-----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, QYd/PzdUQiubr1Zt9ds1mU/860L6glG5XUdjh6zEWeBVnufRdnZlr+nSmW7llKE0 ONezFoyMJhu/PvWqGbzqLA== 0000898432-99-000867.txt : 19990816 0000898432-99-000867.hdr.sgml : 19990816 ACCESSION NUMBER: 0000898432-99-000867 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: SEC FILE NUMBER: 001-14659 FILM NUMBER: 99689111 BUSINESS ADDRESS: STREET 1: RODNEY SQUARE NORTH STREET 2: 1100 NORTH MARKET ST CITY: WILMINGTON STATE: DE ZIP: 19890 BUSINESS PHONE: 3026518516 MAIL ADDRESS: STREET 1: 1100 NORTH MARKET STREET CITY: WILMINGTON STATE: DE ZIP: 19890 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From ____________ to ___________ Commission File Number: 1-14659 WILMINGTON TRUST CORPORATION ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 51-0328154 - --------------------------------------------- ------------------------ (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890 --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (302) 651-1000 --------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable --------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of shares of issuer's common stock ($1.00 par value) outstanding at June 30, 1999 - 33,144,714 shares 2 Wilmington Trust Corporation and Subsidiaries Form 10-Q Index Page ---- Part I. Financial Information Item 1 - Financial Statements Consolidated Statements of Condition 4 Consolidated Statements of Income 6 Consolidated Statements of Cash Flows 8 Notes to Consolidated Financial Statements 10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 25 Part II. Other Information Item 1 - Legal Proceedings 27 Item 2 - Changes in Securities and Use of Proceeds 27 Item 3 - Defaults Upon Senior Securities 27 Item 4 - Submission of Matters to a Vote of Security Holders 27 Item 5 - Other Information 28 Item 6 - Exhibits and Reports on Form 8-K 28 Exhibit 11 Exhibit 27 3
CONSOLIDATED STATEMENTS OF CONDITION (unaudited) Wilmington Trust Corporation and Subsidiaries --------------------------------------- June 30, December 31, (in thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks $ 216,840 $ 204,579 --------------------------- Interest-bearing time deposits in other banks ---- ---- --------------------------- Federal funds sold and securities purchased under agreements to resell 29,300 83,500 --------------------------- Investment securities available for sale: U.S. Treasury and government agencies 986,126 796,665 Obligations of state and political subdivisions 7,103 7,186 Other securities 655,426 494,890 - ------------------------------------------------------------------------------------------------------ Total investment securities available for sale 1,648,655 1,298,741 --------------------------- Investment securities held to maturity: U.S. Treasury and government agencies 12,485 29,098 Obligations of state and political subdivisions 8,008 8,098 Other securities 17,687 36,715 - ------------------------------------------------------------------------------------------------------ Total investment securities held to maturity (market values were $38,364 and $74,480, respectively) 38,180 73,911 --------------------------- Loans: Commercial, financial and agricultural 1,466,203 1,370,566 Real estate-construction 272,204 211,733 Mortgage-commercial 871,325 869,442 Mortgage-residential 888,246 857,626 Consumer 1,079,552 1,015,056 Unearned income (2,812) (4,790) - ------------------------------------------------------------------------------------------------------ Total loans net of unearned income 4,574,718 4,319,633 Reserve for loan losses (75,493) (71,906) - ------------------------------------------------------------------------------------------------------ Net loans 4,499,225 4,247,727 --------------------------- Premises and equipment, net 148,577 145,492 Goodwill and other intangible assets 156,298 138,682 Accrued interest receivable 42,257 38,266 Other assets 59,124 69,667 - ------------------------------------------------------------------------------------------------------ Total assets $6,838,456 $6,300,565 =========================== 4 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing demand $959,737 $912,066 Interest-bearing: Savings 422,144 404,015 Interest-bearing demand 1,388,149 1,425,953 Certificates under $100,000 1,150,870 1,182,183 Certificates $100,000 and over 840,305 612,546 - ------------------------------------------------------------------------------------------------------ Total deposits 4,761,205 4,536,763 ---------------------------- Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 1,224,581 932,346 U.S. Treasury demand 83,802 18,944 - ------------------------------------------------------------------------------------------------------ Total short-term borrowings 1,308,383 951,290 ---------------------------- Accrued interest payable 44,829 44,553 Other liabilities 19,978 53,750 Long-term debt 168,000 168,000 - ------------------------------------------------------------------------------------------------------ Total liabilities 6,302,395 5,754,356 ---------------------------- Stockholders' equity: Common stock ($1.00 par value) authorized 150,000,000 shares; issued 39,264,173 39,264 39,264 Capital surplus 70,604 67,047 Retained earnings 668,947 636,662 Accumulated other comprehensive income (16,633) 5,928 - ------------------------------------------------------------------------------------------------------ Total contributed capital and retained earnings 762,182 748,901 Less: Treasury stock, at cost, 6,119,459 and 5,935,072 shares, respectively (226,121) (202,692) - ------------------------------------------------------------------------------------------------------ Total stockholders' equity 536,061 546,209 ---------------------------- Total liabilities and stockholders' equity $6,838,456 $6,300,565 ============================ See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF INCOME (unaudited) Wilmington Trust Corporation and Subsidiaries ---------------------------------------------------------------- For the three months ended For the six months ended June 30, June 30, ---------------------------------------------------------------- (in thousands; except per share data) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME Interest and fees on loans $ 89,636 $ 89,943 $ 176,837 $ 177,685 Interest and dividends on investment securities: Taxable interest 20,237 24,266 37,593 47,492 Tax-exempt interest 190 214 380 450 Dividends 2,302 2,287 4,663 4,367 Interest on time deposits in other banks ---- ---- ---- ---- Interest on federal funds sold and securities purchased under agreements to resell 366 413 646 648 - ------------------------------------------------------------------------------------------------------------------- Total interest income 112,731 117,123 220,119 230,642 ---------------------------------------------------------------- Interest on deposits 33,650 39,485 67,483 75,692 Interest on short-term borrowings 14,597 15,394 27,577 33,292 Interest on long-term debt 2,763 2,027 5,519 2,027 - ------------------------------------------------------------------------------------------------------------------- Total interest expense 51,010 56,906 100,579 111,011 ---------------------------------------------------------------- Net interest income 61,721 60,217 119,540 119,631 Provision for loan losses (4,500) (5,000) (9,500) (10,000) - ------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 57,221 55,217 110,040 109,631 ---------------------------------------------------------------- OTHER INCOME Trust and asset management fees 36,007 32,147 72,086 62,152 Service charges on deposit accounts 5,948 5,262 11,374 10,607 Gain on business disposition ---- ---- ---- 5,503 Merchant discount fees 1,838 1,602 3,388 3,021 Other operating income 2,290 3,988 4,814 7,301 Securities gains 4 33 24 2 - ------------------------------------------------------------------------------------------------------------------- Total other income 46,087 43,032 91,686 88,586 ---------------------------------------------------------------- Net interest and other income 103,308 98,249 201,726 198,217 ---------------------------------------------------------------- OTHER EXPENSE Salaries and employment benefits 34,221 33,723 68,013 68,458 Net occupancy 3,961 3,199 7,048 6,014 Furniture and equipment 5,675 4,858 10,088 8,943 6 Stationery and supplies 1,498 1,299 3,059 2,699 Provision for litigation settlement ---- ---- ---- 5,500 Servicing and consulting fees 2,481 3,091 5,223 5,286 Advertising and public relations 1,705 1,444 3,289 2,677 Other operating expense 8,723 8,376 16,587 15,883 - ------------------------------------------------------------------------------------------------------------------- Total other expense 58,264 55,990 113,307 115,460 ---------------------------------------------------------------- NET INCOME Income before income taxes 45,044 42,259 88,419 82,757 Applicable income taxes 15,098 13,970 29,317 27,156 - ------------------------------------------------------------------------------------------------------------------- Net income $ 29,946 $ 28,289 $ 59,102 $ 55,601 ================================================================ Net income per share: basic $ 0.90 $ 0.84 $ 1.78 $ 1.66 ================================================================ diluted $ 0.89 $ 0.82 $ 1.76 $ 1.61 ================================================================ Weighted average shares outstanding: basic 33,148 33,575 33,112 33,541 diluted 33,641 34,406 33,672 34,434 Cash dividends per share $ 0.42 $ 0.39 $ 0.81 $ 0.75 See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Wilmington Trust Corporation and Subsidiaries -------------------------------- For the six months ended June 30, (in thousands) 1999 1998 - -------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 59,102 $ 55,601 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 9,500 10,000 Provision for depreciation 8,052 6,275 Amortization/(accretion) of investment securities available for sale discounts and premiums ` 1,317 (538) Accretion of investment securities held to maturity discounts and premiums (37) (134) Deferred income taxes 13,003 487 Gains on sales of loans (350) (387) Securities gains (24) (2) Decrease in other assets 7,851 6,088 Decrease in other liabilities (33,808) (15,688) - -------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 64,606 61,702 -------------------------------- INVESTING ACTIVITIES Proceeds from sales of investment securities available for sale 521,719 322,635 Proceeds from maturities of investment securities available for sale 159,726 279,444 Proceeds from maturities of investment securities held to maturity 36,288 136,788 Purchases of investment securities available for sale (1,067,924) (830,971) Purchases of investment securities held to maturity (500) ---- Investments in affiliates (18,915) (52,509) Gross proceeds from sales of loans 62,331 56,951 Purchases of loans (5,669) (1,095) Net increase in loans (317,310) (274,044) Net increase in premises and equipment (11,137) (12,601) - -------------------------------------------------------------------------------------------------------- Net cash used for investing activities (641,391) (375,402) -------------------------------- FINANCING ACTIVITIES Net increase in demand, savings and interest-bearing demand deposits 27,996 171,962 Net increase in certificates of deposit 196,446 403,141 Net increase/(decrease) in federal funds purchased and securities sold under agreements to repurchase 292,235 (288,083) Net increase in U.S. Treasury demand 64,858 38,060 Proceeds from issuance of long-term debt ---- 125,000 Cash dividends (26,817) (25,149) 8 Proceeds from common stock issued under employment benefit plans 13,753 7,092 Payments for common stock acquired through buybacks (33,625) (4,863) - -------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 534,846 427,160 -------------------------------- Increase/(decrease) in cash and cash equivalents (41,939) 113,460 Cash and cash equivalents at beginning of period 288,079 289,392 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 246,140 $ 402,852 ================================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 101,521 $ 112,598 Taxes 22,081 28,429 Loans transferred during the year: To other real estate owned $ 1,236 $ 1,226 From other real estate owned 1,846 2,946 See Notes to Consolidated Financial Statements
9 Notes to Consolidated Financial Statements Wilmington Trust Corporation and Subsidiaries Note 1 - Accounting and Reporting Policies The accounting and reporting policies of Wilmington Trust Corporation (the "Corporation"), a holding company that owns all of the issued and outstanding shares of capital stock of Wilmington Trust Company, Wilmington Trust of Pennsylvania and Wilmington Trust FSB, conform to generally accepted accounting principles and practices in the banking industry for interim financial information. The information for the interim periods is unaudited and includes all adjustments that are of a normal recurring nature and that management believes to be necessary for fair presentation. Results of the interim periods are not necessarily indicative of the results that may be expected for the full year. This note is presented and should be read in conjunction with the Notes to the Consolidated Financial Statements included in the Corporation's Annual Report to Shareholders for 1998. Note 2 - Comprehensive Income Accumulated other comprehensive income, as required by Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," is representative of the Corporation's after-tax, unrealized gains and/or losses included in the investment securities available-for-sale portfolio. The upward movement in interest rates since December 31, 1998 resulted in temporary declines in the market value of the Corporation's U.S. Treasury, government agency and asset-backed securities portfolios. Note 3 - Segment Reporting
Financial data by segment for June 30, 1999 vs June 30, 1998 is as follows: - ----------------------------------------------------------------------------------------------------------- Banking Fee-Based Funds Six Months Ended June 30, 1999 (in thousands) business business management Totals - ----------------------------------------------------------------------------------------------------------- Net interest income $ 100,727 $ 10,878 $ 8,980 $ 120,585 Provision for loan losses (9,444) (56) ---- (9,500) - ----------------------------------------------------------------------------------------------------------- Net interest income after provision 91,283 10,822 8,980 111,085 Trust and asset management fees: Personal trust ---- 31,887 ---- 31,887 Corporate financial services ---- 22,631 ---- 22,631 Asset management ---- 17,937 ---- 17,937 Other operating income Securities gains 19,201 941 415 20,557 ---- ---- 24 24 - ----------------------------------------------------------------------------------------------------------- Net interest and other income 110,484 84,218 9,419 204,121 Other expense (62,696) (50,663) (1,241) (114,600) - ----------------------------------------------------------------------------------------------------------- Segment profit from operations 47,788 33,555 8,178 89,521 Segment loss from infrequent events ---- (340) ---- (340) - ----------------------------------------------------------------------------------------------------------- Segment profit before income taxes $ 47,788 $ 33,215 $ 8,178 $ 89,181 =========================================================================================================== Intersegment revenue $ 5,093 $ 3,750 $ 1,185 $ 10,028 Depreciation & amortization 5,069 3,353 139 8,561 Investment in equity method investees ---- 151,299 ---- 151,299 Segment average assets 4,148,200 681,864 3,144,426 7,974,490 Six Months Ended June 30, 1998 (in thousands) - ----------------------------------------------------------------------------------------------------------- Net interest income $ 102,182 $ 12,182 $ 6,339 $ 120,703 Provision for loan losses (9,790) (210) ---- (10,000) - ----------------------------------------------------------------------------------------------------------- Net interest income after provision 92,392 11,972 6,339 110,703 10 Trust and asset management fees: Personal trust ---- 29,895 ---- 29,895 Corporate financial services ---- 21,031 ---- 21,031 Asset management ---- 12,399 ---- 12,399 Other operating income 17,896 1,303 7,707 26,906 Securities losses ---- ---- 2 2 - ----------------------------------------------------------------------------------------------------------- Net interest and other income 110,288 76,600 14,048 200,936 Other expense (60,408) (48,449) (7,807) (116,664) - ----------------------------------------------------------------------------------------------------------- Segment profit from operations 49,880 28,151 6,241 84,272 Segment profit from infrequent events ---- 59 ---- 59 - ----------------------------------------------------------------------------------------------------------- Segment profit before income taxes $ 49,880 $ 28,210 $ 6,241 $ 84,331 =========================================================================================================== Intersegment revenue $ 3,034 $ 1,615 $ 789 $ 5,438 Depreciation and amortization 3,974 2,734 95 6,803 Investment in equity method investees ---- 52,409 ---- 52,409 Segment average assets 3,798,196 531,746 3,123,461 7,453,403
A reconciliation of reportable segment amounts to the Corporation's consolidated balances is as follows: - ------------------------------------------------------------------------------ Quarter ended June 30 (in thousands) 1999 1998 - ------------------------------------------------------------------------------ Revenue: Total revenues for reportable segments $ 120,585 $ 120,703 Other revenues 93,036 90,233 Elimination of intersegment revenues (2,396) (2,719) - ------------------------------------------------------------------------------ Total consolidated revenues before provision $ 211,225 $ 208,217 ========================== Profit or loss: Total profit or loss for reportable segments $ 89,521 $ 84,272 Elimination of intersegment profits (1,102) (1,515) - ------------------------------------------------------------------------------ $ 88,419 $ 82,757 ========================== Assets: Total assets for reportable segments $ 7,974,490 $ 7,453,403 Other assets 227,899 217,170 Elimination of intersegment assets (1,740,617) (1,439,911) Other assets not allocated to segments ---- ---- - ------------------------------------------------------------------------------ Consolidated total average assets $ 6,461,772 $ 6,230,662 ========================== 11 Wilmington Trust Corporation and Subsidiaries Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations SUMMARY - ------- Net income for the second quarter of 1999 was $29.9 million, or $.90 per share, a 6% increase over the $28.3 million, or $.84 per share, reported for the second quarter of last year. Diluted net income per share for the second quarter of 1999 was $.89, compared to $.82 for the second quarter of last year. Total revenues for the second quarter of 1999 reached $107.8 million, a 4% increase over the $103.2 million reported for the second quarter of 1998. Net interest income for the second quarter of 1999 reached $61.7 million, a 3% increase over the $60.2 million reported for the second quarter of last year. The quarterly provision for loan losses of $4.5 million was less than the $5.0 million for the second quarter of 1998. The reserve for loan losses at quarter-end was $75.5 million, $3.6 million, or 5%, above the $71.9 million reported at December 31, 1998. Noninterest income for the second quarter of 1999 was $46.1 million, a 7% increase over the $43.0 million reported for the same quarter of last year. Operating expenses for the second quarter of 1999 were $58.3 million, a 4% increase above the $56.0 million reported for the second quarter of last year. Return on assets for the six months ended June 30, 1999, on an annualized basis, was 1.84%, above the 1.80% reported for the corresponding period a year ago. Return on stockholders' equity, also on an annualized basis, was 22.12%, above the 21.71% reported for the first six months of 1998. STATEMENT OF CONDITION - ---------------------- Total assets at June 30, 1999 were $6.84 billion, up $537.9 million, or 9%, over the $6.30 billion reported at December 31, 1998. Total earning assets increased $515.1 million, or 9%, over the same period of time, to $6.29 billion. Growth in both the loan and investment portfolios contributed to these increases. Total loans at June 30, 1999 were $4.57 billion, an increase of $255.1 million, or 6%, over the December 31, 1998 level of $4.32 billion. Contributing to this increase were commercial loans of $1.47 billion, which rose $95.6 million, or 7%, over their December 31, 1998 level; commercial construction loans of $272.2 million, which rose $60.5 million, or 29%; commercial mortgage loans of $871.3 million, which rose $1.9 million, or .2%; residential mortgage loans of $888.2 million, which rose $30.6 million, or 4%; and consumer loans of $1.08 billion, which rose $64.5 million, or 6%. The investment portfolio at June 30, 1999 was $1.69 billion, an increase of $314.2 million, or 23%, over the December 31, 1998 level of $1.37 billion. The Corporation continued its efforts to replace securities sold during 1998. Contributing to this increase were U.S. Treasury and government agency securities, which increased $172.8 million, or 21%, to $998.6 million, and asset-backed securities, which increased $129.9 million, or 49%, to $395.3 million. Interest-bearing liabilities at quarter-end were $5.28 billion, $533.9 million, or 11%, above the year-end level of $4.74 billion. Total deposits during the first six months of 1999 increased $224.4 million, while short-term borrowings increased $357.1 million. A $227.8 million increase in certificates of deposit 12 $100,000 and over was offset, in part, by a $37.8 million, or 3%, decrease in interest-bearing demand account balances, and a $31.3 million, or 3%, decrease in certificates of deposit less than $100,000. Federal funds purchased increased $352.3 million, or 53%, to $1.02 billion, and U.S. Treasury demand balances rose $64.9, million to $83.8 million. Shareholders' equity at June 30, 1999 was $536.1 million, $10.1 million, or 2%, below the year-end level. Earnings of $59.1 million and $13.8 million in new stock issued during that period were more than offset by a $22.6 million valuation reserve adjustment for the investment portfolio, $26.8 million in cash dividends and $33.6 million for the stock buyback program. NET INTEREST INCOME - ------------------- Net interest income for the second quarter of 1999 on a fully tax-equivalent ("FTE") basis was $63.8 million. This was a $1.4 million, or 2%, increase over the $62.4 million reported for the second quarter of 1998. Interest income (FTE) for the second quarter of 1999 declined $4.5 million, or 4%, to $114.8 million from $119.3 million for the second quarter of 1998. Contributing to this decrease was the declining rate environment, which offset the effects of a $198.7 million increase in the average level of earning assets. Interest revenues rose $5.5 million as a result of this increase in earning assets. Offsetting this increase was a $10.0 million decrease in interest revenues associated with the lower interest rates. The average rate earned on the Corporation's earning assets during the second quarter of 1999 fell 57 basis points, from 8.06% to 7.49%. The loan portfolio yield decreased 72 basis points, to 8.04%, while the investment portfolio yield declined 45 basis points, to 5.98%. Interest expense for the second quarter of 1999 declined $5.9 million, or 10%, to $51.0 million from the $56.9 million reported for the second quarter of last year. Interest expense declined $6.6 million due to a 59-basis point drop in the average rate paid on interest-bearing liabilities. This decrease was offset, in part, by a $701,000 increase in interest expense attributable to the $154.5 million increase in the average level of interest-bearing liabilities. The average rate the Corporation paid for its funds during the second quarter of 1999 was 3.33%, compared to 3.85% for the second quarter of 1998. The Corporation's net interest margin for the second quarter of 1999 was 4.16%, down five basis points from the 4.21% reported for the second quarter of a year ago. The decline was driven, in part, by customer movement from floating-rate financing to lower cost, fixed-rate financing. In addition, the issuance of $125 million of subordinated debt securities to fund investments in asset management firms, generating fee income, has also reduced the net interest margin. The following three tables present comparative net interest income data and a rate-volume analysis of changes in net interest income for the second quarters and first six months of 1999 and 1998, respectively. 13
QUARTERLY ANALYSIS OF EARNINGS 1999 Second Quarter 1998 Second Quarter ------------------------------------- ----------------------------------- (in thousands; rates on Average Income/ Average Average Income/ Average tax-equivalent basis) balance expense rate balance expense rate - ------------------------------------------------------------------------------------------------------------------------- Earning assets Time deposits in other banks $ ---- $ ---- ----% $ ---- $ ---- ----% Federal funds sold and securities purchased under agreements to resell 31,153 366 4.65 29,547 413 5.53 - ------------------------------------------------------------------- ------------------------- Total short-term investments 31,153 366 4.65 29,547 413 5.53 --------------------------------------------------------------------------------- U.S. Treasury and government agencies 955,088 13,941 5.83 1,073,849 16,689 6.25 State and municipal 15,125 286 7.65 16,676 317 7.62 Preferred stock 164,344 2,770 6.81 146,732 2,781 7.79 Asset-backed securities 358,445 5,558 6.18 396,524 6,514 6.60 Other 91,348 1,139 5.01 104,872 1,458 5.59 - ------------------------------------------------------------------- ------------------------- Total investment securities 1,584,350 23,694 5.98 1,738,653 27,759 6.43 --------------------------------------------------------------------------------- Commercial, financial and agricultural 1,427,631 28,107 7.80 1,266,682 27,014 8.45 Real estate-construction 261,784 5,611 8.47 167,293 3,970 9.39 Mortgage-commercial 870,538 19,012 8.64 902,684 21,656 9.50 Mortgage-residential 865,662 15,325 7.08 827,864 16,298 7.88 Consumer 1,061,560 22,652 8.53 971,271 22,148 9.12 - ------------------------------------------------------------------- ------------------------- Total loans 4,487,175 90,707 8.04 4,135,794 91,086 8.76 --------------------------------------------------------------------------------- Total earning assets $6,102,678 114,767 7.49 $ 5,903,994 119,258 8.06 ================================================================================= Funds supporting earning assets Savings $ 421,928 1,837 1.75 $ 413,224 2,399 2.33 Interest-bearing demand 1,426,040 7,366 2.07 1,230,692 7,940 2.59 Certificates under $100,000 1,162,260 14,637 5.05 1,209,725 16,619 5.51 Certificates $100,000 and over 759,609 9,810 5.11 887,728 12,527 5.58 - ------------------------------------------------------------------- ------------------------- Total interest-bearing deposits 3,769,837 33,650 3.57 3,741,369 39,485 4.21 --------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 1,177,167 14,268 4.83 1,076,277 14,639 5.42 U.S. Treasury demand 37,192 329 3.50 57,409 755 5.20 - ------------------------------------------------------------------- ------------------------- Total short-term borrowings 1,214,359 14,597 4.79 1,133,686 15,394 5.41 --------------------------------------------------------------------------------- Long-term debt 168,000 2,763 6.58 122,670 2,027 6.61 - ------------------------------------------------------------------- ------------------------- 14 Total interest-bearing liabilities 5,152,196 51,010 3.95 4,997,725 56,906 4.54 --------------------------------------------------------------------------------- Other noninterest funds 950,482 ---- ---- 906,269 ---- ---- - ------------------------------------------------------------------- ------------------------- Total funds used to support earning assets $6,102,678 51,010 3.33 $5,903,994 56,906 3.85 ================================================================================= Net interest income/yield 63,757 4.16 62,352 4.21 Tax-equivalent adjustment (2,036) (2,135) --------------- -------------- Net interest income $ 61,721 $ 60,217 =============== ============== Average rates are calculated using average balances based on historical cost and do not reflect the market valuation Adjustment required by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective January 1, 1994.
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YEAR-TO-DATE ANALYSIS OF EARNINGS Year-to-Date 1999 Year-to-Date 1998 -------------------------------------- ----------------------------------------- (in thousands; rates on Average Income/ Average Average Income/ Average tax-equivalent basis) balance expense rate balance expense rate - ------------------------------------------------------------------------------------------------------------------------- Earning assets Time deposits in other banks $ ---- $ ---- ----% $ ---- $ ---- ----% Federal funds sold and securities purchased under agreements to resell 27,817 646 4.62 23,818 648 5.41 - ------------------------------------------------------------------- ------------------------- Total short-term investments 27,817 646 4.62 23,818 648 5.41 ---------------------------------------------------------------------------------- U.S. Treasury and government agencies 895,350 25,900 5.80 1,044,435 32,740 6.31 State and municipal 15,184 571 7.63 17,459 675 7.75 Preferred stock 166,529 5,583 6.79 136,181 5,290 7.99 Asset-backed securities 324,732 10,161 6.25 383,007 12,662 6.64 Other 91,931 2,338 5.11 100,111 2,804 5.63 - ------------------------------------------------------------------- ------------------------- Total investment securities 1,493,726 44,553 5.98 1,681,193 54,171 6.49 ---------------------------------------------------------------------------------- Commercial, financial and agricultural 1,405,641 54,590 7.74 1,232,365 52,909 8.56 Real estate-construction 245,936 10,540 8.55 159,541 7,459 9.29 Mortgage-commercial 871,669 38,179 8.73 904,330 42,621 9.38 Mortgage-residential 859,895 31,241 7.24 824,212 33,224 8.06 Consumer 1,038,348 44,386 8.60 965,101 43,795 9.13 - ------------------------------------------------------------------- ------------------------- Total loans 4,421,489 178,936 8.08 4,085,549 180,008 8.80 ---------------------------------------------------------------------------------- Total earning assets $5,943,032 224,135 7.54 $5,790,560 234,827 8.12 ================================================================================== Funds supporting earning assets Savings $ 415,117 3,805 1.85 $ 405,911 4,723 2.35 Interest-bearing demand 1,388,077 15,027 2.18 1,184,843 15,203 2.59 Certificates under $100,000 1,168,924 29,581 5.10 1,210,399 33,266 5.54 Certificates $100,000 and over 730,011 19,070 5.20 796,231 22,500 5.62 - ------------------------------------------------------------------- ------------------------- Total interest-bearing deposits 3,702,129 67,483 3.66 3,597,384 75,692 4.23 ---------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 1,104,382 26,778 4.84 1,169,141 31,975 5.46 U.S. Treasury demand 32,877 799 4.83 49,994 1,317 5.24 - ------------------------------------------------------------------- ------------------------- Total short-term borrowings 1,137,259 27,577 4.84 1,219,135 33,292 5.45 ---------------------------------------------------------------------------------- Long-term debt 168,000 5,519 6.57 83,055 2,027 4.88 - ------------------------------------------------------------------- ------------------------- 16 Total interest-bearing liabilities 5,007,388 100,579 4.03 4,899,574 111,011 4.54 ---------------------------------------------------------------------------------- Other noninterest funds 935,644 ---- ---- 890,986 ---- ---- - ------------------------------------------------------------------- ------------------------- Total funds used to support earning assets $5,943,032 100,579 3.39 $5,790,560 111,011 3.85 ================================================================================== Net interest income/yield 123,556 4.15 123,816 4.27 Tax-equivalent adjustment (4,016) (4,185) --------------- -------------- Net interest income $ 119,540 $ 119,631 =============== ============== Average rates are calculated using average balances based on historical cost and do not reflect the market valuation Adjustment required by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective January 1, 1994.
17
RATE-VOLUME ANALYSIS OF NET INTEREST INCOME --------------------------------------- ---------------------------------- For the three months ended June 30, For the six months ended June 30, --------------------------------------- ---------------------------------- 1999/1998 1999/1998 Increase (Decrease) Increase (Decrease) due to change in due to change in --------------------------------------- ---------------------------------- 1 2 1 2 (in thousands) Volume Rate Total Volume Rate Total - ----------------------------------------------------------------------------------------------------------------------- Interest income: Time deposits in other banks $ ---- $ ---- $ ---- $ ---- $ ---- $ ---- Federal funds sold and securities purchased under agreements to resell 22 (69) (47) 109 (111) (2) - ------------------------------------------------------------------------------------------------------------------------ Total short-term investments 22 (69) (47) 109 (111) (2) ------------------------------------------------------------------------------- U.S. Treasury and government agencies (1,748) (1,000) (2,748) (4,568) (2,272) (6,840) State and municipal * (32) 1 (31) (95) (9) (104) Preferred stock * 394 (405) (11) 1,283 (990) 293 Asset-backed securities (584) (372) (956) (1,876) (625) (2,501) Other * (187) (132) (319) (227) (239) (466) - ------------------------------------------------------------------------------------------------------------------------ Total investment securities (2,157) (1,908) (4,065) (5,483) (4,135) (9,618) ------------------------------------------------------------------------------- Commercial, financial and agricultural * 3,391 (2,298) 1,093 7,355 (5,674) 1,681 Real estate-construction 2,212 (571) 1,641 3,980 (899) 3,081 Mortgage-commercial * (761) (1,883) (2,644) (1,519) (2,923) (4,442) Mortgage-residential 743 (1,716) (973) 1,426 (3,409) (1,983) Consumer 2,053 (1,549) 504 3,316 (2,725) 591 - ------------------------------------------------------------------------------------------------------------------------ Total loans 7,638 (8,017) (379) 14,558 (15,630) (1,072) - ------------------------------------------------------------------------------------------------------------------------ Total interest income $ 5,503 $(9,994) $ (4,491) $ 9,184 $(19,876) $(10,692) =============================================================================== Interest expense: Savings $ 51 $ (613) $ (562) $ 107 $ (1,025) $ (918) Interest-bearing demand 1,261 (1,835) (574) 2,610 (2,786) (176) Certificates under $100,000 (652) (1,330) (1,982) (1,139) (2,546) (3,685) 18 Certificates $100,000 and over (1,807) (910) (2,717) (1,871) (1,559) (3,430) - ------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits (1,147) (4,688) (5,835) (293) (7,916) (8,209) ------------------------------------------------------------------------------- Federal funds purchased and secruities sold under agreements to repurchase 1,367 (1,738) (371) (1,768) (3,429) (5,197) U.S. Treasury demand (266) (160) (426) (451) (67) (518) - ------------------------------------------------------------------------------------------------------------------------ Total short-term borrowings 1,101 (1,898) (797) (2,219) (3,496) (5,715) ------------------------------------------------------------------------------- Long-term debt 747 (11) 736 2,056 1,436 3,492 - ------------------------------------------------------------------------------------------------------------------------ Total interest expense $ 701 $ (6,597) $ (5,896) $ (456) $(9,976) $(10,432) =============================================================================== Changes in net interest income $ 1,405 $ (260) ========= =========
* Variances are calculated on a fully tax-equivalent basis, which includes the effects of any disallowed interest expense. 1 Changes attributable to volume are defined as change in average balance multiplied by the prior year's rate. 2 Changes attributable to rate are defined as a change in rate multiplied by the average balance in the applicable period of the prior year. A change in rate/volume (change in rate multiplied by change in volume) has been allocated to the change in rate. 19 Noninterest Revenues and Operating Expenses - ------------------------------------------- Noninterest revenues for the second quarter of 1999 were $46.1 million, an increase of $3.1 million, or 7%, over those for the second quarter of a year ago, due primarily to higher trust and asset management fees. Trust and asset management fees for the second quarter of 1999 increased $3.9 million, or 12%, to $36.0 million. Asset management fees in the second quarter rose $3.2 million, or 56%, to $8.8 million, due to the performance of our recent asset manager affiliations. Personal trust fees in the second quarter rose $671,000, or 4%, to $15.8 million. Corporate trust fees at $11.4 million were unchanged from those for the second quarter of 1998. On a year-to-date basis, trust and asset management fees were up $10.0 million, or 16%, over those of a year ago, with asset management fees contributing two-thirds of that improvement. Service charges on deposit accounts for the second quarter were $5.9 million, 13% above those of a year ago. Increased transaction fees associated with automated teller machine usage, overdrafts and returned items contributed to this increase. For the first six months of 1999, service charges were $767,000, or 7%, above those for the first six months of 1998. There were no gains on disposition of businesses during the first half of 1999. The first half of 1998 reflected a $5.5 million gain recorded on the disposition of the mutual fund processing business. Merchant discount fees for the second quarter of 1999 of $1.8 million were 15% above those for the second quarter of 1998, due primarily to increased credit card interchange fees. Other operating income for the second quarter of 1999 was $2.3 million. This was a decrease of $1.7 million, or 43%, from the $4.0 million reported for the second quarter of 1998. Other operating income for last year included a nonrecurring gain of $800,000 from the sale of fixed assets and a $500,000 gain on disposition of OREO. Operating expenses for the second quarter of 1999 increased $2.3 million, or 4%, to $58.3 million. Total personnel expenses for the quarter increased $498,000, or 2%, to $34.2 million. Contributing to this increase were higher health care and pension expenses, which were offset, in part, by lower compensation expense. Net occupancy expense rose $762,000, or 24%, due to costs associated with new personal trust and private banking offices opened last year in New York and California, as well as the relocation this year of our North Palm Beach office to PGA Boulevard. Furniture and equipment expense for the quarter rose $817,000, or 17%, as higher data processing maintenance costs and depreciation expense reflected the Corporation's continued investment in new technology. Stationery and supplies expenses increased $199,000, or 15%, to $1.5 million. There was no provision for litigation settlement during the first half of 1999. The first quarter of 1998 reflected a $5.5 million charge to earnings taken in connection with the anticipated settlement of outstanding litigation. Servicing and consulting fees of $2.5 million for the quarter were $610,000, or 20%, below those of a year ago, but were unchanged year-to-date, as the Corporation continues with it Year 2000 readiness efforts. The Corporation's efforts in readying itself for the year 2000 are discussed on pages 22 through 25. Advertising and public relations expenses for the quarter were $1.7 million, an increase of $261,000, or 18%, and for the first six months of 1999 were $612,000, or 23%, higher due to the acceleration of several programs which were scheduled to begin later in the year. Other operating expense for the second quarter was $8.7 million, an increase of $347,000, or 4%, due to higher travel and entertainment expense, credit card fees and bank processing fees. Income tax expense for the first six months of 1999 increased $2.2 million, or 8%, to $29.3 million. Approximately $1.5 million, or 69%, of this increase was Federal income tax. The Corporation's effective tax rate for the first half of 1999 was 33.16%, compared to 32.81% for the first six months of 1998. 20 Liquidity - --------- A financial institution's liquidity represents its ability to meet, in a timely manner, cash flow requirements that may arise. Liquidity of the asset side of the balance sheet is provided by the maturity and marketability of loans, money market assets and investments. Liquidity of the liability side of the balance sheet is usually provided through a stable base of core deposits. The Corporation's quarter-end liquidity ratio, calculated in accordance with regulatory requirements of the FDIC, was 25.18%. Management believes that maturities of the Corporation's investment securities, other readily marketable assets and external sources of funds offer more than adequate liquidity to meet any cash flow requirements that may arise. Sources of funds have historically consisted of deposits, amortization and prepayments of outstanding loans, maturities of investment securities, borrowings and interest income. Management monitors the Corporation's existing and projected liquidity requirements on an ongoing basis and implements appropriate strategies when deemed necessary. Asset Quality and Loan Loss Provision - ------------------------------------- The Corporation's provision for loan losses for the second quarter of 1999 was $4.5 million, $500,000, or 10%, below the amount provided for the second quarter of 1998. The reserve for loan losses at June 30, 1999 was $75.5 million, an increase of $3.6 million, or 5%, above the $71.9 million reported at December 31, 1998. The reserve as a percentage of total period-end loans outstanding was 1.65%, down slightly from the year-end level of 1.66%. Net chargeoffs for the first six months of 1999 were $5.9 million, an increase of $163,000, or 3%, above those for the corresponding period of 1998. The following table presents the risk elements in the Corporation's loan portfolio: Risk Elements (in thousands) June 30, 1999 December 31, 1998 June 30, 1998 - -------------------------------------------------------------------------------- Nonaccruing $34,764 $30,598 $28,564 Past due 90 days or more 28,369 18,558 21,730 - -------------------------------------------------------------------------------- Total $63,133 $49,156 $50,294 ================================================ Percent of total loans at 1.38% 1.14% 1.19% period-end Other real estate owned $922 $1,532 $2,018 Nonaccruing loans at June 30, 1999 were $34.8 million, an increase of $4.2 million over the $30.6 million reported at December 31, 1998. Other real estate owned, which is reported as a component of other assets in the Consolidated Statements of Condition, consists of assets that have been acquired through foreclosure. These assets are recorded on the books of the Corporation at the lower of their cost or the estimated fair value less cost to sell, adjusted periodically based upon current appraisals. Other real estate owned at June 30, 1999 was $922,000, a decrease of $610,000, or 40%, from the December 31, 1998 level of $1.5 million. Nonperforming assets (other real estate owned plus nonaccrual loans) at June 30, 1999 totaled $35.7 million, or .78% of period-end loans outstanding. This was an increase of $3.6 million, or 11%, over the $32.1 million, or .74% of period-end loans outstanding, reported at December 31, 1998. As a result of the Corporation's ongoing monitoring of its loan portfolio, at June 30, 1999, approximately $55.3 million of its loans were identified that are either currently performing in accordance with their terms or are less than 90 days past due but for which, in management's opinion, serious doubt exists as to the borrowers' ability to continue to repay their loans in full on a timely basis. 21 The reserve for loan losses at quarter-end was 2.17 times the level of nonaccrual loans. Management believes the reserve is adequate, based upon currently available information. The Corporation's determination of the adequacy of its reserve is based upon an evaluation of its classified loans and other assets, past loss experience, current economic and real estate market conditions and any regulatory recommendations. Capital Resources - ----------------- A strong capital position provides a margin of safety for both depositors and stockholders, enables a financial institution to take advantage of profitable opportunities and provides for future growth. The Corporation's total risk-based capital ratio at the end of the second quarter of 1999 was 11.71%, and its core (Tier 1) leveraged capital ratio was 6.33%. The corresponding ratios at year-end 1998 were 12.47% and 6.61%, respectively. Both of these ratios are well in excess of the current regulatory minimums of 8.00% and 4.00%, respectively. Management monitors the Corporation's capital position and will make adjustments as needed to insure that the capital base will satisfy existing and impending regulatory requirements, as well as meet appropriate standards of safety and provide for future growth. Other Information - ----------------- Year 2000 Issue The Corporation is working to help assure that date-sensitive systems and hardware are prepared for orderly transition to the year 2000 without disrupting our customer accounts and operations. We believe we are prepared for the Year 2000 and that, based on our renovation, testing, contingency planning and contacts with third parties, our systems will be able to process dates and date-related information after December 31, 1999. We began renovating business application systems in late 1995. Subsequently, the Corporation established a Year 2000 Program Management Office to manage our Year 2000 project on an enterprise-wide basis. We have regular project reviews of our Year 2000 efforts with a management steering team, and quarterly meetings with senior management and the Board of Directors. The Program Management Office - ----------------------------- The Program Management Office is comprised of project leaders representing information technology and each major business area, such as commercial banking, personal banking, personal trust and private banking and corporate financial services. This team coordinates the major initiatives and strategies in each constituent's respective area. The initiatives include business risk/impact analysis, information technology, credit risk, vendor management, investment risk, communications and contingency planning. The Corporation worked with an international consulting firm for approximately six months to assist in its Year 2000 efforts. That firm assisted in implementing the enterprise-wide Program Management Office and strategies to help assure business area readiness, vendor readiness, external communication and contingency planning. 22 The Program Management Office Master Plan - ----------------------------------------- The following is a description and status of each strategy in our Year 2000 program: Information Technology ---------------------- We used a project approach the FDIC has endorsed to help assure continuity and efficiency among all our project teams. The approach used the following five steps: awareness, assessment, renovation, testing and implementation. o RENOVATION: We have completed assessment and renovation of all of our core critical hardware and software systems. We are continuing through 1999 to renovate some non-core systems that are low-critical internal systems. o TESTING: We have completed testing our core critical applications. Additionally, we have tested our core applications and infrastructure in a "time machine" environment, in which our mainframe and mid-range computers actually processed in the December 31, 1999 to January 3, 2000 and February 28 to March 1, 2000 (leap year) environments. We will continue through 1999 to test some non-core systems that are low-critical. o IMPLEMENTATION: As we have renovated applications, we have implemented Year 2000 versions of software. As a result, the Year 2000 versions of all our core systems are running in production today. In preparing for the Year 2000, we have made technology investments that will improve our ability to support our infrastructure and deliver improved services to our customers. These include installing standard NT desktop personal computers throughout our company, a new wire transfer system, introduction of online banking and improvements in infrastructure to support around-the-clock customer access. o CLEAN MANAGEMENT: We also expect to assure that future modifications to our software applications do not introduce new date-related problems and provide any production support that may be necessary. Credit Risk - ----------- Our credit risk strategy includes assessing risks for existing commercial loan relationships over $1 million and assessing all new loan relationships over $1 million. We have evaluated the need to establish additional loan loss reserves, and do not presently recommend any changes. We will continue to monitor existing relationships for Year 2000 readiness into the Year 2000. Investment Risk - --------------- We have evaluated investment risk for trust accounts for which Wilmington Trust has investment responsibility, as well as for the Corporation's own investment portfolio. We have developed an investment risk strategy based on the different types of holdings, such as equity, fixed-income or mutual funds. Vendor Management - ----------------- We have corresponded with providers of core services and products through several mailings. We are continuing to assess key critical vendors, such as power and telecommunication companies, with whom we are reviewing their systems renovation, testing, implementation and contingency plans. We are monitoring the 23 status of critical vendors and have developed contingency plans where the potential for vendors to impact the delivery of services to us is high. In addition, the Corporation is monitoring the status of regulatory reviews of our major service providers. Where feasible, we have tested critical vendor-supplied products, such as software, hardware and environmental systems such as air conditioning and elevator systems. Costs - ----- The Corporation estimates that it spent $22 million through June 30, 1999 in outside and internal costs toward required modifications, upgrades and replacements of its internal systems and testing. We presently anticipate incurring an additional $3.5 million in 1999 and 2000 in outside and internal costs. We expect these costs to continue to be funded through operating cash flows. We devoted approximately 30% of our available application programming and 21% of our total internal information technology resources to the Year 2000 issue in 1998 and the first half of 1999. We have deferred some other information technology projects pending resolution of the Year 2000 issue, but do not believe those deferrals will have a material adverse impact on our financial performance or results of operations. Contingency Planning - -------------------- We have assessed the potential impact of Year 2000 failures on our core business functions and have developed contingency plans where that impact presents a high risk. Business experts and management in each area have validated these plans to ensure their appropriateness. We have incorporated enhancements made through this process into finalized contingency plans. As part of our contingency planning, we are monitoring our liquidity needs as the Year 2000 approaches to assure that we have on hand sufficient cash to support any changes in customer activity. In addition, we have supplemented our normal contingency plans to insure the temporary availability of power at our processing facilities. We believe we are addressing all key components necessary to resolve the Year 2000 issue. Nevertheless, it is not possible to determine with complete certainty that all Year 2000 issues affecting us or our vendors or customers are identified and corrected, or the duration, severity or financial consequences of any failure. The Corporation anticipates that it is possible that it may experience certain operational inconsistencies and inefficiencies. This may result in, among other things, temporary delays in processing customers' checks and payments and other transactions, and could divert the Corporation's time and attention and financial resources from ordinary business activities. The Corporation also could experience the possible failure of certain systems, which may require significant efforts to prevent or alleviate material business disruptions. Disclaimer - ---------- The discussion above of the Corporation's efforts and expectations relating to Year 2000 compliance are forward-looking statements. The Corporation's ability to achieve Year 2000 compliance and the level of incremental costs associated with that compliance could be adversely impacted by, among other things, the availability and cost of programming and testing resources, vendors' and customers' ability to modify proprietary software and unanticipated problems identified in the ongoing compliance review. 24 Additional Information - ---------------------- Additional information about the Year 2000 issue is available at our Web site at wilmingtontrust.com, or you can call us at (302) 651-1985. You can also send your questions via fax to (302) 651-1990 or e-mail to year2000@wilmingtontrust.com. - ---------------------------- In addition, one of our regulators, the FDIC, has an informative site that addresses the year 2000 and financial institutions for banking customers. You can reach its site at fdic.gov/about/y2k. ------------------ Accounting Pronouncements - ------------------------- In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 required adoption in all quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." This will delay the required adoption for one year. The Statement will require the Corporation to recognize all derivatives on its balance sheet at their fair value. Derivatives which are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be offset either against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be recognized in earnings immediately. The Corporation has not yet determined what the effect of SFAS No. 133 will be on the Corporation's earnings or financial position. Item 3. Quantitative and Qualitative Disclosures About Market Risk Quantitative and qualitative disclosures about market risk Net interest income is an important determinant of the Corporation's financial performance. Through interest rate sensitivity management, the Corporation seeks to maximize the growth of net interest income on a consistent basis by minimizing the effects of fluctuations associated with changing market interest rates. The Corporation employs simulation models to measure the effect of variations in interest rates on net interest income. The composition of assets, liabilities and off-balance-sheet instruments and their respective repricing and maturity characteristics are evaluated in assessing the Corporation's exposure to changes in interest rates. Net interest income is projected using multiple interest rate scenarios. The results are compared to net interest income projected using stable interest rates. The Corporation's model employs interest rate scenarios in which interest rates gradually move up or down 250 basis points. The simulation model projects, as of June 30, 1999, that a gradual 250-basis point increase in market interest rates would reduce net interest income by 3.5 over a one-year period. This figure compares to a projected decrease at December 31, 1998 of 1.6%. If interest rates were to gradually decrease 250 basis points, the simulation model projects, as of June 30, 1999, that net interest income would increase .3% over a one-year period. This figure compares to a projected decrease at December 31, 1998 of 2.4%. The Corporation's policy limits the permitted reduction in projected net interest income to 10% over a one-year period, given a change in interest rates. 25 The preceding paragraph contains certain forward-looking statements regarding the anticipated effects on the Corporation's net interest income resulting from hypothetical changes in market interest rates. The assumptions that the Corporation uses regarding the effects of changes in interest rates on the adjustment of retail deposit rates and the balances of residential mortgages, asset-backed securities and collateralized mortgage obligations (CMOs) play a significant role in the results the simulation model projects. The adjustment paths are not assumed to be symmetrical. The Corporation's model has employed assumptions that reflect the historical adjustment paths of the Corporation's retail deposit rates to changes in the level of market interest rates. In prior model runs, some of the Corporation's retail deposit rates reached historic lows within the 250-basis point decline scenario. The Corporation's model would freeze the rates for these deposit products when they equaled their historic lows. As actual interest rates on some of the Corporation's retail deposit products reached, and in some cases fell below, their historic low points, new assumptions were developed. These new assumptions incorporate these recent changes in the structure of retail deposit rates in the Corporation's market area and project new historic low points. As was true in earlier simulations, the model freezes these rates when they reach the new, lower level. These model assumptions (asymmetrical adjustments and rate floors based on new historic lows) limit the extent to which deposit rates are expected to adjust in a declining rate scenario and contribute to the projected simulation results. Changes in the balances of residential mortgages, CMOs and asset-backed securities are driven by contractual obligations and prepayments. While contractual obligations are not typically influenced by changes in interest rates, prepayment activity (including refinancing) can shift dramatically with changes in interest rates. The Corporation's prepayment assumptions are based on industry estimates for loans with similar coupons and remaining maturities. A 250-basis point decline in interest rates can lead to a significant increase in prepayments when available reinvestment opportunities of similar risk carry lower returns. Conversely, should interest rates rise 250 basis points, the same balances are not likely to prepay at the same rate, but instead are likely to lengthen in effective maturity as debtors elect not to prepay and to retain these now below-market credit terms for as long as possible. Holders of mortgages, asset-backed securities and CMOs are left with returns below those prevailing in the current environment. This prepayment-driven effect also contributes to the projected simulation results. During the second quarter of 1999, the Corporation sold certain fixed-rate residential mortgage loans into the secondary market. The primary goal of this program is to reduce the risk that the average duration of these fixed-rate residential mortgage loans would extend well beyond the duration that was anticipated at origination, as frequently occurs during periods of rising interest rates. Mortgage loans sold during the second quarter of 1999 totaled $24.2 million, bringing the total for the year to $62.0 million. Management reviews the Corporation's rate sensitivity regularly, and may employ a variety of strategies as needed to adjust that sensitivity. These include changing the relative proportions of fixed-rate and floating-rate assets and liabilities, as well as utilizing off-balance-sheet measures such as interest rate swaps and interest rate floors. At June 30, 1999, the Corporation was not committed to any interest rate swaps, down from a total notional amount of $25 million at year-end 1998. At June 30, 1999, the Corporation was committed to interest rate floors with a total notional amount of $325 million, unchanged from year-end 1998. The floors have remaining maturities of between 1 and 36 months, with a weighted average maturity of 12 months. The net interest differential, the amortization of the initial fees associated with the purchase of the floors and any gains recorded on sale, are reported under the caption "Interest and fees on loans" and are recognized over the lives of the respective instruments. See "Net Interest Income." 26 Part II. Other Information Item 1 - Legal Proceedings Not Applicable Item 2 - Change In Securities Not Applicable Item 3 - Defaults Upon Senior Securities Not Applicable Item 4 - Submission of Matters to a Vote of Security Holders At the Corporation's Annual Shareholders' Meeting held on May 20, 1999 (the "Annual Meeting"), the nominees for director the Corporation proposed were elected. The votes cast for those nominees were as follows: For Withheld ------------------ ----------------- Carolyn S. Burger 27,025,952 171,939 Robert V. A. Harra, Jr. 27,008,300 189,591 Rex L . Mears 27,022,561 175,330 Leonard W. Quill 26,998,445 199,446 Robert W. Tunnell, Jr. 27,007,621 190,270 In addition, at the Annual Meeting, the Corporation's shareholders approved the following proposals: a. Approval of 1999 Long-Term Incentive Plan ----------------------------------------- The 1999 Long-Term Incentive Plan, designed primarily to assist the Corporation in attracting and retaining highly competent officers and other key employees, is for a term of four years and authorizes the issuance of up to 1,500,000 shares of the Corporation's common stock. The vote in favor of that plan was as follows: FOR AGAINST ABSTAIN --- ------- ------- 25,082,170 1,871,142 244,579 b. Approval of Executive Incentive Plan ------------------------------------ The 1999 Executive Incentive Plan, designed to recognize and reward executives for the achievement of corporate performance goals, authorizes cash awards and the issuance of up to 100,000 shares of the Corporation's common stock. The vote in favor of that plan was as follows: FOR AGAINST ABSTAIN --- ------- ------- 25,836,928 1,055,975 304,988 27 c. Ratification of Selection of Ernst & Young LLP as Independent Public Accountants ------------------------------ The proposal to ratify the selection of the firm of Ernst and Young LLP as the Corporation's independent public accountants for the year ending December 31, 1999 was approved by the Corporation's shareholders as follows: FOR AGAINST ABSTAIN --- ------- ------- 27,050,673 55,308 91,910 Item 5 - Other Information Not Applicable Item 6 - Exhibits and Reports on Form 8-K The exhibits listed below are being filed as part of this report. These exhibits will be made available to any shareholder upon receipt of a written request therefor, together with payment of $.20 per page for duplicating costs. Exhibit Number Exhibit - -------------- ------------------------------------------- 11 Statement re computation of per share earnings 27 Financial data schedule 28 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 13, 1999 /s/David R. Gibson ------------------------------------- Name: David R. Gibson Title: Senior Vice President and Chief Financial Officer (Authorized Officer and Principal Financial Officer) 29 EX-11 2 Exhibit 11 Statement Re Computation of Per Share Earnings - ---------------------------------------------- Basic earnings per share of $.90 for the second quarter of 1999 were computed by dividing net income of $29,947,473 by the weighted average number of shares of common stock outstanding during the quarter of 33,148,046. EX-27 3
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000872821 WILMINGTON TRUST CORP. 1,000 6-MOS DEC-31-1999 JAN-1-1999 JUN-30-1999 216,840 0 29,300 0 1,648,655 38,180 38,364 4,574,718 75,493 6,838,456 4,761,205 1,308,383 64,807 168,000 0 0 39,264 496,797 6,838,456 176,837 42,636 646 220,119 67,483 100,579 119,540 9,500 24 113,307 88,419 59,102 0 0 59,102 1.78 1.76 4.15 34,764 28,369 0 55,302 71,906 7,646 1,733 75,493 62,155 0 13,338
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