that tax. The Compensation Committee or its delegate shall determine the amount of that withholding or tax payment. The participant shall make that payment at the time the Compensation Committee determines. In each award agreement, the Compensation Committee shall prescribe one or more methods by which the participant may satisfy his or her tax withholding obligation. This may include the participant's paying the Company cash or shares of the Company's stock or the Company's withholding from the award, at the appropriate time, a number of shares sufficient to satisfy those tax withholding requirements, based on the market value per share of those shares. In its sole and absolute discretion, the Compensation Committee may establish rules and procedures 4 relating to any withholding methods it deems necessary or appropriate. These may include rules and procedures relating to elections by participants who are subject to Section 16 of the Securities Exchange Act to have shares withheld from an award to meet those withholding obligations. Termination, Suspension, or Modification of the Plan. The Board of Directors may at any time, with or without notice, terminate, suspend, or modify the Incentive Plan in whole or in part. The Board of Directors shall not amend the Incentive Plan in violation of law or in contravention of Section 162(m). The Compensation Committee may make any amendments to the Incentive Plan not in violation of law required to conform the Incentive Plan to the requirements of Section 162 (m). The Compensation Committee also may correct any defect, supply any omission, or reconcile any inconsistency in the Incentive Plan in the manner and to the extent it deems desirable to carry the Incentive Plan into effect. Miscellaneous. 11.1. No award under the Incentive Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any liability which is for alimony or other payment for the support of a spouse or former spouse, or for any other relative of a participant, prior to actually being received by the participant or his or her designated beneficiary. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, or otherwise dispose of any right to an award hereunder shall be void. 11.2. Neither the adoption of the Incentive Plan, the determination of eligibility to participate in the Incentive Plan, nor the granting of an award under the Incentive Plan shall confer upon any participant any right to continue in the employ of the Company or any of its subsidiaries or interfere in any way with the right of the Company or its subsidiaries to terminate that employment at any time. 11.3. The Incentive Plan and all determinations under it shall be governed by and construed in accordance with Delaware law, other than the conflict of law provisions of those laws, and except as that law is superseded by federal law. 11.4. The existence of outstanding awards shall not affect the right of the Company or its shareholders to make or authorize any and all adjustments, recapitalizations, reclassifications, reorganizations, and other changes in the Company's capital structure, the Company's business, any merger or consolidation of the Company, any issue of bonds, debentures, or preferred stock, the Company's liquidation or dissolution, any sale or transfer of all or any part of the Company's assets or business, or any other corporate act or proceeding, whether of a similar nature or otherwise. The number and kind of shares subject to outstanding awards, the purchase or exercise price of those awards, and the number and kind of shares available for awards subsequently granted shall be adjusted appropriately to reflect any stock dividend, stock split, combination or exchange of shares, merger, consolidation, or other change in capitalization with a similar substantive effect on the Incentive Plan or awards granted hereunder. The Compensation Committee shall have the power and sole and absolute discretion to determine the nature and amount of the adjustment to be made in each case. However, in no event shall any adjustment be made under the provisions of this Section 11.4 to any outstanding award if an adjustment has been made or will be made to the shares of the Company's stock awarded to a participant in that person's capacity as a shareholder. If the Company is merged or consolidated with another entity and the Company is not the surviving entity, or if the Company is liquidated or sells or otherwise disposes of all or substantially all of its assets to another entity while unexercised awards remain outstanding, then (a) subject to the provisions of Section 11.4(b) below, after the effective date of that merger, consolidation, liquidation, or sale, each 5 holder of an outstanding award hereunder shall be entitled to receive, upon exercise or vesting of that award in lieu of shares, other stock or other securities as the holders of shares of the Company's stock received in the merger, consolidation, liquidation, or sale; and (b) the Compensation Committee may cancel all outstanding awards as of the effective date of that merger, consolidation, liquidation, or sale, provided that (i) notice of that cancellation has been given to each holder of an award and (ii) in addition to any rights he or she may have under Section 5.2 above, each holder of an outstanding award hereunder shall have the right to that award or the exercise in full, without regard to any limitations set forth in or imposed pursuant hereto or contained in the award agreement, during a 30-day period preceding the effective date of the merger, consolidation, liquidation, or sale. The exercise and/or vesting of any award that was permissible solely because of this Section 11.4 (b)(ii) shall be conditioned on consummation of the merger, consolidation, liquidation, or sale shall terminate as of that date. If the Company is consolidated or merged with another entity under circumstances in which the Company is the surviving entity, and its outstanding shares are converted into shares of a third entity, a condition to the merger or consolidation shall be that the third entity succeed to the Company's rights and obligations hereunder, and that the Incentive Plan be administered by a committee of the Board of that entity. Comparable rights shall accrue to each participant in the event of successive reorganizations, mergers, consolidations, or other transactions similar to those described above. Except as expressly provided herein, the Company's issuance of shares or any other securities for cash, property, labor, or services, either upon direct sale, the exercise of rights or warrants to subscribe therefor, or conversion of shares or obligations of the Company convertible into shares or other securities shall not affect, and no adjustment by reason thereof shall be made with respect to, the number, class, or price of shares then subject to awards outstanding. After any reorganization, merger, or consolidation in which the Company or one of its subsidiaries or affiliates is a surviving entity, the Compensation Committee may grant substituted awards replacing old awards granted under a plan of another party to the reorganization, merger, or consolidation whose stock subject to the old options or awards may no longer be issued following that reorganization, merger, or consolidation. The Compensation Committee shall determine the foregoing adjustments and the manner in which the foregoing provisions are applied in its sole and absolute discretion. Any of those adjustments may provide for eliminating any fractional shares of the Company's stock that might otherwise become subject to any awards. 11.5. Nothing in the Incentive Plan shall be construed as limiting the authority of the Compensation Committee, the Board of Directors, the Company, or any subsidiary of the Company to establish any other compensation plan or as in any way limiting its or their authority to pay bonuses or supplemental compensation to any persons employed by the Company or a subsidiary of the Company, whether that person is a participant and regardless of how the amount of that compensation or bonus is determined. 11.6. A participant may elect to defer payment of his or her award under the Incentive Plan if deferral of the award under the Incentive Plan is permitted pursuant to the terms of a deferred compensation program of the Company existing at the time the election to defer is permitted to be made and the participant complies with the terms of that program. 11.7. It is the Company's intention that all payments made under the Incentive Plan to Section 162(m) Participants shall constitute "performance-based compensation" as that term is defined for purposes of Section 162 (m). Accordingly, unless the Board of Directors determines otherwise, if any provision of the 6 Incentive Plan is found not to be in compliance with that provision, that provision shall be deemed amended so that the provision does comply to the extent permitted by law. In every event, the Incentive Plan shall be construed in favor of those payments meeting the "performance-based compensation" exception contained in Section 162(m). Notwithstanding anything to the contrary contained herein, the Compensation Committee retains discretion to grant awards hereunder that do not comply with Section 162(m). 11.8. a. "Cause" means, with respect to a participant who is an employee of the Company or one of its subsidiaries or affiliates or who is a consultant, termination for, as the Compensation Committee determines in its sole and absolute discretion, the participant's personal dishonesty, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), or a final cease-and-desist order. b. "Disability" means any physical or mental injury or disease of a permanent nature that renders a participant incapable of meeting the requirements of the employment or other work the participant performed immediately before that disability commenced. The Compensation Committee or its designee shall make the determination of whether a participant is disabled and when the participant becomes disabled in its sole and absolute discretion. c. "Normal Retirement Date" means the date on which a participant terminates active employment with the employer he or she was employed with when he or she was last granted awards on or after attaining age 65, but does not include termination for Cause. d. "Other Retirement Date" means a date, on or after a participant attains age 55 but earlier than the participant's Normal Retirement Date, that the Compensation Committee in its sole and absolute discretion approves and designates to be the date upon which a participant retires for purposes hereof, but does not include termination for Cause. 7 EX-10.62 5 w99442exv10w62.txt PURCHASE AGREEMENT DATED AS OF JUNE 30, 2004 PURCHASE AGREEMENT AMONG BALENTINE HOLDINGS, INC., ROBERT M. BALENTINE, B. CLAYTON ROLADER, JEFFREY P. ADAMS, ROBERT E. REISER JR., GARY B. MARTIN, WESLEY A. FRENCH, MICHAEL E. WOLF, THE 1999 BALENTINE FAMILY TRUST, THE ROBERT M. BALENTINE INSURANCE TRUST, MARCIA M. MURRAY, S. BRITTAIN ELLIS PRIGGE, DORSEY D. FARR, WILMINGTON TRUST COMPANY AS TRUSTEE OF THE GRIFFIN TRUST, SOUTHERN HIGHLANDS RESERVE, INC., WT INVESTMENTS, INC. AND WILMINGTON TRUST CORPORATION DATED AS OF JUNE 30, 2004 EXHIBIT 10.62 PURCHASE AGREEMENT AMONG BALENTINE HOLDINGS, INC., ROBERT M. BALENTINE, B. CLAYTON ROLADER, JEFFREY P. ADAMS, ROBERT E. REISER, JR., GARY B. MARTIN, WESLEY A. FRENCH, MICHAEL E. WOLF, THE 1999 BALENTINE FAMILY TRUST, THE ROBERT M. BALENTINE INSURANCE TRUST, MARCIA M. MURRAY, S. BRITTAIN ELLIS PRIGGE, DORSEY D. FARR, WILMINGTON TRUST COMPANY AS TRUSTEE OF THE GRIFFIN TRUST, SOUTHERN HIGHLANDS RESERVE, INC., WT INVESTMENTS, INC. AND WILMINGTON TRUST CORPORATION Dated as of June 30, 2004 TABLE OF CONTENTS
PAGE BACKGROUND....................................................................... 1 ARTICLE 1 DEFINITIONS........................................................... 1 ARTICLE 2 PURCHASE AND SALE OF THE LLC INTERESTS; CONSIDERATION................. 3 2.1 Purchase and Sale of the LLC Interests ............................ 3 2.2 Consideration...................................................... 4 2.3 Relinquishment of Rights Under Merger Agreement.................... 4 2.4 Relinquishment of Rights Under LLC Agreement....................... 5 2.5 Provisions Relating to BMI......................................... 5 ARTICLE 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF EACH PRINCIPAL........... 6 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BALENTINE, WTI AND WTC.............. 8 ARTICLE 5 CLOSING............................................................... 9 ARTICLE 6 CONDITIONS PRECEDENT TO AND OBLIGATIONS AT CLOSING.................... 9 6.1 Conditions to Obligations of Principals............................ 9 6.2 Conditions to Obligations of Balentine, WTI and WTC................ 9 6.3 Obligations of the Principals at Closing........................... 9 6.4 Obligations of Balentine, WTI and WTC at Closing................... 9 ARTICLE 7 INDEMNIFICATION....................................................... 10 7.1 Indemnification by the Principals.................................. 10 7.2 Indemnification by Balentine, WTI and WTC.......................... 10 7.3 Limitation......................................................... 10 7.4 Defense of Claims.................................................. 10 7.5 Prompt Payment..................................................... 12 7.6 Sole Remedy........................................................ 12 7.7 Certain Reductions; Subrogation.................................... 12 ARTICLE 8 MISCELLANEOUS......................................................... 12 8.1 Survival of Representations, Warranties and Covenants.............. 12 8.2 Waivers............................................................ 12
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PAGE 8.3 Modifications..................................................... 13 8.4 Further Assurances................................................ 13 8.5 Governing Law; Consent to Jurisdiction............................ 13 8.6 Notices........................................................... 13 8.7 Assignability..................................................... 14 8.8 Captions.......................................................... 14 8.9 Number and Gender................................................. 15 8.10 Severability..................................................... 15 8.11 Counterparts..................................................... 15 8.12 Principals' Representative....................................... 15
Exhibit A Closing Certificate of Balentine, WTI and WTC Exhibit B Closing Certificate of the Principals Exhibit C Wire Transfer Instructions Exhibit D Principals' Representative Agreement Schedule 1 Schedule of Each Principal's Ownership of Minority Interest in LLC Schedule 2 Schedule of Each Initial Principal's Right to Purchase Price under Merger Agreement Schedule 3 Schedule of Each Principal's Right to Cash ii PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (the "Agreement") is dated as of June 30, 2004 among Balentine Holdings, Inc., a Georgia corporation ("Balentine"), Robert M. Balentine, B. Clayton Rolader, Jeffrey P. Adams, Robert E. Reiser, Jr., Gary B. Martin, Wesley A. French, Michael E. Wolf, The 1999 Balentine Family Trust, the Robert M. Balentine Insurance Trust (those individuals and trusts are sometimes collectively referred to herein as the "Initial Principals), Marcia M. Murray, S. Brittain Ellis Prigge, Dorsey D. Farr, Wilmington Trust Company as Trustee of The Griffin Trust, Southern Highlands Reserve, Inc. (those individuals and entities and the Initial Principals are sometimes collectively referred to herein as the "Principals"), WT Investments, Inc., a Delaware corporation ("WTI"), and Wilmington Trust Corporation, a Delaware corporation ("WTC"). BACKGROUND A. Balentine, the Initial Principals, WTI and WTC are parties to a Merger Agreement dated as of October 23, 2001, as amended (the "Merger Agreement"). All of the parties are parties to an Amended and Restated Limited Liability Company Agreement dated as of January 2, 2002, as amended (the "LLC Agreement"). Under the Merger Agreement, the Initial Principals are entitled to certain payments of WTC stock in 2005, 2006 and 2007. Under the LLC Agreement, the Principals are entitled to certain payments relating to their limited liability company interests (the "LLC Interests") in Balentine Delaware Holding Company, LLC (the "LLC") and the transfer or sale thereof in the future. The LLC Interests owned by each Principal as of the date hereof are severally set forth on Schedule 1 attached hereto. B. The parties desire to accelerate the remaining payments to which the Initial Principals may become entitled under the Merger Agreement, and the Principals desire to sell to Balentine and Balentine desires to purchase from the Principals the LLC Interests. NOW, THEREFORE, in consideration of the foregoing, the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE 1 DEFINITIONS Capitalized terms used in this Agreement and not otherwise defined herein shall have the meaning set forth below. a. "Act" has the meaning assigned to that term in Section (c)(1) of Article 3. b. "BMI" means Balentine Management, Inc., a Delaware corporation. 1 c. "Capital Account" means, with respect to any Principal, the Capital Account established and maintained for that Principal on the LLC's books in accordance with Section 1.704(b)(2)(iv) of the Treasury Regulations. d. "Closing" and "Closing Date" have the meanings assigned to those terms in Section 2.1. e. "Common Stock" means common stock of WTC, par value $1.00 per share. f. "Encumbrances" has the meaning of assigned to that term in Section 2.1. g. "Existing Fund" means any one of Balentine U.S. Small Cap Equity Fund, L.P. (Distribution Class), Balentine U.S. Small Cap Equity Fund, L.P. (Retention Class), Balentine U.S. Small Cap Equity Fund Select, L.P. (Distribution Class), Balentine U.S. Small Cap Equity Fund Select, L.P. (Retention Class), Balentine U.S. Mid Cap Equity Fund, L.P. (Distribution Class), Balentine U.S. Mid Cap Equity Fund, L.P. (Retention Class), Balentine U.S. Mid Cap Equity Fund Select, L.P. (Distribution Class), Balentine U.S. Mid Cap Equity Fund Select, L.P. (Retention Class), Balentine U.S. Large Cap Equity Fund, L.P. (Distribution Class), Balentine U.S. Large Cap Equity Fund, L.P. (Retention Class), Balentine U.S. Large Cap Equity Fund Select, L.P. (Distribution Class), Balentine U.S. Large Cap Equity Fund Select, L.P. (Retention Class), Balentine International Equity Fund, L.P. (Distribution Class), Balentine International Equity Fund, L.P. (Retention Class), Balentine International Equity Fund Select, L.P. (Distribution Class), Balentine International Equity Fund Select, L.P. (Retention Class), Balentine Hedge Fund II Select Limited Partnership, Balentine Global Hedge Fund Limited Partnership, Balentine Global Hedge Fund Select Limited Partnership, Balentine Global Equity Index Fund, L.P. (Retention Class), Balentine Global Equity Index Fund, L.P. (Distribution Class), Balentine Global Equity Index Fund Select, L.P. (Retention Class), Balentine Global Equity Index Fund Select, L.P. (Distribution Class), Balentine Real Estate Fund Select, L.P. (Retention Class) and/or Balentine Real Estate Fund Select, L.P. (Distribution Class) and "Existing Funds" means all of those funds collectively. h. "Indemnified Party" means a Person who is or may be entitled to indemnification under Article 7. i. "Indemnifying Party" or "Indemnifying Parties" means a Person who is (or the Persons who are) or may be obligated to provide indemnification under Article 7. j. "Initial Principals" has the meaning assigned to that term in the Preamble hereto. k. "LLC" has the meaning assigned to that term in Recital A hereto. l. "LLC Agreement" has the meaning assigned to that term in Recital A hereto. m. "LLC Interests" has the meaning assigned to that term in Recital A hereto. n. "Losses" has the meaning assigned to that term in Section 7.1. 2 o. "Majority Vote" means the written approval of, or the affirmative vote by a majority in interest of, the Principals determined with reference to their percentage ownership of the minority interests in the LLC Interests immediately prior to the execution hereof. p. "Merger Agreement" has the meaning assigned to that term in Recital A hereto. q. "Permitted Transferee" means, with respect to any natural person, the parents, siblings, spouse, children (by birth or adoption) or spouses of children of that person and any trust, partnership, limited partnership, limited liability partnership or limited liability company created by or for one or more of the aforementioned individuals of which a Principal is the voting trustee, general partner, managing member or otherwise possesses the power to vote the Common Stock held by that entity. r. "Person" means any individual, partnership, limited liability company, corporation, association, trust, joint venture or governmental, business or other entity. s. "Principals" has the meaning assigned to that term in the Preamble hereto. t. "Principals' Representative" has the meaning assigned to that term in Section 8.12. u. "Principals' Representative Agreement" has the meaning assigned to that term in Section 8.12. v. "Subsidiary" means any Person of which (1) more than 25% of either the equity interests or the voting control is, directly or indirectly, through Subsidiaries or otherwise, beneficially owned by that Person or (2) the LLC or that Person either serves as the general partner or managing member. w. "Treasury Regulations" means the income tax regulations, including temporary regulations, promulgated under the Internal Revenue code of 1986, as those regulations may be amended from time to time (including corresponding provisions of succeeding regulations). x. "Undertaking" has the meaning assigned to that term in Section 2.5. ARTICLE 2 PURCHASE AND SALE OF THE LLC INTERESTS; CONSIDERATION 2.1 Purchase and Sale of the LLC Interests. In exchange for the consideration specified herein, and upon and subject to the terms and conditions of this Agreement, at the closing of the transactions contemplated hereby (the "Closing"), the Principals shall assign, transfer, convey and deliver all of the LLC Interests to Balentine free and clear of any and all liens, claims, charges, conditions, restrictions, security interests, equities or equitable interests, proxies, pledges, options, escrows, rights of first refusal, mortgages, indentures, security agreements or other agreements, arrangements, contracts, commitments, understandings, adverse 3 claims, obligations or other encumbrances of any kind (including, without limitation, any restriction on voting, transfer, receipt of income or exercise of any other attributes of ownership whether written or oral and whether or not relating in any way to credit or the borrowing of money) ("Encumbrances"). Each Principal hereby acknowledges and agrees that, after the foregoing purchase and sale, he, she or it will no longer have any right of ownership or other beneficial interest (directly or indirectly) in or to the LLC. The date on which Closing occurs is referred to herein as the "Closing Date." The Closing Date shall be July 1, 2004 or such other date to which the parties mutually agree. 2.2 Consideration. a. As consideration for the Initial Principals' relinquishing their rights to receive further payments of the purchase price under the Merger Agreement, and subject to the terms and conditions and in reliance upon the representations, warranties, covenants and agreements contained herein, at Closing, Balentine shall pay and deliver to each Initial Principal or cause to be paid and delivered to each Initial Principal the number of shares of Common Stock set forth opposite that Principal's name on Schedule 2 attached hereto. b. As consideration for the Principals' LLC Interests, and subject to the terms and conditions and in reliance upon the representations, warranties, covenants and agreements contained herein, at Closing, Balentine shall pay and deliver or cause to be paid and delivered to each Principal the cash set forth opposite that Principal's name on Schedule 3 attached hereto. c. The parties acknowledge that the stock and cash described in Sections 2.2(a) and 2.2(b) above represent the fair value for the Initial Principals' relinquishing their rights to receive further payments of purchase price under the Merger Agreement and the fair value for the Principals' selling their LLC Interests, respectively, determined on an arms' length basis by Balentine as a willing buyer, on the one hand, and the Initial Principals and the Principals as willing sellers, on the other hand. 2.3 Relinquishment of Rights Under the Merger Agreement. By his, her or its execution hereof, except as otherwise provided in the following sentence, each Initial Principal, Balentine, WTI and WTC hereby consent to the termination of the Merger Agreement, effective as of the Closing, and, on behalf of himself, herself or itself and his, her or its heirs, executors, administrators, successors and assigns, relinquishes, upon that termination, any and all right, title and interest thereunder, whether now or hereafter existing, including, without limitation, under Section 3.1 thereof. Notwithstanding the foregoing or anything to the contrary herein, the provisions of Sections 7.1, 7.2 and 8.2 of the Merger Agreement shall survive the Closing. However, the Initial Principals acknowledge that the Registration Statement on Form S-3 that was filed with the Securities and Exchange Commission on January 4, 2002 will be amended to continue to permit the resale of the Common Stock previously issued to the Initial Principals under the Merger Agreement but not the Common Stock issuable to the Initial Principals hereunder or in the future. WTC shall use its reasonable best efforts to maintain that Registration Statement in effect to the extent necessary to enable the Initial Principals to resell freely the Common Stock previously issued to them under the Merger Agreement. 4 2.4 Relinquishment of Rights Under LLC Agreement. By his, her or its execution hereof, except as otherwise provided herein, each Principal hereby relinquishes, effective as of the Closing, on behalf of himself, herself or itself and his, her or its heirs, executors, administrators, successors and assigns, any and all right, title and interest under the LLC Agreement (including any interest in any Capital Account balance or right to receive distributions associated with his, her or its LLC Interest), whether now or hereafter existing, including, without limitation, under Section 5.2, 5.13, Article 7 or Section 12.2(b) thereof. Without limiting the generality of the foregoing: a. Each Principal who is also a member of the Board of Managers, an officer or the "tax matters partner" (or "tax matters member") of the LLC hereby resigns all such positions effective as of Closing; and b. Each Principal acknowledges that he, she or it shall no longer have any right as a member or a manager of the LLC after Closing. By its execution hereof, except as otherwise specifically provided herein, each of Balentine, WTI and WTC hereby relinquishes as to each Principal only, on behalf of itself and its successors and assigns, any and all right, title and interest under the LLC Agreement, effective as of the Closing, whether now or hereafter existing; provided that nothing herein shall be deemed to affect the existence of the LLC, terminate the LLC Agreement or in any manner restrict, modify or alter any of Balentine's, WTI's or WTC's rights thereunder as to any Person other than the Principals. Notwithstanding the foregoing or anything to the contrary herein: x. Each Principal shall be entitled to a distribution under Section 6.3 of the LLC Agreement in respect of the second quarter of 2004, which shall be paid in the ordinary course following Closing; y. The provisions of Section 10.3 of the LLC Agreement shall survive the Closing; and z. Each Principal agrees that the provisions of Article 11 of the LLC Agreement shall continue to apply to it following Closing as if it were a member of the LLC following Closing. 2.5 Provisions Relating to BMI. By his, her or its execution hereof, each Principal hereby: a. Resigns as a director and/or officer of BMI, as applicable; b. Acknowledges that BMI's Bylaws may be changed, amended or modified without his, her or its consent; and 5 c. Acknowledges that the undertaking of Balentine Holdings, Inc. dated April 30, 2003 (the "Undertaking") may be rescinded, amended or modified without his, her or its consent. In addition, each natural person Principal acknowledges that the employment agreement to which he or she is a party with BMI remains in full force and effect and is unaffected hereby. ARTICLE 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF EACH PRINCIPAL As an inducement to each of Balentine, WTI and WTC to enter into this Agreement and perform its obligations hereunder, each Principal hereby represents, warrants and covenants to each of Balentine, WTI and WTC as follows: a. Ownership; Authority. Each Principal owns the LLC Interest set forth in Schedule 1 free and clear of any Encumbrances, except for restrictions imposed by federal or applicable state securities laws. The LLC Interests constitute all ownership and other beneficial interest each Principal has in the LLC. Each Principal has all requisite power and authority to execute and deliver this Agreement, perform his, her or its obligations hereunder and carry out the transactions contemplated hereby. This Agreement constitutes the valid and legally binding obligation of each Principal, enforceable against him, her or it in accordance with its terms and conditions, except that (1) that enforcement may be subject to applicable bankruptcy, reorganization, insolvency or other similar laws affecting creditors' rights generally and (2) the remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. b. Noncontravention. The execution, delivery and performance hereof by each Principal and the consummation of the transactions contemplated hereby does not and will not, with or without the giving of notice or the lapse of time, or both, (1) violate any law, statute, rule, regulation or executive order to which any Principal is subject (including, without limitation, applicable federal or state banking, securities or corporation statutes and the rules and regulations promulgated thereunder), (2) violate any judgment, order, writ or decree of any court or regulatory body applicable to any of them or (3) result in the violation of or conflict with any term, covenant, condition or provision of any commitment, contract or other agreement or instrument to which any Principal is a party or to which he, she or it or any of his, her or its assets is subject, or otherwise require the consent of any third party that has not been obtained or will not be obtained prior to Closing. c. Investment Representations. (1) Each Initial Principal will acquire the shares of Common Stock issuable to him, her or it hereunder for his, her or its own account for investment and not for sale or with a view to distribution thereof or with any present intention of selling or distributing all or any part thereof. Each Initial Principal acknowledges that the Common Stock has not been registered 6 under the Securities Act of 1933, as amended (the "Act"), or the securities laws of any state or other jurisdiction, and cannot be disposed of unless registered under the Securities Act and any applicable state laws or an exemption from that registration is available. Each Initial Principal agrees not to sell, transfer, hypothecate, pledge or alienate any of the Common Stock he, she or it receives hereunder for at least three years after the date hereof and thereafter only in compliance with applicable federal and state laws, and acknowledges that the shares of Common Stock he, she or it receives hereunder will bear a legend reflecting those restrictions. Notwithstanding the preceding sentence, an Initial Principal may transfer all or any portion of the Common Stock issuable to him, her or it hereunder to one or more Permitted Transferees who agree to be bound by the terms and conditions hereof; provided that any such transfer to a Permitted Transferee must constitute a bona fide gift from the Initial Principal. (2) Each Initial Principal is sufficiently knowledgeable and experienced in making investments of this type as to be able to evaluate the risks and merits of his, her or its investment in those shares of Common Stock and is able to bear the economic risk of his, her or its investment in the Common Stock. (3) Each Initial Principal is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act. (4) Each Initial Principal acknowledges that he, she or it has received (A) WTC's 2003 annual report prepared in accordance with Rule 14a-3 under the Exchange Act, (B) WTC's Form 10-K for the year ended December 31, 2003; (C) WTC's definitive proxy statement for its 2004 annual shareholders' meeting; (D) WTC's Form 10-Q for the quarter ended March 31, 2004; (E) all other reports and statements filed by WTC with the SEC under Sections 13(a), 14(a), 14(c) or 15(d) of the Exchange Act since December 31, 2003; (F) the description of the Common Stock contained in pages 27 through 29 of the proxy statement of Wilmington Trust Company dated March 25, 1991; and (G) the description of WTC's preferred stock purchase rights contained in WTC's Registration Statement on Form 8-A filed on January 28, 1995. Each Initial Principal acknowledges that he, she or it has been provided with an opportunity to review each exhibit to each of the documents described in this Section (c)(4) of Article 3 a reasonable time prior to the date of this Agreement. (5) Each Initial Principal acknowledges that he, she or it has been provided with an opportunity to ask questions of and receive answers concerning the terms and conditions of the offering of Common Stock in connection with this transaction and to obtain any additional information that WTC possesses or can acquire without unreasonable effort or expense that is necessary to verify the information furnished pursuant to Section (c)(4) of Article 3. (6) Each Initial Principal acknowledges that his or her residence or its principal business address is set forth under his, her or its name on the signature pages hereto. 7 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BALENTINE, WTI AND WTC As an inducement to the Principals to enter into this Agreement and perform their obligations hereunder, each of Balentine, WTI and WTC represents and warrants to the Principals as follows: a. Organization and Authority. Balentine is a corporation duly organized, validly existing and in good standing under Georgia law, WTI and WTC are corporations duly organized, validly existing and in good standing under Delaware law and each has the power and authority to execute and deliver this Agreement, perform its obligations hereunder and carry out the transactions contemplated hereby. b. Due Authorization. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of each of Balentine, WTI and WTC, and the resolutions adopted by the Board of Directors of each of Balentine, WTI and WTC evidencing that authorization are duly and validly adopted, have not been modified, revoked or rescinded in any respect and are in full force and effect. c. Valid and Binding Agreement. This Agreement constitutes a valid and binding agreement of each of Balentine, WTI and WTC enforceable against it in accordance with its terms, except that (1) that enforcement may be subject to applicable bankruptcy, reorganization, insolvency or other similar laws affecting creditors' rights generally and (2) the remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. d. Noncontravention. The execution, delivery and performance of this Agreement by each of Balentine, WTI and WTC and the consummation of the transactions contemplated hereby does not and will not, with or without the giving of notice or the lapse of time, or both, (1) violate any provision of law, statute, rule, regulation or executive order to which any of them is subject (including, without limitation, applicable federal and state banking, securities and corporation statutes and the rules and regulations promulgated thereunder), (2) violate any judgment, order, writ or decree of any court or regulatory body applicable to any of them or (3) result in the violation of or conflict with any term, covenant, condition or provision of any commitment, contract or other agreement or instrument to which any of them is a party or to which any of them or any of their assets is subject, or otherwise require the consent of any third party which has not been obtained or will not be obtained prior to Closing. e. Common Stock. Each of the shares of Common Stock to be issued by WTC hereunder shall be duly authorized, validly issued, fully paid and nonassessable, will be issued free and clear of any Encumbrances or preemptive rights, and will be listed, subject to official notice of issuance, on the New York Stock Exchange. 8 ARTICLE 5 CLOSING The Closing for the sale and purchase of the limited liability company interests shall take place at the offices of the LLC, 3455 Peachtree Road, Suite 2000, Atlanta, Georgia 30326, or at such other place as the parties may mutually agree. Balentine, WTI and WTC, on the one hand, and the Principals, on the other hand, may mutually agree that the Closing may take place by telephone, facsimile transmission or through the use of mail or an overnight delivery service. ARTICLE 6 CONDITIONS PRECEDENT TO AND OBLIGATIONS AT CLOSING 6.1 Conditions to Obligations of Principals. The obligations of the Principals to effect the transactions contemplated hereby are subject to the satisfaction of the conditions that the representations and warranties of Balentine, WTI and WTC set forth herein shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and the Principals shall have received a certificate in the form of Exhibit A attached hereto, signed on behalf of each such entity, to that effect. That certificate shall be deemed to be a representation and warranty of each such entity as of the time immediately preceding Closing. 6.2 Conditions to Obligations of Balentine, WTI and WTC. The obligations of Balentine, WTI and WTC to effect the transactions contemplated hereby are subject to the satisfaction of the conditions that (a) the representations, warranties and covenants of the Principals set forth herein shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on the Closing Date, and (b) Balentine, WTI and WTC shall have received a certificate in the form of Exhibit B attached hereto, signed by each Principal, to that effect. That certificate shall be deemed to be a representation, warranty and covenant of each Principal as of the time immediately preceding Closing. 6.3 Obligations of the Principals at Closing. Effective on and after the Closing Date, the Principals hereby assign and transfer, and are deemed to have assigned and transferred, unto Balentine the LLC Interests and are deemed to have irrevocably constituted and appointed the Secretary of the LLC as attorney to transfer the LLC Interests on the books of the LLC with full power of substitution in the premises. 6.4 Obligations of Balentine at Closing. At Closing, Balentine shall deliver or cause to be delivered the purchase price by delivering to each Initial Principal the shares of Common Stock in the amount set forth opposite that Initial Principal's name on Schedule 2 attached hereto and to each Principal cash in the amount set forth opposite that Principal's name on Schedule 3 attached hereto by wire transfer, or in such other form of immediately available funds. If by wire transfer, the cash shall be delivered pursuant to the instructions set forth in Exhibit C attached hereto. 9 ARTICLE 7 INDEMNIFICATION 7.1 Indemnification by the Principals. Subject to the provisions of this Article 7, each Principal shall defend, indemnify, save and hold Balentine, WTI and WTC and their respective Affiliates, and the shareholders, directors, officers, employees and agents of each of the foregoing, harmless from and against any and all actions, suits, claims, proceedings, demands, assessments, judgments, costs, losses, liabilities, damages, deficiencies and expenses (including, without limitation, interest, penalties, reasonable attorneys' and accountants' fees and all reasonable amounts paid in the investigation, defense or settlement of any of the foregoing) (collectively, "Losses") incurred in connection with, arising out of, or resulting from (a) any misrepresentation or breach of any representation or warranty by any Principal herein or (b) any breach of any covenant or agreement to be performed pursuant to this Agreement by any of the Principals herein; provided that each Principal shall be obligated to pay only that Principal's pro rata share of any such Losses. The pro rata share shall be such Principal's ownership of the Principals' minority interest in the LLC immediately prior to the execution hereof. 7.2 Indemnification by Balentine, WTI and WTC. Subject to the provisions of this Article 7, each of Balentine, WTI and WTC shall defend, indemnify, save and hold the Principals harmless from and against any and all Losses incurred in connection with, arising out of or resulting from any misrepresentation or breach of any warranty, covenant or agreement by any of Balentine, WTI or WTC herein. 7.3 Limitation. No amount shall be recoverable under this Article 7 by Balentine, WTI or WTC, on the one hand, or the Principals, on the other hand, until the total amount of Losses suffered by them to date exceeds $10,000. Further, the indemnification provided by Section 7.1 shall terminate one year following the Closing and shall be limited to (a) an amount not exceeding the amount of the total payments (including the fair market value of any Common Stock on the date initially delivered) made to all of the Principals under Section 2.2 and (b) with respect to each Principal, an amount not exceeding the amount of the total payments (including the fair market value of any Common Stock on the date initially delivered, if applicable) made under Section 2.2 to that Principal. 7.4 Defense of Claims. If any action, suit, claim, tax audit, proceeding, demand, assessment or enforcement action is filed or initiated against an Indemnified Party with respect to a matter subject to an indemnification claim by that Indemnified Party, the Indemnified Party shall give written notice thereof to the Indemnifying Party or Parties as promptly as practicable, and in any event within 20 days after service of the citation or summons, but the failure of an Indemnified Party to give timely notice shall not affect the rights of that party to indemnification hereunder to the extent that that failure does not prejudice the Indemnifying Party. After that notice and a reasonable period of time to allow for analysis of the claim, if the Indemnifying Party acknowledges in writing to the Indemnified Party that the Indemnifying Party is obligated under the terms of its indemnity hereunder for all liabilities of the Indemnified Party in connection with that action, suit, claim, tax audit, proceeding, demand, assessment or enforcement action, the Indemnifying Party shall be entitled, if it so elects and with counsel reasonably satisfactory to the Indemnified Party, to take control of the defense and investigation 10 of that action, suit, claim, tax audit, proceeding, demand, assessment or enforcement action and to employ and engage attorneys to handle and defend the same, at the Indemnifying Party's cost, risk and expense, except that, if the Indemnifying Party elects not to assume that defense or counsel for the Indemnified Party determines in good faith and advises the Indemnifying Party in writing that there are issues that raise conflicts of interest between the Indemnifying Party and the Indemnified Party, the Indemnified Party may retain counsel satisfactory to him, her or it, and the Indemnifying Party shall pay all reasonable fees and expenses of that counsel for the Indemnified Party promptly as statements therefor are received; provided, however, that (1) the Indemnifying Party shall be obligated pursuant to this Article 7 to pay for only one firm of counsel (unless the use of one counsel for that Indemnified Party would present that counsel with a conflict of interest) for all Indemnified Parties in any jurisdiction and (2) the Indemnified Party cooperates in the defense of any such matter. If the Indemnifying Party assumes the control of that defense, the Indemnified Party must cooperate in all reasonable respects, at the Indemnifying Party's request and cost, risk and expense, with the Indemnifying Party and his, her or its attorneys in the investigation, trial and defense of that action, suit, claim, tax audit, proceeding, demand, assessment or enforcement action and any appeal arising therefrom; provided that the Indemnified Party may, at his, her or its own cost, participate in the investigation, trial and defense of that action, suit, claim, tax audit, proceeding, demand, assessment or enforcement action and any appeal arising therefrom. The Indemnifying Party shall keep the Indemnified Party apprised of the status of the action, suit, claim, tax audit, proceeding, demand, assessment or enforcement action, furnish the Indemnified Party with all documents and information the Indemnified Party reasonably requests in connection therewith, and consult with the Indemnified Party before acting on major matters involved in that action, suit, claim, tax audit, proceeding, demand, assessment or enforcement action, including settlement discussions. Unless the Indemnified Party receives a complete release from all matters involved in the dispute, no settlement of any action for which indemnification may be payable hereunder shall be made without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld, delayed or conditioned. The Indemnified Party shall be entitled to defend, settle or proceed in such other manner as it deems fit, in its sole discretion, in connection with any action, suit, claim, proceeding, demand, assessment or enforcement action with respect to which the Indemnifying Party has not acknowledged its obligations in writing in accordance with the foregoing; and no reasonable action taken by the Indemnified Party in connection therewith shall affect or limit the obligations of the Indemnifying Party pursuant to this Article 7. If the Indemnifying Party assumes the control of that defense as provided above but subsequently, in the course of defending the matter, comes to believe that the matter is not properly an obligation of that Indemnifying Party, the Indemnifying Party may with reasonable promptness advise the Indemnified Party of that new information. In that case, (a) if the Indemnified Party then agrees with the Indemnifying Party, the Indemnifying Party and the Indemnified Party shall make mutually satisfactory arrangements for the Indemnified Party to assume the defense of that matter and to repay the Indemnifying Party for any amounts reasonably expended by him, her or it pursuant to this Article 7 with respect to that matter, and (b) if the Indemnified Party does not then agree with the Indemnifying Party, the Indemnifying Party shall have the right to commence legal proceedings to determine whether the matter is subject to indemnification by the Indemnifying Party; provided that, in the case of clause (b), the 11 Indemnifying Party shall continue to be obligated to defend the Indemnified Party with respect to that matter and to otherwise make the payments required by this Article 7 until that dispute is finally adjudicated by a court of competent jurisdiction and all rights to appeal with respect thereto have expired. 7.5 Prompt Payment. Any indemnity payable pursuant to this Article 7 shall be paid within the later of ten days of the Indemnified Party's request therefor or five days prior to the date on which the liability upon which the indemnity is based is required to be paid by the Indemnified Party; provided that, if it is finally determined by a court of competent jurisdiction and all rights to appeal have expired that the Indemnifying Party is not liable under this Article 7 with respect to a Loss, nothing in this Section 7.5 shall give the Indemnified Party any independent right to sue for a violation of this Agreement. 7.6 Sole Remedy. After the Closing, each party's sole and exclusive remedy for any breach of this Agreement by any other party shall be the provisions in this Article 7; provided, however, that nothing set forth in this Article 7 shall be deemed to prohibit or limit any party's right at any time on or after the Closing Date to seek injunctive or equitable relief for the failure of any other party to perform any covenant or agreement contained herein or to seek any other relief based upon fraud or intentional misrepresentation. 7.7 Certain Reductions; Subrogation. All indemnification payments payable hereunder shall be reduced by the amount of insurance proceeds received by the Indemnified Party as a result of the Losses for which the Indemnified Party is seeking indemnification. If an Indemnifying Party is obligated to indemnify an Indemnified Party pursuant to this Article 7, the Indemnifying Party shall, upon payment of that indemnity in full, be subrogated to all rights of the Indemnified Party with respect to the Losses to which that indemnification relates; provided that the Indemnifying Party shall only be subrogated to the extent of any amount paid by it pursuant to this Article 7 in connection with that Loss. ARTICLE 8 MISCELLANEOUS 8.1 Survival of Representations, Warranties and Covenants. The representations and warranties contained herein and in any certificate or other writing delivered pursuant hereto shall survive the Closing Date and the consummation of the transactions contemplated hereby. Except as provided in Article 7, all covenants herein not fully performed shall survive the Closing Date and continue thereafter until performed fully. 8.2 Waivers. Any waiver of any term or condition or of the breach of any covenant, representation or warranty herein in any one instance shall not operate as or be deemed to be a further or continuing waiver of any other breach of that term, condition, covenant, representation or warranty or of any other term, condition, covenant, representation or warranty. No failure or delay at any time to enforce or require performance of any provision hereof shall operate as a waiver of or affect in any manner a party's right at a later time to enforce or require performance of that provision or any other provision hereof. No such waiver, unless by its own terms it explicitly provides to the contrary, shall be construed to effect a continuing waiver of the 12 provision being waived, and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair the right of the party against whom that waiver is claimed in all other instances or for all other purposes to require full compliance. 8.3 Modifications. Except as otherwise expressly provided herein, neither this Agreement (including the exhibits and schedules hereto) nor any term hereof or thereof may be changed, amended, modified, waived, discharged or terminated except to the extent the same is evidenced by the written consent of the party against whom enforcement of that change or modification is sought. 8.4 Further Assurances. Each party agrees to execute any and all additional documents and instruments and to take any and all additional actions as any other party may reasonably request in order to effectuate the terms and purposes hereof and the transactions contemplated hereby. 8.5 Governing Law; Consent to Jurisdiction. This Agreement shall be construed under and governed by Georgia law, without giving effect to the choice or conflicts of law provisions thereof. Each of Balentine, WTI and WTC hereby agrees to submit to the jurisdiction of the courts of the State of Georgia and the courts of the United States of America located in the Northern District in the State of Georgia in any action or proceeding arising out of or relating to this Agreement. Each Principal hereby agrees to submit to the jurisdiction of the courts of the State of Delaware and to the courts of the United States of America located in Delaware in any action or proceeding arising out of or relating to this Agreement. 8.6 Notices. a. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and sent as provided in Section 8.6(b) hereof: (1) If to Balentine, WTI or WTC, to: Wilmington Trust Corporation Rodney Square North 1100 North Market Street Wilmington, DE 19890 Attention: David R. Gibson, Executive Vice President 13 with a copy to: Wilmington Trust Corporation Rodney Square North 1100 North Market Street Wilmington, DE 19890 Attention: Gerard A. Chamberlain Vice President (2) If to the Principals, to c/o Balentine Delaware Holding Company, LLC 3455 Peachtree Road Suite 2000 Atlanta, GA 30326 with a copy to: Jeffrey P. Adams 3455 Peachtree Road Suite 2000 Atlanta, GA 30326 b. All notices and other communications required or permitted hereunder that are addressed as provided in this Section 8.6, (1) if delivered personally against proper receipt shall be effective upon delivery, if sent by certified or registered mail with postage prepaid, shall be effective upon receipt or (2) if sent by Federal Express or a similar nationally recognized overnight courier service with courier fees paid by the sender, shall be effective one business day after mailing. A party may change its address for the purpose of notices to that party from time to time by a similar notice specifying a new address, but no such change shall be deemed to have been given unless it is sent and received in accordance with this Section 8.6. 8.7 Assignability. Neither this Agreement nor any right or obligation hereunder shall be assignable by any party to any other Person without the prior written consent of the other parties, except that Balentine, WTI and/or WTC may, with notice to the other parties, assign any or all of its interests herein and its rights and obligations hereunder to any entity directly or indirectly wholly owned by WTC, provided in every instance that Balentine, WTI and WTC shall remain fully liable for all of their obligations hereunder following any such assignment and shall in no way be released from this Agreement thereby. This Agreement shall be binding upon, enforceable by and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 8.8 Captions. The captions in this Agreement are for convenience only and shall not affect the construction or interpretation of any term or provision hereof. 14 8.9 Number and Gender. Whenever used herein, the singular number shall include the plural, the plural shall include the singular unless the context otherwise requires and the use of any gender shall include all genders. 8.10 Severability. The invalidity or unenforceability of any nonmaterial provision of this Agreement shall not affect any other provision hereof, and this Agreement shall be construed in all respects by interpreting that invalid or unenforceable provision as nearly to the original meaning as possible so as to make it valid and enforceable or, if that is not possible or permitted by applicable law, by omitting that invalid or unenforceable provision. 8.11 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 8.12 Principals' Representative. Each Principal has appointed Robert M. Balentine as his or its representative, agent and attorney-in-fact ("Principals' Representative") pursuant to an agreement in the form of Exhibit D ("Principals' Representative Agreement") and has provided to the Principals' Representative the full legal authority, capacity, and power to act on behalf of that Principal with respect to any matters arising under this Agreement or in connection therewith. Each of Balentine, WTI and WTC shall be entitled to rely, and shall in no way be liable for relying, on the full legal authority, capacity, and power of the Principals' Representative to act on behalf of each Principal with respect to any matter arising hereunder or in connection herewith without further inquiry. Each Principal shall hold each of Balentine, WTI and WTC harmless from any liability or loss arising out of the reliance by any of them on that power-of-attorney. If the Principals, by Majority Vote, provide each of Balentine, WTI and WTC with 30 days' notice that Robert M. Balentine has been terminated as Principals' Representative, Balentine, WTI and WTC shall cease to rely on Robert M. Balentine as Principals' Representative and shall rely on any successor Principals' Representative who those Principals so designate as the new Principals' Representative. [Signature Pages Follow.] 15 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. BALENTINE HOLDINGS, INC. By: /s/ David R. Gibson (SEAL) ------------------------------------ Name: David R. Gibson Title: Executive Vice President Address: Rodney Square North 1100 North Market Street Wilmington, DE 19890 /s/ Rober M. Balentine (SEAL) --------------------------------------- ROBERT M. BALENTINE Address: 3015 Andrews Drive Atlanta, GA 30305 /s/ B. Clayton Rolader (SEAL) --------------------------------------- B. CLAYTON ROLADER Address: 5050 Riverview Road Atlanta, GA 30327 /s/ Jeffrey P. Adams (SEAL) --------------------------------------- JEFFREY P. ADAMS Address: 901 Hawick Drive Atlanta, GA 30327 /s/ Robert E. Reiser, Jr. (SEAL) --------------------------------------- ROBERT E. REISER, JR. Address: 304 The Prado Atlanta, GA 30309 /s/ Gary B. Martin (SEAL) --------------------------------------- GARY B. MARTIN Address: 116 Peachtree Battle Avenue Atlanta, GA 30305 [Signatures continue on following page.] 16 [Signatures continued from preceding page.] /s/ Wesley A. French (SEAL) --------------------------------------- WESLEY A. FRENCH Address: 3283 Wood Valley Road Atlanta, GA 30327 /s/ Michael E. Wolf (SEAL) --------------------------------------- MICHAEL E. WOLF Address: 5398 Trowbridge Place Dunwoody, GA 30338 THE 1999 BALENTINE FAMILY TRUST By: /s/ Jeffrey P. Adams -------------------- Name: Jeffrey P. Adams Title: Trustee Address: 3455 Peachtree Road Suite 2000 Atlanta, GA 30326 THE ROBERT M. BALENTINE INSURANCE TRUST By: /s/ Lillian A. Balentine Law ----------------------------------- Name: Lillian A. Balentine Law Title: Trustee Address: c/o Lillian A. Balentine Law 47 28th Street, NW Atlanta, GA 30309 [Signatures continue on following page.] 17 [Signatures continued from preceding page.] /s/ Marcia M. Murray (SEAL) --------------------------------------- MARCIA M. MURRAY Address: 524 Ivy Place Atlanta, GA 30305 /s/ S. Brittain Ellis Prigge (SEAL) --------------------------------------- S. BRITTAIN ELLIS PRIGGE Address: 2557 Dellwood Drive Atlanta, GA 30305 /s/ Dorsey D. Farr (SEAL) --------------------------------------- DORSEY D. FARR Address: 3955 North Ivy Road, N.E. Atlanta, GA 30342 [Signatures continue on following page.] 18 EX-99.1 6 w99442exv99w1.txt SECTION 302 CERTIFICATIONS SECTION 302 CERTIFICATIONS EXHIBIT 99.1 CERTIFICATIONS I, Ted T. Cecala, Chairman of the Board and Chief Executive Officer of Wilmington Trust Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Wilmington Trust Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Ted T. Cecala Date: August 9, 2004 ------------------------------------------------- Ted T. Cecala Chairman of the Board and Chief Executive Officer 1 CERTIFICATIONS I, David R. Gibson, Executive Vice President and Chief Financial Officer of Wilmington Trust Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Wilmington Trust Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ David R. Gibson Date: August 9, 2004 ---------------------------------------------------- David R. Gibson Executive Vice President and Chief Financial Officer 2 EX-99.2 7 w99442exv99w2.txt SECTION 906 CERTIFICATION SECTION 906 CERTIFICATION EXHIBIT 99.2 CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002 The undersigned certify that, to their knowledge, the Form 10-Q of Wilmington Trust Corporation (the Corporation) for the second quarter of 2004 fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 and that the information contained in that report fairly presents, in all material respects, the financial condition and results of operation of the Corporation. /s/ Ted T. Cecala ---------------------------------------------------- Ted. T. Cecala Chairman of the Board and Chief Executive Officer /s/ David R. Gibson ---------------------------------------------------- David R. Gibson Executive Vice President and Chief Financial Officer 1 -----END PRIVACY-ENHANCED MESSAGE-----