ITEM 1 - BUSINESS
General -------
Wilmington Trust Corporation, a Delaware corporation ("Wilmington Trust"), owns Wilmington Trust Company, a Delaware-chartered bank and trust company and Wilmington Trust's principal subsidiary ("WTC"). WTC was formed in 1903 and is the largest full-service bank in Delaware, with 45 branch offices at January 31, 2001. Wilmington Trust also owns two other financial institutions, Wilmington Trust of Pennsylvania, a Pennsylvania-chartered bank and trust company with five branches ("WTPA"), and Wilmington Trust FSB, a Federally-chartered savings bank with one branch in Maryland, three branches and a sales office in Florida and trust agency offices in New York, California, and Nevada ("WTFSB"). (WTC, WTPA, and WTFSB sometimes are referred to herein as the "Banks"). Wilmington Trust also owns Rodney Square Management Corporation, a registered investment adviser ("RSMC"), and WT Investments, Inc., an investment holding company with interests in three asset management firms ("WTI").
Wilmington Trust's principal place of business is Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890. Its telephone number is (302) 651-1000. Its principal role is to supervise and coordinate the Banks', RSMC's, and WTI's activities and provide them with capital and services. Virtually all of Wilmington Trust's income historically has been from dividends from WTC. Wilmington Trust's current staff principally consists of its management, who are executive officers generally serving in similar capacities for WTC. Wilmington Trust utilizes WTC's support staff.
As of December 31, 2000, Wilmington Trust had total assets of $7.3 billion and total shareholders' equity of $591.9 million. On that date, 32,393,318 shares of Wilmington Trust's common stock were issued and outstanding, which were held by 9,189 shareholders of record. Wilmington Trust's total loans outstanding were approximately $5.2 billion on that date.
Personal Trust Activities ------------------------- Wilmington Trust is one of the nation's largest personal trust institutions, serving a client base that is national in scope. It offers trust administration, investment management, private banking, custody, estate and financial planning, and estate settlement services for its personal trust clients. A staff of attorneys is available to work with the advisors of those clients. Wilmington Trust's offices in Delaware, Pennsylvania, Maryland, Florida, New York, California, Nevada, London, Jersey, and the Cayman Islands provide convenient access to customers in these key markets.
Corporate Trust Activities -------------------------- Wilmington Trust is a major provider of trust and administrative services for customers who benefit from Delaware's and Nevada's favorable tax and legal environments. These customers include passive investment companies, business trusts, limited liability companies, and limited partnerships. Wilmington Trust serves as the owner or indenture trustee for a variety of corporate,
municipal and derivative securities, including those secured by mortgage-backed collateral, residential and commercial mortgage loans, leases, credit card receivables, franchises, timeshares and many other assets included in innovative financing structures. Wilmington Trust participates as owner or indenture trustee for equipment leasing trusts involving aircraft, power generating facilities, communication lines, satellites, and vessels. It also serves as collateral or liquidating trustee in corporate debt restructurings, reorganizations, and mergers. These afford the opportunity to cross-sell Wilmington Trust's custody and asset management services. In addition, Wilmington Trust provides trust and custody services for a variety of tax-qualified employee benefit plans, including defined benefit plans, 401(k) plans, and executive compensation arrangements.
Asset Management ---------------- Wilmington Trust provides investment advisory services for individual and institutional clients across the country, including tax-qualified defined benefit and defined contribution plans, endowment and foundation funds and taxable and tax-exempt cash portfolios. It also offers the proprietary family of The Wilmington Funds, which are mutual funds consisting of the following portfolios:
- The Wilmington Prime Money Market Portfolio and the Wilmington U.S. Government Portfolio, which seek high current income while preserving capital and liquidity by investing in money market instruments;
- The Wilmington Tax-Exempt Portfolio, which seeks high current interest income exempt from Federal income tax;
- The Wilmington Short/Intermediate Bond Portfolio and the Wilmington Intermediate Bond Portfolio, which seek high total return, consistent with high current income, by investing principally in various types of investment-grade, fixed-income securities;
- The Wilmington Municipal Bond Portfolio, which seeks a high level of income exempt from Federal income tax, consistent with the preservation of capital;
- The Wilmington Large Cap Growth Portfolio, which seeks long-term growth of capital by investing in large-cap U.S. equity securities;
- The Wilmington Large-Cap Core Portfolio, which seeks to achieve long-term capital appreciation by investing in large-cap U.S. equity securities;
- The Wilmington Large-Cap Value Portfolio, which seeks to achieve long-term capital appreciation by investing in large-cap U.S. equity securities;
- The Wilmington Small-Cap Core Portfolio, which seeks superior long-term growth of capital by investing in small-cap U.S. equity securities; and
- The Wilmington International Multi-Manager Portfolio, which seeks superior long-term capital appreciation by investing in equity securities of issuers located outside the United States.
WTI holds a 56.5% equity interest in Cramer Rosenthal McGlynn, LLC ("CRM"), an asset management firm with $3.4 billion under management at December 31, 2000 and a value orientation. CRM's capabilities also include special equity, limited partnerships, and high-yield investments. WTI also holds a 30% profit interest and an 8.2% equity interest in California-based Roxbury Capital Management, LLC, an asset management firm with a growth orientation and $11.3 billion under management at December 31, 2000.
Through its personal investment centers, Wilmington Trust offers investment services throughout the Banks' branches.
As of December 31, 2000, Wilmington Trust in the aggregate had assets of $94.4 billion under trust, custody, and administration. Of that total, Wilmington Trust manages approximately $26.8 billion in discretionary assets. Personal trust assets that Wilmington Trust manages totaled $17.5 billion.
Lending Activities ------------------ The Banks historically have concentrated the lending activities described below in Delaware, Pennsylvania, Maryland, Florida, and New York. The Banks generally receive fees for originating loans and for taking applications and committing to originate loans. In addition, they receive fees for issuing letters of credit, as well as late charges and other fees in connection with their lending activities.
Residential Mortgage Loans -------------------------- The Banks directly originate or purchase conventional residential first mortgage loans. A third-party servicer generally services residential mortgage loans that are not resold. The Banks provide financing for jumbo residential first mortgage loans through a third-party lender.
The Banks maintain excellent relationships with correspondent lenders in their market areas from which they purchase residential mortgage loans. The Banks also foster public awareness of their residential mortgage loan products through newspaper advertising and direct mail. The Banks offer both fixed and adjustable interest rates on residential mortgage loans, with terms ranging up to 30 years.
Commercial Loans ---------------- The Banks also originate loans secured by mortgages on commercial real estate and multi-family residential real estate. The Banks seek to minimize risks of this lending in a number of ways, including:
- Limiting the size of their individual commercial and multi-family real estate loans;
- Monitoring the aggregate size of their commercial and multi-family housing loan portfolios; - Generally requiring equity in the property securing the loan equal to a certain percentage of the appraised value or selling price; - Requiring in most instances that the financed project generates cash flow adequate to meet required debt service payments; and - Requiring that the Banks have recourse to the borrower and guarantees from the borrower's principals in most instances.
The Banks also make other types of commercial loans to businesses located in their market areas. The Banks offer lines of credit, term loans, and demand loans to finance working capital, accounts receivable, inventory and equipment purchases. Typically, these loans have terms of up to seven years, and bear interest either at fixed rates or at rates fluctuating with a designated interest rate. These loans frequently are secured by the borrower's assets. In many cases, they also are collateralized by guarantees of the borrower's owners and their principal officers.
Construction Loans ------------------ The Banks make loans and participate in financing to construct residences and commercial buildings. The Banks also originate loans for the purchase of unimproved property for residential and commercial purposes. In these cases, the Banks frequently provide the construction funds to improve the properties.
The Banks' residential and commercial construction loans generally have terms of up to 24 months, and interest rates that adjust from time to time in accordance with changes in a designated interest rate. The Banks disburse loan proceeds in increments as construction progresses and inspections warrant. The Banks finance the construction of individual, owner-occupied houses only if qualified professional contractors are involved and only on the basis of the Banks' underwriting and construction loan management guidelines. The Banks may underwrite and structure construction loans to convert to permanent loans at the end of the construction period. Analyzing prospective construction loan projects requires greater expertise than that required for residential mortgage lending on completed structures. Accordingly, the Banks engage several individuals experienced in underwriting in connection with their construction lending. Residential and commercial construction loans afford the Banks the opportunity to increase the interest rate sensitivity of their loan portfolios and receive yields higher than those obtainable on permanent residential mortgage loans.
Loans to Individuals -------------------- The Banks offer both secured and unsecured personal lines of credit, installment loans, home improvement loans, direct and indirect automobile loans, and credit card facilities. The Banks develop public awareness of their consumer loan products primarily through newspaper advertising and direct mail. Consumer loans generally have shorter terms and higher interest rates than residential first mortgage loans. Through their consumer lending, the Banks attempt to enhance the spread between their average loan yields and their cost of funds, and their matching of assets and liabilities expected to mature or reprice in the same periods.
Underwriting Standards ------------ ---------
In determining whether to originate or purchase a residential mortgage loan, the Banks assess both the borrower's ability to repay the loan and the adequacy of the proposed information concerning the applicant's income, financial condition, employment, and credit history. The Banks require title insurance insuring the priority of their liens on most loans secured by first mortgages on real estate, as well as fire and extended coverage casualty insurance protecting the mortgaged properties. Loans are approved by various levels of management depending on the amount of the loan.
The Banks' underwriting standards relating to commercial real estate and multi-family residential loans are designed to ensure that the property securing the loan will generate sufficient cash flow to cover operating expenses and debt service. The Banks review the property's operating history and projections, comparable properties, and the borrower's financial condition and reputation. The Banks' general underwriting standards with respect to these loans include:
- Inspecting each property before issuing a loan commitment and before each disbursement;
- Requiring an appraisal of the property;
- Requiring recourse to the borrower; and
- Requiring the personal guaranty of the borrower's principal(s).
The Banks monitor the performance of these loans by inspecting the property securing each loan.
The Banks limit real estate secured commercial loans to individuals and organizations with a demonstrated capacity to generate cash flow sufficient to repay indebtedness under varied economic conditions. The Banks monitor the performance of these loans and other loans by reviewing each one at least annually.
The Banks require first or junior mortgages to secure home equity loans. Although this security influences the Banks' underwriting decisions, their primary focus in underwriting these loans, as well as their other loans to individuals, is on the borrower's financial ability to repay. In the underwriting process, the Banks obtain credit bureau reports and verify the borrower's employment and credit information. On home equity loans above a certain level, the Banks require an appraisal of the property securing the loan and, in certain instances, title insurance insuring the priority of their liens.
Deposit Activities ------- ----------
Deposit accounts are the primary source of the Banks' funds for use in lending and investment activities and general business purposes. The Banks also obtain funds from borrowings, the amortization and repayment of outstanding loans, earnings, and maturities of investment securities.
The Banks' deposit accounts include demand checking accounts, term certificates of deposit, money market deposit accounts, NOW accounts, and regular savings accounts. The Banks also offer retirement plan accounts (including individual retirement accounts, Keogh accounts, and
simplified employee pension plans) for investment in the Banks' various deposit accounts. The Banks attract consumer deposits principally from their primary market areas.
Other Activities ----- ----------
Interest and dividends on investments provide the Banks with a significant source of revenue. At December 31, 2000, the Banks' investment securities, including securities purchased under agreements to resell, totaled $1.5 billion, or 20.6% of their total assets. The Banks' investment securities are used to meet Federal liquidity requirements, among other purposes. Designated members of the Bank's management make investment decisions. The Banks have established limits on the types and amounts of investments they may make.
Financial information about Wilmington Trust's reporting segments is contained in Note 18 to the Consolidated Financial Statements contained in Wilmington Trust's Annual Report to Shareholders for 2000.
Subsidiaries ------------
WTC has 18 active wholly-owned subsidiaries, formed for various purposes. Those subsidiaries' results of operations are consolidated with Wilmington Trust for financial reporting purposes. They provide additional services to Wilmington Trust's customers, and include:
- Brandywine Finance Corporation, a finance company;
- Brandywine Insurance Agency, Inc., a licensed insurance agent and broker for life, casualty, and property insurance;
- Brandywine Life Insurance Company, Inc., a reinsurer of credit life insurance written in connection with closed-end consumer loans WTC makes;
- Delaware Corporate Management, Inc. and Organization Services, Inc., which provide services for special purpose entities using Delaware's favorable tax and legal environment;
- Nevada Corporate Management, Inc., which provides services for special purpose entities using Nevada's favorable tax and legal environment;
- WTC Corporate Services, Inc., a sales production company for corporate trust customers;
- Wilmington Brokerage Services Company, a registered broker-dealer and a registered investment adviser;
- Wilmington Trust Global Services, Ltd., a sales production company for corporate trust customers;
- Wilmington Trust (Cayman), Ltd., a trust company; and
- Wilmington Trust (Channel Islands), Ltd., a trust company.
Staff Members ----- -------
On December 31, 2000, Wilmington Trust and its subsidiaries had 2,299 full-time equivalent employees. Wilmington Trust considers its and its subsidiaries' relationships with these employees to be good. Wilmington Trust and the Banks provide a variety of benefit programs for these employees, including pension, profit-sharing, incentive compensation, thrift savings, stock purchase, and group life, health, and accident plans.
Risk Factors ---- -------
- Principal Interest Rate and Credit Risks Associated with Consumer and Commercial Lending. ----------------------------------------------------
The Banks offer fixed and adjustable interest rates on loans, with terms of up to 30 years. Although the majority of residential mortgage loans the Banks originate are fixed-rate, adjustable rate mortgage loans increase the responsiveness of the Banks' loan portfolios to changes in market interest rates. However, ARM loans generally carry lower initial interest rates than fixed-rate loans. Accordingly, they may be less profitable than fixed-rate loans during the initial interest rate period. In addition, since they are more responsive to changes in market interest rates than fixed-rate loans, ARM loans can increase the possibility of delinquencies in periods of high interest rates.
The Banks also originate loans secured by mortgages on commercial real estate and multi-family residential real estate. Since these loans usually are larger than one-to-four family residential mortgage loans, they generally involve greater risks than one-to-four family residential mortgage loans. In addition, since customers' ability to repay those loans often is dependent on operating and managing those properties successfully, adverse conditions in the real estate market or the economy generally can impact repayment more severely than loans secured by one-to-four family residential properties. Moreover, the commercial real estate business is subject to downturns, overbuilding, and local economic conditions.
The Banks also make construction loans for residences and commercial buildings, as well as on unimproved property. While these loans also enable the Banks to increase the interest rate sensitivity of their loan portfolios and receive higher yields than those obtainable on permanent residential mortgage loans, the higher yields correspond to the higher risks perceived to be associated with construction lending. Those include risks associated generally with loans on the type of property securing the loan. Consistent with industry practice, the Banks sometimes fund the interest on a construction loan by including the interest as part of the total loan. Moreover, commercial construction lending often involves disbursing substantial funds with repayment dependent largely on the success of the ultimate project instead of the borrower's or guarantor's ability to repay. Again, adverse conditions in the real estate market or the economy generally can impact repayment more severely than loans secured by one-to-four family residential properties.
In the event of slow economic conditions or deterioration in commercial and real estate markets, we would expect increased nonperforming assets, credit losses, and provisions for loan losses.
- Increasing Competition for Deposits, Loans, and Assets Under Management. -----------------------------------------------------
The Banks compete for deposits, loans, and assets under management. Many of the Banks' competitors are larger and have greater financial resources than Wilmington Trust. These disparities have been accelerated with increasing consolidation in the financial services industry. Savings banks, savings and loan associations, and commercial banks located in the Banks' principal market areas historically have provided the most direct competition for deposits. Dealers in government securities and deposit brokers also provide competition for deposits. Savings banks, savings and loan associations, commercial banks, mortgage banking companies, insurance companies, and other institutional lenders provide the principal competition for loans. This competition can increase the rates the Banks pay to attract deposits and reduce the interest rates they can charge on loans, and impact the Banks' ability to retain existing customers and attract new customers.
Banks, trust companies, investment advisers, mutual fund companies, and insurance companies provide the Banks' principal competition for trust and asset management business.
- Regulatory Restrictions. ---------- -------------
Wilmington Trust and its subsidiaries are subject to a variety of regulatory restrictions in conducting business by Federal and state authorities. These include restrictions imposed by the Bank Holding Company Act, the Federal Deposit Insurance Act, the Federal Reserve Act, the Home Owners' Loan Act, and a variety of Federal and state consumer protection laws. See "Regulatory Matters."
Industry Guide 3 Tables The following table presents a rate/volume analysis of net interest income:
- ----------------------------- * Variances are calculated on a fully tax-equivalent basis, which includes the effects of any disallowed interest expense deduction.
(1) Changes attributable to volume are defined as a change in average balance multiplied by the prior year's rate.
Changes attributable to rate are defined as a change in rate multiplied by the average balance in the applicable period for the prior year.
A change in rate/volume (change in rate multiplied by change in volume) has been allocated to the change in rate.
The maturity distribution of Wilmington Trust's investment securities held to maturity follows:
- ---------------------------- * There were no other securities held to maturity as of December 31, 1999 and 1998.
Note: Weighted average yields are not on a tax-equivalent basis and are calculated using balances based on amortized cost. Time categories not shown above indicate there are no investment securities maturing in that respective timeframe.
The maturity distribution of Wilmington Trust's investment securities available for sale follows:
- ----------------------- Note: Weighted average yields are not on a tax-equivalent basis. Time categories not shown above indicate that there are no investment securities maturing in that respective timeframe.
The following is a summary of period-end loan balances by loan category:
The following table sets forth the allocation of Wilmington Trust's reserve for loan losses for the past five years:
An analysis of loan maturities and interest rate sensitivity of Wilmington Trust's commercial and real estate construction loan portfolios follows:
The following table presents a comparative analysis of the risk elements contained in Wilmington Trust's loan portfolio at year-end(1):
- --------------------------------- (1) The Corporation's policy for placing loans in nonaccrual status is discussed in footnote 1 to the Consolidated Financial Statements contained in the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 2000, which is incorporated by reference herein.
* Restructured as nonaccrual, but not included in nonaccrual amount of $37,522.
The following table sets forth an analysis of Wilmington Trust's provision for loan losses, together with chargeoffs and reserves for the five major portfolio classifications included in its statement of condition(1):
(1) The factors the Corporation considers in determining the amount of additions to its allowance for loan losses are discussed on page 27 of its Annual Report to Shareholders for the fiscal year ended December 31, 2000, which is incorporated by reference herein.
The following table presents a summary of Wilmington Trust's deposits based on average daily balances over the last three years:
The maturity of Wilmington Trust's time deposits of $100,000 or more is as follows:
- -----------------
Federal funds purchased and securities sold under agreements to repurchase generally mature within 90 days. U.S. Treasury demand notes mature overnight.
The following table presents the percentage of Wilmington Trust's funding sources by deposit type:
The following table presents an analysis of Wilmington Trust's return on assets and return on equity over the last three years:
Regulatory Matters ------------------
The following is a summary of laws and regulations applicable to Wilmington Trust and the Banks. It does not purport to be complete, and is qualified by reference to those laws and regulations.
General -------
Wilmington Trust is a bank holding company and a thrift holding company, and the Banks are depository institutions whose deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC"). Federal statutes applicable to Wilmington Trust and the Banks include the Federal Reserve Act, the Federal Deposit Insurance Act, and the Bank Holding Company Act (the "BHCA"). Wilmington Trust and the Banks are regulated and supervised at the Federal level by the Federal Reserve Board, the FDIC, and the Office of Thrift Supervision (the "OTS"). In addition, Wilmington Trust, WTC, and WTPA are subject to supervision and regulation by state authorities.
BHCA ----
Under the BHCA and the Federal Reserve Board's (the "FRB's") regulations, the FRB's approval is required before a bank holding company may acquire "control" of a bank. The BHCA defines "control" of a bank to include ownership or the power to vote 25% or more of any class of a bank's voting stock, the ability to otherwise control the election of a majority of a bank's directors or the power to exercise a controlling influence over a bank's management or policies. In addition, the FRB's prior approval is required for:
- Any action that causes a bank or other company to become a bank holding company;
- Any action that causes a bank to become a subsidiary of a bank holding company;
- The acquisition by a bank holding company of ownership or control of any voting securities of a bank or bank holding company, if that acquisition results in the acquiring bank holding company's control of more than five percent of the outstanding shares of any class of voting securities of the target bank or bank holding company;
- The acquisition by a bank holding company or one of its subsidiaries, other than a bank, of all or substantially all of a bank's assets; or
- The merger or consolidation of bank holding companies, including a merger through a purchase of assets and assumption of liabilities.
Accordingly, before obtaining "control" of Wilmington Trust, a potential bank holding company would need to obtain the FRB's prior approval under the BHCA or the FRB's regulations under the Federal Bank Control Act.
A bank holding company and its subsidiaries generally may not, with certain exceptions, engage in, acquire, or control voting securities or assets of a company engaged in any activity other than (1) banking or managing or controlling banks and other subsidiaries authorized under the BHCA and (2) any BHCA activity the FRB determines to be so closely related to banking or managing or controlling banks to be a proper incident thereto. These include any incidental activities necessary to carry on those activities, as long as the bank holding company has obtained the FRB's prior approval. The FRB has approved a lengthy list of activities permissible for bank holding companies and their non-banking subsidiaries. Those include:
- Making, acquiring, and servicing loans and other extensions of credit;
- Performing functions a trust company can perform;
- Acting as an investment or financial advisor;
- Performing certain insurance agency and underwriting activities directly related to extensions of credit by the holding company or its subsidiaries and engaging in insurance agency activities in towns of 5,000 or less;
- Performing appraisals of real estate and tangible and intangible personal property;
- Acting as an intermediary for the financing of commercial and industrial income-producing real estate;
- Providing certain securities brokerage services;
- Underwriting and dealing in government obligations and money market instruments; and
- Providing tax planning and preparation services.
In addition, under the BHCA, a bank holding company that meets certain qualifications can elect to become a financial holding company. A financial holding company can engage in additional activities not otherwise permitted for a bank holding company, generally without obtaining the FRB's prior approval. These include engaging in, acquiring, or controlling voting securities or assets of a company engaged in securities underwriting and distribution, merchant banking, certain insurance activities, and other activities FRB determines (1) to be financial in nature or incidental to that financial activity or (2) are complementary to a financial activity and do not pose a substantial risk to the company's or the financial system's safety and soundness.
To qualify to become a financial holding company, a bank holding company's depository institutions must all be "well-managed" and "well-capitalized," and have at least a "satisfactory" rating under the Community Reinvestment Act.
In December 2000, Wilmington Trust became a financial holding company. Its status as a financial holding company should permit greater flexibility in the future growth of its fee business.
Interstate Banking Act ----------------------
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the Interstate Banking Act"), adequately capitalized and managed bank holding companies are permitted to acquire a bank in any state, subject to regulatory approval and certain limitations, and regardless of certain state law restrictions such as reciprocity requirements and regional compacts. States cannot "opt out" of these interstate acquisition provisions.
In addition, under the Interstate Banking Act, bank holding companies are permitted to merge banks operating in different states, subject to regulatory approval and certain limitations, as long as neither bank is headquartered in a state that "opted out" of those provisions.
Under the Interstate Banking Act, states may permit de novo branching or acquisitions of existing branches by out-of-state banks within their borders. Delaware opted in to the provisions of the Interstate Banking Act permitting banks operating in different states to be merged, but opted out of de novo branching.
Safety and Soundness Limitations --------------------------------
As a bank holding company, Wilmington Trust is required to conduct its operations in a safe and sound manner. If the FRB believes that an activity of a bank holding company or control of a nonbank subsidiary, other than a nonbank subsidiary of a bank, presents a serious risk to the financial safety, soundness, or stability of a subsidiary bank of the bank holding company and is inconsistent with sound banking practices or the purposes of the BHCA or certain other Federal banking statutes, the FRB may require the bank holding company to terminate the activity or the holding company's control of the subsidiary.
Sections 23A and 23B of the Federal Reserve Act establish standards for the terms of, limit the amount of, and establish collateral requirements with respect to, loans and other extensions of credit to and investments in affiliates by the Banks. The Banks are "affiliates" of Wilmington Trust and each other for purposes of the Federal Reserve Act. In addition, the Federal Reserve Act and the FRB's regulations limit the amounts of, and establish required procedures and credit standards with respect to, loans and other extensions of credit to directors, officers, and principal shareholders of Wilmington Trust and its subsidiaries, and to related interests of those persons.
Capital Standards -----------------
The FRB and the other Federal banking agencies have adopted "risk-based" capital standards to assist in assessing the capital adequacy of bank holding companies and banks under those agencies' jurisdiction. Those risk-based capital standards include both a definition of capital and a framework for calculating "risk-weighted" assets by assigning assets and off-balance-sheet items to broad, risk-weighted categories. An institution's risk-based capital ratio is calculated by dividing its qualifying capital by its risk-weighted assets. At least one-half of risk-based capital must consist of Tier 1 capital (generally including common stockholders' equity, qualifying cumulative and noncumulative perpetual preferred stock, and minority interests in consolidated subsidiaries). The FRB also adopted minimum leverage ratios of "Tier 1" capital to total assets. At December 31, 2000, Wilmington Trust and the Banks were all well-capitalized, with capital levels in excess of applicable risk-based and leverage thresholds.
FDIC Insurance and Regulation -----------------------------
The FDIC insures deposits in the Banks up to applicable limits. Neither Wilmington Trust nor its subsidiaries are required to pay FDIC insurance premiums.
The FDIC may impose sanctions on any insured depository institution that does not operate in accordance with the FDIC's regulations, policies, or directives. The FDIC may institute cease-and-desist proceedings against an insured institution or holding company it believes to be engaged in unsafe and unsound practices, including violations of laws and regulations. The FDIC also has the authority to terminate deposit insurance coverage, after notice and hearing, if it determines that an insured institution is or has engaged in an unsafe or unsound practice that has not been corrected, is in an unsafe or unsound condition to continue operation, or has violated any law, regulation, rule, or order of, or condition, imposed by, the FDIC. Wilmington Trust is not aware of any past or current practice, condition, or violation that might lead to termination of the deposit insurance coverage of any of the Banks or any proceeding against any of the Banks or any of their respective directors, officers, or staff members.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "Improvement Act") requires annual on-site examinations of insured depository institutions, and authorizes the Federal examining agency to take prompt corrective action to resolve an institution's problems. The nature and
extent of the corrective action depends primarily on the institution's capital level. Options available include:
- Requiring recapitalization of or a capital restoration plan from the institution;
- Restricting transactions between the institution and its affiliates;
- Restricting interest rates, asset growth, activities, and investments in the institution's subsidiaries; and
- Ordering a new election of directors, dismissing directors or senior executive officers, and requiring the employment of qualified senior executive officers.
The holding company of a depository institution may be required to guarantee compliance with the institution's capital restoration plan and provide assurance of performance under such a plan.
Dividend Limitations --------------------
The FRB's policy generally is that banks and bank holding companies should not pay dividends unless the institution's prospective earnings retention rate is consistent with its capital needs, asset quality, and overall financial condition. FRB policy also is that bank holding companies should be a source of managerial and financial strength to their subsidiary banks. Accordingly, the FRB believes that those subsidiary banks should not be compromised by a level of cash dividends that places undue pressure on their capital.
The FDIC can prohibit a bank from paying dividends if it believes the dividend payment would constitute an unsafe or unsound practice. Federal law also prohibits dividend payments that would result in a bank failing to meet its applicable capital requirements. Delaware law restricts WTC from declaring dividends that would impair its stated capital.
OTS regulations limit capital distributions by a savings institution. A savings institution must give notice to the OTS at least 30 days before a proposed capital distribution. A savings institution that has capital in excess of all of its regulatory capital requirements before and after a proposed capital distribution and that is not otherwise restricted in making capital distributions may, after that prior notice but without the OTS's approval, make capital distributions during a calendar year equal to the greater of (1) 100% of its net income to date during the calendar year plus an amount that would reduce by one-half its "surplus capital ratio" (i.e., its excess capital over its capital requirements) at the beginning of the calendar year or (2) 75% of its net income for the previous four quarters. Any additional capital distributions require prior OTS approval.
Other Laws and Regulations --------------------------
The lending and deposit-taking activities of the Banks are subject to a variety of Federal and state consumer protection laws, including:
- The Truth-in-Lending Act (which principally mandates certain disclosures in connection with loans made for personal, family, or household purposes and imposes substantive restrictions with respect to home equity lines of credit);
- The Truth-in-Savings Act (which principally mandates certain disclosures in connection with deposit-taking activities);
- The Equal Credit Opportunity Act (which prohibits discrimination in all aspects of credit-granting);
- The Fair Credit Reporting Act (which requires a lender to disclose the name and address of the credit bureau from whom the lender obtained a report that resulted in a denial of credit);
- The Real Estate Settlement Procedures Act (which requires residential mortgage lenders to provide loan applicants with closing cost information shortly after the time of application and prohibits referral fees in connection with real estate settlement services);
- The Electronic Funds Transfer Act (which requires certain disclosures in connection with electronic funds transactions); and
- The Expedited Funds Availability Act (which requires that deposited funds be made available for withdrawal in accordance with a prescribed schedule and that the schedule be disclosed to customers).
Under the Community Reinvestment Act and the Fair Housing Act, depository institutions are prohibited from certain discriminatory practices that limit or withhold services to individuals residing in economically depressed areas. In addition, the CRA imposes certain affirmative obligations to provide lending and other financial services to those individuals. CRA performance is considered by all of the Federal regulatory agencies in reviewing applications to relocate an office, mergers and acquisitions of financial institutions, and establishing new branch or deposit facilities.
Federal legislation has permanently pre-empted all state usury laws on residential first mortgage loans made by insured depository institutions in any state that did not override that preemption. Although some states overrode that preemption, Delaware, Florida, Maryland, and Pennsylvania did not. Accordingly, there is currently no limit on the interest rate that the Banks can charge on such loans governed by the laws of those states. In addition, the usury limitations of the Banks' respective home states apply to all other loans the Banks offer nationwide. In today's interest rate environment, those usury laws do not materially affect the Banks' lending programs.
Delaware Law ------------
Delaware's business and legal environments historically have contributed to Wilmington Trust's and WTC's operating results. A substantial percentage of large pharmaceutical and chemical companies and other Fortune 500 companies are headquartered in Delaware. Delaware's Court of Chancery is widely recognized for its interpretations of corporate law.
In addition, Delaware law affords several advantages for trust administration that have helped contribute to Wilmington Trust's and WTC's operating results. In general, a trust governed by Delaware law can be administered more economically, for a longer period of time, and with a more flexible investment philosophy than in many other jurisdictions. In addition, although some jurisdictions have attempted to impose taxes on Delaware trusts with beneficiaries resident in those jurisdictions, Delaware does not impose any tax on those trusts.
ITEM 2
ITEM 2 - PROPERTIES
Wilmington Trust owns and/or leases buildings that are used in the normal course of business by the Banks and its other subsidiaries. The main office of Wilmington Trust and WTC is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890. Wilmington Trust and most of its subsidiaries occupy 265,000 square feet of space at this location, known as the Wilmington Trust Center. It is owned by Rodney Square Investors, L.P., in which WTC has a 50% ownership interest through one of its subsidiaries. WTC carries the mortgage for this facility, which had an outstanding balance of $29,255,048 at December 31, 2000.
A separate, unencumbered, 300,000-square foot operations facility known as the Wilmington Trust Plaza is owned by a subsidiary of WTC. This facility is located at 301 West Eleventh Street, Wilmington, Delaware 19801.
As of December 31, 2000, the Banks had 54 branches in the following locations:
- Twenty-three are in New Castle County, seven in Kent County, and 15 are in Sussex County, Delaware;
- One is in each of Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties, Pennsylvania;
- One is in Wicomico County, Maryland; and
- One is in each of Martin, Palm Beach, and Indian River Counties, Florida.
WTC also operates a sales office in leased facilities in London, England, and, through its subsidiaries, trust offices in the Cayman Islands and the Channel Islands. WTFSB operates trust agency offices in leased facilities in New York City, New York, Las Vegas, Nevada, and Santa Monica, California, and a sales office in Boca Raton, Florida.
All of Wilmington Trust's reporting segments operate at Wilmington Trust Center. Wilmington Trust's fee and banking reporting segments primarily operate its branches, and its fee reporting segment operates its trust agency offices.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
Wilmington Trust and its subsidiaries are involved in various legal proceedings in the ordinary course of business. While it is not feasible to predict the outcome of all pending suits and claims, management does not believe that the ultimate resolution of any of these matters will have a material adverse effect on Wilmington Trust's consolidated financial condition.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders by solicitation of proxies or otherwise during the fourth quarter of 2000.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Information required by this item is contained on page 28 of the Management's Discussion and Analysis portion of Wilmington Trust's Annual Report to Shareholders, which is incorporated by reference herein. See also "Item 1 - Business."
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five years: (in thousands, except per share information)
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The information required by this item is contained on pages 17 to 31 of Wilmington Trust's Annual Report to Shareholders for 2000, which are incorporated by reference herein.
ITEM 7A
ITEM 7A - QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by this item is contained on pages 24 and 25 of Wilmington Trust's Annual Report to Shareholders for 2000, which is incorporated by reference herein.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information required by this item is contained on the respective pages indicated of Wilmington Trust's Annual Report to Shareholders for 2000. Those pages are incorporated by reference herein.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
In February 2001, at Ernst & Young's initiative, it and Wilmington Trust mutually agreed that Ernst & Young would not continue as the company's independent accountants after completion of Wilmington Trust's annual audit for 2000.
The reports Ernst & Young on the financial statements of Wilmington Trust for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of Wilmington Trust's financial statements for each of the two years ended December 31, 2000, there were no disagreements with Ernst & Young on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved Ernst & Young's satisfaction, would have caused Ernst & Young to make a reference to the matter in their report.
On March 21, 2001, Wilmington Trust engaged KPMG LLP to act as its auditors for the fiscal year ended December 31, 2001. Wilmington Trust's Board of Directors approved KPMG's engagement previously following the recommendation of its Audit Committee. Wilmington Trust did not consult KPMG regarding the application of accounting principles to a specified transaction, whether contemplated or proposed, the type of audit opinion that might be rendered on Wilmington Trust's financial statements or any matter that was the subject of a disagreement or a reportable event as contemplated by Item 304 of Regulation S-K.
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 401 of Regulation S-K is contained on pages 4 to 9 of Wilmington Trust's proxy statement for its Annual Shareholders' Meeting to be held on May 17, 2001 (the "Proxy Statement"), which are incorporated by reference herein.
Information required by Rule 405 of Regulation S-K is contained on page 21 of the Proxy Statement, which is incorporated by reference herein.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is contained on pages 13 to 19 of the Proxy Statement, which are incorporated by reference herein.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained on pages 11 and 12 of the Proxy Statement, which are incorporated by reference herein.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained on pages 20 and 21 of the Proxy Statement, which are incorporated by reference herein.
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
1. Financial Statements. The following Consolidated Financial Statements and Report of Independent Auditors of Wilmington Trust are incorporated by reference in Item 8 above:
2. Financial Statement Schedules. No financial statement schedules are required to be filed as part of this report.
3. Financial Statement Exhibits. The exhibits listed below have been filed or are being filed as part of this report. Any exhibit will be made available to any shareholder upon receipt of a written request therefore, together with payment of $.20 per page for duplicating costs.
(1) Incorporated by reference to the corresponding exhibit to Amendment No. 1 to the Report on Form S-8 of Wilmington Trust Corporation filed on October 31, 1991.
(2) Incorporated by reference to the exhibit to the Current Report on Form 8-K of Wilmington Trust Corporation filed on January 2, 1992.
(3) Incorporated by reference to the exhibit to the Current Report on Form 8-K of Wilmington Trust Corporation filed on February 3, 1992.
(4) Incorporated by reference to the exhibit to the Current Report on Form 8-K of Wilmington Trust Corporation filed on February 25, 1992.
(5) Incorporated by reference to the corresponding exhibit to the Annual Report on Form 10-K of Wilmington Trust Corporation filed on March 23, 1993.
(6) Incorporated by reference to the corresponding exhibit to the Annual Report on Form 10-K of Wilmington Trust Corporation filed on March 31, 1993.
(7) Incorporated by reference to the exhibit to the Report on Form 8-A of Wilmington Trust Corporation filed on January 31, 1995.
(8) Incorporated by reference to the corresponding exhibit to the Annual Report on Form 10-K of Wilmington Trust Corporation filed on March 30, 1996.
(9) Incorporated by reference to the corresponding exhibit to the Annual Report on Form 10-K of Wilmington Trust Corporation filed on March 28, 1997.
(10) Incorporated by reference to Exhibit A to the proxy statement of Wilmington Trust Corporation dated March 22, 1999 filed on March 31, 1999.
(11) Incorporated by reference to the corresponding exhibit to the Annual Report on Form 10-K of Wilmington Trust Corporation filed on March 30, 2000.
(12) Filed herewith.
Act of 1934, this Form has been signed by the following persons in the capacities and as of the dates indicated.
/s/ Ted T. Cecala ---------------------------- Ted T. Cecala Director, Chairman of the Board, and Chief Executive Officer
(Date) March 21, 2001
/s/ Robert V.A. Harra, Jr. ---------------------------- Robert V. A. Harra, Jr. Director, President, Chief Operating Officer, and Treasurer
(Date) March 21, 2001
/s/ David R. Gibson ---------------------------- David R. Gibson Senior Vice President and Chief Financial Officer
(Date) March 21, 2001
/s/ Gerald F. Sopp ---------------------------- Gerald F. Sopp Controller
(Date) March 21, 2001
/s/ Carolyn S. Burger ---------------------------- Carolyn S. Burger Director
(Date) March 21, 2001
/s/ Richard R. Collins ---------------------------- Richard R. Collins Director
(Date) March 21, 2001
/s/ Charles S. Crompton, Jr. ---------------------------- Charles S. Crompton, Jr. Director (Date) March 21, 2001
/s/ H. Stewart Dunn, Jr. ---------------------------- H. Stewart Dunn, Jr. Director
(Date) March 21, 2001
/s/ Edward B. duPont ---------------------------- Edward B. du Pont Director
(Date) March 21, 2001
/s/ R. Keith Elliott ---------------------------- R. Keith Elliott Director
(Date) March 21, 2001
/s/ Rex L. Mears ---------------------------- Rex L. Mears Director
(Date) March 21, 2001
/s/ Hugh E. Miller ---------------------------- Hugh E. Miller Director
(Date) March 21, 2001
/s/ Stacey J. Mobley ---------------------------- Stacey J. Mobley Director
(Date) March 21, 2001
---------------------------- Leonard W. Quill Director
(Date) March 21, 2001
/s/ David P. Roselle ---------------------------- David P. Roselle Director
(Date) March 21, 2001
---------------------------- H. Rodney Sharp, III Director
(Date) March 21, 2001
/s/ Thomas P. Sweeney ---------------------------- Thomas P. Sweeney Director
(Date) March 21, 2001
/s/ Robert W. Tunnell, Jr. ---------------------------- Robert W. Tunnell, Jr. Director
(Date) March 21, 2001