-----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, TpKmIZVc4mozhXmybXaE8ql5QMDANUlhiK+EFcSY+Ur4V+5uGTkWca1Mz6a5fM68 OtHC+cQcWoyBy3tM7coRNw== 0000898432-99-001062.txt : 19991117 0000898432-99-001062.hdr.sgml : 19991117 ACCESSION NUMBER: 0000898432-99-001062 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99756037 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 September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From ____________ to ___________ Commission File Number: 1-14659 WILMINGTON TRUST CORPORATION ---------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 51-0328154 - ------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (302) 651-1000 ---------------------------------------------------------------- (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 September 30, 1999 - 32,565,207 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 13 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 26 Part II. Other Information Item 1 - Legal Proceedings 28 Item 2 - Changes in Securities and Use of Proceeds 28 Item 3 - Defaults Upon Senior Securities 28 Item 4 - Submission of Matters to a Vote of Security Holders 28 Item 5 - Other Information 28 Item 6 - Exhibits and Reports on Form 8-K 28 Exhibit 11 Exhibit 27 3 CONSOLIDATED STATEMENTS OF CONDITION (unaudited) Wilmington Trust Corporation and Subsidiaries ---------------------------------- September 30, December 31, 1999 1998 - --------------------------------------------------------------------------------------- ASSETS Cash and due from banks $202,298 $204,579 ---------------------------------- Interest-bearing time deposits in other banks ---- ---- ---------------------------------- Federal funds sold and securities purchased under agreements to resell 50,500 83,500 ---------------------------------- Investment securities available for sale: U.S. Treasury and government agencies 966,336 796,665 Obligations of state and political subdivisions 5,933 7,186 Other securities 720,097 494,890 - --------------------------------------------------------------------------------------- Total investment securities available for sale 1,692,366 1,298,741 ---------------------------------- Investment securities held to maturity: U.S. Treasury and government agencies 12,194 29,098 Obligations of state and political subdivisions 7,843 8,098 Other securities 15,091 36,715 - --------------------------------------------------------------------------------------- Total investment securities held to maturity (market values were $35,297 and $74,480, respectively) 35,128 73,911 ---------------------------------- Loans: Commercial, financial and agricultural 1,436,421 1,370,566 Real estate-construction 284,841 211,733 Mortgage-commercial 897,216 869,442 Mortgage-residential 935,344 857,626 Consumer 1,084,190 1,015,056 Unearned income (2,053) (4,790) - --------------------------------------------------------------------------------------- Total loans net of unearned income 4,635,959 4,319,633 Reserve for loan losses (76,400) (71,906) - --------------------------------------------------------------------------------------- Net loans 4,559,559 4,247,727 ---------------------------------- Premises and equipment, net 146,943 145,492 Goodwill and other intangible assets 163,084 138,682 Accrued interest receivable 42,825 38,266 Other assets 94,963 69,667 - --------------------------------------------------------------------------------------- Total assets $6,987,666 $6,300,565 ================================== 4 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing demand $1,043,539 $ 912,066 Interest-bearing: Savings 403,381 404,015 Interest-bearing demand 1,380,441 1,425,953 Certificates under $100,000 1,109,035 1,182,183 Certificates $100,000 and over 1,129,050 612,546 - --------------------------------------------------------------------------------------- Total deposits 5,065,446 4,536,763 ---------------------------------- Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 1,082,053 932,346 U.S. Treasury demand 69,491 18,944 - --------------------------------------------------------------------------------------- Total short-term borrowings 1,151,544 951,290 ---------------------------------- Accrued interest payable 43,263 44,553 Other liabilities 35,266 53,750 Long-term debt 168,000 168,000 - --------------------------------------------------------------------------------------- Total liabilities 6,463,519 5,754,356 ---------------------------------- Stockholders' equity: Common stock ($1.00 par value) authorized 150,000,000 shares; issued 39,264,173 39,264 39,264 Capital surplus 70,738 67,047 Retained earnings 685,761 636,662 Accumulated other comprehensive income (16,664) 5,928 - --------------------------------------------------------------------------------------- Total contributed capital and retained earnings 779,099 748,901 Less: Treasury stock, at cost, 6,698,966 and 5,935,072 shares, respectively (254,952) (202,692) - --------------------------------------------------------------------------------------- Total stockholders' equity 524,147 546,209 ---------------------------------- Total liabilities and stockholders' equity $6,987,666 $6,300,565 ==================================
See Notes to Consolidated Financial Statements 5 CONSOLIDATED STATEMENTS OF INCOME (unaudited) Wilmington Trust Corporation and Subsidiaries
---------------------------------------------------------------- For the three months ended For the nine months ended September 30, September 30, ---------------------------------------------------------------- (in thousands; except per share data) 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME Interest and fees on loans $ 93,236 $ 90,333 $ 270,073 $ 268,018 Interest and dividends on investment securities: Taxable interest 22,506 22,272 60,099 69,764 Tax-exempt interest 180 204 560 654 Dividends 2,413 2,147 7,076 6,514 Interest on time deposits in other banks ---- ---- ---- ---- Interest on federal funds sold and securities purchased under agreements to resell 229 655 875 1,303 - ---------------------------------------------------------------------------------------------------------------- Total interest income 118,564 115,611 338,683 346,253 ----------------------------------------------------------------- Interest on deposits 37,179 41,035 104,662 116,727 Interest on short-term borrowings 15,537 12,887 43,114 46,179 Interest on long-term debt 2,771 2,771 8,290 4,798 - ---------------------------------------------------------------------------------------------------------------- Total interest expense 55,487 56,693 156,066 167,704 ----------------------------------------------------------------- Net interest income 63,077 58,918 182,617 178,549 Provision for loan losses (4,000) (5,000) (13,500) (15,000) - ---------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 59,077 53,918 169,117 163,549 ----------------------------------------------------------------- OTHER INCOME Trust and asset management fees 37,102 32,203 109,188 94,355 Service charges on deposit accounts 6,553 5,659 17,927 16,266 Gain on business disposition ---- ---- ---- 5,503 Card fees 2,522 2,114 6,805 6,057 Other operating income 2,854 2,593 6,773 8,972 Securities gains 821 4,745 845 4,747 - ---------------------------------------------------------------------------------------------------------------- Total other income 49,852 47,314 141,538 135,900 ----------------------------------------------------------------- Net interest and other income 108,929 101,232 310,655 299,449 ----------------------------------------------------------------- OTHER EXPENSE Salaries and employment benefits 38,654 34,855 106,667 103,313 Net occupancy 4,161 3,391 11,209 9,405 Furniture and equipment 5,631 4,899 15,719 13,842 Stationery and supplies 1,502 1,483 4,561 4,182 6 Provision for litigation settlement ---- ---- ---- 5,500 Servicing and consulting fees 1,619 1,774 4,915 4,989 Advertising and contributions 2,105 1,915 6,003 5,141 Other operating expense 9,289 8,892 27,194 26,297 - ---------------------------------------------------------------------------------------------------------------- Total other expense 62,961 57,209 176,268 172,669 ----------------------------------------------------------------- NET INCOME Income before income taxes 45,968 44,023 134,387 126,780 Applicable income taxes 15,242 14,792 44,559 41,948 - ---------------------------------------------------------------------------------------------------------------- Net income $ 30,726 $ 29,231 $ 89,828 $ 84,832 ================================================================= Net income per share: basic $ 0.94 $ 0.87 $ 2.72 $ 2.53 ================================================================= diluted $ 0.92 $ 0.86 $ 2.68 $ 2.47 ================================================================= Weighted average shares oustanding: basic 33,005 33,476 33,076 33,519 diluted 33,400 34,140 33,580 34,335 Cash dividends per share $ 0.42 $ 0.39 $ 1.23 $ 1.14 See Notes to Consolidated Financial Statements
7
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Wilmington Trust Corporation and Subsidiaries ------------------------------ For the nine months ended September 30, (in thousands) 1999 1998 - -------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 89,828 $ 84,832 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 13,500 15,000 Provision for depreciation 12,242 9,970 Amortization/(accretion) of investment securities available for sale discounts and premiums 2,528 (1,359) Accretion of investment securities held to maturity discounts and premiums (47) (194) Deferred income taxes 16,210 (3,521) Gains on sales of loans (324) (588) Securities gains (845) (4,747) (Increase)/decrease in other assets (26,599) 19,875 Decrease in other liabilities (23,276) (4,147) - -------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 83,217 115,121 ------------------------------ INVESTING ACTIVITIES Proceeds from sales of investment securities available for sale 891,114 658,114 Proceeds from maturities of investment securities available for sale 221,925 494,050 Proceeds from maturities of investment securities held to maturity 39,850 184,741 Purchases of investment securities available for sale (1,543,667) (1,097,803) Purchases of investment securities held to maturity (1,000) ---- Investments in affiliates (27,658) (119,163) Gross proceeds from sales of loans 70,243 81,300 Purchases of loans (7,070) (1,095) Net increase in loans (388,181) (324,349) Net increase in premises and equipment (13,693) (18,548) - -------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (758,137) (142,753) ------------------------------ FINANCING ACTIVITIES Net increase in demand, savings and interest-bearing demand deposits 85,327 131,161 Net increase in certificates of deposit 443,356 226,916 Net increase/(decrease) in federal funds purchased and securities sold under agreements to repurchase 149,707 (407,270) Net increase in U.S. Treasury demand 50,547 13,057 Proceeds from issuance of long-term debt ---- 125,000 Cash dividends (40,729) (38,198) Proceeds from common stock issued under employment benefit plans 14,063 11,892 8 Payments for common stock acquired through buybacks (62,632) (23,042) - -------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 639,639 39,516 ------------------------------ (Decrease)/increase in cash and cash equivalents (35,281) 11,884 Cash and cash equivalents at beginning of period 288,079 289,392 - -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of period $ 252,798 $ 301,276 ============================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 157,356 $ 165,654 Taxes 51,910 41,273 Loans transferred during the year: To other real estate owned $ 1,727 $ 2,066 From other real estate owned 2,283 3,956 See Notes to Consolidated Financial Statements
9 Note 1 - Accounting and Reporting Policies The accounting and reporting policies of Wilmington Trust Corporation (the "Corporation"), a holding company that owns all of the issued and outstanding shares of capital stock of Wilmington Trust Company, Wilmington Trust of Pennsylvania, Wilmington Trust FSB and WT Investments, Inc., conform to generally accepted accounting principles and practices in the banking industry for interim financial information. The information for the interim periods is unaudited and includes all adjustments that are of a normal recurring nature and that management believes to be necessary for fair presentation. Results of the interim periods are not necessarily indicative of the results that may be expected for the full year. This note is presented and should be read in conjunction with the Notes to the Consolidated Financial Statements included in the Corporation's Annual Report to Shareholders for 1998. Note 2 - Comprehensive Income Accumulated other comprehensive income, as required by Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," is representative of the Corporation's after-tax, unrealized gains and/or losses included in the investment securities available-for-sale portfolio. The upward movement in interest rates since December 31, 1998 resulted in temporary declines in the market value of the Corporation's U.S. Treasury, government agency and asset-backed securities portfolios. Note 3 - Segment Reporting Financial data by segment for September 30, 1999 vs September 30, 1998 is as follows:
- --------------------------------------------------------------------------------------------------------------------------------- Banking Fee-based Funds Year-to-Date September 30, 1999 (in thousands) business business management Totals - --------------------------------------------------------------------------------------------------------------------------------- Net interest income $ 150,208 $ 16,104 $ 17,876 $ 184,188 Provision for loan losses (13,444) (56) --- (13,500) - --------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision 136,764 16,048 17,876 170,688 Trust and asset management fees: Personal trust ---- 48,430 ---- 48,430 Corporate financial services ---- 34,187 ---- 34,187 Asset management ---- 27,043 ---- 27,043 Other operating income 29,856 2,160 942 32,958 Securities gains ---- ---- 845 845 - --------------------------------------------------------------------------------------------------------------------------------- Net interest and other income 166,620 127,868 19,663 314,151 Other expense (95,958) (80,527) (1,629) (178,114) - --------------------------------------------------------------------------------------------------------------------------------- Segment profit from operations 70,662 47,341 18,034 136,037 Segment loss from infrequent events ---- 569 ---- 569 - --------------------------------------------------------------------------------------------------------------------------------- Segment profit before income taxes $ 70,662 $ 47,910 $ 18,034 $ 136,606 ================================================================================================================================= Intersegment revenue $ 8,498 $ 5,681 $ 1,745 $ 15,924 Depreciation & amortization 7,699 5,073 208 12,980 Investment in equity method investees ---- 159,795 ---- 159,795 Segment average assets 4,187,812 704,058 3,250,262 8,142,132 10 Year-to-Date September 30, 1998 (in thousands) - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income $ 154,887 $ 17,761 $ 7,501 $ 180,149 Provision for loan losses (14,767) (233) ---- (15,000) - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision 140,120 17,528 7,501 165,149 Trust and asset management fees: Personal trust ---- 44,435 ---- 44,435 Corporate financial services ---- 31,713 ---- 31,713 Asset management ---- 19,825 ---- 19,825 Other operating income 27,799 1,641 8,143 37,583 Securities gains 1 --- 4,746 4,747 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest and other income 167,920 115,142 20,390 303,452 Other expense (93,367) (72,305) (8,292) (173,964) - ---------------------------------------------------------------------------------------------------------------------------------- Segment profit from operations 74,553 42,837 12,098 129,488 Segment loss from infrequent events ---- 1,534 ---- 1,534 - ---------------------------------------------------------------------------------------------------------------------------------- Segment profit before income taxes $ 74,553 $ 44,371 $ 12,098 $ 131,022 ================================================================================================================================== Intersegment revenue $ 4,847 $ 2,999 $ 1,127 $ 8,973 Depreciation and amortization 6,244 4,349 161 10,754 Investment in equity method investees ---- 119,921 ---- 119,921 Segment average assets 3,833,971 553,336 3,026,410 7,413,717
A reconciliation of reportable segment amounts to the Corporation's consolidated balances is as follows: - ----------------------------------------------------------------------------------------- Year-to-Date September 30 (in thousands) 1999 1998 - ----------------------------------------------------------------------------------------- Revenue: Total revenues for reportable segments $ 184,188 $180,149 Other revenues 143,463 138,303 Elimination of intersegment revenues (3,496) (4,003) - ----------------------------------------------------------------------------------------- Total consolidated revenues before provision $ 324,155 $314,449 =============================== Profit or loss: Total profit or loss for reportable segments $ 136,606 $131,022 Elimination of intersegment profits (1,650) (2,708) Infrequent events (569) (1,534) - ----------------------------------------------------------------------------------------- $ 134,387 $126,780 ===============================
11 Assets: Total assets for reportable segments $ 8,142,132 $ 7,413,717 Other assets 225,328 216,920 Elimination of intersegment assets (1,784,084) (1,364,114) Other assets not allocated to segments ---- ---- - ------------------------------------------------------------------------------- Consolidated total average assets $ 6,583,376 $ 6,266,523 =============================== A description of the Corporation's business lines is contained in Note 18 to its consolidated financial statements in the Corporation's 1998 Annual Report to Shareholders. 12 Wilmington Trust Corporation and Subsidiaries Item 2. Management's Discussion and Analysis of Financial Condition and Results Operations SUMMARY - ------- Net income for the third quarter of 1999 was $30.7 million, or $.94 per share, a 5% increase over the $29.2 million, or $.87 per share, reported for the third quarter of last year. Diluted net income per share for the third quarter of 1999 was $.92, compared to $.86 for the third quarter of last year. Total revenues for the third quarter of 1999 reached $112.9 million, a 6% increase over the $106.2 million reported for the third quarter of 1998. Net interest income for the third quarter of 1999 reached $63.1 million, a 7% increase over the $58.9 million reported for the third quarter of last year. The quarterly provision for loan losses of $4.0 million was less than the $5.0 million for the third quarter of 1998. The reserve for loan losses at quarter-end was $76.4 million, $4.5 million, or 6%, above the $71.9 million reported at December 31, 1998. Non-interest income for the third quarter of 1999 was $49.9 million, a 5% increase over the $47.3 million reported for the same quarter of last year. Operating expenses for the third quarter of 1999 were $63.0 million, a 10% increase above the $57.2 million reported for the third quarter of last year. Return on assets for the nine months ended September 30, 1999, on an annualized basis, was 1.82%, above the 1.81% reported for the corresponding period a year ago. Return on stockholders' equity, also on an annualized basis, was 22.36%, above the 21.76% reported for the first nine months of 1998. STATEMENT OF CONDITION - ---------------------- Total assets at September 30, 1999 were $6.99 billion, up $687.1 million, or 11%, over the $6.30 billion reported at December 31, 1998. Total earning assets increased $638.2 million, or 11%, over the same period of time, to $6.41 billion. Growth in both the loan and investment portfolios contributed to these increases. Total loans at September 30, 1999 were $4.64 billion, an increase of $316.3 million, or 7%, over the December 31, 1998 level of $4.32 billion. Contributing to this increase were commercial loans of $1.44 billion, which rose $65.9 million, or 5%, over their December 31, 1998 level; commercial construction loans of $284.8 million, which rose $73.1 million, or 35%; commercial mortgage loans of $897.2 million, which rose $27.8 million, or 3%; residential mortgage loans of $935.3 million, which rose $77.7 million, or 9%; and consumer loans of $1.08 billion, which rose $69.1 million, or 7%. The investment portfolio at September 30, 1999 was $1.73 billion, an increase of $354.8 million, or 26%, over the December 31, 1998 level of $1.37 billion, as the Corporation continued its efforts to replace securities sold during 1998. Contributing to this increase were U.S. Treasury and government agency securities, which increased $152.8 million, or 19%, to $978.5 million, and asset-backed securities, which increased $117.6 million, or 44%, to $383.0 million. Interest-bearing liabilities at quarter-end were $5.34 billion, $597.5 million, or 13%, above the year-end level of $4.74 billion. Total deposits during the first nine months of 1999 increased $528.7 million, or 12%, while short-term borrowings increased $200.3 million, or 21%. A $516.5 million increase in 13 certificates of deposit $100,000 and over was offset, in part, by a $45.5 million, or 3%, decrease in interest-bearing demand account balances, and a $73.1 million, or 6%, decrease in certificates of deposit less than $100,000. Federal funds purchased increased $198.2 million, or 30%, to $866.4 million, and U.S. Treasury demand balances rose $50.5 million, to $69.5 million. Shareholders' equity at September 30, 1999 was $524.1 million, $22.1 million, or 4%, below the year-end level. Earnings of $89.8 million and $14.1 million (381,226 shares) in new stock issued during that nine-month period were more than offset by a $22.6 million valuation reserve adjustment for the investment portfolio, $40.7 million in cash dividends and $62.6 million (1,145,120 shares) for the stock buyback program. NET INTEREST INCOME - ------------------- Net interest income for the third quarter of 1999 on a fully tax-equivalent ("FTE") basis was $65.1 million. This was a $4.0 million, or 7%, increase over the $61.0 million reported for the third quarter of 1998. Interest income (FTE) for the third quarter of 1999 increased $2.8 million, or 2%, to $120.5 million from $117.7 million for the third quarter of 1998. Contributing to this increase was the effect of a $411.0 million increase in the average level of earning assets, offset in part by the declining rate environment. Interest revenues rose $9.3 million as a result of this increase in earning assets. Offsetting this increase was a $6.5 million decrease in interest revenues associated with the lower interest rates. The average rate earned on the Corporation's earning assets during the third quarter of 1999 fell 39 basis points from that for the third quarter of 1998, from 7.95% to 7.56%. The loan portfolio yield decreased 45 basis points, to 8.12%, while the investment portfolio yield declined 31 basis points, to 6.07%. Interest expense for the third quarter of 1999 declined $1.2 million, or 2%, to $55.5 million from the $56.7 million reported for the third quarter of last year. Interest expense declined $5.5 million due to a 40-basis point drop in the average rate paid on interest-bearing liabilities. This decrease was offset, in part, by a $4.3 million increase in interest expense attributable to the $370.6 million increase in the average level of interest-bearing liabilities. The average rate the Corporation paid for its funds during the third quarter of 1999 was 3.48%, compared to 3.83% for the third quarter of 1998. The Corporation's net interest margin for the third quarter of 1999 was 4.08%, down four basis points from the 4.12% reported for the third quarter of a year ago. The decline was driven, in part, by customer movement to lower cost, fixed-rate financing. In addition, the issuance of $125 million of subordinated debt securities to fund investments in asset management firms, generating fee income, has reduced the net interest margin further. The following three tables present comparative net interest income data and a rate-volume analysis of changes in net interest income for the third quarters and first nine months, respectively, of 1999 and 1998. 14 QUARTERLY ANALYSIS OF EARNINGS
1999 Third Quarter 1998 Third Quarter -------------------------------------------------------------------------------------------------- (in thousands; rates on Average Income/ Average Average Income/ Average tax-equivalent basis) balance expense rate balance expense rate - ------------------------------------------------------------------------------------------------------------------------------- Earning assets Time deposits in other banks $ ------ $ ---- ----% $ ------ $ ---- ----% Federal funds sold and securities purchased under agreements to resell 17,428 229 5.14 46,369 655 5.51 - ------------------------------------------------------------------------ ---------------------------- Total short-term investments 17,428 229 5.14 46,369 655 5.51 -------------------------------------------------------------------------------- U.S. Treasury and government agencies 991,511 14,864 5.89 972,268 14,943 6.20 State and municipal 14,412 282 7.93 16,098 309 7.76 Preferred stock 158,510 2,854 7.19 140,846 2,503 7.24 Asset-backed securities 388,085 6,140 6.22 375,452 6,178 6.63 Other 142,094 1,959 5.51 109,118 1,573 5.80 - ------------------------------------------------------------------------ ---------------------------- Total investment securities 1,694,612 26,099 6.07 1,613,782 25,506 6.38 -------------------------------------------------------------------------------- Commercial, financial and agricultural 1,432,059 28,612 7.84 1,285,342 27,355 8.35 Real estate-construction 278,861 6,365 8.93 198,006 4,780 9.45 Mortgage-commercial 879,705 19,338 8.60 882,862 20,551 9.11 Mortgage-residential 908,216 15,947 7.02 847,030 16,211 7.65 Consumer 1,071,665 23,953 8.84 998,178 22,662 8.98 - ------------------------------------------------------------------------ ---------------------------- Total loan 4,570,506 94,215 8.12 4,211,418 91,559 8.57 -------------------------------------------------------------------------------- Total earning assets $ 6,282,546 120,543 7.56 $ 5,871,569 117,720 7.95 ================================================================================ Funds supporting earning assets Savings $ 415,125 1,807 1.73 $ 411,756 2,350 2.26 Interest-bearing demand 1,351,980 7,373 2.16 1,246,393 8,000 2.55 Certificates under $100,000 1,133,085 14,159 4.96 1,216,805 16,812 5.48 Certificates $100,000 and over 1,048,284 13,840 5.17 966,967 13,873 5.61 - ------------------------------------------------------------------------ ---------------------------- Total interest-bearing deposits 3,948,474 37,179 3.72 3,841,921 41,035 4.22 -------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 1,176,419 14,991 5.06 896,347 12,182 5.39 U.S. Treasury demand 37,522 546 5.69 53,563 705 5.15 - ------------------------------------------------------------------------ ---------------------------- Total short-term borrowings 1,213,941 15,537 5.08 949,910 12,887 5.38 -------------------------------------------------------------------------------- Long-term debt 168,000 2,771 6.60 168,000 2,771 6.55 - ------------------------------------------------------------------------ ---------------------------- 15 Total interest-bearing liabilities 5,330,415 55,487 4.12 4,959,831 56,693 4.52 ------------------------------------------------------------------------------ Other noninterest funds 952,131 ---- ---- 911,738 ---- ---- - -------------------------------------------------------------------------- ---------------------------- Total funds used to support earning assets $6,282,546 55,487 3.48 $5,871,569 56,693 3.83 ============================================================================== Net interest income/yield 65,056 4.08 61,027 4.12 Tax-equivalent adjustment (1,979) (2,109) ---------- --------- Net interest income $ 63,077 $ 58,918 ========== =========
Average rates are calculated using average balances based on historical cost and do not reflect the market valuation adjustment required by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective January 1, 1994. 16 ?? 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 24,315 875 4.75 31,418 1,303 5.44 - --------------------------------------------------------------------------- ------------------------------- Total short-term investments 24,315 875 4.75 31,418 1,303 5.44 --------------------------------------------------------------------------------------- U.S. Treasury and government agencies 927,756 40,764 5.83 1,020,116 47,683 6.28 State and municipal 14,924 853 7.73 17,000 984 7.76 Preferred stock 163,827 8,437 6.92 137,753 7,793 7.73 Asset-backed securities 346,082 16,301 6.24 380,461 18,840 6.64 Other 108,836 4,297 5.27 103,146 4,377 5.69 - --------------------------------------------------------------------------- ------------------------------- Total investment securities 1,561,425 70,652 6.01 1,658,476 79,677 6.49 --------------------------------------------------------------------------------------- Commercial, financial and agricultural 1,414,544 83,202 7.77 1,250,217 80,264 8.49 Real estate-construction 257,032 16,905 8.68 172,504 12,239 9.35 Mortgage-commercial 874,377 57,517 8.68 897,096 63,172 9.29 Mortgage-residential 876,179 47,188 7.16 831,902 49,435 7.93 Consumer 1,049,575 68,339 8.68 976,247 66,457 9.08 - --------------------------------------------------------------------------- ------------------------------- Total loans 4,471,707 273,151 8.10 4,127,966 271,567 8.79 --------------------------------------------------------------------------------------- Total earning assets $6,057,447 344,678 7.55 $5,817,860 352,547 8.06 ======================================================================================= Funds supporting earning assets Savings $415,119 5,612 1.81 $ 407,881 7,073 2.32 Interest-bearing demand 1,375,913 22,400 2.18 1,205,585 23,203 2.57 Certificates under $100,000 1,156,846 43,740 5.06 1,212,559 50,078 5.52 Certificates $100,000 and over 837,268 32,910 5.18 853,768 36,373 5.62 - --------------------------------------------------------------------------- ------------------------------- Total interest-bearing deposits 3,785,146 104,662 3.68 3,679,793 116,727 4.25 --------------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 1,128,659 41,769 4.92 1,077,210 44,157 5.47 U.S. Treasury demand 34,442 1,345 5.15 51,197 2,022 5.21 - --------------------------------------------------------------------------- ------------------------------- Total short-term borrowings 1,163,101 43,114 4.92 1,128,407 46,179 5.46 --------------------------------------------------------------------------------------- Long-term debt 168,000 8,290 6.58 111,681 4,798 5.44 - --------------------------------------------------------------------------- ------------------------------- Total interest-bearing liabilities 5,116,247 156,066 4.06 4,919,881 167,704 4.53 --------------------------------------------------------------------------------------- 17 Other noninterest funds 941,200 ---- ---- 897,979 ---- ---- - --------------------------------------------------------------------------- ---------------------------------- Total funds used to support earning assets $6,057,447 156,066 3.42 $5,817,860 167,704 3.84 ======================================================================================= Net interest income/yield 188,612 4.13 184,843 4.22 Tax-equivalent adjustment (5,995) (6,294) -------------------- -------------------- Net interest income $ 182,617 $ 178,549 ==================== ======================
Average rates are calculated using average balances based on historical cost and do not reflect the market valuation adjustment required by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective January 1, 1994. 18 RATE-VOLUME ANALYSIS OF NET INTEREST INCOME
---------------------------------------- --------------------------------------- For the three months ended September 30, For the nine months ended September 30, ---------------------------------------- --------------------------------------- 1999/1998 1999/1998 Increase (Decrease) Increase (Decrease) due to change in due to change in ---------------------------------------- --------------------------------------- 1 2 1 2 (in thousands) Volume Rate Total Volume Rate Total - -------------------------------------------------------------------------------------------------------------------------------- Interest income: Time deposits in other banks $ ---- $ ---- $ ----- $ ----- $ ----- $ ------ Federal funds sold and securities purchased under agreements to resell (408) (18) (426) (293) (135) (428) - -------------------------------------------------------------------------------------------------------------------------------- Total short-term investments (408) (18) (426) (293) (135) (428) ------------------------------------------------------------------------------------------ U.S. Treasury and government agencies 715 (794) (79) (3,789) (3,130) (6,919) State and municipal * (33) 6 (27) (128) (3) (131) Preferred stock * 381 (30) 351 1,648 (1,004) 644 Asset-backed securities 368 (406) (38) (1,493) (1,046) (2,539) Other * 490 (104) 386 257 (337) (80) - -------------------------------------------------------------------------------------------------------------------------------- Total investment securities 1,921 (1,328) 593 (3,505) (5,520) (9,025) ------------------------------------------------------------------------------------------ Commercial, financial and agricultural * 3,088 (1,831) 1,257 10,435 (7,497) 2,938 Real estate-construction 1,926 (341) 1,585 5,911 (1,245) 4,666 Mortgage-commercial * (72) (1,141) (1,213) (1,579) (4,076) (5,655) Mortgage-residential 1,180 (1,444) (264) 2,626 (4,873) (2,247) Consumer 1,663 (372) 1,291 4,980 (3,098) 1,882 - -------------------------------------------------------------------------------------------------------------------------------- Total loans 7,785 (5,129) 2,656 22,373 (20,789) 1,584 - -------------------------------------------------------------------------------------------------------------------------------- Total interest income $ 9,298 $(6,475) $ 2,823 $ 18,575 $ (26,444) $ (7,869) ========================================================================================== Interest expense: Savings $ 19 $ (562) $ (543) $ 126 $ (1,587) $ (1,461) Interest-bearing demand 679 (1,306) (627) 3,274 (4,077) (803) Certificates under $100,000 (1,156) (1,497) (2,653) (2,300) (4,038) (6,338) 19 Certificates $100,000 and over 1,166 (1,199) (33) (703) (2,760) (3,463) - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 708 (4,564) (3,856) 397 (12,462) (12,065) --------------------------------------------------------------------------------------- Federal funds purchased and secruities sold under agreements to repurchase 3,774 (965) 2,809 2,111 (4,499) (2,388) U.S. Treasury demand (211) 52 (159) (662) (15) (677) - ------------------------------------------------------------------------------------------------------------------------------ Total short-term borrowings 3,563 (913) 2,650 1,449 (4,514) (3,065) --------------------------------------------------------------------------------------- Long-term debt ---- ---- ---- 2,292 1,200 3,492 - ------------------------------------------------------------------------------------------------------------------------------ Total interest expense $ 4,271 $(5,477) $ (1,206) $ 4,138 $(15,776) $(11,638) ======================================================================================= Changes in net interest income $ 4,029 $ 3,769 ========= ===========
* Variances are calculated on a fully tax-equivalent basis, which includes the effects of any disallowed interest expense. 1 Changes attributable to volume are defined as change in average balance multiplied by the prior year's rate. 2 Changes attributable to rate are defined as a change in rate multiplied by the average balance in the applicable period of the prior year. A change in rate/volume (change in rate multiplied by change in volume) has been allocated to the change in rate. 20 Non-interest Revenues and Operating Expenses - -------------------------------------------- Non-interest revenues for the third quarter of 1999 were $49.9 million, an increase of $2.5 million, or 5%, over those for the third quarter of a year ago, due primarily to higher trust and asset management fees. Excluding securities gains, non-interest revenues for the third quarter of 1999 were $49.0 million, compared to $42.6 million for the third quarter of 1998. This would reflect a 15% increase quarter-to-quarter and a 7% increase on a year-to-date basis. Trust and asset management fees for the third quarter of 1999 increased $4.9 million, or 15%, to $37.1 million. Asset management fees in the third quarter rose $2.1 million, or 30%, to $9.1 million, due to the performance of our recent affiliations with the asset management firms Cramer Rosenthal McGlynn, LLC and Roxbury Capital Management, LLC. Personal trust fees in the third quarter rose $1.9 million, or 13%, to $16.5 million. Corporate trust fees increased $845,000, or 8%, to $11.5 million. On a year-to-date basis, trust and asset management fees were up $14.8 million, or 16%, over those of a year ago, with asset management fees contributing over half of this improvement. Service charges on deposit accounts for the third quarter of 1999 were $6.6 million, 16% above those for the third quarter a year ago. Increased transaction fees associated with automated teller machine usage, overdrafts and returned items contributed to this increase. For the first nine months of 1999, service charges were $1.7 million, or 10%, above those for the first nine months of 1998. Other operating income for the third quarter of 1999 was $5.4 million. This was an increase of $669,000, or 14%, over the $4.7 million reported for the third quarter of 1998. For the first nine months of 1999, other operating income was $7.0 million, or 34%, below that for the corresponding period last year. Other operating income for the first nine months of 1998 included non-recurring gains of $5.5 million from the disposition of the mutual fund processing business, $600,000 from the sale of fixed assets and a $593,000 gain on disposition of OREO. Operating expenses for the third quarter of 1999 increased $5.8 million, or 10%, over those for the third quarter of 1998, to $63.0 million. Total personnel expenses for the quarter increased $3.8 million, or 11%, to $38.7 million. Contributing to this increase were higher levels of salaries and wage expense. Net occupancy expense rose $770,000, or 23%, due to costs associated with the new personal trust and private banking offices opened last year in New York and California, as well as the relocation this year of our North Palm Beach, Florida, office to PGA Boulevard. Furniture and equipment expense for the quarter rose $732,000, or 15%, above that for the third quarter of last year, as higher data processing maintenance costs and depreciation expense reflected the Corporation's continued investment in new technology. Other operating expense for the quarter rose $432,000, or 3%, to $13.0 million. For the first nine months of 1999, other operating expense was $38.1 million, a decrease of $3.8 million, or 9%, below that for the first nine months of last year. There was no provision for litigation settlement during the first nine months of 1999, while the first quarter of 1998 reflected a $5.5 million charge to earnings taken in connection with the anticipated settlement of outstanding litigation. Absent this charge in 1998, other operating expense for the first nine months of 1999 increased $1.7 million, or 5%, above that for the first nine months of 1998. Contributing to this increase for both the third quarter of 1999 and the year-to-date were higher advertising, telephone, travel and entertainment and card fee expenses. The Corporation continues to review aggressively methods of streamlining processes and controlling expenses through internal restructuring and the use of third-party providers. Income tax expense for the first nine months of 1999 increased $2.6 million, or 6%, above that for the first nine months of 1998, to $44.6 million. Approximately $1.6 million, or 61%, of this increase was Federal income tax. The Corporation's effective tax rate for the first nine months of 1999 was 33.16%, compared to 33.09% for the first nine months of 1998. 21 Liquidity - --------- A financial institution's liquidity represents its ability to meet, in a timely manner, cash flow requirements that may arise. Liquidity on the asset side of the balance sheet is provided by the maturity and marketability of loans, money market assets and investments. Liquidity on the liability side of the balance sheet is usually provided through a stable base of core deposits. The Corporation's quarter-end liquidity ratio, calculated in accordance with regulatory requirements of the FDIC, was 25.35%. Management believes that maturities of the Corporation's investment securities, other readily marketable assets and external sources of funds offer more than adequate liquidity to meet any cash flow requirements that may arise. Sources of funds have historically consisted of deposits, amortization and prepayments of outstanding loans, maturities of investment securities, borrowings and interest income. Management monitors the Corporation's existing and projected liquidity requirements on an ongoing basis, and implements appropriate strategies when deemed necessary. Asset Quality and Loan Loss Provision - ------------------------------------- The Corporation's provision for loan losses for the third quarter of 1999 was $4.0 mllion, $1.0 million, or 20%, below the amount provided for the third quarter of 1998. The reserve for loan losses at September 30, 1999 was $76.4 million, an increase of $4.5 million, or 6%, above the $71.9 million reported at December 31, 1998. The reserve as a percentage of total period-end loans outstanding was 1.65%, down slightly from the year-end level of 1.66%. Net chargeoffs for the first nine months of 1999 were $9.0 million, an increase of $97,000, or 1%, above those for the corresponding period of 1998. The following table presents the risk elements in the Corporation's loan portfolio: Risk Elements (in thousands) September 30, December 31, September 30, 1999 1998 1998 - ------------------------------------------------------------------------------- Nonaccruing $31,839 $30,598 $30,848 Past due 90 days or more 21,187 18,558 14,097 - ------------------------------------------------------------------------------- Total $53,026 $49,156 $44,945 =============================================== Percent of total loans at 1.14% 1.14% 1.06% period-end Other real estate owned $976 $1,532 $1,848 Nonaccruing loans at September 30, 1999 were $31.8 million, an increase of $1.2 million over the $30.6 million reported at December 31, 1998. Other real estate owned, which is reported as a component of other assets in the Consolidated Statements of Condition, consists of assets that have been acquired through foreclosure. These assets are recorded on the books of the Corporation at the lower of their cost or the estimated fair value less cost to sell, adjusted periodically based upon current appraisals. Other real estate owned at September 30, 1999 was $976,000, a decrease of $556,000, or 36%, from the December 31, 1998 level of $1.5 million. Nonperforming assets (other real estate owned plus nonaccrual loans) at September 30, 1999 totaled $32.8 million, or .71% of period-end loans outstanding. This was an increase of $685,000, or 2%, over the $32.1 million, or .74% of period-end loans outstanding, reported at December 31, 1998. As a result of the Corporation's ongoing monitoring of its loan portfolio, at September 30, 1999, approximately $53.5 million of its loans were identified that are either currently performing in accordance with their terms or are less than 90 days past due but for which, in management's opinion, serious doubt exists as to the borrowers' ability to continue to repay their loans in full on a timely basis. 22 The reserve for loan losses at quarter-end was 2.40 times the level of nonaccrual loans. Management believes the reserve is adequate, based upon currently available information. The Corporation's determination of the adequacy of its reserve is based upon an evaluation of its classified loans and other assets, past loss experience, current economic and real estate market conditions and any regulatory recommendations. Capital Resources - ----------------- A strong capital position provides a margin of safety for both depositors and stockholders, enables a financial institution to take advantage of profitable opportunities and provides for future growth. The Corporation's total risk-based capital ratio at the end of the third quarter of 1999 was 11.08%, and its core (Tier 1) leveraged capital ratio was 5.92%. The corresponding ratios at year-end 1998 were 12.47% and 6.61%, respectively. Both of these ratios are well in excess of the current regulatory minimums of 8.00% and 4.00%, respectively. Management monitors the Corporation's capital position and will make adjustments as needed to insure that the capital base will satisfy existing and impending regulatory requirements, as well as meet appropriate standards of safety and provide for future growth. Other Information - ----------------- Year 2000 Issue - --------------- The Corporation is working to help assure that date-sensitive systems and hardware are prepared for orderly transition to the year 2000 without disrupting our customer accounts and operations. We believe we are prepared for the Year 2000 and that, based on our renovation, testing, contingency planning and contacts with third parties, our systems will be able to process dates and date-related information after December 31, 1999. We began renovating business application systems in late 1995. Subsequently, the Corporation established a Year 2000 Program Management Office to manage our Year 2000 project on an enterprise-wide basis. We have regular project reviews of our Year 2000 efforts with a management steering team, and quarterly meetings with senior management and the Board of Directors. The Program Management Office - ----------------------------- The Program Management Office is comprised of project leaders representing information technology and each major business area, such as commercial banking, personal banking, personal trust and private banking and corporate financial services. This team coordinates the major initiatives and strategies in each constituent's respective area. The initiatives include business risk/impact analysis, information technology, credit risk, vendor management, investment risk, communications and contingency planning. The Corporation worked with an international consulting firm for approximately six months to assist in its Year 2000 efforts. That firm assisted in implementing the enterprise-wide Program Management Office and strategies to help assure business area readiness, vendor readiness, external communication and contingency planning. 23 The Program Management Office Master Plan - ----------------------------------------- The following is a description and status of each strategy in our Year 2000 program: Information Technology ---------------------- We used a project approach the FDIC has endorsed to help assure continuity and efficiency among all our project teams. The approach used the following five steps: awareness, assessment, renovation, testing and implementation. o RENOVATION: We have completed assessment and renovation of all of our core critical hardware and software systems. We are continuing through 1999 to renovate some non-core systems that are low-critical internal systems. o TESTING: We have completed testing our core critical applications. Additionally, we have tested our core applications and infrastructure in a "time machine" environment, in which our mainframe and mid-range computers actually processed in the December 31, 1999 to January 3, 2000 and February 28 to March 1, 2000 (leap year) environments. We will continue through 1999 to test some non-core systems that are low-critical. o IMPLEMENTATION: As we have renovated applications, we have implemented Year 2000 versions of software. As a result, the Year 2000 versions of all our core systems are running in production today. In preparing for the Year 2000, we have made technology investments that will improve our ability to support our infrastructure and deliver improved services to our customers. These include installing standard NT desktop personal computers throughout our company, a new wire transfer system, introduction of online banking and improvements in infrastructure to support around-the-clock customer access. o CLEAN MANAGEMENT: We also expect to assure that future modifications to our software applications do not introduce new date-related problems and provide any production support that may be necessary. Credit Risk - ----------- Our credit risk strategy includes assessing risks for existing commercial loan relationships over $1 million and assessing all new loan relationships over $1 million. We have evaluated the need to establish additional loan loss reserves, and do not presently recommend any changes. We will continue to monitor existing relationships for Year 2000 readiness into the Year 2000. Investment Risk - --------------- We have evaluated investment risk for trust accounts for which Wilmington Trust has investment responsibility, as well as for the Corporation's own investment portfolio. We have developed an investment risk strategy based on the different types of holdings, such as equity, fixed-income or mutual funds. Vendor Management - ----------------- We have corresponded with providers of core services and products through several mailings. We are continuing to assess key critical vendors, such as power and telecommunication companies, with whom we are reviewing their systems renovation, testing, implementation and contingency plans. We are monitoring the status of critical vendors and have developed contingency plans where the potential for vendors to impact the delivery of services to us is high. In addition, the Corporation is monitoring the status of regulatory reviews of our 24 major service providers. Where feasible, we have tested critical vendor-supplied products, such as software, hardware and environmental systems such as air conditioning and elevator systems. Costs - ----- The Corporation estimates that it spent $23.1 million through September 30, 1999 in outside and internal costs toward required modifications, upgrades and replacements of its internal systems and testing. We presently anticipate incurring an additional $2.0 million in 1999 and 2000 in outside and internal costs. We expect these costs to continue to be funded through operating cash flows. We devoted approximately 30% of our available application programming and 21% of our total internal information technology resources to the Year 2000 issue in 1998 and the first half of 1999. During the third quarter of 1999, our effort required less than 10% of our total internal information technology resources. We have deferred some other information technology projects pending resolution of the Year 2000 issue, but do not believe those deferrals will have a material adverse impact on our financial performance or results of operations. Contingency Planning - -------------------- We have assessed the potential impact of Year 2000 failures on our core business functions and have developed contingency plans where that impact presents a high risk. Business experts and management in each area have validated these plans to ensure their appropriateness. We have incorporated enhancements made through this process into finalized contingency plans. As part of our contingency planning, we are monitoring our liquidity needs as the Year 2000 approaches to assure that we have on hand sufficient cash to support any changes in customer activity. In addition, we have supplemented our normal contingency plans to insure the temporary availability of power at our processing facilities. We believe we are addressing all key components necessary to resolve the Year 2000 issue. Nevertheless, it is not possible to determine with complete certainty that all Year 2000 issues affecting us or our vendors or customers are identified and corrected, or the duration, severity or financial consequences of any failure. The Corporation anticipates that it is possible that it may experience certain operational inconsistencies and inefficiencies. This may result in, among other things, temporary delays in processing customers' checks and payments and other transactions, and could divert the Corporation's time and attention and financial resources from ordinary business activities. The Corporation also could experience the possible failure of certain systems, which may require significant efforts to prevent or alleviate material business disruptions. Disclaimer - ---------- The discussion above of the Corporation's efforts and expectations relating to Year 2000 compliance include forward-looking statements. The Corporation's ability to achieve Year 2000 compliance and the level of incremental costs associated with that compliance could be adversely impacted by, among other things, the availability and cost of programming and testing resources, vendors' and customers' ability to modify proprietary software and unanticipated problems identified in the ongoing compliance review. 25 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 Net interest income is an important determinant of the Corporation's financial performance. Through interest rate sensitivity management, the Corporation seeks to maximize the growth of net interest income on a consistent basis by minimizing the effects of fluctuations associated with changing market interest rates. The Corporation employs simulation models to measure the effect of variations in interest rates on net interest income. The composition of assets, liabilities and off-balance-sheet instruments and their respective repricing and maturity characteristics are evaluated in assessing the Corporation's exposure to changes in interest rates. Net interest income is projected using multiple interest rate scenarios. The results are compared to net interest income projected using stable interest rates. The Corporation's model employs interest rate scenarios in which interest rates gradually move up or down 250 basis points. The simulation model projects, as of September 30, 1999, that a gradual 250-basis point increase in market interest rates would decrease net interest income by 5.9% over a one-year period. This figure compares to a corresponding projected decrease at December 31, 1998 of 1.6%. If interest rates were to gradually decrease 250 basis points, the simulation model projects, as of September 30, 1999, that net interest income would increase 2.8% over a one-year period. This figure compares to a corresponding projected decrease at December 31, 1998 of 2.4%. The Corporation's policy limits the permitted reduction in projected net interest income to 10% over a one-year period, given a change in interest rates. The preceding paragraph contains certain forward-looking statements regarding the anticipated effects on the Corporation's net interest income resulting from hypothetical changes in market interest rates. The assumptions the Corporation uses regarding the effects of changes in interest rates on the adjustment of retail deposit rates and the balances of residential mortgages, asset-backed securities and collateralized mortgage obligations (CMOs) play a significant role in the results the simulation model projects. The adjustment paths are not assumed to be symmetrical. 26 The Corporation's model has employed assumptions that reflect the historical adjustment paths of the Corporation's retail deposit rates to changes in the level of market interest rates. In prior model runs, some of the Corporation's retail deposit rates reached historic lows within the 250-basis point decline scenario. The Corporation's model would freeze the rates for these deposit products when they equaled their historic lows. As actual interest rates on some of the Corporation's retail deposit products reached, and in some cases fell below, their historic low points, new assumptions were developed. These new assumptions incorporate these recent changes in the structure of retail deposit rates in the Corporation's market area and project new historic low points. As was true in earlier simulations, the model freezes these rates when they reach the new, lower level. These model assumptions (asymmetrical adjustments and rate floors based on new historic lows) limit the extent to which deposit rates are expected to adjust in a declining rate scenario and contribute to the projected simulation results. Changes in the balances of residential mortgages, CMOs and asset-backed securities are driven by contractual obligations and prepayments. While contractual obligations are not typically influenced by changes in interest rates, prepayment activity (including refinancing) can shift dramatically with changes in interest rates. The Corporation's prepayment assumptions are based on industry estimates for loans with similar coupons and remaining maturities. A 250-basis point decline in interest rates can lead to a significant increase in prepayments when available reinvestment opportunities of similar risk carry lower returns. Conversely, should interest rates rise 250 basis points, the same balances are not likely to prepay at the same rate, but instead are likely to lengthen in effective maturity as debtors elect not to prepay and to retain these now below-market credit terms for as long as possible. Holders of mortgages, asset-backed securities and CMOs are left with returns below those prevailing in the current environment. This prepayment-driven effect also contributes to the projected simulation results. During the third quarter of 1999, the Corporation sold certain fixed-rate residential mortgage loans into the secondary market. The primary goal of this program is to reduce the risk that the average duration of these fixed-rate residential mortgage loans would extend well beyond the duration that was anticipated at origination, as frequently occurs during periods of rising interest rates. Mortgage loans sold during the third quarter of 1999 totaled $7.9 million, bringing the total sold for the year to $69.9 million. Management reviews the Corporation's rate sensitivity regularly, and may employ a variety of strategies as needed to adjust that sensitivity. These include changing the relative proportions of fixed-rate and floating-rate assets and liabilities, as well as utilizing off-balance-sheet measures such as interest rate swaps and interest rate floors. At September 30, 1999, the Corporation was not committed to any interest rate swaps, down from a total notional amount of $25 million at year-end 1998. At September 30, 1999, the Corporation was committed to interest rate floors with a total notional amount of $225 million, down from the $325 million at year-end 1998. The floors have remaining maturities of between 4 and 32 months, with a weighted average maturity of 14 months. The net interest differential, the amortization of the initial fees associated with the purchase of the floors and any gains recorded on sale are reported under the caption "Interest and fees on loans" and are recognized over the lives of the respective instruments. See "Net Interest Income." 27 Part II. Other Information Item 1 - Legal Proceedings Not Applicable Item 2 - Change In Securities Not Applicable Item 3 - Defaults Upon Senior Securities Not Applicable Item 4 - Submission of Matters to a Vote of Security Holders Not Applicable Item 5 - Other Information Not Applicable Item 6 - Exhibits and Reports on Form 8-K The exhibits listed below are being filed as part of this report. These exhibits will be made available to any shareholder upon receipt of a written request therefor, together with payment of $.20 per page for duplicating costs. Exhibit Number Exhibit - -------------- ------------------------------------------- 11 Statement re computation of per share earnings 27 Financial data schedule 28 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 12, 1999 /s/ David R. Gibson ---------------------------------------------- Name: David R. Gibson Title: Senior Vice President and Chief Financial Officer (Authorized Officer and Principal Financial Officer) 29 EX-11 2 Statement Re Computation of Per Share Earnings - ---------------------------------------------- Basic earnings per share of $.94 for the third quarter of 1999 were computed by dividing net income of $30,726,459 by the weighted average number of shares of common stock outstanding during the quarter of 33,005,137. EX-27 3
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000872821 WILMINGTON TRUST CORPORATION 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 202,298 0 50,500 0 1,692,366 35,128 35,297 4,635,959 76,400 6,987,666 5,065,446 1,151,544 78,529 168,000 0 0 39,264 484,883 6,987,666 270,073 67,735 875 338,683 104,662 156,066 182,617 13,500 845 176,268 134,387 89,828 0 0 89,828 2.72 2.68 4.13 31,839 21,187 0 53,547 71,906 11,773 2,767 76,400 63,693 0 12,707
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