-----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, PgO+IkrjAjZQvVLErnPvNNX8y5NYHSXKj5w5OL1TGxs0zTxb3QlIDM7qaDdLDE4s 5VUsZqX6P/t6w1ZhX0gG1w== 0000893220-98-000619.txt : 19980331 0000893220-98-000619.hdr.sgml : 19980331 ACCESSION NUMBER: 0000893220-98-000619 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NONE 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-K405 SEC ACT: SEC FILE NUMBER: 000-25442 FILM NUMBER: 98579680 BUSINESS ADDRESS: STREET 1: RODNEY SQUARE NORTH STREET 2: 1100 NORTH MARKET ST CITY: WILMINGTON STATE: DE ZIP: 19890 BUSINESS PHONE: 3026511000 10-K405 1 WILMINGTON TRUST CORPORATION FORM 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 Commission file number: 0-25442 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ 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, Wilmington, Delaware 19890 ___________________________________________________ (Address of principal executive offices)(Zip Code) (302) 651-1000 _____________________________________________________ (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $1.00 Par Value ______________________________ (Title of class) Name of Exchange on which Registered: N/A 2 Securities registered pursuant to Section 12 (g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 report(s), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 28, 1998, the aggregate market value of voting and non-voting stock held by non-affiliates* of the registrant was $ 2,021,307,812. Indicate the number of shares outstanding of the registrant's class of common stock, as of the latest practicable date. Class Outstanding at February 28, 1998 ___________________________ __________________________________ Common Stock, $1 Par Value 33,525,374 Documents Incorporated Part of Form 10-K in which by Reference Incorporated ___________________________ __________________________________ (1) Portions of Proxy Statement for 1998 Part III Annual Stockholders' Meeting of Wilmington Trust Corporation (2) Portions of Annual Report to Parts I, II Stockholders for fiscal year ended and IV December 31, 1997 * For purposes of this calculation, directors and executive officers are deemed to be "affiliates." 3 TABLE OF CONTENTS PART I Item 1 Business.............................................................1 Item 2 Properties..........................................................31 Item 3 Legal Proceedings...................................................31 Item 4 Submission of Matters to a Vote of Security Holders.................31 PART II Item 5 Market for Registrant's Common Stock and Related Stockholder Matters.................................................32 Item 6 Selected Financial Data.............................................33 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation..................................34 Item 7A Qualitative and Quantitative Disclosure About Market Risk...........34 Item 8 Financial Statements and Supplementary Data.........................34 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................35 PART III Item 10 Directors and Executive Officers of the Registrant..................35 Item 11 Executive Compensation..............................................35 Item 12 Security Ownership of Certain Beneficial Owners and Management..........................................................35 Item 13 Certain Relationships and Related Transactions......................35 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................................35 4 PART I ITEM 1 - BUSINESS Wilmington Trust Corporation, a Delaware corporation (the "Corporation"), was incorporated under the laws of Delaware in 1985, but remained inactive until 1990. On August 22, 1991, the Corporation became the parent holding company of Wilmington Trust Company, a Delaware-chartered bank and trust company and the Corporation's principal subsidiary (the "Bank"). The Corporation's principal place of business is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, and its telephone number is (302) 651-1000. The Corporation was organized primarily to become the holding company of the Bank. As such, the Corporation's principal role at present is to supervise and coordinate the Bank's activities and provide it with capital and services. Virtually all of the Corporation's income historically has been from dividends received from the Bank. The Corporation's current staff principally consists of its management, who are executive officers generally serving in similar capacities for the Bank. The Corporation from time to time utilizes the Bank's support staff. The Bank was originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company," on March 2, 1901. On March 12, 1903, an amendment was filed with the office of the Secretary of State to change the Bank's name to Wilmington Trust Company. Delaware's favorable business and legal environment have contributed to the Bank's operating results. See "Bank Regulation -- Other Laws and Regulations." In October 1993, the Corporation acquired Freedom Valley Bank, a Pennsylvania-chartered commercial bank with four branches in Chester and Delaware Counties, Pennsylvania. In January 1994, Freedom Valley Bank acquired trust powers and, in February 1994, its name was changed to Wilmington Trust of Pennsylvania. It now has six branch offices. The Corporation supervises and coordinates the activities of Wilmington Trust of Pennsylvania. In June 1994, the Corporation formed Wilmington Trust FSB, a Federally-chartered savings bank with trust powers, headquartered in Salisbury, Maryland. During 1994, Wilmington Trust FSB acquired one branch of the former John Hanson Federal Savings Bank and two branch locations of the former Second National Federal Savings Bank from the Resolution Trust Corporation. In November 1995, Wilmington Trust FSB merged with Wilmington Trust of Florida, National Association, a national association with trust powers headquartered in Florida, which previously was a separate subsidiary of the Bank. As a result of that transaction, Wilmington Trust FSB now also has three branch locations in Florida. In addition, it operates trust agency offices in Easton, Maryland and Las Vegas, Nevada. The Bank, Wilmington Trust of Pennsylvania and Wilmington Trust FSB sometimes are hereinafter collectively referred to as the "Banks." As of December 31, 1997, the Corporation had total assets of $6.12 billion and total stockholders' equity of $503.0 million. On that date, 33,478,113 shares of the Corporation's -1- 5 common stock were issued and outstanding, which were held by 10,164 shareholders of record. At December 31, 1997, total loans outstanding were approximately $4.0 billion. Lending Activities The Bank historically has concentrated its banking activities within Delaware. Wilmington Trust of Pennsylvania concentrates its banking activities in Pennsylvania. Wilmington Trust FSB concentrates its banking activities in Maryland and Florida. The banking operations and the assets and liabilities of the Bank are significantly more extensive than those of Wilmington Trust of Pennsylvania or Wilmington Trust FSB. Residential Mortgage Loans The Banks directly originate or purchase residential first mortgage loans. These loans are secured principally by properties located in Delaware, Pennsylvania, Maryland and Florida. A third-party servicer generally services residential mortgage loans which are not subsequently resold on behalf of the Bank. Management believes that the Banks maintain excellent relationships with correspondent lenders in their market areas from which they purchase residential mortgage loans. In addition, the Banks foster public awareness of their residential mortgage loan products through television and newspaper advertising and direct mail. The Banks offer both fixed and adjustable rates of interest on residential mortgage loans, with terms ranging up to 30 years. Adjustable rate mortgage ("ARM") 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 with comparable maturities. In light of their sensitivity to changes in interest rates, the terms of ARM loans may increase the possibility of delinquencies in periods of high interest rates. The majority of residential mortgage loans the Banks have originated or purchased in recent periods have been fixed-rate loans. Commercial Loans The Banks also originate loans secured by mortgages on commercial real estate and multi-family residential real estate. Such loans generally involve greater risks than one-to-four family residential mortgage loans. Commercial and multi-family real estate loans usually are larger than one-to-four family residential mortgage loans. Since repayment of loans secured by commercial and multi-family residential properties often is dependent on the successful operation and management of those properties, repayment of these loans may be subject to a greater extent to adverse conditions in the real estate market or the economy generally than loans secured by one-to-four family residential properties. In addition, the commercial real estate business is cyclical and subject to downturns, overbuilding and local economic conditions. The Banks seek to minimize these risks in a number of ways, including: (1) limiting the size of their individual commercial and multi-family real estate loans; (2) monitoring the aggregate size of their commercial and multi-family housing loan portfolios; (3) generally requiring equity in the property -2- 6 securing the loan equal to a certain percentage of the appraised value or selling price; (4) requiring in most instances that the financed project generates cash flow adequate to meet required debt service payments; and (5) 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. Lines of credit, term loans and demand loans are offered to finance, among other things, working capital, accounts receivable, inventory and equipment purchases. Typically, such commercial loans have terms not exceeding 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 and, in many cases, are further collateralized by guarantees of the borrower's owners and/or their principal officers. Construction Loans The Banks make loans and participate in financing for the construction of residences and commercial buildings. The Banks also originate loans for the purchase of unimproved property to be used for residential and commercial purposes. In such cases, the Banks frequently provide the construction funds to improve the properties. The Banks' residential and commercial construction loans generally have terms of 24 months or less, and interest rates which adjust from time to time in accordance with changes in a designated interest rate. Loan proceeds are disbursed in increments as construction progresses and as 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. Construction loans may be underwritten and structured to convert to permanent loans at the end of the construction period. Residential and commercial construction loans afford the Banks the opportunity to increase the interest rate sensitivity of their loan portfolios and to receive yields higher than those obtainable on permanent residential mortgage loans. These higher yields correspond to the higher risks associated with construction lending. Construction lending risks include those associated generally with loans on the type of property securing the loan, as well as other risks. The Banks sometimes agree to fund the interest on a construction loan by including the interest as part of the total construction loan. A high degree of skill is required to evaluate accurately the total funds required to complete a commercial construction project and the post-completion value of the project. As a result, commercial construction lending often involves the disbursement of substantial funds with repayment dependent largely on the success of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest. In light of these factors, the analysis of prospective construction loan projects requires greater expertise than that required for residential mortgage lending on completed structures. For these reasons, the Banks engage several individuals experienced in underwriting in connection with their construction lending. -3- 7 Loans to Individuals The Banks offer both secured and unsecured personal lines of credit, installment loans, home improvement loans, direct and indirect automobile loans, student loans and credit card facilities. The Banks view such consumer lending as a basic part of their program to provide a wide range of financial services to their customers. 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, as well as their matching of assets and liabilities expected to mature or reprice in the same periods. 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. Underwriting Standards In determining whether or not to originate or purchase a mortgage loan, the Banks assess both the borrower's ability to repay the loan and the adequacy of the proposed security for the loan. The Banks generally obtain an appraisal of real property securing a loan and 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 and on certain home equity loans, as well as fire and extended coverage casualty insurance protecting the mortgaged properties. Under the Banks' underwriting policies, loans must be approved by various levels of management depending on the amount of the loan. The Banks' underwriting standards with respect 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 requirements. 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: (1) inspecting each property before issuing a loan commitment and before each disbursement; (2) requiring recourse to the borrower; (3) requiring the personal guaranty of the borrower's principal(s); and (4) requiring an appraisal of the property. The Banks monitor the performance of these loans by inspecting the property securing each such 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 borrower's cash flow is a critical component of the underwriting process for these loans. The Banks monitor the performance of these loans by reviewing each such loan at least annually. The Banks seek to minimize risks of construction lending in a number of ways, including: (1) generally requiring the borrower, and in most instances their principal(s), to guarantee -4- 8 personally all or a portion of the loan; (2) controlling the aggregate size of their construction loan portfolios; and (3) generally requiring a certain level of equity in the property securing the loan. Construction loans generally are made to borrowers who are experienced in the type of construction for which the loan is made. The Banks require first or junior mortgages to secure home equity loans. Although this security influences the Banks' underwriting decisions, the Banks' primary focus in underwriting these loans, as well as their other loans to individuals, is on the applicant's financial ability to repay the loan. In the underwriting process for these loans, the Banks obtain credit bureau reports and verify employment and credit information provided by the borrower. 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 represent the most important source of the Banks' funds for use in lending and investment activities, and for general business purposes. The Banks also derive funds from, among other sources, 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 and club accounts. Retirement plan accounts (including individual retirement accounts, Keogh accounts and simplified employee pension plans) for investment in the Banks' various deposit accounts also are offered. Consumer deposits are attracted principally from the Banks' primary market areas. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity" in the Corporation's Annual Report to Stockholders for the year ended December 31, 1997. Personal Trust Activities The Corporation is one of the nation's largest personal trust institutions, serving a client base that is national in scope. The Corporation 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 review wills, trusts, powers of attorney, living wills and other estate planning documents for the Corporation's trust clients. The Corporation's offices in Delaware, Pennsylvania, Maryland and Florida provide convenient access to customers in these key markets. Corporate Trust Activities The Corporation is a major provider of trust and administrative services for customers who benefit from Delaware's favorable tax and legal environment. These customers include passive investment companies, business trusts, limited liability companies and limited partnerships. The Corporation serves as the owner or indenture trustee for a variety of corporate, municipal -5- 9 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 that have been included in innovative financing structures. The Corporation participates as owner or indenture trustee for equipment leasing trusts involving, among other things, aircraft, power generating facilities, communication lines, satellites and vessels. The Corporation also serves as collateral or liquidating trustee in corporate debt restructurings, reorganizations and merger transactions. These afford the opportunity to cross-sell custody and asset management services. The Corporation's office in Nevada also provides these corporate trust services. In addition, the Corporation 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 The Corporation provides institutional investment advisory services for clients across the country, including tax-qualified defined benefit and defined contribution pension plans, endowment and foundation funds and taxable and tax-exempt cash portfolios. The Corporation also offers the proprietary family of Rodney Square Mutual Funds. Through its personal investment centers, the Corporation offers investment services throughout the Banks' branch offices. As of December 31, 1997, the Corporation in the aggregate had discretionary trust assets totaling approximately $39 billion and non-discretionary trust assets totaling approximately $76 billion, for a combined total of $115 billion. Approximately $20 billion of these were personal trust assets, of which more than $15.5 billion were discretionary, and more than $28 billion were ERISA assets, of which approximately $19 billion were discretionary. Other Activities Interest and dividends on investments provide the Banks with a significant source of revenue. At December 31, 1997, the Banks' investment securities, including securities purchased under agreements to resell, totaled $1.70 billion, or 27.7% of their total assets. The Banks' investment securities are used to meet Federal liquidity requirements, among other purposes. Investment decisions are made by designated members of the Bank's management. The Banks have established limits on the types and amounts of investments they may make. Subsidiaries The Bank has 19 wholly-owned subsidiaries, formed for various purposes. Those subsidiaries' results of operations are consolidated with those of the Corporation for financial reporting purposes. These subsidiaries provide additional services to the Corporation's customers. Among those subsidiaries are the following: -6- 10 1. Brandywine Insurance Agency, Inc., a licensed insurance agent and broker for life, casualty and property insurance; 2. Brandywine Finance Corporation, a finance company; 3. Brandywine Life Insurance Company, Inc., a reinsurer of credit life insurance written in connection with closed-end consumer loans made by the Bank; 4. Delaware Corporate Management, Inc., which maintains and provides custodial and other services for Delaware holding companies holding intangible assets in Delaware; 5. Rodney Square Distributors, Inc., a registered broker-dealer; 6. Rodney Square Management Corporation, a registered investment adviser which performs mutual fund investment advisory services for certain of the mutual funds described below; 7. WTC Corporate Services, Inc., a sales production company for corporate trust customers; 8. Wilmington Brokerage Services Company, a registered broker-dealer and a registered investment adviser; and 9. WT Investments, Inc., which holds investments in two asset management firms and warrants in a broker-dealer. In addition, Rodney Square Distributors, Inc. serves as the distributor for the following mutual funds: 1. The Rodney Square Fund, a fund consisting of a money market portfolio and a United States government securities portfolio; 2. The Rodney Square Tax-Exempt Fund, a fund investing in short-term municipal obligations whose interest income is principally exempt from Federal income tax; 3. The Rodney Square Strategic Fixed-Income Fund, a fund consisting of the Diversified Income Portfolio, which invests primarily in investment grade, fixed-income securities, and the Municipal Income Portfolio, which invests primarily in municipal securities exempt from Federal taxation; and 4. The Rodney Square Multi-Manager Fund, a fund consisting of a growth portfolio. In January 1998, a subsidiary of the Corporation acquired a 24% ownership interest in Cramer Rosenthal McGlynn, LLC, an investment management firm with $3.8 billion of discretionary assets under management at December 31, 1997. Cramer Rosenthal McGlynn, LLC -7- 11 specializes in small- and middle-capitalization companies and has offices in White Plains and New York City. Competition The Corporation believes that the banking market in Delaware is different from that in most states, in that the deposit and asset sizes of all of Delaware's banking institutions do not disclose the true nature of competition within the state. In the 1980s, Delaware's legislature enacted several banking laws which invited out-of-state bank holding companies to organize banks located in Delaware, as long as the holding companies did not operate those banks in ways that competed to the substantial detriment of indigenous Delaware institutions such as the Bank. During the nonbank phenomena of the 1980s, five of Delaware's indigenous banks were acquired by entities which were not bank holding companies. The Corporation, with assets of $6.1 billion at December 31, 1997, is the largest bank holding company in Delaware providing a full range of commercial and personal banking services. The Banks have substantial competition for both deposits and loans. Many of the Banks' competitors are substantially larger and have substantially greater financial resources than the Corporation and the Banks. The most direct competition for deposits historically has come from savings banks, savings and loan associations and commercial banks located in the Banks' principal market areas. Currently, additional competition for deposits is encountered from dealers in government securities and deposit brokers serving out-of-area banks. The Banks compete for deposits by focusing on customer service and offering a variety of deposit accounts at rates generally competitive with those of other financial institutions. In 1997, the Bank commenced selling certificates of deposit in the national deposit markets. Competition for loans comes principally from savings banks, savings and loan associations, commercial banks, mortgage banking companies, insurance companies and other institutional lenders. The Banks compete for loans principally by the services they provide to borrowers and through the interest rates and loan fees they charge. See also "Regulation and Supervision of the Corporation and the Banks." Competition for trust and asset management business comes principally from banks, trust companies, investment advisors, mutual fund companies and insurance companies. Asset Quality Nonperforming assets, including nonaccruing loans and other real estate owned, can result in credit losses and require the Corporation to establish provisions for loan losses. Slow economic conditions or deterioration in commercial and real estate markets may impair the ability of certain borrowers to repay their loans in full on a timely basis. In that event, the Corporation would expect increased levels of nonperforming assets, credit losses and the need to increase provisions for loan losses. -8- 12 To minimize the likelihood and impact of these conditions, the Corporation regularly monitors the entire loan portfolio to identify potential problem loans and avoid disproportionately high concentrations of loans to individual borrowers and industries. An integral part of this process is a regular analysis of all past due loans and the establishment of provisions for loan losses. The Corporation's determination of the adequacy of its reserves is based upon an evaluation of classified loans and other assets, past loss experience, current economic and real estate market conditions, diversification of the loan portfolio, detailed loan reviews, the financial and managerial strength of its borrowers, the adequacy of underlying collateral and any regulatory recommendations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Asset Quality and Loan Loss Provision" in the Corporation's Annual Report to Stockholders for the year ended December 31, 1997. Staff Members On December 31, 1997, the Corporation and its wholly-owned subsidiaries had 2,428 full-time equivalent employees. The Corporation considers its and its subsidiaries' relationships with these employees to be good. The Corporation and the Banks provide a variety of benefit programs for these employees, including pension, profit-sharing, incentive compensation, thrift savings, stock purchase, group life, health and accident plans. -9- 13 Industry Guide 3 Tables The following table presents a rate/volume analysis of net interest income:
---------------------------------------------------------------------------- 1997/1996 1996/1995 Increase (Decrease) Increase (Decrease) due to change in due to change in ---------------------------------------------------------------------------- (in thousands) Volume(1) Rate(2) Total Volume(1) Rate(2) Total - ----------------------------------------------------------------------------------------------------------------------------- Interest income: Time deposits in other banks $ -- $ -- $ -- $ -- $ -- $ -- Federal funds sold and securities purchased under agreements to resell (228) 33 (195) 528 (89) 439 - ----------------------------------------------------------------------------------------------------------------------------- Total short-term investments (228) 33 (195) 528 (89) 439 ---------------------------------------------------------------------------- U.S. Treasury and government agencies 3,165 903 4,068 13,599 730 14,329 State and municipal * (606) -- (606) (491) 243 (248) Preferred stock * (299) 147 (152) (1,381) 1,574 193 Asset-backed securities 762 1,656 2,418 (1,739) 956 (783) Other * (590) 347 (243) (52) (222) (274) - ----------------------------------------------------------------------------------------------------------------------------- Total investment securities 2,432 3,053 5,485 9,936 3,281 13,217 ---------------------------------------------------------------------------- Commercial, financial and agricultural * 4,511 (1,884) 2,627 7,941 (4,009) 3,932 Real estate-construction 1,643 187 1,830 1,222 (811) 411 Mortgage - commercial * 9,388 (1,999) 7,389 5,413 (1,786) 3,627 Mortgage - residential 6,362 (1,519) 4,843 3,910 (703) 3,207 Installment loans to individuals 7,050 (2,038) 5,012 961 (1,161) (200) - ----------------------------------------------------------------------------------------------------------------------------- Total loans 28,954 (7,253) 21,701 19,447 (8,470) 10,977 - ----------------------------------------------------------------------------------------------------------------------------- Total interest income $ 31,158 $(4,167) $ 26,991 $ 29,911 $(5,278) $ 24,633 ============================================================================ Interest expense: Savings $ 98 $ (64) $ 34 $ (12) $ (260) $ (272) Interest-bearing demand 1,833 (402) 1,431 704 (995) (291) Certificates under $100,000 47 (2,425) (2,378) 9,160 1,395 10,555 Certificates $100,000 and over 12,363 771 13,134 6,547 112 6,659 - ----------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 14,341 (2,120) 12,221 16,399 252 16,651 ---------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase (1,060) 754 (306) (2,511) (6,238) (8,749) U.S. Treasury demand 612 72 684 (107) (274) (381) - ----------------------------------------------------------------------------------------------------------------------------- Total short-term borrowings (448) 826 378 (2,618) (6,512) (9,130) ---------------------------------------------------------------------------- Long-term debt 578 (1,183) (605) 1,192 (61) 1,131 - ----------------------------------------------------------------------------------------------------------------------------- Total interest expense $ 14,471 $(2,477) $ 11,994 $ 14,973 $(6,321) $ 8,652 ============================================================================ Changes in net interest income $ 14,997 $ 15,981 ========= ========= - -----------------------------------------------------------------------------------------------------------------------------
* 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. 2 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. -10- 14 The maturity distribution of the Corporation's investment securities held to maturity follows:
--------------------------------------- Market Amortized Weighted December 31, 1997 (in thousands) value Cost average yield - ------------------------------------------------------------------------------------------------------------------- U.S. Treasury and government agencies: After 1 but within 5 years $212,078 $211,924 6.52% After 10 years 7,088 7,212 7.01 - ------------------------------------------------------------------------------------------------------------------- Total (amortized cost of $267,502 in 1996 and $236,444 in 1995) 219,166 219,136 6.53 - ------------------------------------------------------------------------------------------------------------------- State and municipals: Within 1 year 1,005 1,000 5.35 After 1 but within 5 years 2,374 2,272 5.86 After 5 but within 10 years 3,932 3,830 6.03 After 10 years 5,884 5,641 6.07 - ------------------------------------------------------------------------------------------------------------------- Total (amortized cost of $19,121 in 1996 and $20,822 in 1995) 13,195 12,743 5.96 - ------------------------------------------------------------------------------------------------------------------- Asset-backed securities: Within 1 year 124 125 3.34 After 1 but within 5 years 6,663 6,704 5.55 After 5 but within 10 years 25,737 25,637 6.39 After 10 years 68,927 68,662 6.74 - ------------------------------------------------------------------------------------------------------------------- Total (amortized cost of $181,009 in 1996 and $193,269 in 1995) 101,451 101,128 6.59 - ------------------------------------------------------------------------------------------------------------------- Total investment securities held to maturity (amortized cost of $467,632 in 1996 and $450,535 in 1995) $333,812 $333,007 6.52% ===================================================================================================================
Note: Weighted average yields are not on a tax-equivalent basis. -11- 15 The maturity distribution of the Corporation's investment securities available for sale follows:
------------------------------------------ Market Amortized Weighted December 31, 1997 (in thousands) value Cost average yield - ---------------------------------------------------------------------------------------------------------------------- U.S. Treasury and government agencies: Within 1 year $ 96,701 $ 96,600 5.49% After 1 but within 5 years 498,889 494,403 6.33 After 5 but within 10 years 185,574 184,135 6.71 After 10 years 9,355 9,080 7.18 - ---------------------------------------------------------------------------------------------------------------------- Total (amortized cost of $545,330 in 1996 and $530,804 in 1995) 790,519 784,218 6.33 - ---------------------------------------------------------------------------------------------------------------------- State and municipals: Within 1 year 674 668 4.90 After 1 but within 5 years 5,493 5,471 4.14 After 5 but within 10 years 540 520 7.68 After 10 years 1,300 1,299 2.46 - ---------------------------------------------------------------------------------------------------------------------- Total (amortized cost of $13,176 in 1996 and $18,533 in 1995) 8,007 7,958 4.16 - ---------------------------------------------------------------------------------------------------------------------- Preferred stock: Within 1 year 93,464 93,030 5.57 After 1 but within 5 years 31,133 31,485 9.04 After 5 but within 10 years 34,469 30,812 8.75 - ---------------------------------------------------------------------------------------------------------------------- Total (amortized cost of $139,186 in 1996 and $153,894 in 1995) 159,066 155,327 6.93 - ---------------------------------------------------------------------------------------------------------------------- Asset-backed securities: After 1 but within 5 years 4,898 4,862 6.78 After 5 but within 10 years 46,876 46,348 6.79 After 10 years 226,863 226,314 6.77 - ---------------------------------------------------------------------------------------------------------------------- Total (amortized cost of $16,096 in 1996 and $107,852 in 1995) 278,637 277,524 6.77 - ---------------------------------------------------------------------------------------------------------------------- Other: Within 1 year 64,239 63,889 5.60 After 1 but within 5 years 15,421 15,263 6.34 After 5 but within 10 years 514 500 7.49 - ---------------------------------------------------------------------------------------------------------------------- Total (amortized cost of $83,161 in 1996 and $92,317 in 1995) 80,174 79,652 5.75 - ---------------------------------------------------------------------------------------------------------------------- Total investment securities available for sale (amortized cost of $796,949 in 1996 and $903,400 in 1995) $1,316,403 $1,304,679 6.43% ======================================================================================================================
Note: Weighted average yields are not on a tax-equivalent basis. -12- 16 The following is a summary of period-end loan balances by loan category:
December 31 (in thousands) 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $ 1,207,930 $ 1,237,061 $ 1,159,434 $ 1,006,630 $ 924,886 Real estate-construction 145,097 123,111 104,871 110,587 122,329 Mortgage-commercial 884,146 862,974 770,304 733,154 654,241 Mortgage-residential 813,116 678,800 669,658 618,211 609,108 Installment loans to individuals 954,486 881,994 823,381 818,599 734,943 - --------------------------------------------------------------------------------------------------------------- Total loans, gross 4,004,775 3,783,940 3,527,648 3,287,181 3,045,507 Less: unearned income (10,840) (12,456) (5,733) (2,948) (2,214) - --------------------------------------------------------------------------------------------------------------- Total loans $ 3,993,935 $ 3,771,484 $ 3,521,915 $ 3,284,233 $ 3,043,293 ===============================================================================================================
-13- 17 The following table sets forth the allocation of the Corporation's reserve for loan losses for the past five years:
--------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------------- ----------------- ---------------- ---------------- ---------------- % of loans % of loans % of loans % of loans % of loans in each in each in each in each in each category of category of category of category of category of December 31 (in thousands) Amount net loans Amount net loans Amount net loans Amount net loans Amount net loans - ---------------------------------------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $27,023 30% $22,770 33% $21,209 33% $21,777 31% $20,804 30% Real estate-construction 1,977 4 2,000 3 1,697 3 3,696 3 3,979 4 Mortgage-commercial 12,645 22 15,126 23 13,949 22 10,643 22 8,933 22 Mortgage-residential 710 20 700 18 668 19 608 19 605 20 Installment loans to individuals 12,440 24 12,283 23 11,245 23 9,234 25 8,125 24 Unallocated 9,010 -- 1,482 -- 1,099 -- 2,711 -- 8,917 -- - ---------------------------------------------------------------------------------------------------------------------------------- Total $63,805 100% $54,361 100% $49,867 100% $48,669 100% $51,363 100% ==================================================================================================================================
-14- 18 An analysis of loan maturities and interest rate sensitivity of the Corporation's commercial and real estate construction loan portfolios follows:
---------------------------------------------------- Less than One through Over Total December 31, 1997 (in thousands) one year five years five years gross loans - ---------------------------------------------------------------------------------------------- Commercial, financial and agricultural $724,587 $285,279 $198,064 $1,207,930 Real estate-construction 42,338 88,258 14,501 145,097 - ---------------------------------------------------------------------------------------------- Total $766,925 $373,537 $212,565 $1,353,027 ============================================================================================== Loans with predetermined rate $ 86,168 $101,372 $ 72,721 $ 260,261 Loans with variable rate 680,757 272,165 139,844 1,092,766 - ---------------------------------------------------------------------------------------------- Total $766,925 $373,537 $212,565 $1,353,027 ==============================================================================================
The following table presents a comparative analysis of the risk elements contained in the Corporation's loan portfolio at year-end(1):
----------------------------------------------------------- December 31 (in thousands) 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------- Nonaccruing $28,669 $40,735 $33,576 $28,851 $21,983 Past due 90 days or more 15,523 20,440 19,346 21,027 14,153 - -------------------------------------------------------------------------------------------------- Total $44,192 $61,175 $52,922 $49,878 $36,136 ================================================================================================== Percent of total loans at year-end 1.11% 1.62% 1.50% 1.52% 1.30% - -------------------------------------------------------------------------------------------------- Other real estate owned $ 3,738 $ 5,131 $14,288 $17,601 $20,167 ==================================================================================================
- ------------------- 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 Stockholders for the fiscal year ended December 31, 1997, which is incorporated by reference herein. -15- 19 The following table sets forth an analysis of the Corporation's provision for loan losses, together with chargeoffs and reserves for the five major portfolio classifications included in the Corporation's statement of condition(1):
----------------------------------------------------------- For the year ended December 31 (in thousands) 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- Reserve for loan losses at beginning of period $54,361 $49,867 $48,669 $51,363 $46,962 - --------------------------------------------------------------------------------------------------------------- Reserve for loan losses of acquired company -- -- -- -- 3,054 - --------------------------------------------------------------------------------------------------------------- Loans charged off: Commercial, financial and agricultural 6,105 3,811 4,333 5,878 2,960 Real estate-construction 184 94 444 46 55 Mortgage - commercial 187 2,475 2,484 934 1,547 Mortgage - residential 236 285 32 182 77 Installment loans to individuals 9,475 7,990 6,989 5,725 5,920 - --------------------------------------------------------------------------------------------------------------- Total loans charged off 16,187 14,655 14,282 12,765 10,559 ----------------------------------------------------------- Recoveries on amounts previously charged off: Commercial, financial and agricultural 891 1,160 992 3,126 471 Real estate-construction 1 4 1 -- -- Mortgage-commercial 948 17 25 161 16 Mortgage-residential 1 1 1 3 3 Installment loans to individuals 2,290 1,967 2,181 2,231 1,916 - --------------------------------------------------------------------------------------------------------------- Total recoveries 4,131 3,149 3,200 5,521 2,406 ----------------------------------------------------------- Net loans charged off 12,056 11,506 11,082 7,244 8,153 - --------------------------------------------------------------------------------------------------------------- Current year's provision for loan losses 21,500 16,000 12,280 4,550 9,500 - --------------------------------------------------------------------------------------------------------------- Reserve for loan losses at end of period $63,805 $54,361 $49,867 $48,669 $51,363 =============================================================================================================== Ratio of net loans charged off to average loans 0.31% 0.32% 0.33% 0.23% 0.28%
- ----------------- 1 The factors the Corporation considers in determining the amount of additions to its allowance for loan losses are discussed on pages 21 and 22 of its Annual Report to Stockholders for the fiscal year ended December 31, 1997, which are incorporated by reference herein. -16- 20 The following table presents a summary of the Corporation's deposits based on average daily balances over the last three years:
---------------------------------------------------------------------------- 1997 1996 1995 --------------------- ---------------------- --------------------- Average Average Average Average Average Average For the year ended December 31 (in thousands) amount rate amount rate amount rate - ------------------------------------------------------------------------------------------------------------------------------ Noninterest-bearing demand $ 678,683 -- $ 633,066 -- $ 580,928 -- Interest-bearing deposits: Savings 360,689 2.35% 356,542 2.36% 357,048 2.44% Interest-bearing demand 1,078,685 2.54 1,007,652 2.58 981,379 2.68 Certificates under $100,000 1,246,240 5.59 1,245,436 5.79 1,084,165 5.68 Certificates $100,000 and over 506,089 5.65 281,314 5.50 161,403 5.46 - ------------------------------------------------------------------------------------------------------------------------------ Total $3,870,386 $3,524,010 $3,164,923 ==============================================================================================================================
The maturity of the Corporation's time deposits of $100,000 or more is as follows:
----------------------------------- Certificates All other interest- December 31, 1997 of deposit bearing deposits - -------------------------------------------------------------------- Three months or less $ 378,562 $ 364,755 Over three through six months 192,172 -- Over six through twelve 44,186 -- months Over twelve months 21,291 -- - -------------------------------------------------------------------- Total $ 636,211 $ 364,755 ====================================================================
-17- 21 An analysis of the Corporation's rate-sensitive assets and liabilities follows:
Repricing or Maturity(1) ------------------------------------------------------------------------------------- 1-30 31-90 91-180 181-365 December 31, 1997 (in thousands) Total days days days days - ------------------------------------------------------------------------------------------------------------------------------ Rate-sensitive assets: Loans and leases $ 3,993,935 $ 1,679,475 $ 151,259 $ 212,382 $ 224,158 Money market assets 50,000 50,000 -- -- -- Investments 1,649,410 118,093 122,698 163,095 122,095 - ------------------------------------------------------------------------------------------------------------------------------ Total rate-sensitive assets $ 5,693,345 $ 1,847,568 $ 273,957 $ 375,477 $ 346,253 ------------------------------------------------------------------------------------- Rate-sensitive liabilities: Savings and interest-bearing demand $ 1,493,004 $ 1,493,004 $ -- $ -- $ -- Certificates under $100,000 1,247,302 168,612 146,895 204,748 358,236 Certificates $100,000 and over 636,211 96,026 282,536 192,172 44,186 Short-term borrowings 1,307,577 771,577 461,000 75,000 -- Other interest-bearing liabilities 43,000 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------ Total rate-sensitive liabilities $ 4,727,094 $ 2,529,219 $ 890,431 $ 471,920 $ 402,422 ------------------------------------------------------------------------------------- Interest-rate swaps (2) $ 275,000 $ 225,000 $ 50,000 $ -- $ -- Interest-rate floors (2) 325,000 50,000 275,000 -- -- - ------------------------------------------------------------------------------------------------------------------------------ Rate-sensitive gap $ (956,651) $ (941,474) $ (96,443) $ (56,169) =================================================================== Cumulative gap $ (956,651) $(1,898,125) $(1,994,568) $(2,050,737) =================================================================== Cumulative gap as a percentage of rate-sensitive assets (16.8)% (33.3)% (35.0)% (36.0)% - ------------------------------------------------------------------------------------------------------------------------------
Repricing or Maturity(1) ----------------------------------------------- Total 1 year 1 - 5 Over 5 December 31, 1997 (in thousands) or less years years - ---------------------------------------------------------------------------------------- Rate-sensitive assets: Loans and leases $ 2,267,274 $ 777,764 $ 948,897 Money market assets 50,000 -- -- Investments 525,981 974,586 148,843 - ---------------------------------------------------------------------------------------- Total rate-sensitive assets $ 2,843,255 $1,752,350 $1,097,740 ----------------------------------------------- Rate-sensitive liabilities: Savings and interest-bearing demand $ 1,493,004 $ -- $ -- Certificates under $100,000 878,491 331,845 36,966 Certificates $100,000 and over 614,920 20,722 569 Short-term borrowings 1,307,577 -- -- Other interest-bearing liabilities -- -- 43,000 - ---------------------------------------------------------------------------------------- Total rate-sensitive liabilities $ 4,293,992 $ 352,567 $ 80,535 ----------------------------------------------- Interest-rate swaps (2) $ 275,000 $ -- $ -- Interest-rate floors (2) 325,000 -- -- - ---------------------------------------------------------------------------------------- Rate-sensitive gap $(2,050,737) $1,399,783 $1,017,205 =============================================== Cumulative gap $ (650,954) $ 366,251 =============================================== Cumulative gap as a percentage of rate-sensitive assets (11.4)% 6.4% - ----------------------------------------------------------------------------------------
1 Certain assumptions are made in assigning assets and liabilities to specific periods, including use of estimated prepayments for mortgage-backed securities, the exclusion of seasonal balances, and adjustment of selected deposit accounts in which inflows and outflows have not historically been affected by changes in interest rates. 2 Interest rate swaps and floors are used to hedge selected pools of assets and have a weighted average remaining maturity of approximately 1.1 and 2.5 years, respectively. -18- 22 A summary of short-term borrowings at December 31, is as follows (in thousands):
- ------------------------------------------------------------------------------------------------------------- Securities sold U.S. Treasury Federal funds under agreements demand purchased to repurchase notes - ------------------------------------------------------------------------------------------------------------- 1997 Balance at December 31 $1,041,511 $204,776 $61,290 Weighted average interest rate at balance sheet date 5.9% 4.8% 5.2% Maximum amount outstanding at any month-end $1,041,511 $253,111 $95,000 Approximate average amount outstanding during the period $ 946,161 $195,945 $46,108 Weighted average interest rate for average amounts outstanding during the period 5.7% 4.8% 5.3% - ------------------------------------------------------------------------------------------------------------- 1996 Balance at December 31 $ 781,900 $201,117 $53,526 Weighted average interest rate at balance sheet date 5.5% 5.2% 5.3% Maximum amount outstanding at any month-end $1,043,525 $230,906 $95,002 Approximate average amount outstanding during the period $ 977,288 $184,233 $34,241 Weighted average interest rate for average amounts outstanding during the period 5.6% 4.9% 5.2% - ------------------------------------------------------------------------------------------------------------- 1995 Balance at December 31 $1,006,012 $160,151 $29,389 Weighted average interest rate at balance sheet date 5.8% 5.1% 4.8% Maximum amount outstanding at any month-end $1,201,675 $230,427 $94,987 Approximate average amount outstanding during the period $1,051,944 $151,428 $36,044 Weighted average interest rate for average amounts outstanding during the period 6.1% 5.1% 6.0% - -------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase generally mature within 75 days. U.S. Treasury demand notes mature overnight. -19- 23 The following table presents the percentage of the Corporation's funding sources by deposit type:
--------------------------------- (based on daily average balances) 1997 1996 1995 - --------------------------------------------------------------------------- Savings 7.13% 7.55% 8.11% Interest-bearing demand 21.32 21.35 22.28 Certificates of deposit 34.64 32.35 28.28 Short-term borrowings 23.49 25.34 28.14 Demand deposits 13.42 13.41 13.19 - -------------------------------------------------------------------------- Total 100.00% 100.00% 100.00% ==========================================================================
The following table presents an analysis of the Corporation's return on assets and return on equity over the last three years:
--------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------ Return on assets 1.87% 1.83% 1.83% Return on stockholders' equity 22.15 21.38 20.70 Dividend payout 44.76 45.58 45.70 Equity to asset 8.43 8.57 8.82 ========================================================================
-20- 24 REGULATION AND SUPERVISION OF THE CORPORATION AND THE BANKS The discussion in this section is a brief summary which does not purport to be complete, and is qualified in its entirety by reference to applicable laws, rules and regulations that impact on the business of the Corporation and the Banks. Those laws, rules and regulations are subject to change from time to time. REGULATION OF THE CORPORATION The Corporation is a bank holding company and a thrift holding company, and therefore is subject to, among other things, the provisions of the Federal Bank Holding Company Act (the "BHCA"), the regulations of the Federal Reserve Board (the "FRB") and the Office of Thrift Supervision (the "OTS") and Delaware's Banking Code. FEDERAL LAW Under the BHCA, the FRB's approval is required before a 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 voting stock of a bank, the ability to otherwise control the election of a majority of a bank's directors or the power to exercise, directly or indirectly, a controlling influence over a bank's management or policies. A bank holding company must register with the FRB as a bank holding company, and must thereafter file with the FRB annual and periodic reports and other information which the FRB requires from time to time. A bank holding company and its subsidiaries also are subject to continuing regulation, supervision and examination by the FRB under the BHCA and regulations promulgated thereunder. Under the BHCA, the following transactions require the FRB's prior approval: (1) any action which causes a bank or other company to become a bank holding company; (2) any action which causes a bank to become a subsidiary of a bank holding company; (3) the acquisition by a bank holding company of direct or indirect ownership or control of any voting securities of a bank or bank holding company if the 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; (4) 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; and (5) the merger or consolidation of bank holding companies, including a merger through a purchase of assets and assumption of liabilities. A bank holding company and its subsidiaries generally may not, with certain exceptions, engage in, acquire or control, directly or indirectly, 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 which the FRB determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. These include any incidental activities which are necessary to carry on such activities, provided the bank holding company has obtained the FRB's prior approval for the activity. Under the FRB's regulations, bank holding companies and their subsidiaries generally are permitted to -21- 25 engage in such non-banking activities as: (1) making, acquiring and servicing loans and other extensions of credit (including factoring, issuing letters of credit and accepting drafts); (2) performing functions which may be performed by a trust company; (3) acting as an investment or financial advisor; (4) leasing personal and real property and acting as agent, broker or advisor in leasing that property; (5) making equity and debt investments in corporations and projects designed primarily to promote community welfare; (6) providing to others certain data processing and data transmission services, facilities, data bases and access to those services, facilities and data bases; (7) 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; (8) owning, controlling or operating a savings association which engages only in deposit-taking activities and lending and other activities permitted for bank holding companies; (9) providing management consulting advice to certain nonaffiliated bank and nonbank depository institutions; (10) issuing and selling, at retail, money orders and similar consumer-type payment instruments, selling United States savings bonds and issuing and selling travelers' checks; (11) performing appraisals of real estate and tangible and intangible personal property, including securities; (12) acting as an intermediary for the financing of commercial and industrial income-producing real estate; (13) providing certain securities brokerage services; (14) underwriting and dealing in government obligations and money market instruments; (15) providing tax planning and preparation services; and (16) providing check guaranty services to subscribing merchants. A bank holding company also may file an application for the FRB's approval to engage, directly or through subsidiaries, in other non-bank activities which are so closely related to banking as to be a proper incident thereto. The Corporation has not determined which, if any, of the activities described above it might seek to engage in other than those in which the Banks and the Bank's subsidiaries presently engage. There is no assurance that the Corporation will seek to, or acquire any subsidiaries which, engage in any of such other activities or that, if the Corporation does so, its efforts will be successful. 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, subject to obtaining regulatory approval and regardless of certain state law restrictions such as reciprocity requirements and regional compacts, to acquire a bank in any state. In general, no such acquisition will be permitted which would result in the acquiring bank holding company owning 10% or more of insured deposits nationwide or 30% or more of insured deposits in any state. Certain state law restrictions, such as minimum age-of-existence requirements of up to five years for target institutions, continue to apply. States cannot "opt out" of these interstate acquisition provisions. In addition, under the Interstate Banking Act, bank holding companies are permitted, subject to obtaining regulatory approval, to merge banks operating in different states. States could "opt out" of these provisions before June 1, 1997, and could "opt in" earlier. If a state "opted out" of these provisions, out-of-state banks generally cannot merge with banks in that state, and banks headquartered in that state generally cannot merge with banks in other states. The Interstate Banking Act does not affect certain state laws setting minimum age-of-existence requirements for banks to be merged of up to five years. In addition, in general, no such interstate -22- 26 merger will be permitted which would result in the acquiring bank holding company owning 10% or more of insured deposits nationwide or 30% or more of insured deposits in any state. Under the Interstate Banking Act, states may, by express legislation, permit de novo branching of or acquisitions of existing branches by out-of-state banks within their borders. In 1995, 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. Except as otherwise pre-empted by Federal law, the Interstate Banking Act provides that the laws of the host state generally apply with respect to interstate branching, community reinvestment, consumer protection or fair lending, unless the Comptroller of the Currency determines that those laws give state-chartered banks an unfair advantage over national banks. As a bank holding company, the Corporation 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, constitutes 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. As wholly-owned subsidiaries of the Corporation, the Banks are subject to Section 106 of the Bank Holding Company Act Amendments of 1970 ("Section 106") relating to tying arrangements. Section 106 and the Federal Reserve Board's regulations provide generally that a bank may not extend credit, lease or sell property, furnish any service or fix or vary the consideration for any of the foregoing on the condition or requirement that (1) the customer obtain some additional credit, property or service from the bank or one of its affiliates other than a loan, discount, deposit or trust service; (2) the customer obtain some additional credit, property or service from the bank or one of its affiliates; (3) the customer provide some additional credit, property or service to the bank or one of its affiliates other than those related to and usually provided in connection with a loan, discount, deposit or trust service; or (4) the customer not obtain some other credit, property or service from a competitor of the bank or one of its affiliates other than a condition or requirement the bank reasonably can impose in a credit transaction to assure the soundness of the credit. However, a bank may vary the consideration for any product or package of products based on a customer's maintaining a combined minimum balance in certain eligible products specified by the bank if: (a) the bank offers deposits, and all such deposits are eligible products; and (b) balances in deposits count at least as much as nondeposit products toward the minimum balance. Certain arrangements otherwise permitted by the Federal Reserve Board's regulations will terminate if the Federal Reserve Board determines that the arrangement results in anti-competitive practices. Sections 23A and 23B of the Federal Reserve Act, applicable to the Banks, establish standards for the terms of, limit the amount of and establish collateral requirements with respect to, any loans or extensions of credit to and investments in affiliates by the Banks. The Banks are "affiliates" of the Corporation and each other for purposes of the Federal Reserve Act. In -23- 27 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 the Corporation and its subsidiaries, as well as to related interests of those persons. The FRB has adopted "risk-based" capital standards to assist in assessing the capital adequacy of bank holding companies and banks under its 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, as defined below. Additional, supplementary capital includes, among other things, allowances for loan losses, subject to certain limits, cumulative perpetual and long-term preferred stock, hybrid capital instruments such as mandatory convertible debt and limited amounts of term subordinated debt and intermediate-term preferred stock. The Corporation and Wilmington Trust of Pennsylvania are subject to the FRB's risk-based capital standards. At December 31, 1997, the Corporation's and Wilmington Trust of Pennsylvania's risk-based capital levels were $541.0 million and $18.1 million, respectively, or 12.38% and 11.13%, respectively, of risk-weighted assets, well in excess of the level of 10% required for well-capitalized institutions, and 89.89% and 88.65% of such risked-based capital, respectively, consisted of Tier 1 capital. The FRB also has adopted a minimum ratio of "Tier 1" leverage capital to total assets to assist in assessing the capital adequacy of bank holding companies and banks under its jurisdiction. These Tier 1 leverage capital guidelines are used in the regulatory inspection and supervisory processes, as well as in the FRB's analysis of applications it receives. Tier 1 leverage capital includes, among other things, common stockholders' equity, qualifying cumulative and noncumulative perpetual preferred stock and minority interests in consolidated subsidiaries. At December 31, 1997, the Corporation's and Wilmington Trust of Pennsylvania's Tier 1 leverage capital levels were $486.3 million and $16.1 million, respectively, or 8.58% and 7.92%, respectively, of total assets, well in excess of the level of 5% required for well-capitalized institutions. The Corporation's status as a registered holding company under the BHCA does not exempt it from certain Federal and state laws and regulations applicable to corporations generally. These include, without limitation, certain provisions of the Federal securities laws discussed below. BANK REGULATION The Bank is a bank and trust company chartered under Delaware law; Wilmington Trust of Pennsylvania is a bank and trust company chartered under Pennsylvania law; and Wilmington Trust FSB is a Federally-chartered savings bank with its headquarters in Maryland and with additional branches in Maryland and Florida and trust agency offices in Maryland and Nevada. The Banks' deposits are insured by the FDIC up to applicable limits. The Banks derive lending and investment authorities primarily from their charters, Delaware's and Pennsylvania's Banking -24- 28 Code, the Federal Home Owners' Loan Act ("HOLA") and applicable laws and regulations promulgated by Delaware's Bank Commission, Pennsylvania's Department of Banking and the OTS, as applicable. Each of the Banks has both banking and trust powers. The Banks are subject to regulation, examination and supervision by Delaware's Bank Commission and the FDIC, in the case of the Bank, the FRB and Pennsylvania's Department of Banking, in the case of Wilmington Trust of Pennsylvania, and the OTS, in the case of Wilmington Trust FSB. Each of those agencies promulgates regulations and requires that reports be filed describing the activities and financial condition of banks under its jurisdiction. Each agency also conducts periodic examinations to determine compliance with various regulatory requirements and generally supervises the operations of those banks. The Corporation also is subject to supervision and examination by the OTS and Delaware's Bank Commission. FDIC INSURANCE AND REGULATION Deposits in the Banks are insured by the FDIC up to applicable limits. Neither the Bank nor Wilmington Trust of Pennsylvania currently pays for FDIC insurance. The annual premium Wilmington Trust FSB pays for FDIC insurance currently is $.23 per $100 of insured deposits. The FDIC's regulations require insured state non-member banks, such as the Bank, to maintain a minimum Tier 1 leverage capital ratio of at least 4% of total assets to constitute an adequately-capitalized institution, and 5% of total assets to constitute a well-capitalized institution. For FDIC-insured institutions, Tier 1 leverage capital includes, among other things, common stockholders' equity, qualifying cumulative and noncumulative perpetual preferred stock and minority interests in consolidated subsidiaries. As of December 31, 1997, the Bank's Tier 1 leverage capital ratio was 7.78%. In addition to the FDIC's minimum "core," or Tier 1, leverage capital requirements, the FDIC has adopted a Statement of Policy on Risk-Based Capital (the "Statement of Policy"). Under the Statement of Policy, the Bank generally is required to maintain a minimum risk-based capital ratio of qualifying total capital to risk-weighted assets of at least 8% of risk-weighted assets to constitute an adequately-capitalized institution and 10% of risk-weighted assets to constitute a well-capitalized institution. At least one-half of that capital must consist of Tier 1 capital. Additional, supplementary capital includes, among other things, allowances for loan losses, subject to certain limits, cumulative perpetual and long-term preferred stock, hybrid capital instruments such as mandatory convertible debt, and limited amounts of term subordinated debt and intermediate-term preferred stock. Similar to the FRB's risk-based capital standards, the Statement of Policy defines risk-based capital and provides a system for calculating risk-weighted assets by assigning assets and off-balance-sheet items to broad risk categories. The Statement of Policy applies to, among other institutions, all FDIC-insured, state-chartered banks which are not members of the Federal Reserve System, and to all circumstances in which the FDIC must evaluate the capital of a banking organization. The Statement of Policy is used in the regulatory examination and supervisory process, as well as in the analysis of applications upon which the FDIC must act. In light of these and other considerations, banks generally are required to operate above the minimum risk-based capital levels. Banks contemplating significant expansion plans, as well as institutions with high or inordinate levels of risk, are expected to have capital -25- 29 commensurate with the level and nature of those risks. As of December 31, 1997, the Bank's risk-based capital ratio was 11.76% and its Tier 1 capital was 89.36% of its risk-based capital. The FDIC may impose sanctions on any insured bank which does not operate in accordance with the FDIC's regulations, policies or directives. Cease-and-desist proceedings may be instituted against an insured bank or bank holding company which is believed 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 the insured institution is or has engaged in an unsafe or unsound practice which 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. The Corporation is not aware of any past or current practice, condition or violation which might lead to termination of the deposit insurance coverage of any of the Banks or to 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"), among other things, 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. Such actions could 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, 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 an institution's capital restoration plan and provide assurance of performance under such a plan. The Improvement Act also: (1) prohibits insured depository institutions from making capital distributions (including dividends) if, after the distribution, the institution would be undercapitalized; (2) directs the Federal banking agencies to monitor closely the condition, plans, restrictions and requirements of or applicable to undercapitalized institutions and restricts such institutions' asset growth, branching and new lines of business; and (3) expands the grounds for appointment of a conservator or receiver for an insured institution. The Improvement Act generally requires that a receiver be appointed if the institution does not have tangible equity of at least 2% of its total assets. FEDERAL RESERVE BOARD REGULATION Wilmington Trust of Pennsylvania is a member of the Federal Reserve System. In addition, although neither the Bank nor Wilmington Trust FSB is a member of the Federal Reserve System, as FDIC-insured depository institutions, each of the Banks is subject to Section 19 of the Federal Reserve Act and the FRB's regulations promulgated thereunder. These require that the Banks maintain certain reserves against their transaction accounts (primarily checking and NOW accounts), money market deposit accounts and non-personal time deposits. Since reserves -26- 30 generally must be maintained in cash or in non-interest-bearing accounts, the effect of these reserve requirements is to increase the Banks' cost of funds. OFFICE OF THRIFT SUPERVISION REGULATION The OTS requires thrifts such as Wilmington Trust FSB to maintain a minimum Tier 1 leverage capital ratio of at least 4% of total assets to constitute an adequately-capitalized institution and 5% of total assets to constitute a well-capitalized institution. For OTS-regulated institutions, Tier 1 leverage capital includes, among other things, common stockholders' equity, qualifying cumulative and noncumulative perpetual preferred stock and minority interests in consolidated subsidiaries. As of December 31, 1997, Wilmington Trust FSB's Tier 1 leverage capital ratio was 10.97%. In addition to the OTS's minimum "core," or Tier 1, leverage capital requirements, Wilmington Trust FSB generally is required to maintain a minimum risk-based capital ratio of qualifying total capital to risk-weighted assets of at least 8% of risk-weighted assets to constitute an adequately-capitalized institution and 10% of risk-weighted assets to constitute a well-capitalized institution. For adequately-capitalized institutions, at least 4% of such capital must be Tier 1 capital, while for well-capitalized institutions at least 6% of such capital must be Tier 1 capital. Additional, supplementary capital includes, among other things, allowances for loan losses, subject to certain limits, cumulative perpetual and long-term preferred stock, hybrid capital instruments such as mandatory convertible debt, and limited amounts of term subordinated debt and intermediate-term preferred stock. Similar to the FRB's risk-based capital standards, the OTS defines risk-based capital and provides a system for calculating risk-weighted assets by assigning assets and off-balance-sheet items to broad risk categories. Thrifts generally are required to operate above the minimum risk-based capital levels. Thrifts contemplating significant expansion plans, as well as institutions with high or inordinate levels of risk, are expected to have capital commensurate with the level and nature of those risks. As of December 31, 1997, Wilmington Trust FSB's risk-based capital ratio was 20.68%, and 93.94% of its capital was Tier 1 capital. The Home Owners' Loan Act ("HOLA") and the OTS's regulations require all savings institutions to satisfy one of two Qualified Thrift Lender ("QTL") tests. To qualify as a QTL, a savings institution must either (1) be deemed a "domestic building and loan association" under the Internal Revenue Code by maintaining at least 60% of its total assets in specified types of assets, including cash, certain government securities, loans secured by and other assets related to residential real property, educational loans and investments in the institution's premises or (2) satisfy HOLA's QTL test by maintaining at least 65% of "portfolio assets" in certain "Qualified Thrift Investments." For purposes of HOLA's QTL test, portfolio assets are total assets less intangibles, property used by the institution in its business and liquidity investments in an amount not exceeding 20% of assets. Qualified Thrift Investments are (a) loans or securities related to domestic residential housing or manufactured housing, (b) loans to small businesses, student loans and credit card loans and (c) subject to a limitation equal to 20% of portfolio assets, 50% of the dollar amount of residential mortgage loans subject to sale under certain conditions, 100% of consumer loans other than those described above and certain other assets, 200% of the institution's investments in loans to finance "starter homes" with purchase prices not exceeding -27- 31 60% of median value and loans to construct, develop or improve housing and community service facilities or to finance small business in "credit needy" areas. A thrift's aggregate investment in commercial loans, leases and letters of credit is limited to 10% of its assets, while its aggregate investment in consumer loans is limited to 30% of its assets. CHANGE-IN-CONTROL REGULATION Before obtaining "control" of the Corporation, a potential acquirer would need to obtain the FRB's prior approval under either Section 3 of the BHCA or the FRB's regulations promulgated under the Federal Bank Control Act in the case of an individual acquirer. "Control" of the Corporation for purposes of Section 3 of the BHCA means (1) ownership, control or the power to vote, directly or indirectly, 25% or more of any class of the Corporation's voting stock; (2) control in any manner over the election of a majority of the Corporation's Board of Directors; (3) the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Corporation; or (4) conditioning the transfer of 25% or more of any class of the Corporation's voting securities upon the transfer of 25% or more of the outstanding shares of any class of voting securities of another company. With holdings or control of less than five percent, there is a presumption that there is no controlling influence over a target's management or policies. As part of an acquisition by a nonbank holding company, the acquiring company would become a bank holding company. Its business activities thereby would be limited to activities which the FRB determines to be so closely related to banking as to be a proper incident thereto. As part of an acquisition of the Corporation by another bank holding company, the FRB's approval would be required for the acquisition of more than five percent of any class of the Corporation's voting securities. For acquisitions under the Federal Bank Control Act, the FRB's regulations provide that any person acting directly or indirectly, or through or in concert with one or more persons, would need to provide the FRB at least 60 days' written notice before acquiring control of the Corporation, unless certain exemptions, including acquisitions of the Corporation's voting securities subject to the FRB's approval under Section 3 of the BHCA discussed above, apply. The following transactions would constitute, or would be presumed to constitute, the acquisition of control of the Corporation triggering the 60-day notice requirement discussed in the preceding sentence: the acquisition of any voting securities of the Corporation if, after the acquisition, the acquiring person or persons acting in concert (1) owns, controls or holds the power to vote 25% or more of any class of the Corporation's voting securities or (2) owns, controls or holds the power to vote 10% or more, but less than 25%, of any class of the Corporation's voting securities at a time that the Corporation has securities registered under Section 12 of the Exchange Act or if no other person will own a greater percentage of that class of voting securities immediately after the acquisition. -28- 32 DIVIDEND LIMITATIONS The FRB's "Policy Statement on the Payment of Cash Dividends by State Member Banks and Bank Holding Companies" sets forth guidelines the FRB believes a bank or bank holding company should follow in establishing dividend policy. The FRB's policy generally is that banks and bank holding companies should not pay dividends except from current earnings and provided the institution's prospective rate of earnings retention is consistent with the institution's capital needs, asset quality and overall financial condition at the time of consideration. 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 such subsidiary banks should not be compromised by a level of cash dividends which places undue pressure on their capital or which is funded through borrowings that weaken the holding company system. The FDIC can prohibit a bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law also prohibits payment of dividends that would result in a bank failing to meet its applicable capital requirements. Delaware law restricts the Bank from declaring a dividend which 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 such 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 the amount that would reduce by one-half its "surplus capital ratio" (the 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 would require prior OTS approval. SECURITIES LAWS The sale of the Corporation's securities is subject to the registration requirements of the Securities Act of 1933 and a number of state securities laws, unless an exemption therefrom is available. In general, those statutes regulate the sale of securities by issuers and by persons deemed to be in control of an issuer. In addition, the Corporation's common stock is registered with the Securities and Exchange Commission, and is subject to the requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and the regulations promulgated thereunder regarding periodic reporting to stockholders, proxy solicitation and other matters. Any tender offer to acquire the Corporation's securities would be subject to the Exchange Act's limitations and disclosure requirements. -29- 33 OTHER LAWS AND REGULATIONS The lending and deposit-taking activities of the Corporation's subsidiaries are subject to a variety of Federal and state consumer protection laws, including the Equal Credit Opportunity Act (which prohibits discrimination in all aspects of credit-granting), 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 Fair Credit Reporting Act (which, among other things, requires a lender to disclose the name and address of the credit bureau from whom a lender obtains a report that resulted in a denial of credit), the Real Estate Settlement Procedures Act (which, among other things, 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, among other things, requires certain disclosures in connection with electronic funds transactions) and the Expedited Funds Availability Act (which, among other things, requires that deposited funds be made available for withdrawal in accordance with a prescribed schedule and that that schedule be disclosed to customers). Under the Community Reinvestment Act (the "CRA") and the Fair Housing Act, depository institutions are prohibited from certain discriminatory practices which 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 such individuals. CRA performance is considered by all of the Federal regulatory agencies in connection with 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 which did not override that preemption. Although some states overrode the preemption, Delaware, Florida, Maryland and Pennsylvania did not. Accordingly, there is currently no limit on the interest rate which the Banks can charge on those loans. In addition, the usury limitations of the Banks' respective home states apply to all other loans the Banks offer. In today's interest rate environment, those usury laws do not materially affect the Banks' lending programs. The remedies available to a lender upon a default or delinquency with respect to certain mortgage loans secured by residential real property, and the procedures by which those remedies may be exercised, also are subject to limitations imposed by the laws of the states where the real property is located. Delaware's business and legal environments historically have contributed to the Bank'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 well recognized for its interpretations of corporate law. -30- 34 In addition, Delaware law affords several advantages for trust administration which have helped contribute to the Corporation'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 imposes no tax on those trusts. ITEM 2 - PROPERTIES The Corporation, through the Banks and its other subsidiaries, owns and/or leases buildings which are used in the normal course of their businesses. The main office of the Corporation as well as of the Bank is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890. The Corporation and most of its subsidiaries occupy 265,000 square feet of space at this location, known as the Wilmington Trust Center. This facility is owned by Rodney Square Investors, L.P., in which the Bank, through one of its subsidiaries, has a 50% ownership interest. The mortgage for this facility is carried by the Bank, and had an outstanding balance at December 31, 1997 of $30,411,953. A separate, unencumbered, 300,000-square foot operations facility known as the Wilmington Trust Plaza is owned by a subsidiary of the Bank, and is located at 301 West Eleventh Street, Wilmington, Delaware 19801. As of March 20, 1998, the Banks had 65 full-service branch locations. Twenty-six are in New Castle County, six are in Kent County and 21 are in Sussex County, Delaware, three are in Chester County and one is in each of Delaware, Montgomery and Philadelphia Counties, Pennsylvania, one is in Wicomico County and two are in Worcester County, Maryland, and one is in Martin County, one is in Palm Beach County and one is in Indian River County, Florida. Certain of the Corporation's subsidiaries own a total of four additional locations which are utilized for storage. Other subsidiaries lease and occupy an additional ten locations. ITEM 3 - LEGAL PROCEEDINGS The Corporation and its subsidiaries in the ordinary course of business are involved in various legal proceedings. 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 the consolidated financial condition of the Corporation. The Bank is a defendant in a class action lawsuit relating to fees charged to certain personal trust customer accounts during the period from August 1983 through May 1987. This suit was brought in Delaware's Court of Chancery, and was certified as a class action during the fourth quarter of 1997. The plaintiff is seeking monetary damages equal to the disputed fees of approximately $8.5 million plus accrued prejudgment interest which approximated $14 million at October 31, 1997. The Bank is contesting all claims set forth in this suit and is defending itself vigorously. -31- 35 The Bank had not accrued any expenses associated with the outcome of these various legal proceedings as of December 31, 1997. 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 1997. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS Information required by this item is contained on page 23 of the Management's Discussion and Analysis portion of the Corporation's Annual Report to Stockholders, which is incorporated herein by reference. See also "Item 1 - Business." -32- 36 ITEM 6 - SELECTED FINANCIAL DATA The following table sets forth selected financial data for the last five years: (in thousands, except per share information)
1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- Interest income $ 430,639 $ 402,850 $ 377,341 $ 307,882 $ 290,972 Net interest income 230,016 214,221 197,364 184,330 174,747 Provision for loan losses 21,500 16,000 12,280 4,550 9,500 Net income 106,044 97,278 90,031 85,169 82,761 Per share data: Net income-basic 3.15 2.83 2.56 2.37 2.24 Net income-diluted 3.08 2.79 2.53 2.35 2.21 Cash dividends declared 1.41 1.29 1.17 1.06 0.975 Balance sheet at year end: Assets $6,122,351 $5,564,409 $5,372,198 $4,742,359 $4,637,756 Long-term debt 43,000 43,000 28,000 -- -- ===============================================================================================================
-33- 37 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The information required by this item is contained on pages 13 through 29 of the Corporation's Annual Report to Stockholders, which are incorporated herein by reference. ITEM 7A - QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK The information required by this item is contained on pages 19 through 21 of the Corporation's Annual Report to Stockholders, which are incorporated herein by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following information required by this item is contained on the respective pages indicated of the Corporation's Annual Report to Stockholders for the year ended December 31, 1997, which are incorporated herein by reference. Annual Report to Stockholders Page Number Consolidated Statements of Condition as of December 31, 1997 and 1996 30 Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995 31 Consolidated Statements of Changes in Stock- holders' Equity for the years ended December 31, 1997, 1996 and 1995 32 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 33 Notes to Consolidated Financial Statements - December 31, 1997, 1996 and 1995 34-50 Report of Independent Auditors 51 Unaudited Selected Quarterly Financial Data 49 -34- 38 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with accountants. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 401 of Regulation S-K is contained on pages 3 through 10 of the Corporation's proxy statement for its Annual Stockholders' Meeting to be held on May 21, 1998 (the "Proxy Statement"), which are incorporated herein by reference. Information required by Rule 405 of Regulation S-K is contained on pages 20 and 21 of the Proxy Statement, which are incorporated herein by reference. ITEM 11 - EXECUTIVE COMPENSATION The information required by this item is contained on pages 11 through 20 of the Proxy Statement, which are incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is contained on pages 2 through 8 of the Proxy Statement, which are incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained on page 21 of the Proxy Statement, which is incorporated herein by reference. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a. 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 Corporation are incorporated by reference in Item 8 above: -35- 39 Annual Report to Stockholders Page Number Consolidated Statements of Condition as of December 31, 1997 and 1996 30 Consolidated Statements of Income for each of the years in the three-year period ended December 31, 1997 31 Consolidated Statements of Changes in Stockholders' Equity for each of the years in the three-year period ended December 31, 1997 32 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1997 33 Notes to Consolidated Financial Statements 34-50 Report of Independent Auditors 51 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. -36- 40 EXHIBIT NUMBER EXHIBIT 3.1 Amended and Restated Certificate of the Corporation(8) 3.2 Amended and Restated Bylaws of the Corporation(8) 4.1 1991 Employee Stock Purchase Plan(1) 4.2 1996 Employee Stock Purchase Plan(8) 4.3 1983 Employee Stock Option Plan(1) 4.4 1988 Long-Term Incentive Stock Option Plan(1) 4.5 1991 Long-Term Incentive Stock Option Plan(1) 4.6 1996 Long-Term Incentive Plan(8) 4.7 Thrift Savings Plan(1) 4.8 Employee Stock Ownership Plan(1) 4.9 Senior Executive Incentive Compensation Plan(6) 10.1 Purchase and Assumption Agreement dated June 18, 1991 by and between Wilmington Trust Company and Wilmington Savings Fund Society(2) 10.2 Agreement of Reorganization and Merger dated as of April 8, 1991 by and among Wilmington Trust Company, Wilmington Trust Corporation and The Sussex Trust Company(3) 10.3 Deposit Insurance and Transfer and Asset Purchase Agreement among the Federal Deposit Insurance Corporation in its capacity as receiver for The Bank of the Brandywine Valley, the Federal Deposit Insurance Corporation and Wilmington Trust Company dated as of February 21, 1992(4) 10.4 Agreement of Reorganization and Merger dated as of March 18, 1993 between Wilmington Trust Corporation and Freedom Valley Bank(5) 10.5 Rights Agreement dated as of January 19, 1996 between Wilmington Trust Corporation and Harris Trust and Savings Bank(7) 10.6 Supplemental Executive Retirement Plan(8) 10.7 Severance Agreement dated as of February 29, 1996 between Wilmington Trust Company and Ted T. Cecala(8) 10.8 Severance Agreement dated as of February 29, 1996 between Wilmington Trust Company and Robert J. Christian(8) 10.9 Severance Agreement dated as of February 29, 1996 between Wilmington Trust Company and Howard K. Cohen(8) 10.10 Severance Agreement dated as of February 29, 1996 between Wilmington Trust Company and William J. Farrell, II(8) 10.11 Severance Agreement dated as of February 29, 1996 between Wilmington Trust Company and David R. Gibson(8) 10.12 Severance Agreement dated as of February 29, 1996 between Wilmington Trust Company and Robert V.A. Harra, Jr.(8) 10.13 Severance Agreement dated as of February 29, 1996 between Wilmington Trust Company and George W. Helme, IV(8) -37- 41 10.14 Severance Agreement dated as of February 29, 1996 between Wilmington Trust Company and Joseph M. Jacobs, Jr.(8) 10.15 Severance Agreement dated as of February 29, 1996 between Wilmington Trust Company and John H. Kipp(8) 10.16 Severance Agreement dated as of February 29, 1996 between Wilmington Trust Company and Hugh D. Leahy, Jr.(8) 10.17 Severance Agreement dated as of February 29, 1996 between Wilmington Trust Company and Robert A. Matarese(8) 10.18 Severance Agreement dated as of July 18, 1996 between Wilmington Trust Company and Rita C. Turner(9) 11 Statement re computation of per share earnings(10) 13 1997 Annual Report to Stockholders of Wilmington Trust Corporation(10) 21 Subsidiaries of Wilmington Trust Corporation(10) 23 Consent of independent auditor(10) 27 Financial data schedule(10) - ---------- (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) Filed herewith. b. The Corporation filed a report on Form 8-K on October 31, 1997 reporting certain developments under Item 5. -38- 42 Pursuant to the requirements of Sections 13 and 15(d) of the Securities Exchange Act of 1934, this Form has been signed by the following persons in the capacities and on the dates indicated. /s/ Ted T. Cecala -------------------------------------- Ted T. Cecala Director, Chairman of the Board and Chief Executive Officer (Date) March 19, 1998 /s/ Robert V.A. Harra, Jr. -------------------------------------- Robert V.A. Harra, Jr. Director, President and Chief Operating Officer (Date) March 19, 1998 /s/ David R. Gibson -------------------------------------- David R. Gibson, Senior Vice President and Chief Financial Officer (Date) March 19, 1998 /s/ Robert H. Bolling, Jr. -------------------------------------- Robert H. Bolling, Jr. Director (Date) March 19, 1998 /s/ Carolyn S. Burger -------------------------------------- Carolyn S. Burger Director (Date) March 19, 1998 -39- 43 /s/ Richard R. Collins -------------------------------------- Richard R. Collins Director (Date) March 19, 1998 /s/ Charles S. Crompton, Jr. -------------------------------------- Charles S. Crompton, Jr. Director (Date) March 19, 1998 /s/ H. Stewart Dunn, Jr. -------------------------------------- H. Stewart Dunn, Jr. Director (Date) March 19, 1998 /s/ Edward B. duPont -------------------------------------- Edward B. duPont Director (Date) March 19, 1998 /s/ R. Keith Elliott -------------------------------------- R. Keith Elliott Director (Date) March 19, 1998 -------------------------------------- Robert C. Forney Director (Date) March 19, 1998 -40- 44 /s/ Andrew B. Kirkpatrick, Jr. -------------------------------------- Andrew B. Kirkpatrick, Jr. Director (Date) March 19, 1998 /s/ Rex L. Mears -------------------------------------- Rex L. Mears Director (Date) March 19, 1998 /s/ Hugh E. Miller -------------------------------------- Hugh E. Miller Director (Date) March 19, 1998 /s/ Stacey J. Mobley -------------------------------------- Stacey J. Mobley Director (Date) March 19, 1998 /s/ Leonard W. Quill -------------------------------------- Leonard W. Quill Director (Date) March 19, 1998 /s/ David P. Roselle -------------------------------------- David P. Roselle Director (Date) March 19, 1998 -41- 45 /s/ H. Rodney Sharp, III -------------------------------------- H. Rodney Sharp, III Director (Date) March 19, 1998 /s/ Thomas P. Sweeney -------------------------------------- Thomas P. Sweeney Director (Date) March 19, 1998 /s/ Bernard J. Taylor, II -------------------------------------- Bernard J. Taylor, II Director (Date) March 19, 1998 /s/ Mary Jornlin Theisen -------------------------------------- Mary Jornlin Theisen Director (Date) March 19, 1998 /s/ Robert W. Tunnell, Jr. -------------------------------------- Robert W. Tunnell, Jr. Director (Date) March 19, 1998 -42- EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 Earnings per share of $3.15 for 1997 were computed by dividing net income of $106,043,816 by the weighted average number of shares of common stock outstanding during 1997 of 33,697,258. EX-13 3 1997 ANNUAL REPORT TO STOCKHOLDERS 1 Wilmington Trust Corporation 1997 Annual Report A Vision for the Future, a Strategy for Growth [WILMINGTON TRUST LOGO] TABLE OF CONTENTS [PORTION OF GRAPH.] The Year in Brief .......................... 1 [PICTURE OF TED T. CECALA.] Letter to Stockholders ............................. 2 [COMPUTER SCREEN.] Shared Values .............................. 6 [WILMINGTON TRUST LOGO.] Helping Customers Succeed .................. 7 Management's Discussion and Analysis ............................. 13 Consolidated Financial Statements ............................... 28 Notes to Consolidated Financial Statements ..................... 34 Organizational Listings .................... 53 Stockholder Information .................... 57 THE YEAR IN BRIEF WILMINGTON TRUST CORPORATION AND SUBSIDIARIES FOR THE YEAR (in thousands) 1997 1996 Increase - -------------------------------------------------------------------------------- Net interest income $ 230,016 $ 214,221 7.4% Provision for loan losses 21,500 16,000 34.4 Other income 157,542 138,237 14.0 Net interest and other income 366,058 336,458 8.8 Other expense 207,671 192,339 8.0 Income before income taxes 158,387 144,119 9.9 Applicable income taxes 52,343 46,841 11.7 Net income 106,044 97,278 9.0 PER SHARE* - -------------------------------------------------------------------------------- Net income--basic $ 3.15 $ 2.83 11.3% Net income--diluted 3.08 2.79 10.4 Dividends paid 1.41 1.29 9.3 Book value at December 31 15.02 13.71 9.6 AT YEAR-END (in thousands) - -------------------------------------------------------------------------------- Assets $6,122,351 $5,564,409 10.0% Loans 3,993,935 3,771,484 5.9 Reserve for loan losses 63,805 54,361 17.4 Investment securities 1,649,410 1,266,151 30.3 Deposits 4,169,030 3,913,698 6.5 Stockholders' equity 503,007 464,717 8.2 *All per share amounts throughout this report have been adjusted to reflect the four 100% stock dividends (2-for-1 splits) effected since 1983. Note: Prior period amounts throughout this report have been restated to reflect the acquisitions in 1992 of The Sussex Trust Company and in 1990 of Wilmington Capital Management, Inc. and The Peoples Bank of Harrington under the pooling of interests method.
[GRAPH OF RETURN ON ASSETS [GRAPH OF RETURN ON [GRAPH OF NET INCOME FOR (NET INCOME AS A PERCENTAGE STOCKHOLDERS' EQUITY EACH YEAR FROM 1987 TO OF AVERAGE ASSETS) FOR EACH (NET INCOME AS A PERCENTAGE 1997, WITH THE FOLLOWING YEAR FROM 1987 TO 1997, WITH OF AVERAGE STOCKHOLDERS' PLOT POINTS, IN MILLIONS: THE FOLLOWING PLOT POINTS: EQUITY) FOR EACH YEAR FROM 1987 TO 1997, WITH THE 1987 - $46.72 1987 - 1.50% FOLLOWING PLOT POINTS: 1988 - $55.61 1988 - 1.73% 1989 - $61.19 1989 - 1.70% 1987 - 21.92% 1990 - $68.53 1990 - 1.72% 1988 - 23.38% 1991 - $72.76 1991 - 1.75% 1989 - 22.08% 1992 - $64.01 AFTER CHANGE 1992 - 1.55% AFTER CHANGE 1990 - 22.67% IN ACCOUNTING IN ACCOUNTING 1991 - 21.09% PRINCIPLE PRINCIPLE 1992 - 17.44% AFTER CHANGE 1992A - $78.76 BEFORE CHANGE 1992A - 1.90% BEFORE CHANGE IN ACCOUNTING IN ACCOUNTING IN ACCOUNTING PRINCIPLE PRINCIPLE PRINCIPLE 1992A - 20.62% BEFORE CHANGE 1993 - $82.76 1993 - 1.96% IN ACCOUNTING 1994 - $85.17 1994 - 1.88% PRINCIPLE 1995 - $90.03 1995 - 1.83% 1993 - 21.12% 1996 - $97.28 1996 - 1.83% 1994 - 20.84% 1997 - $106.04.] 1997 - 1.87%.] 1995 - 20.70% 1996 - 21.38% 1997 - 22.15%.]
1 TO OUR STOCKHOLDERS [PICTURE] [TED T. CECALA, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, IN HIS OFFICE IN THE WILMINGTON TRUST CENTER.] The new strategic direction we put in place for our company a year ago has begun to produce the anticipated results. In 1997, we achieved new records in virtually every aspect of our business, while making significant investments that form the foundation for even stronger growth in the future. Earnings per share for 1997 were $3.15, up 11% from the $2.83 reported for the previous year. Net income reached a record $106.0 million, up 9% from the $97.3 million reported for 1996. Total revenues for the year were $387.6 million, up 10% from the $352.5 million in 1996. These higher revenues resulted from a 7% increase in net interest income, up to $230.0 million from the $214.2 million reported last year, combined with a 14% increase in total other income, up to $157.5 million from the $138.2 million reported last year. Total assets at year-end were $6.1 billion, total deposits were $4.2 billion, and stockholders' equity reached $503.0 million. Return on average stockholders' equity was 22.15% and return on average assets for the year was 1.87%, compared to 21.38% and 1.83%, respectively, reported a year ago. We have now recorded our 13th consecutive year that return on equity 2 has exceeded 20%, our 16th consecutive year of record performance and increased dividends. This performance once again earned Wilmington Trust a place on the Keefe, Bruyette & Woods "Honor Roll," which recognizes banking institutions whose earnings per share have increased for at least ten consecutive years. We were among 11 banks named to the Honor Roll last year, marking our sixth consecutive appearance. FOCUSED ON GROWTH Amidst the fierce competition in the financial services landscape, Wilmington Trust has focused on building on our strong reputation as a fiduciary and investment manager in new markets. We are expanding our presence in areas of the country that offer the greatest potential, such as New York, California, Florida, and regions in Maryland and Pennsylvania that are contiguous to Delaware. This expansion allows us to offer our unique combination of experience, knowledge, capabilities and Delaware advantages to a much larger number of customers.
Our strategies for growth also call for selected investments in other firms that [GRAPH OF NET INCOME complement our company's strengths. A recent step in this strategy was our PER SHARE FOR EACH investment in Cramer Rosenthal McGlynn, an investment advisory firm located in YEAR FROM 1987 TO New York. They bring a proven, value-oriented investment approach specializing 1997, WITH THE in small- and medium-capitalization companies that provide long-term growth FOLLOWING PLOT POINTS: potential. Their investment approach is an excellent addition to our investment services, and their commitment to building lasting relationships with their 1987 - $1.21 clients meshes well with our culture and approach to marketing our services. In 1988 - $1.45 conjunction with this new alliance, we have selected a location adjacent to 1989 - $1.59 Cramer Rosenthal McGlynn at 520 Madison Avenue in New York City to house a 1990 - $1.81 fiduciary and private banking group. Combined, these provide us with an 1991 - $1.92 excellent foothold in the nation's financial capital. 1992 - $1.70 AFTER CHANGE IN ACCOUNTING Our growth plans require a disciplined approach that focuses our efforts on PRINCIPLE businesses where we believe we can compete successfully and bring superior value 1992A - $2.09 BEFORE CHANGE to our customers. In 1997, we spent considerable time evaluating our mix of IN ACCOUNTING PRINCIPLE 1993 - $2.24 1994 - $2.37 1995 - $2.56 1996 - $2.83 1997 - $3.15.]
3 businesses, and decided to exit several businesses that were not strategically important to us, such as shareholder services, precious metals and mutual fund processing. At the same time, we increased investments to build our fiduciary, investment management and private banking services significantly. This process of evaluating our business mix and finding more efficient ways to operate is a continuing one at Wilmington Trust. [PICTURE] [ROBERT V. A. HARRA, JR., PRESIDENT AND CHIEF OPERATING OFFICER, OUTSIDE THE RECENTLY COMPLETED WILMINGTON TRUST PLAZA.] PEOPLE BEHIND THE PERFORMANCE Many people believe that it is location or technology that makes a company successful. I do not. Our greatest asset is the people who work at our company each and every day. I would like to recognize the Wilmington Trust team, whose exceptional efforts have produced this past year's accomplishments and will contribute to our company's success in the years ahead. Our people have enthusiastically embraced the challenges before them and have demonstrated tremendous innovation and teamwork in meeting these challenges. I would also like to express sincere appreciation to the entire Board of Directors and especially to two Board members who will retire from the Board in early 1998: Robert H. Bolling, Jr., and Bernard J. Taylor, II. 4 Mr. Bolling will retire as the longest-term current Board member, having joined the Board in 1971. He has served on our Board with distinction and has participated in the reshaping of our company. Mr. Taylor served as Chief Executive Officer from 1979, and as Chairman from 1980, until his retirement in 1992. During that period, Wilmington Trust's market capitalization increased from $65 million to over $1.1 billion. He has been a pivotal figure in the history of Wilmington Trust and set our organization on its current path toward growth during his highly successful tenure. This extraordinary record is a tribute to his outstanding leadership. We will miss the seasoned guidance of these two leaders and offer our thanks for their many contributions. I am also pleased to announce that H. Rodney Sharp, III, has been elected to the Wilmington Trust Board of Directors. Mr. Sharp currently serves as a director of E. I. du Pont de Nemours and Company, and brings valuable experience and insight that will help guide the continued growth of our organization. We are delighted to have him on our Board. BUILDING ON MOMENTUM I am very optimistic about the future of our company. Without a doubt, 1998 will be a challenging year in the financial services arena, but I believe we have set our course in a direction that offers significant opportunities well matched to our company's strengths. We have the momentum that enables us to meet the challenges in our rapidly changing industry. With our talented, dedicated team committed to helping our customers succeed, we can continue our exceptional record of success in the future. On behalf of the entire Wilmington Trust organization, I thank you for your continued confidence and look forward to sharing this exciting future with you. Ted T. Cecala Chairman and Chief Executive Officer 5 SHARED VALUES [PICTURE] [AT CRAMER ROSENTHAL MCGLYNN'S NEW YORK OFFICES (L-R): RONALD H. MCGLYNN, PRESIDENT AND CHIEF EXECUTIVE OFFICER; TED T. CECALA; ROBERT V. A. HARRA, JR.; AND GERALD B. CRAMER, CHAIRMAN.] [PICTURE] [IN THE TRADING ROOM OF CRAMER ROSENTHAL MCGLYNN (L-R): EUGENE A. TRAINOR, III, SENIOR VICE PRESIDENT, CRAMER ROSENTHAL MCGLYNN; ROBERT J. CHRISTIAN, SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER, WILMINGTON TRUST; AND ARTHUR J. PERGAMENT, SENIOR VICE PRESIDENT, CRAMER ROSENTHAL MCGLYNN.] WILMINGTON TRUST AND CRAMER ROSENTHAL MCGLYNN When Wilmington Trust acquired a 24% stake in New York's Cramer Rosenthal McGlynn, LLC, it gained a partner whose philosophy, values and clientele are very much like its own. Cramer Rosenthal McGlynn has established a long track record of excellence in serving the special needs of high net worth clients, as well as foundations, endowments and pension plans. It has also built a reputation for discretion and confidentiality as it quietly helps clients pursue their long-term goals. The firm is known for personalized service, tailoring its equity, fixed income and private investment portfolios to the needs of each client, and maintains close relationships that are based on continuous communication. In the words of Gerald B. Cramer, who founded the firm in 1973 with Edward J. Rosenthal and Ronald H. McGlynn, "Our partnership with Wilmington Trust will provide our clients with preferred access to the fiduciary services of one of America's oldest and most highly regarded trust companies. It represents an outstanding opportunity for both organizations and exciting new possibilities for our clients." 6 HELPING CUSTOMERS SUCCEED The mission of Wilmington Trust is to help our customers succeed. It is a goal we meet by providing superior banking, trust and investment services, along with a level of personalized service that few institutions offer today. In the pages ahead, we profile a few examples of how our efforts are making a real difference in the lives of individuals and companies we serve. REGIONAL BANKING SERVICES Wilmington Trust continues to be the most prominent independent banking institution in its region, offering a full range of financial solutions that include loans, deposit accounts and transaction accounts. We also meet the growing demand for stocks, bonds, mutual funds, annuities and insurance programs through our Wilmington Brokerage Services Company and the Personal Investment Centers located in several Wilmington Trust branch offices. [THOMAS DRAPER (L) AND DAVID BURTON IN MILFORD, DELAWARE.] [PICTURE] INVESTING IN A COMMUNITY'S RENAISSANCE RESTORING A CITY Wilmington Trust's unique relationship with its home state is exemplified by our role in the restoration of historic Milford, Delaware. The project was conceived by two local businessmen: David Burton, owner of the Milford automotive dealership I.G. Burton; and Thomas Draper, president of Draper Communications, Inc., the owner of WBOC-TV, Salisbury, Maryland. Under the leadership of these energetic entrepreneurs, the city of Milford has experienced an impressive revival. Older buildings have been transformed into modern office centers. "Pocket parks" have been created and entire city blocks have been brought back to life. 7 Wilmington Trust has provided the financing for much of this project, which David Burton emphasizes is "very conservative" from a financial standpoint. "We're businessmen," he explains, "so we have always insisted that any renovations must be absolutely sound financially. But once that criterion has been met, our interest is to leave something behind here in Milford that allows our town to live." A SHARED VISION "Wilmington Trust shares our vision," Mr. Burton adds. "While they have been a prudent financial partner, I think they are also acting upon the larger concept of what their investment means to the community." Tom Draper agrees. "This is an investment of the heart, as well as the pocketbook," he says. "Restoring an urban area can be difficult, but with the bank's help, we've been able to make it work. For us, and for the city of Milford, the relationship with Wilmington Trust has been a very rewarding one." GEOGRAPHIC EXPANSION Wilmington Trust has been expanding its service model to other states with high concentrations of successful individuals and businesses. This strategy has taken us across our immediate borders into Pennsylvania, where we now operate four banking offices in Delaware and Chester counties as well as two Financial Management Centers in Philadelphia and the Main Line suburb of Haverford. We have also expanded in nearby Maryland, where we recently opened a fourth office, in the growing community of Easton. We offer the services of relationship banking teams, which coordinate a full range of private banking, commercial banking and personal trust services. BEYOND OUR REGION Wilmington Trust has established a presence in New York, Nevada and Florida and expects to open an office in California, a leading region of personal wealth. 8 CELEBRATING THE GROWTH OF THEIR COMPANY [PICTURE] [AT THE DEDICATION OF VERTEX'S NEWEST BUILDING (FRONT ROW, L-R): STEFANIE LUCAS, RAY WESTPHAL, ANTOINETTE WESTPHAL, AMANDA RADCLIFFE AND JEFF WESTPHAL.] The nation's single-richest metropolitan market is New York City, one of the world's financial centers. Wilmington Trust made a commitment to this market by creating an alliance with Cramer Rosenthal McGlynn and will soon open an office adjacent to Cramer Rosenthal McGlynn's Madison Avenue location, offering personal and corporate trust services. AN ENTREPRENEURIAL FOCUS Wilmington Trust is focused on serving the needs of closely held companies and their owners, who represent the fastest-growing portion of the affluent market. A prime example is the Westphal family of southeastern Pennsylvania, whose company, Vertex Inc., is a leading provider of tax compliance software solutions used by many of America's largest corporations. Founded in the 1970s by chairman Ray Westphal, the company has tripled in size since 1990 and currently employs 260 people. Today, Ray's son Jeff serves as the company's president, while wife Antoinette and daughters Amanda Radcliffe and Stefanie Lucas serve as directors. Wilmington Trust has been instrumental in helping the Westphal family coordinate its closely intertwined corporate banking, personal banking and trust relationships. Services we provide include personal banking accounts, personal trust and estate planning, commercial lending, and residential mortgages. The 9 bank has also provided construction financing for the company's newest building, which was recently completed. STRATEGIC IMPORTANCE "As a closely held private business," Ray Westphal says, "our primary banking relationship has strategic importance to our company. Wilmington Trust has demonstrated insight into our unique needs, which is why we recommend the bank highly to others with similar financial management challenges." The Westphal family also values Wilmington Trust's personal approach which, Stefanie Lucas points out, extends all the way to senior management. "We feel that all levels of the bank truly know us and know Vertex," she says. Jeff Westphal adds, "Wilmington Trust's ability to manage our personal and corporate banking through a single point of contact has been a great asset to our family and our company." PERSONAL TRUST AND PRIVATE BANKING SERVICES Wilmington Trust was founded in 1903 to serve the financial needs of some of America's wealthiest families. We currently rank as one of the largest personal trust institutions in the nation, with $20 billion in personal trust assets. Our personal trust and private banking services are truly international in scope, with clients in all 50 states and several foreign countries. The services we provide--trust administration, investment management, private banking, custody services, tax planning, financial planning and estate settlement--help clients maximize their holdings through generations, while minimizing the effects of taxes. SERVING FOUR GENERATIONS That these products and services make a real difference in people's lives is evident from the Broll family, whose patriarch, Charles Broll, is the former co-owner of a successful bottling company. Mr. Broll first selected Wilmington Trust to assist with his parents' financial affairs, having conducted a rigorous process of "due diligence" on regional banking and trust institutions. It is a decision that has now extended across four generations. 10 "I was so happy with the bank's performance for my parents," Mr. Broll explains, "that I later chose them to handle the trusts that I have established for my children and grandchildren." While he values the ongoing performance and personalized service that Wilmington Trust provides, Mr. Broll places an equally high value on the bank's tradition of independence and integrity. "The word trust," he says, "is both a noun and a verb. I've found both in Wilmington Trust." [THE BROLL FAMILY AT THEIR ARIZONA HOME. STANDING, L-R: JEFF LYTLE, PRIDE COTTEN, CHARLES BROLL, JR., CHARLES BROLL AND TURNER BROLL. SEATED: MEREDITH LYTLE WITH LUCY, LANE AND SAM.] [PICTURE] PERFORMANCE AND SERVICE FOR FOUR GENERATIONS CORPORATE FINANCIAL SERVICES Companies across America turn to Wilmington Trust for a variety of advanced corporate financial services and for unparalleled expertise in navigating Delaware's unique tax and regulatory environment. Wilmington Trust is a recognized leader in the establishment and administration of investment holding companies, business trusts, limited liability companies and limited partnerships. We are also a leader in providing asset management services to corporations, municipalities, endowments and institutional investors nationwide. This business sector requires a disciplined investment approach, along with impeccable attention to detail, both of which are strengths of the Wilmington Trust team. Other corporate trust services include assistance in the leasing or financing of major capital equipment, such as aircraft, ships, railcars, power plants and communications equipment. 11 EMPLOYEE BENEFIT PROGRAMS One of Wilmington Trust's most rapidly growing corporate trust areas is that of employee benefit trusts, in which we provide fiduciary services for a variety of company-sponsored retirement plans. Volvo Cars of North America, the New Jersey-based subsidiary of Sweden's leading automobile manufacturer, is a satisfied client of these specialized services. HELPING EMPLOYEES PLAN FOR THE FUTURE [PICTURE] [AT VOLVO CARS OF NORTH AMERICA (L-R): MICHAEL THOMAS, DEPUTY GENERAL COUNSEL; ANTHONY CICCAGLIONE, MANAGER OF CORPORATE ACCOUNTING AND REPORTING; CHARISSE RODGERS, FINANCIAL SERVICES OFFICER, WILMINGTON TRUST; JOSEPH AVALLONE, FINANCIAL REPORTING MANAGER.] A STRONG REPUTATION According to Joe Avallone, the company's Financial Reporting Manager, "We chose Wilmington Trust based on its strong reputation in the industry and have been very glad we did." "Our account can be fairly complicated to administer," he explains. "For example, it is based on the American Depository Receipts of a preferred stock that is issued in Sweden. In addition, there have been numerous changes in our stock over the years due to divestitures, warrants and other factors. Through it all, Wilmington Trust's people have been very responsive to our needs and very knowledgeable as to how to deal with these special issues." CREATING VALUE As these examples show, a financial institution is more than just a business. It is a partner in realizing hopes and ambitions, both personal and corporate. Wilmington Trust never loses sight of its role, and continually seeks new ways to fulfill it more effectively. By focusing on our customers and helping them succeed, we in turn increase the success of our organization, and enhance shareholder value. In the years ahead, we will continue to build on our strategy of putting the customer first, in order to create even greater value in the future. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS WILMINGTON TRUST CORPORATION AND SUBSIDIARIES SUMMARY 1997 marked the sixteenth consecutive year in which the Corporation has posted record earnings.(1) Net income for 1997 reached a record $106.0 million, or $3.15 per share. This was a 9% increase over the $97.3 million, or $2.83 per share, reported for 1996. These improvements were attributable to growth in both of the major components of the Corporation's income. Net interest income increased 7% to $230.0 million, an increase of $15.8 million over the $214.2 million reported for 1996. Noninterest revenues increased 14% to $157.5 million, an increase of $19.3 million over the $138.2 million reported for 1996. The provision for loan losses for 1997 was $21.5 million, an increase of $5.5 million, or 34%, over the $16.0 million provision for 1996. Operating expenses for 1997 were $207.7 million. This was an increase of $15.4 million, or 8%, over the $192.3 million reported for 1996. The provision for income taxes was $52.3 million, an increase of $5.5 million, or 12%, over the $46.8 million reported for 1996. These results produced a return on average stockholders' equity of 22.15%, above the 21.38% reported for last year, and marked the thirteenth consecutive year that return on equity has exceeded 20%.(1) The return on average assets for 1997 was 1.87%, up slightly over the 1.83% for a year ago. The Corporation maintained its high level of productivity during 1997. The net profit margin (measured by net income as a percentage of the sum of net interest and noninterest income) for 1997 was 27.4%, down slightly from the 27.6% reported for 1996. Productivity for 1997, as measured by net income per staff member, was $44,000, up from the $40,000 reported for 1996. Statistical disclosures required of bank holding companies by Industry Guide 3 are included in the Corporation's Annual Report on Form 10-K for 1997. The following table presents comparative five-year average balance sheets and income statements, as well as interest income and expense and respective yields and costs of funds for those years. - --------------------------- (1)Based upon income before cumulative effect of change in accounting principle. [GRAPH OF NET INCOME [GRAPH OF NET PROFIT PER STAFF MEMBER FOR MARGIN (NET INCOME AS EACH YEAR FROM 1987 A PERCENTAGE OF OPERATING TO 1997, WITH THE REVENUES) FOR EACH YEAR FOLLOWING PLOT POINTS, FROM 1987 TO 1997, WITH IN THOUSANDS: THE FOLLOWING PLOT POINTS: 1987 - $23.38 1987 - 26.13% 1988 - $25.45 1988 - 28.72% 1989 - $28.16 1989 - 28.53% 1990 - $31.45 1990 - 29.34% 1991 - $32.88 1991 - 28.51% 1992 - $29.26 AFTER CHANGE 1992 - 23.24% AFTER CHANGE IN ACCOUNTING IN ACCOUNTING PRINCIPLE PRINCIPLE 1992A - $36.00 BEFORE CHANGE 1992A - 28.59% BEFORE CHANGE IN ACCOUNTING IN ACCOUNTING PRINCIPLE PRINCIPLE 1993 - $36.72 1993 - 28.69% 1994 - $36.98 1994 - 28.64% 1995 - $38.61 1995 - 27.70% 1996 - $40.23 1996 - 27.60% 1997 - $43.68.] 1997 - 27.36%.] 13
1997 1996 ------------------------------------ ------------------------------------ Average Income/ Average Average Income/ Average (in thousands; rates on tax-equivalent basis) balance expense rate balance expense rate - ------------------------------------------------------------------------------------------------------------------------------------ Time deposits in other banks $ -- $ -- --% $ -- $ -- --% Federal funds sold and securities purchased under agreements to resell 22,369 1,280 5.72 26,459 1,475 5.57 - ------------------------------------------------------------------------------ ------------------------ Total short-term investments 22,369 1,280 5.72 26,459 1,475 5.57 ---------------------------------------------------------------------------- U.S. Treasury and government agencies 868,296 55,579 6.41 818,585 51,511 6.30 State and municipal(1) 27,918 2,223 7.99 35,473 2,829 8.00 Preferred stock(1) 131,693 9,906 7.63 133,322 10,058 7.51 Asset-backed securities 272,527 17,581 6.46 259,071 15,163 5.85 Other(1) 85,865 5,078 5.93 96,556 5,321 5.53 - ------------------------------------------------------------------------------ ------------------------ Total investment securities 1,386,299 90,367 6.53 1,343,007 84,882 6.33 ---------------------------------------------------------------------------- Commercial, financial and agricultural 1,211,703 105,758 8.73 1,160,899 103,131 8.88 Real estate--construction 131,745 12,980 9.85 114,827 11,150 9.71 Mortgage--commercial 904,063 85,260 9.43 806,782 77,871 9.65 Mortgage--residential 764,246 58,406 7.64 683,095 53,563 7.84 Installment loans to individuals 909,736 85,953 9.45 836,827 80,941 9.67 - ------------------------------------------------------------------------------ ------------------------ Total loans(1)(2) 3,921,493 348,357 8.88 3,602,430 326,656 9.07 ---------------------------------------------------------------------------- Total earning assets 5,330,161 440,004 8.26 4,971,896 413,013 8.31 Other assets 349,826 335,467 - ------------------------------------------------------------------ ----------- Total assets $ 5,679,987 $ 5,307,363 ============================================================================ Savings $ 360,689 8,465 2.35 $ 356,542 8,431 2.36 Interest-bearing demand 1,078,685 27,393 2.54 1,007,652 25,962 2.58 Certificates under $100,000 1,246,240 69,717 5.59 1,245,436 72,095 5.79 Certificates $100,000 and over 506,089 28,601 5.65 281,314 15,467 5.50 - ------------------------------------------------------------------------------ ------------------------ Total interest-bearing deposits 3,191,703 134,176 4.20 2,890,944 121,955 4.22 ---------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 1,142,106 63,123 5.53 1,161,521 63,429 5.46 U.S. Treasury demand 46,108 2,450 5.31 34,241 1,766 5.16 - ------------------------------------------------------------------------------ ------------------------ Total short-term borrowings 1,188,214 65,573 5.52 1,195,762 65,195 5.45 ---------------------------------------------------------------------------- Long-term debt 43,000 874 2.03 30,910 1,479 4.78 - ------------------------------------------------------------------------------ ------------------------ Total interest-bearing liabilities 4,422,917 200,623 4.54 4,117,616 188,629 4.58 Demand deposits 678,683 633,066 Other noninterest funds 228,561 221,214 - ------------------------------------------------------------------------------------------------------------------------------------ Total funds used to support earning assets 5,330,161 200,623 3.77 4,971,896 188,629 3.80 Stockholders' equity 478,814 454,917 Equity used to support earning assets (228,561) (221,214) Other liabilities 99,573 101,764 - ------------------------------------------------------------------ ----------- Total liabilities and stockholders' equity $ 5,679,987 $ 5,307,363 ============================================================================ 14 Net interest income/yield 239,381 4.49 224,384 4.51 Tax-equivalent adjustment (9,365) (10,163) - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income 230,016 214,221 Provision for loan losses (21,500) (16,000) - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 208,516 198,221 - ------------------------------------------------------------------------------------------------------------------------------------ Other income Trust and asset management fees 114,501 98,247 Service charges on deposit accounts 20,964 19,038 Other operating income 22,050 19,764 Securities gains/(losses) 27 1,188 - ------------------------------------------------------------------------------------------------------------------------------------ Total other income 157,542 138,237 --------------------------------------------------------------- Net interest and other income 366,058 336,458 --------------------------------------------------------------- Other expense Salaries and employment benefits 129,816 119,574 Net occupancy 11,763 11,111 Furniture and equipment 16,361 14,413 Other operating expense 49,731 47,241 - ------------------------------------------------------------------------------------------------------------------------------------ Total other expense 207,671 192,339 --------------------------------------------------------------- Income before income taxes 158,387 144,119 Applicable income taxes 52,343 46,841 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 106,044 $ 97,278 =============================================================== Net income per share--basic $ 3.15 $ 2.83 =============================================================== Net income per share--diluted $ 3.08 $ 2.79 ===============================================================
(1) Tax-advantaged income has been adjusted to a tax-equivalent basis using a combined statutory federal and state income tax rate of 38.2% for all years. (2) Loan balances include nonaccrual loans. Amortization of deferred loan fees has been included in interest income. 14a
1995 1994 1993 - --------------------------------------------- ------------------------------------- -------------------------------------- Average Income/ Average Average Income/ Average Average Income/ Average balance expense rate balance expense rate balance expense rate - --------------------------------------------------------------------------------------------------------------------------------- $ -- $ -- --% $ 152 $ 7 3.95 $ 1,856 $ 83 4.47% 17,522 1,036 5.91 26,273 1,155 4.40 19,392 645 3.33 ----------------------------- ------------------------- ------------------------- 17,522 1,036 5.91 26,425 1,162 4.40 21,248 728 3.43 - --------------------------------------------------------------------------------------------------------------------------------- 598,501 37,182 6.21 457,961 26,263 5.73 427,900 27,433 6.41 42,099 3,077 7.31 53,335 3,921 7.35 82,036 6,851 8.35 155,632 9,865 6.34 235,773 11,006 4.67 302,032 11,168 3.70 290,779 15,946 5.48 227,415 11,199 4.92 75,729 3,929 5.19 96,991 5,595 5.76 85,531 4,050 4.74 58,355 1,777 3.05 ----------------------------- ------------------------- ------------------------- 1,184,002 71,665 6.05 1,060,015 56,439 5.33 946,052 51,158 5.41 - --------------------------------------------------------------------------------------------------------------------------------- 1,074,860 99,199 9.23 947,544 77,565 8.19 854,720 72,887 8.53 103,104 10,739 10.42 120,067 10,687 8.90 124,438 9,293 7.47 751,937 74,244 9.87 686,307 55,530 8.09 641,554 46,943 7.32 633,852 50,356 7.94 605,971 47,604 7.86 623,738 55,495 8.90 827,029 81,141 9.81 754,495 69,429 9.20 705,459 65,734 9.32 ----------------------------- ------------------------- ------------------------- 3,390,782 315,679 9.31 3,114,384 260,815 8.37 2,949,909 250,352 8.49 - --------------------------------------------------------------------------------------------------------------------------------- 4,592,306 388,380 8.46 4,200,824 318,416 7.58 3,917,209 302,238 7.72 340,560 321,221 304,603 ----------- ----------- ----------- $ 4,932,866 $ 4,522,045 $ 4,221,812 ================================================================================================================================= $ 357,048 8,703 2.44 $ 380,543 8,712 2.29 333,423 8,727 2.62 981,379 26,253 2.68 1,101,916 24,962 2.27 1,069,309 25,501 2.38 1,084,165 61,540 5.68 1,047,090 49,908 4.77 1,114,884 56,317 5.05 161,403 8,808 5.46 175,187 6,895 3.94 201,269 8,249 4.10 ----------------------------- ------------------------- ------------------------- 2,583,995 105,304 4.08 2,704,736 90,477 3.35 2,718,885 98,794 3.63 - --------------------------------------------------------------------------------------------------------------------------------- 1,203,372 72,178 6.00 722,377 31,154 4.31 480,575 15,516 3.23 36,044 2,147 5.96 52,925 1,921 3.63 64,437 1,815 2.82 ----------------------------- ------------------------- ------------------------- 1,239,416 74,325 6.00 775,302 33,075 4.27 545,012 17,331 3.18 - --------------------------------------------------------------------------------------------------------------------------------- 6,981 348 4.98 -- -- -- -- -- -- ----------------------------- ------------------------- ------------------------- 3,830,392 179,977 4.70 3,480,038 123,552 3.55 3,263,897 116,125 3.56 580,928 559,574 500,396 180,986 161,212 152,916 - --------------------------------------------------------------------------------------------------------------------------------- 4,592,306 179,977 3.92 4,200,824 123,552 2.94 3,917,209 116,125 2.97 434,843 408,647 391,782 (180,986) (161,212) (152,916) 86,703 73,786 65,737 ----------- ----------- ----------- $ 4,932,866 $ 4,522,045 $ 4,221,812 ================================================================================================================================= 15 208,403 4.54 194,864 4.64 186,113 4.75 (11,039) (10,534) (11,266) - --------------------------------------------------------------------------------------------------------------------------------- 197,364 184,330 174,847 (12,280) (4,550) (9,500) - --------------------------------------------------------------------------------------------------------------------------------- 185,084 179,780 165,347 - --------------------------------------------------------------------------------------------------------------------------------- 87,982 82,542 78,313 17,497 16,648 16,424 19,894 16,048 18,662 2,267 (2,157) 268 - --------------------------------------------------------------------------------------------------------------------------------- 127,640 113,081 113,667 - --------------------------------------------------------------------------------------------------------------------------------- 312,724 292,861 279,014 - --------------------------------------------------------------------------------------------------------------------------------- 110,670 101,813 95,849 10,706 10,232 9,317 14,067 12,302 11,380 45,561 47,680 45,240 - --------------------------------------------------------------------------------------------------------------------------------- 181,004 172,027 161,786 - --------------------------------------------------------------------------------------------------------------------------------- 131,720 120,834 117,228 41,689 35,665 34,467 - --------------------------------------------------------------------------------------------------------------------------------- $ 90,031 $ 85,169 $ 82,761 ================================================================================================================================= $ 2.56 $ 2.37 $ 2.24 ================================================================================================================================= $ 2.53 $ 2.35 $ 2.21 =================================================================================================================================
Note: 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. 15a STATEMENT OF CONDITION Total assets for 1997 increased, on average, $372.6 million, or 7%, to $5.68 billion. A $358.3 million, or 7%, increase in the average level of earning assets was primarily responsible for this increase. Average total earning assets for 1997 were $5.33 billion. This was a $358.3 million, or 7%, increase over the $4.97 billion reported for 1996. Growth in the level of loans outstanding was responsible for 88% of this increase, while growth in the investment portfolio was responsible for 12% of this increase. The loan portfolio grew $319.1 million, or 9%, to $3.9 billion. Contributing to this increase were a $54.8 million, or 5%, increase in commercial loans, a $97.3 million, or 12%, increase in commercial mortgage loans, an $81.2 million, or 12%, increase in residential mortgage loans, a $16.9 million, or 15%, increase in real estate construction loans, and a $72.9 million, or 9%, increase in consumer loans. Approximately 35% of this 1997 loan growth was a direct result of the Corporation's marketing and sales efforts in its expansion markets in southeastern Pennsylvania, Maryland and Florida. The average level of investment securities for 1997 increased $43.3 million, or 3%. Contributing to this increase were higher levels of U.S. Treasury and government agency securities, which increased $49.7 million, or 6%, to $868.3 million. This increase was offset, in part, by lower levels of asset-backed securities, preferred stocks and municipal bonds which paid down, were sold or matured during the year. Total liabilities increased $348.7 million, or 7%, on average in 1997. A $346.4 million increase in total deposits and a $12.1 million increase in long-term debt were offset, in part, by a $7.5 million, or 1%, decrease in short-term borrowings. The average level of total deposits for 1997 reached $3.87 billion, an increase of $346.4 million, or 10%, over the $3.52 billion reported for 1996. The growth in deposits was primarily due to the Corporation's entry into the national certificate of deposit markets, as the average level of certificates of deposit $100,000 and over increased $224.8 million, or 80%, over their 1996 average level of $281.3 million. Also contributing to the growth in deposits were a $45.6 million, or 7%, increase in average demand deposits and a $71.0 million, or 7%, increase in average interest-bearing demand account balances. Average short-term borrowings remained relatively unchanged from 1996, declining $7.5 million, or 1%, to $1.19 billion. Average long-term debt increased $12.1 million, as the Corporation completed its funding from the Federal Home Loan Bank of Pittsburgh to construct its new operations center in Wilmington, Delaware. If further funding needs arise that exceed funding provided by retail deposits, the Corporation anticipates that it would be able to meet those funding needs in a timely and cost-effective manner. See "Liquidity." Average total stockholders' equity during 1997 increased $23.9 million, or 5%, to $478.8 million. Additions to equity from earnings for the year were offset in part by higher dividend payments and the Corporation's ongoing stock repurchases. See "Capital Resources." [CHART OF LOAN PORTFOLIOS, WITH THE FOLLOWING PLOT POINTS: CONSUMER LOANS PERSONAL - 19.1% RESIDENTIAL MORTGAGE-FIXED RATE - 12.8% RESIDENTIAL MORTGAGE-FLOATING RATE - 7.5% HOME EQUITY - 3.5% CREDIT CARDS - 1.7% LEASES - 2.2% TOTAL CONSUMER LOANS - 46.8% COMMERCIAL LOANS PERMANENT MORTGAGE - 12.5% REAL ESTATE DEVELOPMENT - 5.3% REAL ESTATE INTERIM PROJECTS - 1.8% BUSINESS - 33.6% TOTAL COMMERCIAL LOANS - 53.2%.] 16 NET INTEREST INCOME The Corporation's net interest income for 1997, on a fully tax-equivalent ("FTE") basis, was $239.4 million, an increase of $15.0 million, or 7%, over the $224.4 million reported for 1996. This was a result of a $27.0 million increase in interest revenues offset, in part, by a $12.0 million increase in interest expense. The Corporation's net interest margin for 1997 declined two basis points, to 4.49% from 4.51% reported for 1996.
Interest income (FTE) for 1997 totaled $440.0 million, an increase of $27.0 [GRAPH OF NET INTEREST million, or 7%, over the $413.0 million reported for 1996. Interest revenues MARGIN FOR EACH YEAR increased $31.1 million due to a $358.3 million increase in the average level of FROM 1987 TO 1997, WITH earning assets. This increase was offset, in part, by a $4.1 million decrease in THE FOLLOWING PLOT POINTS: interest revenues as a result of the lower interest rate environment. The average interest rate earned on the Corporation's assets for 1997 was 8.26%, a 1987 - 4.30% five-basis-point decrease from the 8.31% earned for 1996. This decrease in 1988 - 4.41% interest income attributable to the declining rate environment was partially 1989 - 4.46% offset by the Corporation's investment in interest rate swap and interest rate 1990 - 4.23% floor contracts. Swap contracts of $318.0 million, on average, on which the 1991 - 4.37% Corporation is making variable-rate payments and is receiving fixed-rate 1992 - 4.62% payments, increased interest income $621,000 during 1997. This compares with 1993 - 4.76% $425.0 million, on average, of interest rate swap contracts outstanding during 1994 - 4.64% 1996, which increased interest income $2.2 million. Interest rate floors of 1995 - 4.54% $289.0 million, on average, on which the Corporation receives payments when the 1996 - 4.51% floating rate index is below the strike price, contributed $825,000 to interest 1997 - 4.49%.] revenues during 1997, compared with an average level of $224.0 million of floors during 1996, which contributed $955,000 to interest revenues. These numbers were offset, in part, by amortized acquisition costs related to these contracts of $550,000 and $320,000 in 1997 and 1996, respectively. During the second quarter of 1995, the sale of $200 million of floors resulted in a $4.3 million gain, which is being deferred and accreted into income over the remaining lives of the floors sold. The accreted gain for 1997 was $1.2 million, unchanged from 1996. The net result of the swaps and floors was an increase of four basis points in the Corporation's net interest margin during 1997, compared to an eight-basis-point increase in the Corporation's net interest margin for 1996.
Interest expense for 1997 was $200.6 million, an increase of $12.0 million, or 6%, over the $188.6 million reported for 1996. Interest expense increased $14.5 million due to a $305.3 million increase in interest-bearing liabilities. Offsetting this increase, in part, was a $2.5 million decrease in interest expense due to the lower interest rate environment. The average interest rate paid on the Corporation's liabilities for 1997 was 3.77%, a three-basis-point decrease from the 3.80% paid during 1996. The Corporation's prime lending rate (the rate at which banks lend to their most creditworthy customers) increased during the year. The average prime rate for 1997 was 8.44%, up over the 8.27% average prime lending rate for 1996. The average discount rate (the rate at which the Federal Reserve Banks lend money to their member banks) was 5.00%, compared with a corresponding average rate for 1996 of 5.02%. 17 NONINTEREST REVENUES AND OPERATING EXPENSES Revenues from noninterest sources for 1997 were $157.5 million, an increase of $19.3 million, or 14%, over the $138.2 million reported for 1996. Trust and asset management fees during 1997 increased $16.3 million, or 17%, to $114.5 million. All three components--personal trust fees, corporate financial services fees and asset management fees--reflected double-digit increases over 1996. These results continue to be attributable, in part, to the establishment of a highly competitive incentive-based compensation program and expanded sales efforts. Contribution of these fees to net income was approximately the same as the percentage of trust and asset management fees to total operating revenues. Personal trust fees in 1997 were $55.4 million, or 14% of operating revenues. This was a $7.9 million, or 17%, increase over the $47.5 million reported for 1996. These fees are primarily earned from principal, income and distribution commissions on assets held in personal trust accounts. Estate settlement, private banking and personal tax return preparation also contributed to these fees. During 1997, higher levels of fee income were reported from all components of this business line. Corporate financial services fees for 1997 were $32.7 million, or 8% of operating revenues. This was a $4.6 million, or 16%, increase over the $28.1 million reported for 1996. These fees are generated by providing trust and custody services to corporate clients and financial intermediaries. The Corporation also acts as trustee for leased capital equipment, collateralized securities, bond financings, corporate restructurings and bankruptcy liquidations and provides fiduciary services for all types of employee benefit trusts. Corporate custodian services include all aspects of establishing and administering Delaware investment holding companies. During 1997, income from each of these fee sources improved over 1996 levels. Asset management fees for 1997 were $26.4 million, or 7% of operating revenues. This was a $3.7 million, or 16%, increase over the $22.7 million reported for 1996. The Corporation offers a broad range of institutional portfolio management services, including to domestic and foreign entities, fixed-income investments and short-term cash management, and manages a variety of mutual funds. In addition, the Corporation provides discount brokerage services through Wilmington Brokerage Services Company, a subsidiary of Wilmington Trust Company, the Corporation's principal banking subsidiary (the "Bank"), providing convenience and efficiency to both customers and correspondent banks. During 1997, income from each of these fee sources improved over 1996 levels. Service charges on deposit accounts for 1997 were $21.0 million, an increase of $2.0 million, or 10%, over the $19.0 million reported for 1996. This increase was due to higher returned item and overdraft fees, automated teller machine fees, checkbook fees and checking account balance fees. Other operating income for 1997 was $22.0 million, a $2.2 million, or 11%, increase over the $19.8 million reported for 1996. Higher credit card fees, loan origination fees and gains on the sale of the Corporation's former operations center contributed to this increase. Securities gains of $27,000 were recognized in 1997, compared to $1.2 million in 1996. Noninterest (operating) expenses for 1997 were $207.7 million, an increase of $15.4 million, or 8%, over the $192.3 million reported for 1996. Personnel expenses for 1997 were $129.8 million, a $10.2 million, or 9%, increase over the $119.6 million reported for 1996. Higher salaries, bonuses, incentives, payroll [GRAPH OF TRUST AND ASSET MANAGEMENT FEES FOR EACH YEAR FROM 1987 TO 1997, WITH THE FOLLOWING PLOT POINTS, IN MILLIONS:
TOTAL TRUST AND ASSET PERSONAL TRUST FEES CORPORATE TRUST FEES ASSET MANAGEMENT FEES MANAGEMENT FEES 1987 - $20.8 1987 - $16.8 1987 - $13.9 1987 - $51.5 1988 - $21.5 1988 - $19.7 1988 - $13.9 1988 - $55.1 1989 - $25.3 1989 - $19.3 1989 - $14.2 1989 - $58.8 1990 - $32.0 1990 - $21.9 1990 - $14.6 1990 - $68.5 1991 - $33.4 1991 - $22.8 1991 - $16.5 1991 - $72.7 1992 - $35.3 1992 - $23.7 1992 - $18.0 1992 - $77.0 1993 - $36.0 1993 - $23.9 1993 - $18.4 1993 - $78.3 1994 - $37.5 1994 - $25.8 1994 - $19.2 1994 - $82.5 1995 - $41.4 1995 - $27.1 1995 - $19.5 1995 - $88.0 1996 - $47.4 1996 - $28.1 1996 - $22.4 1996 - $98.2 1997 - $55.4 1997 - $32.7 1997 - $26.4 1997 - $114.5.]
18 tax expense and health insurance costs were partially offset by lower pension expense, which declined due to investment performance within the insurance contracts funding the Corporation's supplemental executive retirement plan. Salaries and wages were $89.1 million, an increase of $6.9 million, or 8%, over the $82.2 million reported for 1996. To incent its employees and pay for performance, the Corporation offers its employees highly competitive sales incentives and a profit-sharing bonus. Bonuses and incentives earned in 1997 were $20.4 million, an increase of $2.8 million, or 16%, over the $17.6 million earned in 1996. Health insurance costs in 1997 were $11.4 million, an increase of $1.2 million, or 12%, over the $10.2 million reported in 1996. Net occupancy and furniture and equipment expenses during 1997 increased modestly due, in part, to higher depreciation and maintenance expense on computer equipment. Other operating expenses in 1997 were $44.8 million, a $3.5 million, or 9%, increase over the $41.3 million reported for 1996. Increased services and consulting fees and advertising expense were primarily responsible for this increase. Service and consulting fees were $6.0 million, a $1.7 million, or 40%, increase over the $4.3 million reported for 1996. The Corporation outsourced its residential mortgage loan servicing to a third-party provider during 1997, which contributed to this increase. In addition, the Corporation continued its commitment to growth in its expansion markets, deposit generation and enhancing its recognition as one of the nation's premier trust companies by increasing its advertising expenditures $1.1 million, or 20%, to $6.5 million during 1997. The provision for income taxes for 1997 was $52.3 million, a $5.5 million, or 12%, increase over the $46.8 million reported for 1996. The Corporation's effective tax rate for the year was 33.0%, compared with 32.5% in 1996. [GRAPH OF EFFICIENCY RATIO [TOTAL OTHER EXPENSES AS A PERCENTAGE OF OPERATING REVENUES ON A TAX-EQUIVALENT BASIS] FOR EACH YEAR FROM 1987 TO 1997, WITH THE FOLLOWING PLOT POINTS: 1987 - 53.23% 1988 - 53.69% 1989 - 53.60% 1990 - 53.21% 1991 - 52.71% 1992 - 53.47% 1993 - 53.97% 1994 - 55.86% 1995 - 53.86% 1996 - 53.04% 1997 - 52.32%.] INTEREST RATE SENSITIVITY 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 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. Gap analysis, used to measure the difference between volumes of rate-sensitive assets and liabilities, examines the Corporation's balance sheet at one point in time, but does not capture any balance sheet dynamics that may be present. Instead, it assumes that all rate-sensitive balances reprice at the same time and to the same extent. Because of these inherent limitations, the Corporation also employs simulation models to measure the effect on net interest income of dynamic changes in rate-sensitive assets, liabilities and off-balance-sheet instruments caused by variations in interest rates. The Corporation's interest rate sensitivity, as measured by gap analysis, was liability-sensitive at the end of 1997. Liability sensitivity indicates that liabilities reprice faster than assets and, therefore, if interest rates decline, net interest income would rise, assuming all other variables remained constant. Conversely, if interest rates rise, net interest income would decline. The Corporation's one-year gap as a percentage of total rate-sensitive assets as of December 31, 1997 was (36.0%), up from (20.3%) reported at year-end 1996. A significant portion of the Corporation's current liability sensitivity is 19 attributable to the repricing characteristics of certain liability products, including savings, interest-bearing demand and money market accounts, which typically do not reprice to the same extent as market interest rates. Contributing to the increased interest rate sensitivity has been an increase in the proportion of fixed-rate loans compared to the proportion of floating-rate loans. In addition, the growth of the investment portfolio, which has been concentrated in fixed-rate instruments, has been funded with floating-rate liabilities, further increasing the negative gap position. A simulation model is used to project net interest income over a two-year period using multiple interest rate scenarios. The results are compared to net interest income projected for the same time period based on stable interest rates. The Corporation's model employs interest rate scenarios in which interest rates gradually move up or down 250 basis points. The negative one-year gap estimate above indicates that, were interest rates to increase, net interest income would decline. The simulation results support that conclusion, projecting that a 250-basis-point increase in market interest rates would reduce net interest income by 2.5% in the first year and 7.1% in the second year. However, the simulation model also projects that, if interest rates were to decrease gradually by 250 basis points, net interest income would increase 0.2% in the first year but decrease 3.8% in the second year. The Corporation's policy limits the anticipated reduction in net interest income to 10% in the first one-year period assuming a change in interest rates of 250 basis points. The preceding paragraph contains certain forward-looking statements within the meaning of and made pursuant to the safe harbor provisions of the Private Litigation Securities Reform Act of 1995 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 effect of changes in interest rates on the adjustment of retail deposit rates and the balances of residential mortgages, asset-backed securities and collateralized mortgage obligations (CMOs) play a significant role in the results the simulation model projects. The adjustment paths are not assumed to be symmetrical. The Corporation's model employs assumptions that reflect the historical adjustment paths of the Corporation's retail deposit rates to changes in the level of market interest rates. In addition, some of the Corporation's retail deposit rates reach historic lows within the 250-basis-point decline scenario. The Corporation's model freezes the rates for these deposit products when they equal their historic lows. These model assumptions (asymmetrical adjustments and rate floors based on historic lows) limit the extent to which deposit rates are expected to adjust in a declining rate scenario and contribute to the results the simulation model projects. 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 cause 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 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 results the simulation model projects. [GRAPH OF OPERATING REVENUES (NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES PLUS NONINTEREST INCOME) FOR EACH YEAR FROM 1987 TO 1997, WITH THE FOLLOWING PLOT POINTS, IN MILLIONS: NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES NONINTEREST INCOME TOTAL OPERATING REVENUES 1987 - $ 99.40 1987 - $ 79.36 1987 - $178.76 1988 - $112.10 1988 - $ 81.53 1988 - $193.63 1989 - $128.03 1989 - $ 88.43 1989 - $214.46 1990 - $137.57 1990 - $ 95.97 1990 - $233.54 1991 - $152.89 1991 - $102.31 1991 - $255.20 1992 - $165.21 1992 - $110.27 1992 - $275.48 1993 - $174.85 1993 - $113.67 1993 - $288.52 1994 - $184.33 1994 - $113.08 1994 - $297.41 1995 - $197.36 1995 - $127.64 1995 - $325.00 1996 - $214.22 1996 - $138.24 1996 - $352.46 1997 - $230.22 1997 - $157.54 1997 - $387.56.] 20 During 1997, the Corporation sold certain fixed-rate residential mortgage loans into the secondary market. The primary goal of this program was to eliminate the risk that the average lives of these fixed-rate residential mortgage loans would extend beyond their anticipated durations, as frequently occurs during periods of rising interest rates. Total mortgage loans sold during 1997 were $60.4 million. Management reviews the Corporation's rate sensitivity regularly, and uses 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 December 31, 1997, the Corporation was committed to interest rate swaps with a total notional amount of $275 million, down from the $400 million at year-end 1996. The swaps have remaining maturities of between 3 and 28 months, with a weighted average maturity of 13 months. At December 31, 1997, the Corporation was committed to interest rate floors with a total notional amount of $325 million, compared to $250 million at year-end 1996. The floors have remaining maturities of between 19 and 54 months, with a weighted average maturity of 30 months. The net interest differential, and 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." LIQUIDITY A financial institution's liquidity represents its ability to meet, in a timely manner, cash flow requirements that may arise from increases in demand for loans and other assets or from decreases in deposits or other funding sources. Liquidity management, therefore, contains both asset and liability components. Liquidity of the asset side of the balance sheet is provided by the maturity and marketability of loans and investments. In addition, all time deposits at other banks, federal funds sold and securities purchased under agreements to resell are considered liquid. Liquidity of the liability side of the balance sheet is usually provided primarily through a stable, growing base of core deposits. The stability of core deposits limits the amount of liquidity required to satisfy the demand for loans and short-term and intermediate-term customer withdrawals. Additional funding sources include the Corporation's internally generated capital, large certificates of deposit, federal funds purchased and securities sold under agreements to repurchase. The changing market for deposits has shifted the mix of the Corporation's funding sources. In 1997, the proportion of funding provided by certificates of deposit increased, which allowed the Corporation to reduce its reliance on federal funds purchased and securities sold under agreements to repurchase. The Corporation believes that its acceptance in the national markets will permit it to obtain additional funding if the need arises in the future. The Corporation anticipates issuing debt securities in 1998 to assist in funding its operations. In addition, the Bank is a member of the Federal Home Loan Bank of Pittsburgh, which provides an additional source of funds. Management monitors the Corporation's existing and projected liquidity requirements on an ongoing basis and implements appropriate strategies when deemed necessary. 21 ASSET QUALITY AND LOAN LOSS PROVISION Net chargeoffs for 1997 were $12.1 million, an increase of $550,000, or 5%, over the $11.5 million reported for 1996. The Corporation's provision for loan losses for 1997 was $21.5 million. This was $5.5 million, or 34%, higher than the $16.0 million provision for 1996. The reserve for loan losses at December 31, 1997 was $63.8 million, a 17% increase over the $54.4 million at December 31, 1996. The reserve at year-end, as a percentage of loans outstanding, was 1.60%, an increase over the 1.44% reported at year-end 1996. Loans past due 90 days or more, nonaccruing loans and restructured loans at December 31, 1997 totaled $44.2 million. This represented a decrease of $17.0 million, or 28%, from the $61.2 million reported at year-end 1996. Loans past due 90 days or more at December 31, 1997 totaled $15.5 million, a $4.9 million, or 24%, decrease from the $20.4 million reported at year-end 1996. Nonaccruing loans at year-end 1997 were $28.7 million, a $12.0 million, or 30%, decrease from the $40.7 million reported at year-end 1996. No loans were classified as restructured at either year-end. Other real estate owned ("OREO") at December 31, 1997 was $3.7 million, a $1.4 million, or 27%, decrease from the $5.1 million reported at year-end 1996. Net activity within the OREO portfolio during 1997 included the addition of $5.7 million of properties securing nonperforming loans. Loans and real estate totaling $7.1 million were removed from the portfolio through chargeoffs and sales. Chargeoffs within the portfolio during 1997 were $500,000. The balance was liquidated through sales, which resulted in net gains of $116,000. Expenses incurred to carry this portfolio during 1997 were $1.0 million. This compares with chargeoffs of $1.1 million, net losses on dispositions of $386,000 and portfolio expenses of $500,000 during 1996. The overall level of nonperforming loans decreased during 1997. Slow economic conditions or any deterioration in markets the Corporation serves may further impair the ability of some borrowers to repay their loans in full on a timely basis. In that event, management would expect increased levels of nonperforming assets, credit losses and provisions for loan losses. To minimize the likelihood and impact of such conditions, management continually monitors the entire loan portfolio to identify potential problem loans and avoid disproportionately high concentrations of loans to individual borrowers and industries. An integral part of this process is a regular analysis of all past-due loans. At December 31, 1997, an analysis of loans 90 days or more past due, which totaled $15.5 million, indicated approximately 57% of those loans were in the Corporation's commercial loan portfolio, 16% in the residential mortgage loan portfolio and 27% in the consumer loan portfolio. This compares with corresponding levels of 60%, 22% and 18%, respectively, at December 31, 1996. The Corporation's analysis of these loans indicates that the businesses and/or incomes supporting their repayment are well-diversified. As a result of the Corporation's ongoing monitoring of its loan portfolios, at December 31, 1997, approximately $7.6 million of 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 on a timely basis. In light of the current levels of past-due, nonaccruing and potential problem loans, management believes that the Corporation's reserve for loan losses is adequate based upon currently available information. The Corporation's determination of the adequacy of its reserve is based upon an evaluation of classified loans and other assets, past loss experience, current economic conditions, real estate market conditions and regulatory recommendations. The total amount and allocation of the loan loss reserve among the various loan portfolios is based primarily on an evaluation of the loss potential of individual credits and previous credit loss experience, considering management's assessment of current and future economic conditions. It is not necessarily indicative of the actual loss amounts by loan category that may ultimately occur. See also Note 9 to the Corporation's Consolidated Financial Statements for 1997. [GRAPH OF RESERVE FOR LOAN LOSSES AND NONACCRUING LOANS FOR EACH YEAR FROM 1987 TO 1997, WITH THE FOLLOWING PLOT POINTS, IN MILLIONS: RESERVE FOR LOAN LOSSES NONACCRUING LOANS 1987 - $28.389 1987 - $ 9.872 1988 - $34.282 1988 - $11.687 1989 - $38.595 1989 - $12.248 1990 - $42.405 1990 - $13.932 1991 - $44.996 1991 - $53.962 1992 - $46.962 1992 - $29.674 1993 - $51.363 1993 - $21.983 1994 - $48.669 1994 - $28.851 1995 - $49.867 1995 - $33.576 1996 - $54.361 1996 - $40.375 1997 - $63.805 1997 - $28.669.] 22 CAPITAL RESOURCES A strong capital position provides a margin of safety for depositors and stockholders and enables a financial institution to take advantage of profitable opportunities and provide for future growth. The Corporation's capital increased in 1997 over 1996, due primarily to increases in earnings, reflected by the 12.59% rate of capital generation in 1997, over the rate of 11.51% in 1996. The Corporation's capital increased despite an increase in cash dividends paid of $3.1 million and the Corporation's ongoing common stock repurchase program, in which $35.9 million was used to purchase the Corporation's common stock on the open market. These factors resulted in a $38.3 million, or 8%, increase in total stockholders' equity to $503.0 million at year-end, compared with $464.7 million at year-end 1996. The Federal Reserve Board's risk-based capital guidelines establish the minimum levels of capital a bank holding company must hold. The guidelines are intended to reflect the varying degrees of risk associated with different balance-sheet and off-balance-sheet items. The Corporation has reviewed its balance-sheet and off-balance-sheet items and calculated its capital position under the risk-based capital guidelines. As of December 31, 1997, the Corporation's total risk-based capital ratio was 12.38%, over the 12.01% reported at the corresponding date a year ago. The Corporation's Tier 1 risk-based capital ratio at that date was 11.13%, over the 10.76% reported at year-end 1996, and its Tier 1 leverage capital ratio was 8.58%, down slightly from the 8.59% reported a year ago. Each of these ratios exceeded the minimum levels required for adequately capitalized institutions of 8%, 4% and 4%, respectively, and exceeded the levels required for well-capitalized institutions of 10%, 6% and 5%, respectively. In April 1997, the Corporation's Board of Directors increased the quarterly dividend to $.36 per share. This marked the sixteenth consecutive year of increased cash dividends. Dividends paid for 1997 totaled $1.41 per share, a 9% increase over the $1.29 per share paid in 1996. The Corporation's dividend payout ratio for 1997 was 44.8%, down slightly from the 45.6% payout for 1996. In April 1996, the Corporation's Board of Directors authorized the buyback of four million additional shares of the Corporation's common stock. This program commenced in May 1996 upon the completion of the three million-share buyback program that began in October 1993. At December 31, 1996, 814,367 shares had been bought under the current program at a cost of $28.6 million. During 1997, an additional 737,729 shares were purchased at a cost of $35.9 million, bringing the total number of shares repurchased under the current program to 1,552,096. Management will continue to review the Corporation's capital position, and will make adjustments as needed to assure that the Corporation's capital base will be sufficient to satisfy existing and impending regulatory requirements, as well as meet appropriate standards of safety and provide for future growth. The Corporation's common stock is traded over-the-counter under the symbol "WILM" and is listed on the Nasdaq National Market System. The table below summarizes the price ranges of the Corporation's common stock and its quarterly dividends. [GRAPH OF EQUITY TO ASSET RATIO FOR EACH YEAR FROM 1987 TO 1997, WITH THE FOLLOWING PLOT POINTS: 1987 - 6.86% 1988 - 7.39% 1989 - 7.71% 1990 - 7.58% 1991 - 8.30% 1992 - 8.88% 1993 - 9.28% 1994 - 9.04% 1995 - 8.82% 1996 - 8.57% 1997 - 8.43%.] COMMON STOCK PRICE RANGE AND DIVIDEND RATE BY QUARTER - -------------------------------------------------------------------------------- 1997 1996 ---------------------------- ------------------------------- Quarter High Low Dividend High Low Dividend - -------------------------------------------------------------------------------- 1 $47.00 $39.25 $0.33 $35.00 $30.25 $0.30 2 $47.75 $41.75 $0.36 $34.25 $31.25 $0.33 3 $58.22 $45.38 $0.36 $36.25 $30.75 $0.33 4 $66.00 $54.25 $0.36 $41.75 $35.25 $0.33 ================================================================= 23 INFLATION The Corporation's asset and liability structure is substantially different from that of an industrial company, since virtually all assets and liabilities of a financial institution are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a bank's performance. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Therefore, the impact of inflation on a bank's financial performance is indeterminable. FINANCIAL ANALYSIS 1996/1995 Net income for 1996 was $97.3 million, or $2.83 per share. This was an 8% increase over the $90.0 million, or $2.56 per share, reported for 1995. Earning assets in 1996 increased, on average, $379.6 million, or 8%, to $4.97 billion. This increase was primarily attributable to a $211.6 million, or 6%, increase in the average level of the loan portfolio and a $159.0 million, or 13%, increase in the investment portfolio. Contributing to the increase in the loan portfolio was an $86.0 million, or 8%, increase in commercial loans, a $54.8 million, or 7%, increase in commercial mortgage loans, a $49.2 million, or 8%, increase in residential mortgage loans, an $11.7 million, or 11%, increase in real estate construction loans and a $9.8 million, or 1%, increase in consumer loans. Contributing to the increase in the average level of investment securities during 1996 were U.S. Treasury and government agency securities, which increased $220.1 million, or 37%, to $818.6 million. This increase was offset, in part, by lower levels of asset-backed securities, preferred stocks and municipal bonds, which paid down during 1996. Interest-bearing liabilities in 1996 increased, on average, $287.2 million, or 7%, to $4.12 billion. Contributing to this increase was a rise in average interest-bearing deposits which was offset, in part, by a decrease in average short-term borrowings. The average level of total deposits increased $359.1 million, or 11%, to $3.52 billion as a result of the Corporation's marketing efforts in Delaware and its expansion markets of Pennsylvania and Maryland. Noninterest-bearing demand balances increased $52.1 million, or 9%, to $633.1 million. Interest-bearing demand accounts increased, on average, $26.3 million, or 3%, to $1.08 billion. Certificates of deposit under $100,000 increased $161.3 million, or 15%, to $1.25 billion, and certificates of deposit $100,000 and over increased $120.0 million, or 74%, to $281.3 million. As a result of this deposit growth, short-term borrowings decreased $43.7 million, or 4%, to $1.20 billion. The average balance of long-term debt increased $23.9 million, as additional funds were drawn to fund construction of the Corporation's new operations center. Stockholders' equity during 1996 increased, on average, $20.1 million, or 5%, to $454.9 million on the strength of $97.3 million in earnings for the year, offset in part by higher levels of dividend payments and the Corporation's ongoing stock repurchases. Net interest income (FTE) in 1996 increased $16.0 million, or 8%, to $224.4 million from $208.4 million in 1995. A $24.6 million increase in interest revenues was offset, in part, by an $8.7 million increase in interest expense. The increase in average earning assets was responsible for $29.9 million of this increase, which was offset, in part, by a $5.3 million decrease in interest revenues due to the lower interest rate environment. The average rate earned on the Corporation's assets for 1996 was 8.31%, a 15-basis-point decrease from the 8.46% earned for 1995. This increase in interest income was also attributable in part to the Corporation's investment in swaps and floors. The $400 million of swaps increased interest income during 1996 by $2.2 million, while the $450 million of swaps outstanding during 1995 reduced interest revenues $1.2 million. [GRAPH OF DIVIDENDS PER SHARE PAID FOR EACH YEAR FROM 1987 TO 1997, WITH THE FOLLOWING PLOT POINTS: 1987 - $0.39 1988 - $0.46 1989 - $0.59 1990 - $0.72 1991 - $0.80 1992 - $0.88 1993 - $0.98 1994 - $1.06 1995 - $1.17 1996 - $1.29 1997 - $1.41.] 24 The $250 million of floors contributed $955,000 to interest revenues during 1996. This was partially offset by $320,000 of amortized acquisition expense for the original $400 million of floors. During 1995, $200 million of those contracts were sold, resulting in a $4.3 million gain which is being deferred and accreted into income over the remaining lives of the contracts sold. The gain accreted during 1996 and 1995 was $1.2 million and $892,000, respectively. The swaps and floors increased the Corporation's net interest margin eight basis points in 1996, compared with a one-basis-point decrease in 1995. Interest expense for 1996 increased $8.7 million, or 5%, to $188.6 million from $180.0 million for 1995. Virtually all of this increase was attributable to the increase in the average level of interest-bearing liabilities, which caused interest expense to increase $15.0 million. Offsetting this increase, in part, was a $6.3 million decrease in interest expense associated with the lower interest rate environment. The average interest rate paid on the Corporation's liabilities during 1996 was 3.80%, a 12-basis-point decrease from the 3.92% paid during 1995. The provision for loan losses for 1996 was $16.0 million. This was $3.7 million higher than the $12.3 million provision for 1995. The reserve for loan losses at December 31, 1996 was $54.4 million, or 1.44% of loans outstanding. This compares with corresponding levels of $49.9 million, or 1.42% of loans outstanding, reported at year-end 1995. Loans past due 90 days or more, nonaccruing loans and restructured loans at December 31, 1996 totaled $61.2 million. This was an $8.3 million, or 16%, increase over the corresponding $52.9 million reported at December 31, 1995. Nonaccruing loans at year-end 1996 were $40.7 million, a $7.2 million, or 21%, increase over the $33.6 million reported at year-end 1995. No loans were classified as restructured at either year-end. The OREO portfolio at December 31, 1996 totaled $5.1 million, a decrease of $9.2 million, or 64%, from the $14.3 million reported at year-end 1995. Approximately $7.3 million of properties securing nonperforming loans were added to this portfolio during 1996, while $16.5 million were removed through chargeoffs and sales. Chargeoffs in this portfolio during 1996 were $1.1 million. The remainder were liquidated through sales, which resulted in net losses of $386,000. Expenses of $500,000 were incurred to carry this portfolio during 1996. Revenues from noninterest sources in 1996 increased $10.6 million, or 8%, to $138.2 million, over the $127.6 million reported for 1995. Trust and asset management fees increased $10.3 million, or 12%, to $98.2 million. All three components of this revenue source contributed to this increase. Personal trust fees were $47.5 million, or 13% of operating revenues. This was a $6.1 million, or 15%, increase over the $41.4 million reported for 1995. Corporate financial service fees for 1996 were $28.1 million, or 8% of operating revenues. This was a $946,000, or 3%, increase over the $27.1 million reported for 1995. Asset management fees in 1996 were $22.7 million, or 6% of operating revenues. This was a $3.3 million, or 17%, increase over the $19.5 million reported for 1995. Service charges on deposit accounts in 1996 were $19.0 million, an increase of $1.5 million, or 9%, over the $17.5 million reported for 1995, due primarily to higher returned item and overdraft fees, automated teller machine fees, checkbook fees and checking account balance fees, all of which benefited from a mid-year pricing increase. Other operating income decreased $130,000, or 1%, to $19.8 million as higher credit card fees and loan fees were offset by lower precious metals fees and gains on residential mortgage loan sales and the disposition of other real estate owned. Securities gains of $1.2 million were recognized in 1996, compared with $2.3 million in 1995. 25 Operating expenses for 1996 increased $11.3 million, or 6%, to $192.3 million. Personnel expenses increased $8.9 million, or 8%, to $119.6 million due to higher levels of salaries, bonuses, incentives, payroll taxes and health insurance costs. No salary or benefit costs associated with the development of the Corporation's new trust system were capitalized in 1996, compared with $845,000 of such costs in 1995. Net occupancy and furniture and equipment expenses during 1996 increased $405,000, or 4%, and $346,000, or 2%, respectively, over their 1995 levels. Other operating expense in 1996 declined $1.6 million, or 4%, due primarily to higher levels of advertising, telephone, legal and travel expenses which were offset, in part, by lower FDIC deposit insurance premiums. The provision for income taxes for 1996 increased $5.2 million, or 12%, to $46.8 million. Higher levels of pre-tax income were primarily responsible for this increase. The Corporation's effective tax rate for 1996 was 32.5%, compared with 31.6% for 1995. OTHER MATTERS YEAR 2000 ISSUE The Corporation has established a company-wide task force which reviewed all computer-based systems and applications and developed a company-wide action plan for the year 2000 date change. The Corporation presently believes that, with modifications to existing software and/or the acquisition of new software, the year 2000 issue will not pose significant operational problems for its computer systems. The Corporation could possibly be affected by the year 2000 issue to the extent other entities not affiliated with it are unsuccessful in addressing this issue. The Corporation has initiated formal communications with its significant vendors and customers to determine the extent to which those entities could impact the Corporation by failing to remediate their own year 2000 issues. There can be no guaranty that the operating systems of other companies will be converted in a timely manner or that remediation costs or difficulties would not have an adverse effect on the Corporation. The Corporation anticipates primarily utilizing internal resources to reprogram and test its software for required year 2000 modifications. The Corporation anticipates completing these system modifications by December 31, 1998. The total cost for the year 2000 project, including costs and time associated with the impact of third-party year 2000 issues, has not been finalized. These costs, which will be expensed as incurred, are to be funded through operating cash flows. The preceding two paragraphs contain certain forward-looking and cautionary statements within the meaning of and pursuant to the safe harbor provisions of the Private Litigation Securities Reform Act of 1995. 26 ACCOUNTING PRONOUNCEMENTS In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which provides standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The statement also extends the treatment of mortgage servicing rights to all servicing assets. The provisions of SFAS No. 125 were adopted by the Corporation prospectively as of January 1997 for the following types of transactions: securitizations, recognition of servicing assets and liabilities, transfers of receivables with recourse, loan participations and extinguishments of liabilities. Certain provisions of SFAS No. 125 relating to repurchase agreements, securities lending and other similar transactions and pledged collateral were deferred for one year by SFAS No. 127, and were adopted prospectively as of January 1998. The adoption of these statements did not have a material impact on the Corporation's financial position or results of operations. In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income," which establishes rules for reporting and displaying "comprehensive income" and its components in financial statements. Comprehensive income includes net income and other items of comprehensive income, such as unrealized gains and losses on available-for-sale securities and minimum pension liability adjustments, which are excluded from net income. This statement is effective for periods beginning after December 15, 1997 and requires the restatement of all prior periods presented. This statement will result in additional financial statement disclosures. In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires financial disclosures and descriptive information about reportable operating segments in annual financial statements and requires selected information about operating segments in interim financial reports. This statement is effective for periods beginning after December 15, 1997 and requires the restatement of all prior periods presented. However, it is not required to be applied for interim reporting in the initial year of application. Upon adoption, this statement will result in additional financial statement disclosure. Sale of Mutual Fund Servicing In November 1997, Rodney Square Management Corporation, a wholly-owned subsidiary of the Bank ("RSMC"), entered into an agreement with PFPC Inc., an indirect subsidiary of PNC Bank, N.A. ("PFPC"), pursuant to which RSMC will transfer to PFPC its interest in certain agreements under which RSMC provided accounting, administrative, custody, distribution and transfer agency services to mutual funds. Closing is subject to the satisfaction of several customary conditions, and is anticipated to take place in the first quarter of 1998. 27
CONSOLIDATED ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA WILMINGTON TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE STATEMENTS OF CONDITION (in thousands) 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Assets: Cash and due from banks $ 190,243 $ 187,473 $ 194,224 $ 202,777 Short-term investments 22,369 26,459 17,522 26,425 Investment securities 1,386,299 1,343,007 1,184,002 1,060,015 Loans 3,921,493 3,602,430 3,390,782 3,114,384 Reserve for loan losses (56,747) (50,768) (47,895) (50,258) ------------------------------------------------------------------------------------------------------------------------- Net loans 3,864,746 3,551,662 3,342,887 3,064,126 ---------------------------------------------------------------- Other 216,330 198,762 194,231 168,702 - ---------------------------------------------------------------------------------------------------------------------------- Total $5,679,987 $5,307,363 $4,932,866 $4,522,045 ================================================================ Liabilities and stockholders' equity: Demand deposits (noninterest-bearing) $ 678,683 $ 633,066 $ 580,928 $ 559,574 Deposits (interest-bearing) 3,191,703 2,890,944 2,583,995 2,704,736 Short-term borrowings 1,188,214 1,195,762 1,239,416 775,302 Other 99,573 101,764 86,703 73,786 Long-term debt 43,000 30,910 6,981 -- - ---------------------------------------------------------------------------------------------------------------------------- Total 5,201,173 4,852,446 4,498,023 4,113,398 Stockholders' equity 478,814 454,917 434,843 408,647 - ---------------------------------------------------------------------------------------------------------------------------- Total $5,679,987 $5,307,363 $4,932,866 $4,522,045 ================================================================ CONSOLIDATED STATEMENTS OF INCOME Net interest income $ 230,016 $ 214,221 $ 197,364 $ 184,330 - ---------------------------------------------------------------------------------------------------------------------------- Trust and asset management fees 114,501 98,247 87,982 82,542 Other noninterest revenues 43,014 38,802 37,391 32,696 Securities gains/(losses) 27 1,188 2,267 (2,157) - ---------------------------------------------------------------------------------------------------------------------------- Total noninterest income 157,542 138,237 127,640 113,081 ---------------------------------------------------------------- Operating revenues 387,558 352,458 325,004 297,411 ---------------------------------------------------------------- Provision for loan losses (21,500) (16,000) (12,280) (4,550) ---------------------------------------------------------------- Salaries and employment benefits 129,816 119,574 110,670 101,813 Other operating expenses 77,855 72,765 70,334 70,214 - ---------------------------------------------------------------------------------------------------------------------------- Total other expense 207,671 192,339 181,004 172,027 ---------------------------------------------------------------- Income before income taxes and cumulative effect of change in accounting principle 158,387 144,119 131,720 120,834 Applicable income taxes 52,343 46,841 41,689 35,665 - ---------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of change in accounting principle 106,044 97,278 90,031 85,169 Cumulative effect of change in accounting principle (net of income tax benefit of $8,296)* -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Net income $ 106,044 $ 97,278 $ 90,031 $ 85,169 ================================================================ 28 Per share data: Income before cumulative effect of change in accounting principle Basic* $ 3.15 $ 2.83 $ 2.56 $ 2.37 --------------------------------------------------------------------------------------------------------------------- Diluted* $ 3.08 $ 2.79 $ 2.53 $ 2.35 --------------------------------------------------------------------------------------------------------------------- Percentage change from prior year Basic 11% 11% 8% 6% SELECTED FINANCIAL RATIOS AND STATISTICS Net income as a percentage of: Average stockholders' equity3 22.15% 21.38% 20.70% 20.84% Average total assets3 1.87 1.83 1.83 1.88 - ---------------------------------------------------------------------------------------------------------------------------- Loan quality: Percentage of average total loans: Net charge-offs 0.31% 0.32% 0.33% 0.23% Nonaccruing loans 0.73 1.13 0.99 0.93 Percentage of total loans: Reserve for loan losses** 1.60 1.44 1.42 1.48 - ---------------------------------------------------------------------------------------------------------------------------- Selected per share data: Dividends paid $ 1.41 $ 1.29 $ 1.17 $ 1.06 Book value** 15.02 13.71 13.09 11.80 Stock price** 62.38 39.50 30.88 22.75 - ---------------------------------------------------------------------------------------------------------------------------- Staff members (full-time equivalents)** 2,428 2,418 2,332 2,303 Stockholders** 10,164 10,241 9,000 9,097 - ---------------------------------------------------------------------------------------------------------------------------- Net income per staff member3 $ 43,675 $ 40,231 $ 38,607 $ 36,982 Overhead ratio1 52.32% 53.04% 53.86% 55.86% Capital generation rate2,3 12.59% 11.51% 11.68% 11.88% Risk-based capital ratio** 12.38% 12.01% 12.06% 12.51% Price/earnings multiple** 19.80 13.96 12.06 9.60 - ----------------------------------------------------------------------------------------------------------------------------
* Effective January 1, 1992, SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Persons," was adopted. Basic and diluted earnings per share after the cumulative effect of change in accounting principle were $1.70 and $1.68, respectively. 28A
Compound Growth Rates --------------------------- 1993 1992 1991 1990 1989 1988 1987 1987 to 1997 1992 to 1997 - -------------------------------------------------------------------------------------------------------------------------------- $ 194,808 $ 180,747 $ 167,438 $ 183,859 $ 181,126 $ 183,921 $ 178,185 0.66% 1.03% 21,248 72,787 73,258 79,830 102,531 151,387 320,669 (23.38) (21.02) 946,052 803,936 901,273 874,955 698,246 600,629 510,253 10.51 11.51 2,949,909 2,979,576 2,932,963 2,768,890 2,531,576 2,204,212 2,029,865 6.81 5.65 (48,619) (45,615) (43,724) (41,045) (36,959) (31,668) (28,052) 7.30 4.46 - -------------------------------------------------------------------------------------------------------------------------------- 2,901,290 2,933,961 2,889,239 2,727,845 2,494,617 2,172,544 2,001,813 6.80 5.67 - -------------------------------------------------------------------------------------------------------------------------------- 158,414 144,364 126,486 124,370 117,951 112,029 96,615 8.39 8.43 - -------------------------------------------------------------------------------------------------------------------------------- $4,221,812 $4,135,795 $4,157,694 $3,990,859 $3,594,471 $3,220,510 $3,107,535 6.22 6.55 ================================================================================================================================ $ 500,396 $ 443,205 $ 393,260 $ 399,668 $ 421,994 $ 422,441 $ 482,499 3.47 8.90 2,718,885 2,778,768 2,858,595 2,593,897 2,319,031 2,185,029 2,080,553 4.37 2.81 545,012 479,577 499,083 629,995 514,418 315,999 270,662 15.94 19.90 65,737 67,101 61,705 64,971 61,830 59,195 60,693 5.08 8.21 -- -- -- -- -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- 3,830,030 3,768,651 3,812,643 3,688,531 3,317,273 2,982,664 2,894,407 6.04 6.66 391,782 367,144 345,051 302,328 277,198 237,846 213,128 8.43 5.45 - -------------------------------------------------------------------------------------------------------------------------------- $4,221,812 $4,135,795 $4,157,694 $3,990,859 $3,594,471 $3,220,510 $3,107,535 6.22 6.55 ================================================================================================================================ $ 174,847 $ 165,214 $ 152,891 $ 137,569 $ 128,033 $ 112,101 $ 99,403 8.75 6.84 - -------------------------------------------------------------------------------------------------------------------------------- 78,313 77,002 72,605 68,527 58,714 55,131 51,507 8.32 8.26 35,086 31,006 29,132 26,644 24,812 23,632 25,218 5.48 6.77 268 2,259 574 802 2,904 2,768 2,633 (36.75) (58.74) - -------------------------------------------------------------------------------------------------------------------------------- 113,667 110,267 102,311 95,973 86,430 81,531 79,358 7.10 7.40 - -------------------------------------------------------------------------------------------------------------------------------- 288,514 275,481 255,202 233,542 214,463 193,632 178,761 8.05 7.07 - -------------------------------------------------------------------------------------------------------------------------------- (9,500) (13,000) (15,702) (12,487) (13,644) (11,569) (12,650) 5.45 10.59 - -------------------------------------------------------------------------------------------------------------------------------- 95,849 90,419 85,204 80,214 76,462 67,611 62,746 7.54 7.50 65,937 63,362 58,380 54,639 49,539 46,120 44,951 5.65 4.21 - -------------------------------------------------------------------------------------------------------------------------------- 161,786 153,781 143,584 134,853 126,001 113,731 107,697 6.79 6.19 - -------------------------------------------------------------------------------------------------------------------------------- 117,228 108,700 95,916 86,202 74,818 68,332 58,414 10.49 7.82 34,467 29,938 23,155 17,673 13,624 12,718 11,695 16.17 11.82 - -------------------------------------------------------------------------------------------------------------------------------- 82,761 78,762 72,761 68,529 61,194 55,614 46,719 8.54 6.13 -- (14,749) -- -- -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- $ 82,761 $ 64,013 $ 72,761 $ 68,529 $ 61,194 $ 55,614 $ 46,719 8.54 10.62 ================================================================================================================================ 29 $ 2.24 $ 2.09 $ 1.92 $ 1.81 $ 1.59 $ 1.45 $ 1.21 10.04 8.55 - -------------------------------------------------------------------------------------------------------------------------------- $ 2.21 $ 2.06 $ 1.89 $ 1.79 $ 1.57 $ 1.43 $ 1.17 10.16 8.38 - -------------------------------------------------------------------------------------------------------------------------------- 7% 9% 6% 14% 10% 20% 19% ................................................................................................................................ 21.12% 20.62% 21.09% 22.67% 22.08% 23.38% 21.92% 1.96 1.90 1.75 1.72 1.70 1.73 1.50 - -------------------------------------------------------------------------------------------------------------------------------- 0.28% 0.37% 0.45% 0.31% 0.37% 0.26% 0.57% 0.75 1.00 1.84 0.50 0.48 0.53 0.49 1.69 1.56 1.48 1.46 1.42 1.43 1.36 - -------------------------------------------------------------------------------------------------------------------------------- $ 0.975 $ 0.88 $ 0.80 $ 0.72 $ 0.59 $ 0.46 $ 0.39 10.87 10.12 9.79 8.58 7.61 6.76 5.84 26.25 26.50 29.00 20.00 18.88 13.63 13.00 - -------------------------------------------------------------------------------------------------------------------------------- 2,254 2,188 2,213 2,179 2,173 2,185 1,998 8,880 8,261 7,477 7,444 7,332 7,209 7,268 - -------------------------------------------------------------------------------------------------------------------------------- $ 36,717 $ 35,997 $ 32,879 $ 31,450 $ 28,161 $ 25,453 $ 23,383 53.97% 53.47% 52.71% 53.21% 53.60% 53.69% 53.23% 12.35% 12.18% 13.43% 14.53% 15.07% 16.99% 16.03% 12.36% 12.36% 12.13% 11.52% 11.19% -- -- 11.72 15.59 15.10 11.05 11.87 9.40 10.74 - --------------------------------------------------------------------------------------------------------------------------------
** At year-end 1 Total other expenses as a percentage of operating revenue 2 Net income less dividends paid as a percentage of prior year-end stockholders' equity 3 Based upon income before the cumulative effect of change in accounting principle 29A
CONSOLIDATED STATEMENTS OF CONDITION WILMINGTON TRUST CORPORATION AND SUBSIDIARIES ASSETS - ----------------------------------------------------------------------------------------------------------------- December 31 (in thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------------- Cash and due from banks $ 239,392 $ 231,233 --------------------------------- Federal funds sold and securities purchased under agreements to resell 50,000 134,190 --------------------------------- Investment securities available for sale 1,316,403 798,519 --------------------------------- Investment securities held to maturity (market value of $333,812 in 1997 and $466,763 in 1996) 333,007 467,632 --------------------------------- Loans: Commercial, financial and agricultural 1,207,930 1,237,061 Real estate -- construction 145,097 123,111 Mortgage -- commercial 884,146 862,974 Mortgage -- residential 813,116 678,800 Installment loans to individuals 954,486 881,994 Unearned income (10,840) (12,456) - ----------------------------------------------------------------------------------------------------------------- Total loans net of unearned income 3,993,935 3,771,484 Reserve for loan losses (63,805) (54,361) - ----------------------------------------------------------------------------------------------------------------- Net loans 3,930,130 3,717,123 --------------------------------- Premises and equipment, net 135,129 94,387 Other assets 118,290 121,325 - ----------------------------------------------------------------------------------------------------------------- Total assets $6,122,351 $5,564,409 ============================== ................................................................................................................. LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing demand $ 792,513 $ 840,987 Interest-bearing: Savings 358,008 352,431 Interest-bearing demand 1,134,996 1,062,917 Certificates under $100,000 1,247,302 1,269,206 Certificates $100,000 and over 636,211 388,157 - ----------------------------------------------------------------------------------------------------------------- Total deposits 4,169,030 3,913,698 --------------------------------- Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 1,246,287 983,017 U.S. Treasury demand 61,290 53,526 - ----------------------------------------------------------------------------------------------------------------- Total short-term borrowings 1,307,577 1,036,543 --------------------------------- Other liabilities 99,737 106,451 Long-term debt 43,000 43,000 - ----------------------------------------------------------------------------------------------------------------- Total liabilities 5,619,344 5,099,692 --------------------------------- Stockholders' equity: Common stock: $1.00 par value; authorized 150,000,000 shares; issued 39,191,848 shares in 1997 and 39,107,462 shares in 1996 39,192 39,107 Capital surplus 62,511 59,463 Retained earnings 573,570 515,072 Net unrealized gain on investment securities available for sale, net of taxes 7,504 1,004 - ----------------------------------------------------------------------------------------------------------------- Total contributed capital and retained earnings 682,777 614,646 Less: Treasury stock; 5,713,735 shares in 1997 and 5,214,158 shares in 1996, at cost (179,770) (149,929) - ----------------------------------------------------------------------------------------------------------------- Total stockholders' equity 503,007 464,717 --------------------------------- Total liabilities and stockholders' equity $6,122,351 $5,564,409 ================================= See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME WILMINGTON TRUST CORPORATION AND SUBSIDIARIES - --------------------------------------------------------------------------------------------------------------------- For the year ended December 31 (in thousands) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $342,831 $320,499 $308,487 Interest and dividends on investment securities: Taxable interest 76,838 70,728 57,473 Tax-exempt interest 1,430 1,826 2,042 Dividends 8,260 8,322 8,303 Interest on federal funds sold and securities purchased under agreements to resell 1,280 1,475 1,036 - --------------------------------------------------------------------------------------------------------------------- Total interest income 430,639 402,850 377,341 ---------------------------------- Interest on deposits 134,176 121,955 105,304 Interest on short-term borrowings 65,573 65,195 74,325 Interest on long-term debt 874 1,479 348 - --------------------------------------------------------------------------------------------------------------------- Total interest expense 200,623 188,629 179,977 ---------------------------------- Net interest income 230,016 214,221 197,364 Provision for loan losses (21,500) (16,000) (12,280) - --------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 208,516 198,221 185,084 ---------------------------------- ..................................................................................................................... OTHER INCOME Trust and asset management fees: Personal trust 55,403 47,468 41,395 Corporate financial services 32,689 28,059 27,113 Asset management 26,409 22,720 19,474 - --------------------------------------------------------------------------------------------------------------------- Total trust and asset management fees 114,501 98,247 87,982 ---------------------------------- Service charges on deposit accounts 20,964 19,038 17,497 Other operating income 22,050 19,764 19,894 Securities gains 27 1,188 2,267 - --------------------------------------------------------------------------------------------------------------------- Total other income 157,542 138,237 127,640 ---------------------------------- Net interest and other income 366,058 336,458 312,724 ---------------------------------- ..................................................................................................................... OTHER EXPENSE Salaries and employment benefits 129,816 119,574 110,670 Net occupancy 11,763 11,111 10,706 Furniture and equipment 16,361 14,413 14,067 Stationery and supplies 4,951 5,985 5,907 Other operating expense 44,780 41,256 39,654 - --------------------------------------------------------------------------------------------------------------------- Total other expense 207,671 192,339 181,004 ---------------------------------- ..................................................................................................................... NET INCOME Income before income taxes 158,387 144,119 131,720 Applicable income taxes 52,343 46,841 41,689 - --------------------------------------------------------------------------------------------------------------------- Net income $106,044 $ 97,278 $ 90,031 ================================== Net income per share: basic $ 3.15 $ 2.83 $ 2.56 ================================== diluted $ 3.08 $ 2.79 $ 2.53 ================================== Weighted average shares outstanding: basic 33,697 34,399 35,213 diluted 34,466 34,874 35,540 See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY WILMINGTON TRUST CORPORATION AND SUBSIDIARIES - ---------------------------------------------------------------------------------------------------------------------- Common Capital Retained Valuation Treasury (in thousands) stock surplus earnings reserve stock Total - ---------------------------------------------------------------------------------------------------------------------- 1995 Balance, January 1 $38,921 $58,117 $413,375 $ (295) $ 91,896 $418,222 Net income -- -- 90,031 -- -- 90,031 Cash dividends paid - $1.17 per share -- -- (41,191) -- -- (41,191) Common stock issued under employment benefit plans 92 (6) -- -- 8,044 8,130 Acquisition of treasury stock -- -- -- -- (20,495) (20,495) Adjustments to net unrealized gain/(loss) on investment securities available for sale, net of income taxes of $2,629 -- -- -- 4,674 -- 4,674 - ---------------------------------------------------------------------------------------------------------------------- Balance, December 31 39,013 58,111 462,215 4,379 (104,347) 459,371 ------------------------------------------------------------------- ...................................................................................................................... 1996 Net income -- -- 97,278 -- -- 97,278 Cash dividends paid - $1.29 per share -- -- (44,421) -- -- (44,421) Common stock issued under employment benefit plans 94 1,352 -- -- 6,204 7,650 Acquisition of treasury stock -- -- -- -- (51,786) (51,786) Adjustments to net unrealized gain/(loss) on investment securities available for sale, net of income taxes of $1,898 -- -- -- (3,375) -- (3,375) - ---------------------------------------------------------------------------------------------------------------------- Balance, December 31 39,107 59,463 515,072 1,004 (149,929) 464,717 ------------------------------------------------------------------- ...................................................................................................................... 1997 Net income -- -- 106,044 -- -- 106,044 Cash dividends paid - $1.41 per share -- -- (47,546) -- -- (47,546) Common stock issued under employment benefit plans 85 3,048 -- -- 6,070 9,203 Acquisition of treasury stock -- -- -- -- (35,911) (35,911) Adjustments to net unrealized gain/(loss) on investment securities available for sale, net of income taxes of $3,655 -- -- -- 6,500 -- 6,500 - ---------------------------------------------------------------------------------------------------------------------- Balance, December 31 $39,192 $62,511 $573,570 $7,504 $(179,770) $503,007 =================================================================== See notes to consolidated financial statements.
32
CONSOLIDATED STATEMENTS OF CASH FLOWS WILMINGTON TRUST CORPORATION AND SUBSIDIARIES - ---------------------------------------------------------------------------------------------------------------------- For the year ended December 31 (in thousands) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $106,044 $ 97,278 $ 90,031 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 21,500 16,000 12,280 Provision for depreciation 10,507 10,218 9,850 Amortization of investment securities available for sale discounts and premiums 2,634 3,032 332 (Accretion)/amortization of investment securities held to maturity discounts and premiums (203) (32) 3,432 Deferred income taxes (571) 2,605 497 Securities gains (27) (1,188) (2,267) Losses/(gains) on sales of loans 327 43 (868) Decrease/(increase) in other assets 3,035 6,616 (12,988) (Decrease)/increase in other liabilities (9,798) 4,054 17,984 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 133,448 138,626 118,283 ------------------------------------------- ...................................................................................................................... INVESTING ACTIVITIES Proceeds from sales of investment securities available for sale 21,869 270,246 107,964 Proceeds from maturities of investment securities available for sale 650,253 951,787 1,265,103 Proceeds from maturities of investment securities held to maturity 134,839 101,321 246,061 Purchases of investment securities available for sale (1,182,469) (1,151,119) (1,386,526) Purchases of investment securities held to maturity -- (84,693) (602,393) Gross proceeds from sales of loans 60,392 57,262 29,274 Purchases of loans (67,543) -- -- Net increase in loans (227,683) (318,380) (277,170) Net increase in premises and equipment (51,249) (24,871) (18,806) - ---------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (661,591) (198,447) (636,493) ------------------------------------------- ...................................................................................................................... FINANCING ACTIVITIES Net increase/(decrease) in demand, savings and interest-bearing demand deposits 29,182 187,345 (71,384) Net increase in certificates of deposit 226,150 138,768 350,219 Net increase/(decrease) in federal funds purchased and securities sold under agreements to repurchase 263,270 (183,146) 268,664 Net increase/(decrease) in U.S. Treasury demand 7,764 24,137 (7,919) Proceeds from issuance of long-term debt -- 15,000 28,000 Cash dividends (47,546) (44,421) (41,191) Proceeds from common stock issued under employment benefit plans 9,203 7,650 8,130 Payments for common stock acquired through buybacks (35,911) (51,786) (20,495) - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 452,112 93,547 514,024 ------------------------------------------- (Decrease)/increase in cash and cash equivalents (76,031) 33,726 (4,186) Cash and cash equivalents at beginning of year 365,423 331,697 335,883 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $289,392 $365,423 $331,697 =========================================== .................................................................................................................................... SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $219,624 $186,701 $170,906 Taxes $47,376 $47,221 $ 35,999 Loans transferred during the year: To other real estate owned $5,665 $16,148 $ 9,037 From other real estate owned 7,058 25,305 12,350 See notes to consolidated financial statements.
33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WILMINGTON TRUST CORPORATION AND SUBSIDIARIES NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Wilmington Trust Corporation (the "Corporation") is a bank and thrift holding company organized under the General Corporation Law of Delaware. It holds all of the outstanding capital stock of Wilmington Trust Company, a Delaware-chartered bank and trust company engaged in commercial and trust banking activities since 1903 ("WTC"). WTC is the largest full-service bank in Delaware, with 52 branch offices and nine principal operating subsidiaries through which it engages in various lines of business. The Corporation also owns two other financial institutions, Wilmington Trust of Pennsylvania, a Pennsylvania-chartered bank and trust company acquired in 1993 ("WTPA"), and Wilmington Trust FSB, a Federally-chartered savings bank organized in 1994 ("WTFSB"). Through its subsidiaries, the Corporation engages in residential, commercial and construction lending, deposit-taking, insurance and investment advisory and broker-dealer services. The Corporation presently conducts its banking activities principally in Delaware, Pennsylvania, Maryland and Florida. The Corporation and its subsidiaries are subject to competition from other financial institutions. They also are subject to the regulations of certain federal and state regulatory agencies and undergo periodic examination by those authorities. During 1997, WTC agreed to form an affiliation with Cramer Rosenthal McGlynn, LLC, an investment advisory firm specializing in equity investments in small- to middle-capitalization stocks, with offices in New York City and White Plains, New York. The transaction was completed on January 2, 1998 and allowed WTC to acquire a 24% ownership interest in the firm, with the option to acquire additional ownership in the future. The investment will be accounted for under the equity method of accounting and will be carried in the "other assets" line of the Corporation's Consolidated Statements of Condition. Basis of Financial Statement Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include, after elimination of material intercompany balances and transactions, the accounts of the Corporation, WTC, WTPA, WTFSB and WTC's subsidiaries. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Estimates that are particularly susceptible to change in the near term relate to the determination of the reserve for loan losses. Cash Flows The Corporation has defined cash and cash equivalents as those amounts included in the balance sheet captions "Cash and due from banks" and "Federal funds sold and securities purchased under agreements to resell." Investment Securities Debt securities that the Corporation has the intent and ability to hold until maturity are classified as "held to maturity" and are carried at historical cost, adjusted for any amortization of premium or accretion of discount. Marketable equity securities and debt securities that are not classified as held to maturity are classified as "available for sale" and are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Realized gains and losses and declines in value judged to be other than temporary are included in earnings. The specific identification method is utilized in determining the cost of a security that has been sold. Premiums and discounts are amortized and accreted, respectively, as an adjustment of the securities' yield using the interest method, adjusted for the effects of prepayments on the underlying collateral. 34 Loans Loans are generally stated at their outstanding unpaid principal balance net of any deferred fees or costs on originated loans, and net of any unamortized premiums or discounts on purchased loans. Interest income is accrued and recognized as income based upon the principal amount outstanding. Loan origination and commitment fees net of certain direct origination costs are being deferred, and the net amounts are being amortized over the contractual life of the loans as adjustments of the yield. The accrual of interest income is discontinued when a reasonable doubt exists as to the collectibility of interest or principal. A loan is determined to be impaired when it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement. Loans, including those determined impaired under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," are generally placed on nonaccrual status after they have become 90 days past due. For installment and revolving consumer loans, the accrual of interest income continues until the loan is charged off, which is generally 120 days past due for installment loans and 180 days past due for revolving consumer loans. A nonaccrual loan is not necessarily deemed to be uncollectible. Reserve for Loan Losses The reserve for loan losses has been established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the reserve and subsequent recoveries, if any, are credited to the reserve. The Corporation accounts for certain loans under SFAS No. 114 and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures." Under the new standards, the reserve for loan losses related to loans that are identified for evaluation in accordance with SFAS No. 114 is based on discounted cash flows using the loan's effective interest rate at the date the loan is determined to be impaired or the fair value of the collateral for collateral-dependent loans. For collateral-dependent loans, management obtains appraisals for all significant properties. The reserve is maintained at a level considered adequate to provide for potential loan losses. In making this determination, management takes into consideration the results of internal review procedures, prior loan loss experience, an assessment of the effect of current and anticipated future economic conditions on the loan portfolio, the financial condition of the borrower and such other factors that, in management's judgment, deserve consideration. The determination of the adequacy of the reserve is inherently subjective, as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed on the straight-line basis over the estimated useful life of the asset. Improvements are capitalized and depreciated over their useful lives. Gains or losses on dispositions of property and equipment are included in income as realized. Income Taxes The Corporation accounts for income taxes using the liability method under which deferred tax assets and liabilities are determined based upon the differences between financial statement carrying amounts and the tax bases of existing assets and liabilities. These temporary differences are measured at prevailing enacted tax rates that will be in effect when the differences are settled or realized. The Corporation and its subsidiaries, except for Brandywine Life Insurance Company and Rodney Square Investors, L.P., a 50%-owned partnership, file a consolidated federal income tax return. Brandywine Life Insurance Company and Rodney Square Investors, L.P. file separate returns. 35 Trust and Asset Management Fees Trust income is recognized on an accrual basis, except for certain amounts that are collected and recorded on a cash basis. Recording income on a cash basis does not have a material effect on net income. Per-Share Data In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share." SFAS No. 128 replaced the calculation of primary and fully diluted net income per share. Basic net income per share is based on the weighted average number of shares outstanding during each year. Diluted net income per share is similar to basic net income per share, but includes the dilutive effect of shares issuable under stock option plans. All prior period net income per share data has been restated to conform to SFAS No. 128 requirements. Derivative Interest Rate Contracts The Corporation enters into interest rate swap and interest rate floor contracts in managing interest rate risk in order to reduce the impact of fluctuations in interest rates of identifiable asset categories, principally floating rate commercial loans and commercial mortgage loans. Swaps are contracts to exchange, at specified intervals, the difference between fixed and floating interest amounts computed on contractual notional principal amounts. The Corporation has entered into swaps in which it receives a fixed rate and pays a floating rate. The net interest differential is reported in "Interest and fees on loans" in the Consolidated Statements of Income and is recognized over the lives of the contracts. No fees were received or paid. There have been no swap terminations. Floors are contracts which generate interest payments to the Corporation based on the difference between the floating rate index and a pre-determined strike rate of the specific floor when the index is below the strike rate. When the index is equal to or above the strike rate, no payments are received by the Corporation. The net interest differential, the amortization of the initial fees associated with the purchase of the floors and any gains recorded on the sale of the floors are reported in "Interest and fees on loans" in the Consolidated Statements of Income and are recognized over the lives of the contracts. During 1995, floors with a total notional value of $200 million were sold at a gain of $4.3 million. The gain is being deferred and accreted to income over the lives of the original floors sold. The Corporation does not hold or issue derivative financial instruments for trading purposes. Other Real Estate Owned 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 or acceptance of a deed in lieu of foreclosure and loans for which the Corporation has taken possession of the collateral. These assets are recorded on the books of the Corporation at the lower of their cost or estimated fair value less cost to sell, adjusted periodically based upon current appraisals. - -------------------------------------------------------------------------------- NOTE 2: RESTRICTIONS ON CASH AND DUE FROM BANKS The Federal Reserve Board requires banks to maintain cash reserves against certain categories of average deposit liabilities. Such reserves averaged $20,145,087 during the year ended December 31, 1997. - -------------------------------------------------------------------------------- 36 NOTE 3: INVESTMENT SECURITIES
The amortized cost and estimated market value of securities are as follows: - ------------------------------------------------------------------------------------------------------------------------------ Amortized Cost Gross Gross Estimated Market Value ----------------------- unrealized unrealized ----------------------- Balance, December 31, 1996 (in thousands) Debt Equity gains losses Debt Equity - ------------------------------------------------------------------------------------------------------------------------------ Investment securities available for sale: U.S. Treasury and government agencies $ 545,330 $ -- $ 1,951 $ (1,509) $ 545,772 $ -- Obligations of state and political subdivisions 13,176 -- 253 (52) 13,377 -- Other securities: Preferred stock -- 139,186 756 (87) -- 139,855 Asset-backed securities 16,096 -- 63 (23) 16,136 -- Other debt securities 21,665 -- 192 (79) 21,778 -- Other marketable equity securities -- 61,496 105 -- -- 61,601 - ------------------------------------------------------------------------------------------------------------------------------ Total $ 596,267 $ 200,682 $ 3,320 $ (1,750) $ 597,063 $ 201,456 ============================================================================ Investment securities held to maturity: U.S. Treasury and government agencies $ 267,502 $ -- $ 784 (1,764) $ 266,522 $ -- Obligations of state and political subdivisions 19,121 -- 209 (13) 19,317 -- Other securities: Asset-backed securities 181,009 -- 1,054 (1,139) 180,924 -- - ------------------------------------------------------------------------------------------------------------------------------ Total $ 467,632 $ -- $ 2,047 $ (2,916) $ 466,763 $ -- ============================================================================ Balance, December 31, 1997 (in thousands) - ------------------------------------------------------------------------------------------------------------------------------ Investment securities available for sale: U.S. Treasury and government agencies $ 784,218 $ -- $ 6,641 $ (340) $ 790,519 $ -- Obligations of state and political subdivisions 7,958 -- 55 (6) 8,007 -- Other securities: Preferred stock -- 155,327 3,739 -- -- 159,066 Asset-backed securities 277,524 -- 1,547 (434) 278,637 -- Other debt securities 16,002 -- 205 (31) 16,176 -- Other marketable equity securities -- 63,650 348 -- -- 63,998 - ------------------------------------------------------------------------------------------------------------------------------ Total $1,085,702 $ 218,977 $ 12,535 $ (811) $1,093,339 $ 223,064 ============================================================================ Investment securities held to maturity: U.S. Treasury and government agencies $ 219,136 $ -- $ 460 (430) $ 219,166 $ -- Obligations of state and political subdivisions 12,743 -- 452 -- 13,195 -- Other securities: Asset-backed securities 101,128 -- 624 (301) 101,451 -- - ------------------------------------------------------------------------------------------------------------------------------ Total $ 333,007 $ -- $ 1,536 $ (731) $ 333,812 $ -- ============================================================================
The amortized cost and estimated market value of debt securities at December 31, 1997 by contractual maturity are shown below (in thousands). Expected maturities will differ from contractual maturities because the issuers may have the right to call or prepay obligations without penalties.
Debt securities available for sale Debt securities held to maturity ---------------------------------- -------------------------------- Amortized cost Market value Amortized cost Market value - ---------------------------------------------------------------------------------------------------------------- Due in one year or less $ 97,518 $ 97,628 $ 1,125 $ 1,129 Due after one year through five years 520,488 525,203 220,900 221,115 Due after five years through ten years 231,003 232,990 29,467 29,669 Due after ten years 236,693 237,518 81,515 81,899 - ---------------------------------------------------------------------------------------------------------------- $1,085,702 $1,093,339 $ 333,007 $ 333,812 ==================================================================
Proceeds from the sales of investment securities available for sale during 1997, 1996 and 1995 were $21,869,484, $270,246,485 and $107,964,359, respectively. Gross gains of $24,070, $1,100,858 and $2,066,312 in 1997, 1996 and 1995, respectively, were realized on those sales with no offsetting losses. Securities with an aggregate book value of $826,676,769 at December 31, 1997 were pledged to secure deposits and other commitments. 37 The Corporation's preferred stock portfolio consists of auction-rate, cumulative and non-cumulative preferred stocks. Auction-rate preferred stock is preferred stock with a floating-rate dividend that is paid and reset every 49 days through an auction process in which investors determine the yield through bidding. This pricing mechanism should help assure that the stock will trade at or near par. At December 31, 1997, the Corporation's asset-backed securities portfolio consisted primarily of collateralized mortgage obligations ("CMOs"). The portfolio has an approximate average life of 2.82 years. The portfolio's aggregate average yield-to-maturity was 6.74%. At December 31, 1997, the Corporation did not hold state and municipal securities for any one state in excess of 10% of stockholders' equity. During 1995, the Financial Accounting Standards Board granted companies a one-time opportunity to restructure their investment portfolios without calling into question their intent to hold other debt securities to maturity. The Corporation restructured its investment portfolio to provide a more evenly distributed series of future cash flows and to allow greater flexibility in asset/liability and investment management. The amortized cost of securities held to maturity that were transferred to the available-for-sale portfolio was $708,098,186, with a net unrealized gain of $8,732,941. - -------------------------------------------------------------------------------- NOTE 4: CONCENTRATIONS OF LOANS The Corporation's lending activity is primarily focused within Delaware, Pennsylvania, Maryland and Florida. The Corporation makes no foreign loans. At December 31, 1997, approximately 4% of the Corporation's total loan portfolio consisted of real estate construction loans, while approximately 30% represented commercial loans, 22% represented commercial mortgage loans, which were secured by income-producing properties, and approximately 20% and 24%, respectively, represented residential mortgage loans and installment loans to individuals. Each of these ratios was virtually unchanged from those reported at December 31, 1996. In addition to these loans outstanding, at December 31, 1997 and 1996, unfunded commitments to lend in the real estate sector were approximately $318,937,000 and $219,194,000, respectively. The Corporation generally requires collateral on all real estate exposure and a loan-to-value ratio of no greater than 80% when underwritten. Management believes the Corporation's mortgage portfolio is well diversified when measured by industry classification statistics. - -------------------------------------------------------------------------------- NOTE 5: RESERVE FOR LOAN LOSSES
The following is an analysis of the reserve for loan losses: - ------------------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------- Balance, January 1 $ 54,361 $ 49,867 $ 48,669 ------------------------------------------------- Chargeoffs (16,187) (14,655) (14,282) Recoveries 4,131 3,149 3,200 - ------------------------------------------------------------------------------------------- Net chargeoffs (12,056) (11,506) (11,082) Provision charged to operations 21,500 16,000 12,280 - ------------------------------------------------------------------------------------------- Balance, December 31 $ 63,805 $ 54,361 $ 49,867 =================================================
38
Information with respect to loans that are considered to be impaired under SFAS #114 for the years ended December 31 is as follows: - ---------------------------------------------------------------------------------------------------------------- (in thousands) 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Average recorded investment in impaired loans $39,946 $36,139 ------------------------- Recorded investment in impaired loans at year-end subject to a reserve for loan losses (1997 reserve--$8,042; 1996 reserve--$10,058) $31,731 $39,002 Recorded investment in impaired loans at year-end requiring no reserve for loan losses 524 2,801 ------------------------- Recorded investment in impaired loans at year-end $32,255 $41,803 ========================= Recorded investment in impaired loans at year-end classified as nonaccruing $27,007 $39,976 ------------------------- Interest income recognized $ 2,649 $ 1,906 Interest income recognized using the cash basis method of income recognition 2,162 1,718
The following is an analysis of interest on nonaccruing loans: - --------------------------------------------------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- Nonaccruing loans at December 31 $28,669 $40,735 $33,576 ------------------------------------------- Interest income which would have been recognized under original terms $ 2,766 $ 2,757 $ 3,511 Interest accrued or received 2,207 1,736 1,741
- -------------------------------------------------------------------------------- NOTE 6: PREMISES AND EQUIPMENT A summary of premises and equipment at December 31 is as follows: - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Land $ 11,558 $ 12,491 Buildings and improvements 109,139 87,045 Furniture and equipment 102,977 78,312 - -------------------------------------------------------------------------------- 223,674 177,848 Accumulated depreciation (88,545) (83,461) - -------------------------------------------------------------------------------- Premises and equipment, net $ 135,129 $ 94,387 ======================================= - -------------------------------------------------------------------------------- NOTE 7: SHORT-TERM BORROWINGS A summary of securities sold under agreements to repurchase at December 31 is as follows: - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Maximum amount outstanding at any month-end $253,111 $230,906 Daily average amount outstanding during the period 195,945 184,233 The securities underlying the agreements are under the Corporation's control. - -------------------------------------------------------------------------------- NOTE 8: LONG-TERM DEBT WTC has obtained advances from the Federal Home Loan Bank of Pittsburgh to finance the Wilmington Trust Operations Center. Monthly interest payments are due on the first of each month at a fixed interest rate, with the principal due on the maturity date. Any payment of the principal prior to the originally scheduled maturity date is subject to a prepayment fee. Information with respect to the advances is as follows: - -------------------------------------------------------------------------------- Principal Amount Term Fixed (in thousands) (years) Interest Rate Maturity Date - -------------------------------------------------------------------------------- $28,000 15 6.55% October 4, 2010 7,500 10 6.41 November 6, 2006 7,500 5 6.20 October 9, 2001 39 - -------------------------------------------------------------------------------- NOTE 9: CONTINGENT LIABILITIES The Corporation and its subsidiaries, in the ordinary course of business, are involved in various legal proceedings. While it is not feasible to predict the outcome of all pending suits and claims, management does not believe the ultimate resolution of any of these matters will have a material adverse effect on the consolidated financial condition of the Corporation. The Company is a defendant in a class action lawsuit relating to fees charged to certain personal trust customer accounts during the period from August 1983 through May 1987. This suit was brought in Delaware's Court of Chancery, and was certified as a class during the fourth quarter, 1997. The plaintiff is seeking monetary damages equal to the disputed fees of approximately $8.5 million plus accrued pre-judgment interest approximating $14 million calculated to October 31, 1997. The Company contests all claims set forth in this suit and is vigorously defending itself. Management has not accrued any expenses associated with the outcome of these various legal proceedings as of December 31, 1997. - -------------------------------------------------------------------------------- NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS The following discloses the fair value of financial instruments held by the Corporation as of December 31, 1997 and 1996, whether or not recognized in the Consolidated Statements of Condition. In cases in which quoted market prices were not available, fair values were based upon estimates using present value or other valuation techniques. These techniques were significantly affected by the assumptions used, including the discount rate and estimates of cash flows. Consequently, these fair values cannot be substantiated by comparisons with independent markets and, in many cases, may not be realized upon the immediate sale of the instrument. Since generally accepted accounting principles exclude certain financial instruments and all nonfinancial instruments from this presentation, the aggregated fair value amounts do not represent the underlying value of the Corporation. Cash and Short-Term Investments The carrying amounts reported for "Cash and due from banks" and "Federal funds sold and securities purchased under agreements to resell" approximate the fair value of those assets. Investment Securities The fair values of investment securities are based upon quoted market prices when available. If quoted market prices are not available, fair values are based upon quoted market prices of comparable instruments. Loans The fair values of fixed-rate and variable-rate loans that reprice within one year with no significant credit risk are based upon their carrying amounts. The fair values of all other loans are estimated using discounted cash flow analysis, which utilizes interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The reserve for loan losses is allocated to the various components of the loan portfolio in determining the fair values of those loans. The carrying amount of accrued interest receivable approximates its fair value. The fair values of outstanding letters of credit and loan commitments approximate the fees charged for providing such services. Deposits and Short-Term Borrowings The fair values for demand deposits are, by definition, equal to the amount payable on demand at the reporting date. The carrying amounts for variable-rate deposits approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using discounted cash flow analysis that applies interest rates currently being offered on certificates. The carrying amounts of federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings approximate their fair values. 40 Long-Term Debt The fair value of long-term debt is based on the borrowing rate currently available to WTC for debt with similar terms and remaining maturities. Derivative Interest Rate Contracts The fair values of swaps and floors are based upon pricing models using current assumptions. The carrying values and estimated fair values of the Corporation's financial assets, liabilities and off-balance-sheet financial instruments as of December 31 are as follows:
- -------------------------------------------------------------------------------------------------------------------- 1997 1996 --------------------------- ---------------------------- Carrying Fair Carrying Fair (in thousands) Value Value Value Value - -------------------------------------------------------------------------------------------------------------------- Financial assets: Cash and due from banks $ 239,392 $ 239,392 $ 231,233 $ 231,233 Short-term investments 50,000 50,000 134,190 134,190 Investment securities (see note 3) 1,649,410 1,650,215 1,266,151 1,265,282 Loans, net of reserves 3,930,130 3,938,668 3,717,123 3,712,701 Accrued interest receivable 41,555 41,555 37,382 37,382 Financial liabilities: Deposits 4,169,030 4,179,419 3,913,698 3,913,185 Short-term borrowings 1,307,577 1,307,577 1,036,543 1,036,543 Accrued interest payable 45,771 45,771 64,771 64,771 Long-term debt 43,000 43,187 43,000 43,246 Contractual Fair Contractual Fair (in thousands) Amount Value Amount Value - -------------------------------------------------------------------------------------------------------------------- Off-balance-sheet financial instruments: Unfunded commitments to extend credit $1,486,557 $ (3,716) $1,255,959 $ (3,140) Standby and commercial letters of credit 54,774 (822) 58,631 (879) Interest rate swap contracts 275,000 363 400,000 787 Interest rate floor contracts 325,000 3,268 250,000 3,632 - --------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- NOTE 11: OFF-BALANCE-SHEET FINANCIAL AGREEMENTS In the normal course of business, the Corporation engages in off-balance-sheet financial agreements in order to meet the needs of its customers and to reduce its own exposure to fluctuations in interest rates. A summary of off-balance-sheet financial agreements at December 31 is as follows: - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Commitments to extend credit (contractual amount) $1,486,557 $1,255,959 Letters of credit (contractual amount) 54,774 58,631 Interest rate swaps (notional value) 275,000 400,000 Interest rate floors (notional value) 325,000 250,000 The Corporation's exposure to credit risk is represented by the contractual amount of both the commitments to extend credit and letters of credit, while the notional amount of the swaps and floors far exceeds any credit risk exposure. Commitments to extend credit are agreements to lend to a customer. Generally, they have fixed expiration dates or termination clauses and may require payment of a fee. Many commitments expire without ever having been drawn upon. Letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Maturities normally are for terms shorter than five years. Many letters of credit expire unfunded. The credit risk for both of these instruments is essentially the same as that involved in extending loans. The Corporation evaluates each customer's creditworthiness on a case-by-case basis. Collateral (i.e., securities, receivables, inventory, 41 equipment and residential and commercial properties) is obtained depending on management's credit assessment of the customer. Swaps represent an exchange of interest payments computed on contractual notional principal amounts. Swaps subject the Corporation to market risk associated with changes in interest rates, as well as the risk that the counterparty may fail to perform. At December 31, 1997, swaps with a total notional principal of $275 million were in effect. This compares with $400 million at December 31, 1996. The weighted average variable interest rate that the Corporation paid was 5.55% and 5.54% on December 31, 1997 and 1996, respectively, while the weighted average fixed interest rate that the Corporation received was 5.83% and 6.12% on December 31, 1997 and 1996, respectively. The swaps have a weighted average original and remaining term to maturity of approximately 3.4 and 1.1 years, respectively. Floors reduce the risk associated with a declining interest rate environment and result in receipts only if current interest rates fall below a predetermined strike rate. Floors subject the Corporation to the risk that the counterparty may fail to perform. At December 31, 1997, floors with a total notional principal of $325 million were in effect. This compares with $250 million at December 31, 1996. The weighted average strike rate was 6% on December 31, 1997 and 1996. The floors have a weighted average original and remaining term to maturity of approximately 4.7 and 2.5 years, respectively. - -------------------------------------------------------------------------------- NOTE 12: CAPITAL REQUIREMENTS The Corporation is subject to various regulatory capital requirements by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary--actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation's capital amounts and classification also are subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios (set forth in the following table) of total and tier 1 capital to risk-weighted assets, and tier 1 capital to average assets. Management believes that, as of December 31, 1997 and 1996, the Corporation meets all capital adequacy requirements to which it is subject. As of the most recent notification from the federal regulators, the Corporation and each of its subsidiaries were categorized as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes could change the Corporation's category. A summary of the Corporation's risk-based capital ratios and the levels to be categorized as adequately and well-capitalized as of December 31 is as follows: 42
To be well- capitalized under For capital prompt corrective adequacy purposes action provisions ------------------- -------------------- Actual Amount Ratio Amount Ratio --------------------- GREATER GREATER GREATER GREATER THAN OR THAN OR THAN OR THAN OR (in thousands) Amount Ratio EQUAL TO EQUAL TO EQUAL TO EQUAL TO - ---------------------------------------------------------------------------------------------------------------------- As of December 31, 1997: Total capital (to risk-weighted assets): Wilmington Trust Corporation $540,979 12.38% Wilmington Trust Company 495,885 11.76 $337,280 8.0% $421,600 10.0% Tier 1 capital (to risk-weighted assets): Wilmington Trust Corporation 486,265 11.13 Wilmington Trust Company 443,103 10.51 168,640 4.0 252,960 6.0 Tier 1 capital (to average assets): Wilmington Trust Corporation 486,265 8.58 Wilmington Trust Company 443,103 7.78 227,838 4.0 284,798 5.0 As of December 31, 1996: Total capital (to risk-weighted assets): Wilmington Trust Corporation 507,863 12.01 Wilmington Trust Company 477,459 11.65 327,903 8.0 409,879 10.0 Tier 1 capital (to risk-weighted assets): Wilmington Trust Corporation 455,013 10.76 Wilmington Trust Company 426,224 10.40 163,952 4.0 245,927 6.0 Tier 1 capital (to average assets): Wilmington Trust Corporation 455,013 8.59 Wilmington Trust Company 426,224 8.24 206,983 4.0 258,728 5.0
The primary source of funds for payment of dividends by the Corporation historically has been dividends received from WTC. The ability to pay dividends is limited by Delaware law, which requires capital surplus at least equal to the par value of outstanding common stock. In October 1993, the Corporation, after obtaining approval of its Board of Directors, announced a plan to buy back 3,000,000 shares of its stock. The repurchased shares are held as treasury stock. During the years ended December 31, 1996 and 1995, 722,707 shares and 762,772 shares, respectively, were acquired, completing this program. The total cost was $83,337,792. In April 1996, the Corporation, after obtaining approval of its Board of Directors, announced a plan to buy back an additional 4,000,000 shares of its stock. During the years ended December 31, 1997 and 1996, 737,729 shares and 814,367 shares, respectively, were acquired under this program at a cost of $64,521,773. - -------------------------------------------------------------------------------- NOTE 13: RELATED PARTY TRANSACTIONS In the ordinary course of banking business, loans are made to officers and directors of the Corporation and its affiliates as well as to their associates. In the opinion of management, these loans are consistent with sound banking practices and do not involve more than the normal risk of collectibility. At December 31, 1997 and 1996, loans to executive officers and directors of the Corporation and its principal affiliates, including loans to their associates, totaled $32,107,717 and $31,419,050, respectively. During 1997, loan additions were $15,912,462, loan repayments were $15,901,620 and other changes were $677,825. Other changes represent the loan activity of newly elected executive officers and directors. 43 - -------------------------------------------------------------------------------- NOTE 14: EMPLOYMENT BENEFIT PLANS STOCK-BASED COMPENSATION PLANS At December 31, 1997, the Corporation had two types of stock-based compensation plans, which are described below. The Corporation applies Accounting Principles Board Opinion ("APB") No. 25 and related Interpretations in accounting for these plans. No compensation cost has been recognized in the accompanying Consolidated Financial Statements for those plans. If compensation cost for the Corporation's two types of stock-based compensation plans had been determined based on the fair value at the grant dates for awards under those plans consistent with the methods outlined in SFAS No. 123, "Accounting for Stock-Based Compensation," the Corporation's net income would have been as follows: - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Net income As reported $106,044 $ 97,278 $ 90,031 Pro forma 102,650 95,614 88,945 1996 LONG-TERM INCENTIVE PLAN Under the 1996 Long-Term Incentive Plan, the Corporation may grant incentive stock options, non-statutory stock options and other stock-based awards to officers and other key staff members for up to 1,200,000 shares of common stock. Under the plan, the exercise price of each option equals the last sale price of the Corporation's stock on the date of grant and an option's maximum term is 10 years. Information with respect to that plan and the Corporation's prior stock option plans is as follows:
- ------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 ------------------------- ------------------------- -------------------------- Weighted Weighted Weighted average average average Options exercise Options exercise Options exercise outstanding price outstanding price outstanding price - ------------------------------------------------------------------------------------------------------------------------------ Balance, January 1 1,543,312 $25.89 1,449,901 $23.52 1,573,521 $22.26 Options granted 419,086 42.32 337,281 31.69 208,850 25.25 Options exercised (234,912) 24.75 (241,920) 19.74 (311,420) 18.10 Options forfeited (11,400) 28.38 (1,950) 31.50 (21,050) 26.25 - ------------------------------------------------------------------------------------------------------------------------------ Balance, December 31 1,716,086 $30.04 1,543,312 $25.89 1,449,901 $23.52 ====================================================================================== Options exercisable, December 31 1,297,000 1,207,981 1,252,201 ====================================================================================== Weighted average fair value of options granted during the year $ 7.65 $ 5.10 $ 4.07 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used: - ------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ Dividend yields 2.29% 3.72% 3.72% Expected volatility 17.79-18.03 17.64-19.65 17.64-19.65 Risk-free interest rate 5.36-5.38 5.80-5.95 5.80-5.95 Expected option life (years) 3-5 3-5 3-5
44 A summary of the stock options outstanding at December 31, 1997 is as follows:
Options outstanding Options exercisable ----------------------------------------------- ------------------------- Weighted average Weighted Weighted remaining average average Range of Options contractual exercise Options exercise exercise prices outstanding life (years) price exercisable price - -------------------------------------------------------------------------------------------------- $14.00-24.75 414,968 2.7 $20.65 414,968 $20.65 25.00-35.00 882,032 6.6 28.63 882,032 28.63 36.00-46.00 419,086 5.9 42.32 -- -- - -------------------------------------------------------------------------------------------------- $14.00-46.00 1,716,086 5.5 $30.04 1,297,000 $26.07 ==================================================================================================
44A 1996 EMPLOYEE STOCK PURCHASE PLAN Under the Corporation's 1996 Employee Stock Purchase Plan, substantially all staff members may elect to participate in purchasing the Corporation's common stock at the beginning of the plan year through payroll deductions of up to the lesser of 10% of their annual base pay or $21,250, and may terminate participation at any time. The price per share is the lower of 85% of fair market value at time of election to participate or at the end of the plan year, which is May 31. Information with respect to that plan and the Corporation's prior employee stock purchase plans is as follows:
- ----------------------------------------------------------------------------------------------------- Shares reserved for future Subscriptions Price subscriptions outstanding per share - ----------------------------------------------------------------------------------------------------- Balance, January 1, 1995 495,500 94,810 ---------------------------- Subscriptions entered into on June 1, 1995 (98,205) 98,205 $ 22.10 Forfeitures 4,391 (4,391) 21.89-22.10 Shares issued -- (92,169) 21.89 - ----------------------------------------------------------------------------------------------------- Balance, December 31, 1995 401,686 96,455 ---------------------------- Subscriptions entered into on June 1, 1996 (88,412) 88,412 28.05 Forfeitures 3,995 (3,995) 22.10-28.05 Shares issued -- (94,550) 22.10 - ----------------------------------------------------------------------------------------------------- Balance, December 31, 1996 317,269 86,322 ---------------------------- Subscriptions entered into on June 1, 1997 (76,796) 76,796 38.14 Forfeitures 3,631 (3,631) 28.05-38.14 Shares issued -- (84,386) 28.05 - ----------------------------------------------------------------------------------------------------- Balance, December 31, 1997 244,104 75,101 ============================
PENSION PLAN The Wilmington Trust Pension Plan is a non-contributory, defined benefit plan for substantially all staff members of the Corporation and its subsidiaries, and provides for retirement and death benefits. The Corporation has agreed to contribute such amounts as are necessary to provide assets sufficient to meet the benefits to be paid to the plan's members. Annual contributions are designed to fund the plan's current service costs and past service costs plus interest over 10 years. Costs of the plan are determined actuarially by the projected unit credit method. Plan benefits are based on years of service and a modified career average formula. The plan's assets are invested primarily in collective trust funds managed by WTC. Participation in the collective trust funds of WTC was $103,085,348 and $91,217,213 at December 31, 1997 and 1996, respectively. A table of the plan's funded status and amounts recognized in the Consolidated Statements of Condition at December 31 is as follows: 45
- ------------------------------------------------------------------------------------------- (in thousands) 1997 1996 - ------------------------------------------------------------------------------------------- Actuarial present value of benefits obligations: Accumulated benefit obligation: Vested $ (74,207) $ (65,749) Nonvested (3,386) (3,011) - ------------------------------------------------------------------------------------------- $ (77,593) $ (68,760) ============================ Projected benefit obligation $ (82,943) $ (72,602) Plan assets at fair value 103,880 87,859 ---------------------------- Excess of plan assets over projected benefit obligation 20,937 15,257 Unrecognized prior service cost 7,923 8,717 Unrecognized net (gain)/loss (25,839) (19,691) Unrecognized net transition cost (5,888) (6,729) - ------------------------------------------------------------------------------------------- Accrued pension costs recognized in the consolidated statements of condition $ (2,867) $ (2,446) ============================
Net pension cost includes the following components: - ------------------------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------- Service cost-benefits earned during the period $ 2,292 $ 1,983 $ 1,515 Interest cost on projected benefit obligation 5,888 5,372 5,115 Actual return on plan assets (19,346) (8,527) (13,212) Net amortization and deferral 11,587 1,614 6,798 - ------------------------------------------------------------------------------------------------- Net periodic pension cost $ 421 $ 442 $ 216 ===========================================
- --------------------------------------------------------------------------------------------------------- 1997 1996 1995 - --------------------------------------------------------------------------------------------------------- Assumptions used in determining the projected benefit obligation were as follows: Discount rate 7.50% 7.75% Average rate of compensation increase 4.50 4.50 Assumptions used in determining net pension cost were as follows: Long-term rate of return on plan assets 9.50% 9.50% 9.50% Discount rate 7.75 7.50 8.50 Average rate of compensation increase 4.50 4.50 5.50
POST-EMPLOYMENT HEALTH CARE AND LIFE INSURANCE BENEFITS In addition to providing pension benefits, the Corporation makes available certain health care and life insurance benefits for substantially all retired staff members. Staff members who retire from the Corporation are eligible to receive up to $7,000 each year toward the premium for medical coverage if they are under age 65 and up to $4,000 toward the premium if they are age 65 or over. Staff members who retire also are eligible for $7,500 of life insurance coverage. In accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers' Accounting for Postemployment Benefits," the cost of providing those benefits is being recognized on an accrual basis. 46 The components of the net periodic post-employment benefit costs for the years ended December 31 were as follows: - -------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Service cost $ 524 $ 509 $ 369 Interest cost 1,928 1,712 1,807 Net amortization and deferral -- -- (73) - -------------------------------------------------------------------------------- Net post-employment benefit cost $ 2,452 $ 2,221 $ 2,103 ======================================== A table of the plan's funded status and amounts recognized in the Consolidated Statements of Condition at December 31 is as follows: - -------------------------------------------------------------------------------- (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Accumulated post-employment benefit obligation: Retirees $(17,769) $(15,411) Active employees (8,889) (8,292) - -------------------------------------------------------------------------------- (26,658) (23,703) Plan assets at fair value -- -- -------------------------------- Funded status (26,658) (23,703) Unrecognized prior service cost -- -- Unrecognized net (gain)/loss $ (12) (2,464) Unrecognized transition obligation -- -- - -------------------------------------------------------------------------------- Accrued post-employment benefit cost $(26,670) $(26,167) ================================ The following assumptions were utilized in the calculation of the accumulated post-employment benefit obligation:
- ------------------------------------------------------------------------------------------------------- 1997 1996 1995 Claims Claims Claims - ------------------------------------------------------------------------------------------------------- Significant actuarial assumptions used for other post-employment benefits were as follows: Discount rate 7.50% 7.75% 7.50% Health care cost trend rate, current year 5.00 6.70 7.60 Health care cost trend rate, ultimate year 4.00 4.25 4.00 Trend rate decreases to the ultimate rate in the year 2001 2000 2000 Effect of a 1% increase in the trend rate (in thousands): Increase in accumulated post-employment benefit obligation $ 1,263 $ 1,199 $ 1,289 Increase in net periodic post-employment benefit cost 103 95 97 - -------------------------------------------------------------------------------------------------------
THRIFT SAVINGS PLAN The Wilmington Trust Thrift Savings Plan covers all full-time staff members who elect to participate in the plan. Eligible staff members may contribute from 1% to 15% of their annual base pay. The first 6% of each staff member's pay is eligible for matching contributions from the Corporation of $.50 on each $1.00. The amounts contributed by the Corporation to this plan were $2,193,149, $1,945,386 and $1,583,027 in 1997, 1996 and 1995, respectively. 47 - -------------------------------------------------------------------------------- NOTE 15: INCOME TAXES A reconciliation of the statutory income tax to the income tax expense included in the Consolidated Statements of Income for each of the three years ended December 31, is as follows:
- --------------------------------------------------------------------------------------------- (in thousands) 1997 1996 1995 - --------------------------------------------------------------------------------------------- Income before taxes and cumulative effect of change in accounting principle $ 158,387 $ 144,119 $ 131,720 ====================================== Income tax at statutory rate of 35% $ 55,435 $ 50,442 $ 46,102 Tax effect of tax-exempt income (4,289) (4,804) (5,578) Tax effect of dividend income (1,763) (1,790) (1,800) State taxes, net of federal tax benefit 2,662 2,534 2,373 Other 298 459 592 - --------------------------------------------------------------------------------------------- Total income taxes $ 52,343 $ 46,841 $ 41,689 ====================================== Taxes currently payable: Federal $ 48,819 $ 40,337 $ 37,542 State 4,095 3,899 3,650 Deferred taxes (benefit): Federal (571) 2,605 497 - --------------------------------------------------------------------------------------------- Total income taxes $ 52,343 $ 46,841 $ 41,689 ====================================== Taxes from securities gains/(losses) $ 9 $ 416 $ 794
The significant components of the deferred tax liabilities and assets at December 31 are as follows: - ---------------------------------------------------------------------------- (in thousands) 1997 1996 - ---------------------------------------------------------------------------- Deferred tax liabilities: Tax depreciation $ 2,265 $ 2,112 Prepaid VEBA costs 7,088 6,073 Automobile and equipment leases 11,691 7,432 System development costs 2,099 2,129 Market valuation on investment securities 4,221 565 Other 4,985 5,225 - ---------------------------------------------------------------------------- Total deferred tax liabilities 32,349 23,536 --------------------- Deferred tax assets: Loan loss provision 22,339 19,035 OPEB obligation 9,334 9,158 Loan fees 4,224 2,745 Other 3,830 3,061 - ---------------------------------------------------------------------------- Total deferred tax assets 39,727 33,999 --------------------- Net deferred tax assets $ 7,378 $10,463 ====================== No valuation allowance was recognized for the deferred tax assets at December 31, 1997 and 1996. 48 - -------------------------------------------------------------------------------- NOTE 16: NET INCOME PER SHARE The following table sets forth the computation of basic and diluted net income per share:
- ------------------------------------------------------------------------------------------------------------------------ (in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ Numerator: Net income $106,044 $ 97,278 $ 90,031 - ------------------------------------------------------------------------------------------------------------------------ Denominator: Denominator for basic net income per share--weighted-average shares 33,697 34,399 35,213 - ------------------------------------------------------------------------------------------------------------------------ Effect of dilutive securities: Employee stock options 769 475 327 ---------------------------------------- Denominator for diluted net income per share-- adjusted weighted-average shares and assumed conversions 34,466 34,874 35,540 - ------------------------------------------------------------------------------------------------------------------------ Basic net income per share $ 3.15 $ 2.83 $ 2.56 ======================================== Diluted net income per share $ 3.08 $ 2.79 $ 2.53 ======================================== - ------------------------------------------------------------------------------------------------------------------------
48a - -------------------------------------------------------------------------------- NOTE 17: CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) A summary of the unaudited quarterly results of operations for the years ended December 31 is as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 ------------------------------------------------- ------------------------------------------------ (in thousands) Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 - ------------------------------------------------------------------------------------------------------------------------------------ Interest income $ 112,835 $ 110,026 $ 106,133 $ 101,645 $ 103,483 $ 101,442 $ 99,162 $ 98,763 Interest expense 53,273 52,236 49,127 45,987 47,281 47,122 46,698 47,528 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income 59,562 57,790 57,006 55,658 56,202 54,320 52,464 51,235 Provision for loan losses (7,000) (5,000) (5,000) (4,500) (5,000) (4,000) (3,500) (3,500) - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 52,562 52,790 52,006 51,158 51,202 50,320 48,964 47,735 Other income 43,902 40,247 37,810 35,556 37,077 33,453 34,086 32,433 Securities gains/(losses) 14 1 11 1 682 519 (10) (3) - ------------------------------------------------------------------------------------------------------------------------------------ Net interest and other income 96,478 93,038 89,827 86,715 88,961 84,292 83,040 80,165 Other expense 54,648 52,523 50,802 49,698 51,598 47,313 47,319 46,109 - ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 41,830 40,515 39,025 37,017 37,363 36,979 35,721 34,056 Applicable income taxes 14,254 13,252 12,741 12,096 12,083 12,117 11,604 11,037 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 27,576 $ 27,263 $ 26,284 $ 24,921 $ 25,280 $ 24,862 $ 24,117 $ 23,019 ==================================================================================================== Net income per share-basic $ 0.82 $ 0.81 $ 0.78 $ 0.74 $ 0.74 $ 0.73 $ 0.70 $ 0.66 ==================================================================================================== Net income per share-diluted $ 0.80 $ 0.79 $ 0.77 $ 0.72 $ 0.73 $ 0.72 $ 0.69 $ 0.65 ====================================================================================================
- -------------------------------------------------------------------------------- NOTE 18: PARENT COMPANY ONLY FINANCIAL STATEMENTS The Statements of Condition, Income and Cash Flows for the parent company are as follows: STATEMENTS OF CONDITION - -------------------------------------------------------------------------------- December 31 (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Assets Cash and due from banks $ 26 $ 17 Investment in subsidiaries 485,987 457,839 Investment securities available for sale 17,251 6,278 Other assets 339 1,039 - -------------------------------------------------------------------------------- Total assets $503,603 $465,173 ====================== Liabilities and stockholders' equity Liabilities $ 596 $ 456 Stockholders' equity 503,007 464,717 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $503,603 $465,173 ====================== 49 STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------ For the year ended December 31 (in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------ Income Dividend from subsidiary $ 86,989 $ 78,743 $ 72,230 Management fees from subsidiary 113 28 -- Interest 275 261 289 - ------------------------------------------------------------------------------------------ Total income 87,377 79,032 72,519 ------------------------------------ Expense Salaries and employment benefits 197 60 105 Net occupancy 6 4 5 Stationery and supplies 1 -- 1 Other operating expense 1,055 1,084 1,088 - ------------------------------------------------------------------------------------------ Total expense 1,259 1,148 1,199 ------------------------------------ Income before income tax benefit and equity in undistributed income of subsidiaries 86,118 77,884 71,320 Applicable income tax benefit (278) (289) (311) Equity in undistributed income of subsidiaries 19,648 19,105 18,400 - ------------------------------------------------------------------------------------------ Net income $ 106,044 $ 97,278 $ 90,031 ====================================
49a STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------- For the year ended December 31 (in thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------- Operating activities Net income $ 106,044 $ 97,278 $ 90,031 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries (19,648) (19,105) (18,400) Decrease/(increase) in other assets 700 (40) (363) Increase/(decrease) in other liabilities 140 84 (378) - ----------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 87,236 78,217 70,890 ------------------------------------ Investing activities Proceeds from sales of investment securities available for sale 16,868 34,745 18,242 Proceeds from maturity of investment securities held to maturity -- -- 1,290 Purchases of investment securities available for sale (27,841) (24,389) (34,876) Capital contribution to subsidiaries (2,000) -- (2,000) - ----------------------------------------------------------------------------------------------------------- Net cash (used for)/provided by investing activities (12,973) 10,356 (17,344) ------------------------------------ Financing activities Cash dividends (47,546) (44,421) (41,191) Proceeds from common stock issued under employment benefit plans 9,203 7,650 8,130 Payments for common stock acquired through buybacks (35,911) (51,786) (20,495) - ----------------------------------------------------------------------------------------------------------- Net cash used for financing activities (74,254) (88,557) (53,556) ------------------------------------ Increase/(decrease) in cash and cash equivalents 9 16 (10) Cash and cash equivalents at beginning of year 17 1 11 - ----------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 26 $ 17 $ 1 ====================================
50 WILMINGTON TRUST CORPORATION To the Board of Directors and Stockholders: REPORT OF INDEPENDENT AUDITORS We have audited the accompanying consolidated statements of condition of Wilmington Trust Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wilmington Trust Corporation and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Philadelphia, Pennsylvania January 23, 1998 51 WILMINGTON TRUST CORPORATION MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of Wilmington Trust Corporation is responsible for the financial statements and the other financial information included in this Annual Report. The financial statements have been prepared in accordance with generally accepted accounting principles and include amounts based upon management's best judgment where necessary. Management maintains a system of internal controls and procedures designed to provide reasonable assurance as to the integrity and reliability of financial records and the protection of assets. The system of internal control is continually reviewed for its effectiveness and is revised, when appropriate, due to changing circumstances and requirements. Independent auditors are appointed by the Board of Directors and ratified by the Corporation's stockholders to audit the financial statements in accordance with generally accepted auditing standards and to independently assess the fair presentation of the Corporation's financial position, results of operations and cash flows. Their report appears in this Annual Report. The Audit Committee of the Board of Directors, composed exclusively of outside directors, is responsible for reviewing and monitoring the Corporation's accounting and reporting practices. The Audit Committee meets periodically with management, internal auditors and the independent auditors to discuss specific accounting, financial reporting and internal control matters. Both the internal auditors and the independent auditors have direct access to the Audit Committee. /s/ Ted T. Cecala /s/ Robert V. A. Harra, Jr. /s/ David R. Gibson Ted T. Cecala Robert V. A. Harra, Jr. David R. Gibson Chairman and President and Chief Senior Vice President Chief Executive Officer Operating Officer and Chief Financial Officer 52 WILMINGTON TRUST CORPORATION
BOARD OF DIRECTORS Robert H. Bolling, Jr.** Andrew B. Kirkpatrick, Jr. Retired Consulting Electrical Engineer Attorney, Counsel, Law Firm of Morris, Nichols, Arsht and Tunnell Carolyn S. Burger Principal, CB Associates, Inc.; Rex L. Mears Director, BetzDearborn Inc. President, Ray L. Mears and Sons, Inc. Ted T. Cecala Walter D. Mertz* Chairman and Chief Executive Officer Retired Senior Vice President Richard R. Collins Hugh E. Miller Retired President and Retired Vice Chairman, Chief Operating Officer, ICI Americas Incorporated; American Life Insurance Company Director, MGI PHARMA, Inc. Charles S. Crompton, Jr. Stacey J. Mobley Attorney, Partner, Senior Vice President, Communications, Law Firm of Potter, Anderson and Corroon E. I. du Pont de Nemours and Company H. Stewart Dunn, Jr. G. Burton Pearson, Jr.* Attorney, Partner, Retired Senior Vice President Law Firm of Ivins, Phillips and Barker Leonard W. Quill Edward B. du Pont Retired Chairman of the Board Private Investor; Director, E. I. du Pont de Nemours and Company David P. Roselle President, University of Delaware R. Keith Elliott Director, Chairman, President and Chief H. Rodney Sharp, III*** Executive Officer, Hercules Retired Manager, E. I. du Pont de Nemours Incorporated; Director, PECO Energy and Company; Director, E. I. du Pont de Nemours and Company Endsley P. Fairman* Retired Senior Vice President Thomas P. Sweeney Attorney, Member, Robert C. Forney Law Firm of Richards, Layton and Finger, P.A. Retired Executive Vice President and Director, E. I. du Pont de Nemours and Company; Bernard J. Taylor, II** Director, UGI, Inc.; Retired Chairman of the Board Director, Amerigas Propane, Inc. Mary Jornlin Theisen Robert V. A. Harra, Jr. Former New Castle County Executive President, Chief Operating Officer and Treasurer Robert W. Tunnell, Jr. Managing Partner, Tunnell Companies, L.P.
*Associate Director **Retiring from the Board on 5/21/1998 ***Elected to the Board on 1/15/1998 53 WILMINGTON TRUST CORPORATION OFFICERS Ted T. Cecala David R. Gibson Chairman and Senior Vice President Chief Executive Officer and Chief Financial Officer Robert V. A. Harra, Jr. Thomas P. Collins President, Chief Operating Officer Vice President, Legal, and Secretary and Treasurer Ronald K. Pendleton Auditor - -------------------------------------------------------------------------------- STANDING COMMITTEES EXECUTIVE COMMITTEE TRUST COMMITTEE Ted T. Cecala, Chairman (Wilmington Trust Company) Carolyn S. Burger Robert V. A. Harra, Jr., Chairman Robert C. Forney George W. Helme, IV, Vice Chairman Robert V. A. Harra, Jr. Robert H. Bolling, Jr. Hugh E. Miller Robert J. Christian Thomas P. Sweeney Howard K. Cohen H. Stewart Dunn, Jr. AUDIT COMMITTEE Edward B. du Pont Charles S. Crompton, Jr., Chairman Endsley P. Fairman Richard R. Collins Walter D. Mertz David P. Roselle G. Burton Pearson, Jr. Mary Jornlin Theisen Robert W. Tunnell, Jr. COMPENSATION COMMITTEE Robert C. Forney, Chairman Richard R. Collins Charles S. Crompton, Jr. Hugh E. Miller Stacey J. Mobley - -------------------------------------------------------------------------------- OPERATING SUBSIDIARIES WILMINGTON TRUST COMPANY Brandywine Finance Corporation Brandywine Insurance Agency, Inc. Brandywine Life Insurance Company, Inc. Delaware Corporate Management, Inc. Rodney Square Distributors, Inc. Rodney Square Management Corporation Wilmington Brokerage Services Company W. T. Investments, Inc. WTC Corporate Services, Inc. WILMINGTON TRUST OF PENNSYLVANIA WILMINGTON TRUST FSB 54 WILMINGTON TRUST COMPANY PRINCIPAL OFFICERS Ted. T. Cecala Joseph M. Jacobs, Jr. Chairman and Senior Vice President, Chief Executive Officer Administration Robert V. A. Harra, Jr. John H. Kipp President, Chief Operating Officer Senior Vice President, and Treasurer Information Technology Robert J. Christian Hugh D. Leahy, Jr. Senior Vice President, Asset Management Senior Vice President, Personal Banking Howard K. Cohen Senior Vice President, Robert A. Matarese Corporate Financial Services Senior Vice President, Commercial Banking William J. Farrell, II Senior Vice President, Rita C. Turner Trust Operations and Systems Development Senior Vice President, Marketing David R. Gibson Senior Vice President, Finance, Thomas P. Collins and Chief Financial Officer Vice President, Legal, and Secretary George W. Helme, IV Senior Vice President, Ronald K. Pendleton Personal Trust and Private Banking Auditor
DELAWARE ADVISORY BOARD John E. Burris, Chairman Robert H. George John M. Short John L. Allen, Sr. Jackie Hickman Charles P. Spicer Joseph R. Bateman John Janosik J. Edward Taylor Leland Berry John W. Jardine, Jr. Harry K. F. Terry Alfred G. Best Claude E. Lester Robert L. Thompson A. Dean Betts T. William Lingo W. Pierce Thompson W. Cecil Carpenter Ernest E. Megee, Jr. Ebe Stephen Townsend, Jr. Crawford J. Carroll Marion W. Moore Robert W. Tunnell W. Pierce Ellis R. Byron Palmer William W. Vanderwende Robert N. Emory William J. Paskey, Jr. James C. White Ralph G. Faries, Jr. R. James Quillen, Jr. John E. Willey, Jr. James A. Flood, Sr. William C. Robertson, Jr. W. Robert Williams R. Clay Foltz
55 WILMINGTON TRUST OF PENNSYLVANIA BOARD OF DIRECTORS Ted T. Cecala, Chairman Robert V.A. Harra, Jr. Gerard A. Chamberlain Hugh E. Miller Robert C. Forney Leonard W. Quill PRINCIPAL OFFICERS Ted T. Cecala Robert A. Matarese Chairman Senior Vice President Robert V.A. Harra, Jr. Gerard A. Chamberlain President Secretary George W. Helme, IV Martin B. McDonough, Jr. Senior Vice President Treasurer Hugh D. Leahy, Jr. Ronald K. Pendleton Senior Vice President Auditor WILMINGTON TRUST FSB BOARD OF DIRECTORS George W. Helme, IV, Chairman Robert V.A. Harra, Jr. Michael K. Bloxham Bernard B. Isaacson Werner C. Brown Hugh D. Leahy, Jr. Ted T. Cecala Curtis L. Lyman Thomas P. Collins Walter F. Williams Edward B. du Pont Thomas L. du Pont PRINCIPAL OFFICERS George W. Helme, IV Hugh D. Leahy, Jr. Chairman and Chief Executive Officer Senior Vice President and Treasurer Michael K. Bloxham Robert A. Matarese President, Maryland Senior Vice President Curtis L. Lyman Thomas P. Collins President, Florida Vice President and Secretary David R. Gibson Ronald K. Pendleton Senior Vice President, Finance, Auditor and Chief Financial Officer 56 WILMINGTON TRUST CORPORATION
STOCKHOLDER INFORMATION CORPORATE HEADQUARTERS DIVIDEND REINVESTMENT AND VOLUNTARY STOCK PURCHASE PLAN Wilmington Trust Center The Corporation offers a plan under which par- Rodney Square North ticipating stockholders can purchase additional 1100 North Market Street shares of the Corporation's common stock Wilmington, DE 19890-0001 through automatic reinvestment of their regular (302) 651-1000 quarterly cash dividends and/or voluntary cash (800) 441-7120 payments. All commissions and fees connected with the purchase and safekeeping of the shares COMMON STOCK are paid by the Corporation. For details of the plan, contact the stock transfer agent. Wilmington Trust Corporation common stock is traded under the symbol WILM and is listed DUPLICATE MAILINGS on the Nasdaq National Market System. You may receive more than one copy of the DIVIDENDS Annual Report due to multiple accounts within your household. The Corporation is required Dividends usually are declared in the first month to mail an Annual Report to each name on our of each quarter to stockholders of record as of the stockholder list unless the stockholder requests first business day in February, May, August and that duplicate mailings be eliminated. To elimi- November. Dividend payment dates usually are nate duplicate mailings, please send a written two weeks later. Wilmington Trust has paid cash request to the stock transfer agent. dividends on its common stock since 1914. ANNUAL MEETING STOCK TRANSFER AGENT, DIVIDEND REINVESTMENT AGENT AND REGISTRAR OF STOCK The annual meeting of the Corporation's stock- holders will be held in the Wilmington Trust Plaza, Inquiries relating to stockholder records, stock 301 West 11th Street, Wilmington, Delaware, at transfers, changes of ownership, changes of 11:00 a.m. on Thursday, May 21, 1998. address, duplicate mailings, dividend payments and the dividend reinvestment plan should be INFORMATION REQUESTS directed to the stock transfer agent: Analysts, investors, news media representatives NORWEST BANK MINNESOTA, N.A. and others seeking financial information, includ- SHAREOWNER SERVICES ing requests for the Annual Report on Form 10-K filed with the Securities and Exchange Telephone: Commission, should contact Charles W. King, (800) 999-9867 Vice President, (302) 651-8069.
Mailing Address: P.O. Box 64854 St. Paul, MN 55164-0854 Street Address: 161 North Concord Exchange South St. Paul, MN 55075 This annual report was designed by Reese, Tomases & Ellick, Inc. and printed by Cedar Tree Press. Photography by Ed Eckstein. Pages 13 through 56 were printed on recycled paper utilizing 50% recycled fibers and 20% post-consumer waste. 57 EX-21 4 SUBSIDIARIES OF WILMINGTON TRUST CORPORATION 1 EXHIBIT 21 Wilmington Trust Corporation has only three direct subsidiaries, Wilmington Trust Company, a Delaware-chartered bank and trust company, Wilmington Trust of Pennsylvania, a Pennsylvania-chartered bank and trust company, and Wilmington Trust FSB, a Federally-chartered savings bank headquartered in Maryland. Wilmington Trust Company has the following subsidiaries. Name Jurisdiction ---- ------------ 1. Brandywine Insurance Agency, Inc. Delaware 2. Brandywine Finance Corporation Delaware 3. Brandywine Life Insurance Company, Inc. Delaware 4. Compton Realty Corporation Delaware 5. Drew-I, Ltd. Delaware 6. Drew-VIII, Ltd. Delaware 7. Delaware Corporate Management, Inc. Delaware 8. 100 West Tenth Street Corporation Delaware 9. Rockland Corporation Delaware 10. Rodney Square Distributors, Inc. Delaware 11. Rodney Square Management Corporation Delaware 12. Siobain VI, Ltd. Delaware 13. WTC Corporate Services, Inc. Delaware 14. WT Investments, Inc. Delaware 15. Wilmington Brokerage Services Company Delaware EX-23 5 CONSENT OF INDEPENDENT AUDITOR 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITOR We consent to the incorporation by reference in this Annual Report (Form 10-K) of Wilmington Trust Corporation of our report dated January 23, 1998, included in the 1997 Annual Report to Shareholders of Wilmington Trust Corporation. Philadelphia, Pennsylvania March 27, 1998 EX-27.1 6 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 MAR-31-1996 204,362 0 107,000 0 895,811 538,932 536,221 3,508,547 50,524 5,423,335 3,594,871 1,235,002 112,157 28,000 0 0 39,013 414,292 5,423,335 77,958 20,419 386 98,763 31,517 47,528 51,235 3,500 (3) 46,109 34,056 23,019 0 0 23,019 0.66 0.65 4.36 27,531 19,673 0 16,740 49,867 3,557 714 50,524 50,524 0 0
EX-27.2 7 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JUN-30-1996 204,696 0 59,000 0 876,556 497,828 489,457 3,596,032 51,423 5,387,076 3,529,688 1,288,474 93,361 28,000 0 0 39,107 408,446 5,387,076 156,237 41,055 633 197,925 61,432 94,226 103,699 7,000 (13) 93,428 69,777 47,136 0 0 47,136 1.36 1.34 4.39 26,131 22,787 1,317 15,902 49,867 6,944 1,500 51,423 51,423 0 0
EX-27.3 8 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 SEP-30-1996 209,779 0 52,500 0 812,243 491,405 487,768 3,719,241 52,506 5,430,700 3,564,960 1,279,610 101,130 28,000 0 0 39,107 417,893 5,430,700 237,015 61,311 1,041 299,367 90,830 141,348 158,019 11,000 506 140,741 106,756 71,998 0 0 71,998 2.09 2.06 4.42 38,056 23,585 1,305 11,989 49,867 10,475 2,114 52,506 52,506 0 0
EX-27.4 9 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CORPORATION'S FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 DEC-31-1996 231,233 0 134,190 0 798,519 467,632 466,763 3,771,484 54,361 5,564,409 3,913,698 1,036,543 106,451 43,000 0 0 39,107 425,610 5,564,409 320,499 80,876 1,475 402,850 121,955 188,629 214,221 16,000 1,188 192,339 144,119 97,278 0 0 97,278 2.83 2.79 4.51 39,520 20,440 1,215 11,997 49,867 14,655 3,149 54,361 54,361 0 0
EX-27.5 10 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 MAR-31-1997 190,294 0 71,900 0 811,589 447,602 441,993 3,826,583 55,375 5,515,399 3,774,603 1,129,675 100,834 43,000 0 0 39,107 428,180 5,515,399 82,107 19,195 343 101,645 30,945 45,987 55,658 4,500 1 49,698 37,017 24,921 0 0 24,921 0.74 0.72 4.57 36,622 18,720 1,189 10,958 54,361 4,257 771 55,375 55,375 0 0
EX-27.6 11 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-30-1997 215,303 0 111,100 0 947,543 405,180 404,368 3,976,193 58,107 5,809,941 3,972,043 1,215,249 96,876 43,000 0 0 39,192 443,581 5,809,941 167,999 39,067 712 207,778 62,657 95,114 112,664 9,500 12 100,500 76,042 51,205 0 0 51,205 1.52 1.49 4.53 37,361 20,117 846 12,442 54,361 7,388 1,634 58,107 58,107 0 0
EX-27.7 12 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN IT ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 SEP-30-1997 215,567 0 51,500 0 1,086,443 366,208 366,913 4,022,589 60,008 5,906,492 4,130,767 1,140,008 95,562 43,000 0 0 39,192 457,963 5,906,492 255,182 61,661 961 317,804 97,681 147,350 170,454 14,500 13 153,023 116,557 78,468 0 0 78,468 2.33 2.28 4.47 39,483 15,183 0 7,917 54,361 11,778 2,925 60,008 60,008 0 0
EX-27.8 13 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CORPORATION'S FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 DEC-31-1997 239,392 0 50,000 0 1,316,403 333,007 333,812 3,993,935 63,805 6,122,351 4,169,030 1,307,577 99,737 43,000 0 0 39,192 463,815 6,122,351 342,831 86,528 1,280 430,639 134,176 200,623 230,016 21,500 27 207,671 158,387 106,044 0 0 106,044 3.15 3.08 4.49 28,669 15,523 0 7,587 54,361 16,187 4,131 63,805 54,795 0 9,010
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