EX-13 5 w58507ex13.txt ANNUAL REPORT TO SHAREHOLDERS FOR 2001 ANNUAL REPORT TO SHAREHOLDERS FOR 2001 EXHIBIT 13 WILMINGTON TRUST ANNUAL REPORT 2001 [WILMINGTON TRUST LOGO] 2001 ANNUAL REPORT [CASCADING FILIGREE LINE GRAPHIC] Founded in 1903 as an asset management firm, Wilmington Trust has evolved into one of the largest and most reputable wealth management firms in the United States. We provide financial planning, investment management, specialty trust, lending, and banking services to individuals, families, privately held businesses, and large corporations and institutions throughout the U.S. and in 50 other countries. [CASCADING FILIGREE LINE GRAPHIC.] YEAR IN BRIEF
For the years ended December 31 INCREASE (in millions, except per share amounts) 2001 2000 (DECREASE) ------------------------------------------------------------------------------------- Net interest income $ 258.8 $ 255.1 1.4% Provision for loan losses 19.8 21.9 (9.4) Other income 228.0 216.2 5.5 Net interest and other income 467.0 449.4 3.9 Other expense 276.9 264.7 4.6 Income before income taxes and cumulative effect of change in accounting principle 190.1 184.7 2.9 Applicable income taxes 66.0 63.8 3.4 Income before cumulative effect of change in accounting principle 124.1 120.9 2.6 Cumulative effect of change in accounting principle (net of income taxes of $584) 1.1 -- -- ------------------------ NET INCOME 125.2 120.9 3.5 Per Share* ------------------------------------------------------------------------------------- Net income per share - basic: Income before cumulative effect of change in accounting principle $ 3.81 $ 3.74 1.9% Cumulative effect of change in accounting principle 0.03 -- -- ------------------------ NET INCOME PER SHARE - BASIC 3.84 3.74 2.7 Net income per share - diluted: Income before cumulative effect of change in accounting principle 3.77 3.70 1.9 Cumulative effect of change in accounting principle 0.03 -- -- ------------------------ NET INCOME PER SHARE - DILUTED 3.80 3.70 2.7 Dividends paid 1.89 1.77 6.8 Book value at December 31 20.87 18.27 14.2 ------------------------------------------------------------------------------------- Regional banking assets $ 7,518.5 $ 7,321.6 2.7% Loans 5,488.0 5,188.4 5.8 Reserve for loan losses 80.8 76.7 5.3 Investment securities 1,281.3 1,460.8 (12.3) Deposits 5,590.8 5,286.0 5.8 Stockholders' equity 682.5 591.9 15.3 -------------------------------------------------------------------------------------- Assets under management: Wilmington Trust Company $ 24,594.2 $ 27,994.4 (12.1)% Roxbury Capital Management 7,700.0 11,300.0 (31.9) Cramer Rosenthal McGlynn 4,640.0 3,380.0 37.3
* 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 acquisition in 1992 of The Sussex Trust Company under the pooling of interest method. WILMINGTON TRUST ANNUAL REPORT 2001 [CASCADING FILIGREE LINE GRAPHIC.] [PHOTO OF TED T. CECALA, CHAIRMAN AND CHIEF EXECUTIVE OFFICER.] TO OUR STOCKHOLDERS: Wilmington Trust's performance in 2001 was impressive on a number of fronts. Both net income and earnings per share reached record levels. Revenue from our advisory businesses was higher than ever. We continued to see strong new business development in all three of our core businesses. Credit quality remained stable. These achievements occurred during a year in which the value of most investment securities declined, economic uncertainties mounted, and the Federal Reserve System--moving 11 times in 12 months--reduced short-term interest rates a total of 475 basis points. These challenges gave us the opportunity to demonstrate our ability to deliver consistent profitability with low volatility. Net income rose 3.5% to $125.2 million. Earnings per share, on a diluted basis, were $3.80. The percentage of operating revenue generated by our advisory businesses continued to increase, reaching 48%. Loan balances, on average, reached $5.2 billion. Our reserve for loan losses held steady. Our provision for loan losses, our net charge-offs, and nonperforming loans all declined. We kept expenses in check even as we invested in new markets and expanded in others. Despite tumbling interest rates, net interest income held steady and our net interest margin improved 10 basis points from last year. Income from our advisory businesses increased more than 7% to $185.0 million, despite the market volatility that affected fee revenue and assets under management. Combined assets under management at Wilmington Trust, Roxbury Capital Management, and Cramer Rosenthal McGlynn amounted to $36.9 billion. The impact of market conditions on our performance was offset by the strength of our efforts to develop new business during the year. In addition to offering more services to existing clients, we continued to grow by entering new markets and adding more services. We opened a second office in California, entered New Jersey, and enlarged our offices in Philadelphia and Las Vegas. Perhaps the most exciting venture we undertook in 2001 was to make a significant investment in Atlanta-based Balentine & Company, one of the most prominent high-net-worth investment counseling firms in the Southeast. This advances our capacity to provide clients with the broadest scope of investment management alternatives, and it gives us access to one of the fastest-growing and wealthiest markets in the United States. We have opened a trust office adjacent to Balentine's headquarters and named the firm's principal, Robert M. Balentine, president of Wilmington Trust in Georgia. One measure of performance about which we are especially proud is our 20-year track record of paying increased dividends. In 2001 we raised our dividend nearly 7% to $1.89 per share. Our return on average assets for 2001 was 1.73% and our return on equity was 19.53%. Over the course of the last 10 years, we have invested in three affiliates, opened 14 new offices in eight states, and established a presence in two offshore jurisdictions and London. During that time, our operating revenues have nearly doubled--but the size of our staff has stayed nearly the same. Today we have 2,316 staff members, only 103 more than we had in 1991. 2 WILMINGTON TRUST ANNUAL REPORT 2001 OUR BUSINESS MIX PROVIDES A DIVERSIFIED REVENUE STREAM THAT ENABLES US TO DELIVER CONSISTENT PROFITABILITY WITH LOW VOLATILITY. Our ability to achieve this level of efficiency is the result of our careful attention to expense management; increased use of Internet-based offerings; improvements to telephone and ATM services; and better use of management information systems. In addition, over the last several years, we have outsourced several noncore services. This has enabled us to devote our full focus to growing our three core businesses: regional banking, corporate financial services, and private client advisory services. REGIONAL BANKING BENEFITS FROM DIVERSIFIED ECONOMY Our banking business is focused on the Delaware Valley region, which includes southeastern Pennsylvania, the state of Delaware, and Maryland's Eastern Shore. We are the leading financial institution in Delaware and we are gaining market share in the five counties surrounding the Philadelphia metropolitan area. This region's economy was relatively healthy in 2001. The area benefits from a range of industries, which includes the chemical, life sciences, financial services, manufacturing, agriculture, tourism, and government sectors. Unemployment in Delaware is among the lowest in the U.S. These factors helped mitigate the impact of economic uncertainty. Loan balances, on average, were up 4% to $5.2 billion. Approximately half the growth in our loan portfolio was from Pennsylvania, where our relationship management focus continued to be well-received. In our commercial banking business, our target clients are owners of privately held businesses with $5 million to $250 million in sales. We look for opportunities where we can establish deep relationships and provide a combination of commercial credit, retirement and succession planning, and investment management services. To that end, our lenders and private client advisors call on clients in teams. [BAR GRAPH OF DILUTED EARNINGS PER SHARE FOR EACH YEAR FROM 1991 TO 2001, WITH THE FOLLOWING PLOT POINTS: 1991 - $1.89 1992 - $1.68 AFTER CHANGE IN ACCOUNTING PRINCIPLE 1992A - $2.06 BEFORE CHANGE IN ACCOUNTING PRINCIPLE 1993 - $2.21 1994 - $2.35 1995 - $2.53 1996 - $2.79 1997 - $3.08 1998 - $3.34 1999 - $3.21 AFTER ONE-TIME CHARGE 1999a - $3.47 BEFORE ONE-TIME CHARGE 2000 - $3.70 2001 - $3.77 BEFORE CHANGE IN ACCOUNTING PRINCIPLE 2001A - $3.80 AFTER CHANGE IN ACCOUNTING PRINCIPLE.]
[BAR GRAPH OF DIVIDENDS PER SHARE PAID FOR EACH YEAR FROM 1991 TO 2001, WITH THE FOLLOWING PLOT POINTS: 1991 - $0.80 1992 - $0.88 1993 - $0.98 1994 - $1.06 1995 - $1.17 1996 - $1.29 1997 - $1.41 1998 - $1.53 1999 - $1.65 2000 - $1.77 2001 - $1.89.]
3 FROM TRUST COMPANY TO FULL SERVICE ADVISOR By entering new markets and expanding in others--California, Florida, Georgia, New Jersey, New York, and Pennsylvania--we have established a presence in the wealthiest and fastest-growing regions in the U.S. By opening offices in Nevada, London, the Cayman Islands, and the Channel Islands, we have made the most favorable jurisdictions in the world available to our clients. By affiliating with Cramer Rosenthal McGlynn, Roxbury Capital Management, and Balentine & Company, we have entered new markets with a circle of influence already in place--and extended our investment offerings across a broad range of products, classes, and styles. Through this measured, deliberate approach to growth, we are combining our expertise with marketplace opportunities in order to build our business with current and prospective clients. 1903 1930 1940 1950 1960 1970 1980 1990 2000
REGIONAL BANKING Our banking business grows along with Delaware's economy. New products and delivery channels like ATMs and telephone banking are introduced. Our statewide expansion and focus on commercial banking establish us as the leading financial institution in Delaware. We extend commercial banking services into Maryland and Pennsylvania. Online banking and Internet-based services alter the way routine banking services are performed and provided, and we transform traditional branches into sales centers. CORPORATE FINANCIAL SERVICES Expertise in the nuances of Delaware law builds our corporate trust business. Prominence gained from our role as collateral agent for Chrysler leads to demand for capital markets trustee services, and ERISA mandates the use of a corporate trustee. The use of asset-backed securitizations and other sophisticated financing structures gains popularity and increases demand for trust services. Nevada's favorable tax and legal environment prompts us to open an office there - and follow with offices in other favorable jurisdictions. Advent of the euro creates more international opportunities. PRIVATE CLIENT ADVISORY SERVICES Our ability to leverage Delaware's reputation as the premier jurisdiction for trusts gains momentum with direction trusts in the 1930s. Delaware adopts the prudent investor rule, and a growing client base outside the state prompts expansion into Florida. With clients in all 50 states, we establish a presence in the most attractive wealth management markets and open offices in New York, California, and Pennsylvania. Delaware law permits asset protection trusts. By affiliating with specialist managers, we add a full array of products, asset classes, and styles to our investment offerings and gain entry into new markets. Our acquisition of Balentine & Company adds a "manager of managers" capability and facilitates our entrance into Atlanta and the surrounding region. Delaware enacts a total return unitrust statute. We enter New Jersey. REGIONAL BANKING Cash management Commercial lending Capital markets access Interest rate hedging Business succession planning Investment and insurance products Brokerage CORPORATE FINANCIAL SERVICES Capital markets and structured financing trusts Trustee services for corporate restructurings and bankruptcies Special purpose vehicles in domestic and offshore tax-advantaged jurisdictions Nexus services for holding companies Retirement plan trustee and custody services Fiduciary services PRIVATE CLIENT ADVISORY SERVICES Investment management Equity and fixed income investing International equities and private placements Estate, retirement, and succession planning Risk and insurance planning Personal trust services Estate settlement Credit services 4 WILMINGTON TRUST ANNUAL REPORT 2001 OUR RESULTS DEMONSTRATE HOW WELL WE ARE ADDING AND GROWING CLIENT RELATIONSHIPS, ESPECIALLY WHEN COMPARED TO THE DECLINES ALL MAJOR MARKET INDICES EXPERIENCED. The commercial loan portfolio rose nearly 6% to $3.0 billion, on average. At $2.2 billion, on average, the level of consumer loans held steady. The composition of the portfolio remained well-diversified across commercial and consumer lines, and the weighting of various sectors was relatively unchanged. Our rigorous underwriting standards manifest themselves in the quality of our credit portfolio. Net charge-offs, as a percentage of average loans outstanding, have been below 50 basis points since 1990 and stood at 30 basis points at year-end 2001. At 1.47%, our loan loss reserve was 1 basis point lower than last year's. Our retail banking business is concentrated in Delaware, where we are repositioning traditional branches as sales centers. The number of branch staff licensed to sell investment products has grown from 11 in 1998 to 100 in 2001. All of our branch managers, and 80% of our branch sales staff, are now able to sell mutual funds, annuities, life insurance plans, Section 529 college savings plans, and other investment services. More clients are using our online services and ATMs that perform a wide variety of functions to conduct routine banking transactions. Our commercial online banking product went fully live in 2001. Our Web site traffic was 27% higher than in 2000, and enrollment in our online services was 50% higher. With more clients taking advantage of technology-based options, we have witnessed a 20% drop in teller transactions from 1998 to 2001. CORPORATE FINANCIAL SERVICES POSTS RECORD YEAR--AGAIN Over the past five years, our corporate financial services business has grown at a compound annual rate of 13.4%. This trend continued in 2001, as revenue reached a record $58.4 million, 13.5% higher than in 2000. What drives the demand for these niche services is the need for complex financing structures that require a trustee. Our clients, who comprise attorneys, accountants, investment bankers, and most of the companies listed on the Fortune 100, choose us as their trustee because of our reputation as a superior provider of specialized trust, fiduciary, and administrative services in the most favorable legal jurisdictions in the world. Furthermore, as consolidation continues in our industry, we are among a decreasing number of trust providers that remain free from lending or underwriting conflicts of interest. Due to its legal and tax advantages, Delaware has long been regarded as the jurisdiction of choice in the U.S. for corporate matters. Delaware's advantage is enhanced by its unique Chancery Court system, in which judges, not juries, render decisions. Other attractive jurisdictions in which we have expertise and offices are Nevada, the Cayman Islands, and the Channel Islands. We also have corporate financial services experts based in New York, California, and London. 5 [BAR GRAPH OF OPERATING REVENUES (NET INTEREST AND OTHER INCOME EXCLUSIVE OF AFFILIATE MANAGER GOODWILL AMORTIZATION AND SECURITIES GAINS AND LOSSES) FOR EACH YEAR FROM 1991 TO 2001, WITH THE FOLLOWING PLOT POINTS, IN MILLIONS, AND VERSUS FULL-TIME EQUIVALENT STAFF MEMBERS: 1991 - $255 1992 - $273 1993 - $288 1994 - $300 1995 - $323 1996 - $351 1997 - $388 1998 - $418 1999 - $442 2000 - $479 2001 - $493]
FULL-TIME EQUIVALENT STAFF MEMBERS: 1991 - 2,213 1992 - 2,188 1993 - 2,254 1994 - 2,303 1995 - 2,332 1996 - 2,418 1997 - 2,428 1998 - 2,442 1999 - 2,434 2000 - 2,299 2001 - 2,316.]
[BAR GRAPH OF TOTAL FEES FOR EACH YEAR FROM 1991 TO 2001, WITH THE FOLLOWING PLOT POINTS, IN MILLIONS: PRIVATE CLIENT ADVISORY SERVICES FEES 1991 - $51.0 1992 - $54.5 1993 - $55.6 1994 - $58.0 1995 - $62.2 1996 - $67.0 1997 - $78.6 1998 - $83.1 1999 - $93.9 2000 - $99.7 2001 - $106.1
CORPORATE FINANCIAL SERVICES FEES 1991 - $21.6 1992 - $22.5 1993 - $22.7 1994 - $24.5 1995 - $25.8 1996 - $31.2 1997 - $35.9 1998 - $41.9 1999 - $44.6 2000 - $51.5 2001 - $58.4
AFFILIATE MANAGER FEES 1991 - $ 0.0 1992 - $ 0.0 1993 - $ 0.0 1994 - $ 0.0 1995 - $ 0.0 1996 - $ 0.0 1997 - $ 0.0 1998 - $ 7.4 1999 - $16.1 2000 - $21.3 2001 - $20.5
OTHER FEES 1991 - $29.1 1992 - $31.1 1993 - $35.1 1994 - $32.7 1995 - $37.4 1996 - $38.8 1997 - $43.0 1998 - $48.4 1999 - $41.8 2000 - $51.6 2001 - $49.7
TOTAL OPERATING REVENUES 1991 - $101.7 1992 - $108.1 1993 - $113.4 1994 - $115.2 1995 - $125.4 1996 - $137.0 1997 - $157.5 1998 - $180.8 1999 - $196.4 2000 - $224.1 2001 - $234.7
BAR GRAPH OF TOTAL FEES AS A PERCENTAGE OF OPERATING REVENUES FOR EACH YEAR FROM 1991 TO 2001, WITH THE FOLLOWING PLOT POINTS: 1991 - 39.96% 1992 - 39.53% 1993 - 39.34% 1994 - 38.47% 1995 - 38.85% 1996 - 39.02% 1997 - 40.64% 1998 - 43.20% 1999 - 44.40% 2000 - 46.76% 2001 - 47.56%.]
This business comprises three components: capital markets trust services, services for holding companies and special purpose entities, and trust services for employee benefit plans. In 2001, capital markets services was the strongest component of this business, generating fee revenue that was 35% higher than in 2000. In this component, we serve as the owner trustee or indenture trustee for a wide variety of financing structures, including large equipment leasing transactions, asset-backed securitizations, and corporate bankruptcies and restructurings. Interest in these services is growing in Europe, where the advent of the euro should spark new demand for asset-backed securitizations. For investment holding companies and special purpose entities, we perform administrative and accounting services and provide dedicated office space and staff that typically are required in the jurisdiction in which the entity is domiciled. This component posted a 17% increase in fees over 2000. In the corporate retirement services component, we serve as trustee and custodian for qualified and nonqualified plans. We have established and customized a direct electronic link with the National Securities Clearing Corporation (NSCC), the primary clearing agent for mutual funds. The volume of transactions we process through the NSCC qualifies us as one of the largest trust company users of that system. Most of the revenue from our corporate financial services business is generated on a fee-for-service basis and comes from contracts that span multiyear periods, which provides an annuity-like revenue stream. Only about 25% of the fees in this business are tied to valuations of the assets held in trust. GROWTH IN PRIVATE CLIENT ADVISORY SERVICES IS MASKED BY MARKET DECLINES The vast majority--close to 70%--of our private client advisory fees are tied to market valuations. The fact that this business reached record-high revenue of $106.1 million in 2001 demonstrates how well we are adding and growing client relationships, especially when compared to the significant declines experienced by all major market indices during the year. Private client advisory fees rose more than 6% against a 21% drop in the Nasdaq Composite Index, a 12% decrease in the Standard & Poor's 500 Index, and a 5% deterioration in the Dow Jones Industrial Average. Absent these market conditions, our performance in this business would have been considerably stronger and the impact of new business development would have been much more apparent. Sales in New York were almost double the 2000 level, and sales in California were three times higher than in 2000. When we opened our Orange County, California, office in June, we hit the ground running, with key staff in place and a full pipeline of business. New business development also was solid in Florida, where we appointed a new president, and in Pennsylvania, where demand led us to add staff and office space. This success demonstrates our capacity to attract new clients as well as to provide more services for those with whom we already have relationships, as we continue to leverage the investments we have made over the last few years in new markets and services that strengthen our advisory capabilities. For example, we have broadened the range of asset styles and classes in which our clients may invest, which helps them achieve diversification and optimize performance. Our 1998 affiliations with 6 WILMINGTON TRUST ANNUAL REPORT 2001 Cramer Rosenthal McGlynn and Roxbury Capital Management added value and growth styles, respectively, to our internal core equity and fixed income offerings. This past year, we added a wider variety of private equity and hedge fund capabilities. OUR ACQUISITION OF BALENTINE & COMPANY ADVANCES OUR CAPACITY TO PROVIDE THE BROADEST SCOPE OF INVESTMENT MANAGEMENT ALTERNATIVES. Our acquisition of Balentine & Company is the latest extension of our continuum of investment capabilities. Now we are able to offer a "manager of managers" program, in which Balentine experts customize clients' accounts by utilizing a cadre of independent money managers. We also added a new trust product in 2001. The state of Delaware, long the vanguard of favorable trust law, broke ground again last year when it became the first state in the U.S. to enact a new trust statute that provides for the conversion of existing irrevocable trusts into total return unitrusts. This type of trust can be structured to accommodate conflicting priorities that sometimes emerge between current and future income beneficiaries. It allows the mix of equity and fixed income investments to be adjusted to more aggressively grow the trust's principal for future recipients, while not interfering with current beneficiaries' needs for income. We were among the first financial institutions to offer this new service, which previous trust law did not permit. NEW DIRECTORS JOIN OUR BOARD In December we elected two new directors: Betsy S. Atkins and Deborah I. Fine. Their election adds sales, marketing, and management expertise to our Board and broadens its geographic representation. A resident of Miami, Florida, Betsy has more than 20 years of management experience and is widely published on the subject of corporate board governance. She is chief executive officer of Accordiant Ventures, a venture fund with approximately $200 million invested in the technology and life sciences sectors. She is also a director of Lucent Technologies and Polycom Inc., and a trustee of Florida International University. She was appointed recently by President George W. Bush to the Pension Benefit Guaranty Corporation Advisory Committee. Deborah is a member of the Avon Products, Inc. Executive Council and president of Avon's Teen Business, where she is responsible for defining, developing, and leading Avon's entry into the global teenage market. Before joining Avon, Debi held senior positions at Conde Nast Publications, Inc., most recently as vice president and publisher of Glamour magazine. A resident of the Princeton, New Jersey, area, Debi is an executive director of Cosmetic Executive Women. Advertising Age named her a "Woman to Watch" and she recently was appointed to the People magazine Digital Heroes Campaign. 7 As we welcome Betsy and Debi, we bid a fond farewell to H. Stewart Dunn Jr., who retired from our Board in May 2001. We benefited greatly from Stewart's perspective as partner in a prominent Washington, D.C., law firm and his vast knowledge of trust law. During his tenure, which began in 1988, Stewart served on our trust and nominating and corporate governance committees, and was a rotating member of the executive committee. We note with gratitude his many contributions. ABOVE ALL, WE ARE A PEOPLE BUSINESS As a relationship management company, nothing is more important than the people who support our business. Without our staff, there can be no client relationships. I believe we have the very best staff in the business. They demonstrated their concern for clients, always the priority, in an especially powerful way in the aftermath of September 11. To assist clients and make sure they had access to their money, our banking staff kept branches open, even as most other businesses closed, and our call center stayed open until 11:00 p.m. that night. Our advisory staff contacted each of their clients within 24 hours of the incident to answer questions. Our investment experts outlined strategies to address potential market reaction in conference calls on the day after the attack, the Friday of that week, and again the following Monday, when the markets reopened. I continue to receive compliments on how our staff handled that most difficult of times. Fortunately, none of our staff were harmed in the attack, but many of our colleagues and clients' families were. We grieve for their loss and stand ready to help in any way we can. As we look ahead, we note that our three core capabilities--regional banking, corporate financial services, and private client advisory services--constitute a mix of businesses that provides a diversified stream of revenue. Our focus on relationship management distinguishes us in the marketplace and enables us to capture new opportunities. In business for nearly 100 years, we have experience throughout a variety of economic climates. On behalf of all of us at Wilmington Trust, I thank you for your continued confidence in our ability to create value for our clients and shareholders. /s/ Ted T. Cecala Ted T. Cecala Chairman and Chief Executive Officer 8 2001 FINANCIAL TABLE OF CONTENTS 9 MANAGEMENT'S DISCUSSION AND ANALYSIS 24 CONSOLIDATED ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA 26 CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS 27 CONSOLIDATED STATEMENTS OF CONDITION 28 CONSOLIDATED STATEMENTS OF INCOME 29 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 30 CONSOLIDATED STATEMENTS OF CASH FLOWS 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 54 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING 54 REPORT OF INDEPENDENT AUDITORS 55 DIRECTORS AND COMMITTEES 56 OFFICERS AND SUBSIDIARIES 9 MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL ANALYSIS 2001 Net income for 2001 was $125.2 million, or $3.84 per share, an increase of 3% over the $120.9 million, or $3.74 per share, reported last year. On a diluted basis, earnings per share were $3.80, compared to the $3.70 reported for 2000. The 2001 results included a $1.1 million after-tax adjustment, or $0.03 per share, for the cumulative effect of a change in accounting principle related to the adoption of Financial Accounting Standards Board Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." See Note 1 to the Consolidated Financial Statements. These results reflect the value of the Corporation's diversified mix of businesses and the success of its new business development efforts. Advisory business revenue increased 7% opposite double-digit declines in market benchmarks, while the loan portfolio grew, on average, 4% during a period of economic uncertainty. Improvement was realized in the major components of the Corporation's revenue. Net interest income improved $3.7 million, or 1%, to $258.8 million, while noninterest revenues rose $11.8 million, or 5%, to $228.0 million. The provision for loan losses for 2001 was $19.9 million, compared to the $21.9 million provision for last year, a decline of $2.1 million, or 9%. Operating expenses for 2001 increased $12.2 million, or 5%, to $276.9 million and the provision for income taxes increased $2.2 million, or 3%, to $66.0 million. These results produced a return on average stockholders' equity of 19.53% and a return on average assets of 1.73%. The Corporation maintained its high level of productivity during 2001. The net profit margin, which measures the percentage of revenue dollars resulting in net income, was 25.3%, unchanged from the prior year. Productivity measured by net income per staff member was $54,000, up 3% over the $52,600 reported for 2000. Statistical disclosures required of financial holding companies by Industry Guide 3 are included in the Corporation's Annual Report on Form 10-K for 2001. The following table presents comparative five-year average balance sheets and income statements, as well as interest revenue and expense and respective yields and costs of funds for those years. 10 FIVE-YEAR ANALYSIS OF EARNINGS AND CONSOLIDATED STATEMENTS OF CONDITION
2001 ---- AVERAGE INCOME/ AVERAGE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; RATES ON TAX-EQUIVALENT BASIS) BALANCE EXPENSE RATE ---------------------------------------------------------------------------------------------------------------------------- FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL $ 28,654 $ 998 3.48% ---------------------------- U.S. Treasury and government agencies 798,389 44,937 5.71 State and municipal(1) 18,354 2,857 16.07 Preferred stock(1) 87,081 7,682 8.31 Asset-backed securities(1) 282,528 17,018 6.11 Other(1) 155,517 9,117 5.81 ---------------------------- TOTAL INVESTMENT SECURITIES 1,341,869 81,611 6.12 Commercial, financial, and agricultural 1,636,554 117,293 7.17 Real estate - construction 405,553 29,934 7.38 Mortgage - commercial 1,005,961 80,595 8.01 Mortgage - residential 906,180 64,472 7.11 Installment loans to individuals 1,281,049 100,544 7.85 ---------------------------- TOTAL LOANS(1,2) 5,235,297 392,838 7.50 Total earning assets 6,605,820 475,447 7.21 Other assets 623,414 ---------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 7,229,234 Savings $ 346,765 $ 2,721 0.78% Interest-bearing demand 1,297,181 18,269 1.41 Certificates under $100,000 914,381 44,365 4.85 Certificates $100,000 and over 1,776,893 86,687 4.88 ---------------------------- TOTAL INTEREST-BEARING DEPOSITS 4,335,220 152,042 3.51 Federal funds purchased and securities sold under agreements to repurchase 983,167 45,455 4.62 U.S. Treasury demand 44,480 1,534 3.45 ---------------------------- TOTAL SHORT-TERM BORROWINGS 1,027,647 46,989 4.57 Long-term debt 166,274 10,954 6.59 ---------------------------- TOTAL INTEREST-BEARING LIABILITIES 5,529,141 209,985 3.80 Demand deposits 927,947 Other noninterest funds 148,732 ---------------------------- TOTAL FUNDS USED TO SUPPORT EARNING ASSETS 6,605,820 209,985 3.19 Stockholders' equity 640,786 Equity used to support earning assets (148,732) Other liabilities 131,360 ---------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,229,234 Net interest income/yield $ 265,462 4.02% Tax-equivalent adjustment (6,649) ----------- Net interest income 258,813 Provision for loan losses (19,850) ----------- Net interest income after provision for loan losses 238,963 Other income Total advisory fees net of affiliate manager goodwill amortization 176,841 Service charges on deposit accounts 27,240 Other operating income 22,400 Securities gains/(losses) 1,522 ----------- TOTAL OTHER INCOME 228,003 ----------- NET INTEREST AND OTHER INCOME 466,966 Other expense Salaries and employment benefits 166,794 Net occupancy 16,846 Furniture and equipment 23,665 Other operating expense* 69,612 ----------- TOTAL OTHER EXPENSE 276,917 Income before income taxes and cumulative effect of change in accounting principle 190,049 Applicable income taxes 66,009 ----------- NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 124,040 Cumulative effect of change in accounting principle (net of income taxes of $584) 1,130 ----------- NET INCOME * $ 125,170 NET INCOME PER SHARE - DILUTED BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 3.77 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 0.03 ---------------------------------------------------------------------------------------------------------------------------- $ 3.80
1 Tax-advantaged income has been adjusted to a tax-equivalent basis using a combined statutory federal and state income tax rate of 35% for all years. 2 Loan balances include nonaccrual loans. Amortization of deferred loan fees has been included in interest income. Note: Average rates are calculated using average balances based on historical cost and do not reflect market valuation adjustments. * 1999 results included a $13.4 million one-time write-off. 11
2000 ---- AVERAGE INCOME/ AVERAGE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; RATES ON TAX-EQUIVALENT BASIS) BALANCE EXPENSE RATE ------------------------------------------------------------------------------------------------------------------------- FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL $ 29,530 $ 1,810 6.13% ---------------------------- U.S. Treasury and government agencies 921,610 56,814 5.98 State and municipal(1) 14,282 1,028 7.28 Preferred stock(1) 112,704 9,900 8.12 Asset-backed securities(1) 324,690 20,771 6.19 Other(1) 193,724 13,391 6.87 ---------------------------- TOTAL INVESTMENT SECURITIES 1,567,010 101,904 6.31 Commercial, financial, and agricultural 1,580,074 137,782 8.72 Real estate - construction 361,283 34,873 9.65 Mortgage - commercial 942,893 82,867 8.79 Mortgage - residential 977,185 70,167 7.18 Installment loans to individuals 1,191,644 108,362 9.09 ---------------------------- TOTAL LOANS(1,2) 5,053,079 434,051 8.59 Total earning assets 6,649,619 537,765 8.03 Other assets 559,101 ------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 7,208,720 Savings $ 379,837 $ 5,824 1.53% Interest-bearing demand 1,327,498 29,268 2.20 Certificates under $100,000 981,248 48,665 4.96 Certificates $100,000 and over 1,692,782 108,443 6.41 ---------------------------- TOTAL INTEREST-BEARING DEPOSITS 4,381,365 192,200 4.39 Federal funds purchased and securities sold under agreements to repurchase 1,102,497 69,424 6.30 U.S. Treasury demand 43,453 2,630 6.05 ---------------------------- TOTAL SHORT-TERM BORROWINGS 1,145,950 72,054 6.29 Long-term debt 168,000 11,061 6.58 ---------------------------- TOTAL INTEREST-BEARING LIABILITIES 5,695,315 275,315 4.83 Demand deposits 889,686 Other noninterest funds 64,618 ---------------------------- TOTAL FUNDS USED TO SUPPORT EARNING ASSETS 6,649,619 275,315 4.11 Stockholders' equity 531,471 Equity used to support earning assets (64,618) Other liabilities 92,248 ------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,208,720 Net interest income/yield $ 262,450 3.92 Tax-equivalent adjustment (7,311) ----------- Net interest income 255,139 Provision for loan losses (21,900) ----------- Net interest income after provision for loan losses 233,239 Other income Total advisory fees net of affiliate manager goodwill amortization 165,034 Service charges on deposit accounts 25,344 Other operating income 26,248 Securities gains/(losses) (416) ----------- TOTAL OTHER INCOME 216,210 ----------- NET INTEREST AND OTHER INCOME 449,449 Other expense Salaries and employment benefits 162,939 Net occupancy 15,741 Furniture and equipment 23,013 Other operating expense* 62,989 ----------- TOTAL OTHER EXPENSE 264,682 Income before income taxes and cumulative effect of change in accounting principle 184,767 Applicable income taxes 63,828 ----------- NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 120,939 Cumulative effect of change in accounting principle (net of income taxes of $584) -- ----------- NET INCOME * $ 120,939 NET INCOME PER SHARE - DILUTED BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 3.70 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- ------------------------------------------------------------------------------------------------------------------------- $ 3.70
1999 ---- AVERAGE INCOME/ AVERAGE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; RATES ON TAX-EQUIVALENT BASIS) BALANCE EXPENSE RATE ------------------------------------------------------------------------------------------------------------------------- FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL $ 31,521 $ 1,566 4.97% ---------------------------------- U.S. Treasury and government agencies 937,878 55,412 5.85 State and municipal(1) 14,411 1,086 7.64 Preferred stock(1) 159,738 11,278 7.05 Asset-backed securities(1) 352,615 22,221 6.23 Other(1) 129,712 7,439 5.73 ---------------------------- TOTAL INVESTMENT SECURITIES 1,594,354 97,436 6.06 Commercial, financial, and agricultural 1,423,794 113,217 7.95 Real estate - construction 268,668 23,775 8.85 Mortgage - commercial 882,038 77,217 8.75 Mortgage - residential 895,138 63,877 7.14 Installment loans to individuals 1,060,785 93,010 8.77 ---------------------------- TOTAL LOANS(1,2) 4,530,423 371,096 8.19 Total earning assets 6,156,298 470,098 7.62 Other assets 532,767 ------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 6,689,065 Savings $ 411,352 $ 7,364 1.79% Interest-bearing demand 1,377,749 29,670 2.15 Certificates under $100,000 1,137,764 57,031 5.01 Certificates $100,000 and over 983,340 53,429 5.43 ---------------------------- TOTAL INTEREST-BEARING DEPOSITS 3,910,205 147,494 3.77 Federal funds purchased and securities sold under agreements to repurchase 1,102,470 55,862 5.07 U.S. Treasury demand 35,643 1,846 5.18 ---------------------------- TOTAL SHORT-TERM BORROWINGS 1,138,113 57,708 5.07 Long-term debt 168,000 11,061 6.58 ---------------------------- TOTAL INTEREST-BEARING LIABILITIES 5,216,318 216,263 4.15 Demand deposits 856,171 Other noninterest funds 83,809 ---------------------------- TOTAL FUNDS USED TO SUPPORT EARNING ASSETS 6,156,298 216,263 3.51 Stockholders' equity 531,592 Equity used to support earning assets (83,809) Other liabilities 84,984 ------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,689,065 Net interest income/yield $ 253,835 4.11% Tax-equivalent adjustment (7,922) ----------- Net interest income 245,913 Provision for loan losses (17,500) ----------- Net interest income after provision for loan losses 228,413 Other income Total advisory fees net of affiliate manager goodwill amortization 148,413 Service charges on deposit accounts 23,817 Other operating income 17,979 Securities gains/(losses) 1,244 ----------- TOTAL OTHER INCOME 191,453 ----------- NET INTEREST AND OTHER INCOME 419,866 Other expense Salaries and employment benefits 147,219 Net occupancy 15,440 Furniture and equipment 21,513 Other operating expense* 74,032 ----------- TOTAL OTHER EXPENSE 258,204 Income before income taxes and cumulative effect of change in accounting principle 161,662 Applicable income taxes 54,365 ----------- NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 107,297 Cumulative effect of change in accounting principle (net of income taxes of $584) -- ----------- NET INCOME * $ 107,297 NET INCOME PER SHARE - DILUTED BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 3.21 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- ------------------------------------------------------------------------------------------------------------------------- $ 3.21
1998 ---- AVERAGE INCOME/ AVERAGE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; RATES ON TAX-EQUIVALENT BASIS) BALANCE EXPENSE RATE ------------------------------------------------------------------------------------------------------------------------- FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL $ 31,081 $ 1,665 5.36% --------------------------------- U.S. Treasury and government agencies 983,276 60,627 6.22 State and municipal(1) 16,672 1,278 7.73 Preferred stock(1) 146,595 10,846 7.56 Asset-backed securities(1) 358,929 23,749 6.66 Other(1) 104,123 5,874 5.67 ---------------------------- TOTAL INVESTMENT SECURITIES 1,609,595 102,374 6.42 Commercial, financial, and agricultural 1,263,385 107,039 8.47 Real estate - construction 180,830 16,953 9.38 Mortgage - commercial 890,375 83,040 9.33 Mortgage - residential 837,218 65,195 7.79 Installment loans to individuals 984,590 89,044 9.04 ---------------------------- TOTAL LOANS(1,2) 4,156,398 361,271 8.69 Total earning assets 5,797,074 465,310 8.05 Other assets 455,365 -------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 6,252,439 Savings $ 406,060 $ 9,141 2.25% Interest-bearing demand 1,222,866 30,800 2.52 Certificates under $100,000 1,208,244 66,045 5.47 Certificates $100,000 and over 842,368 47,750 5.67 ---------------------------- TOTAL INTEREST-BEARING DEPOSITS 3,679,538 153,736 4.18 Federal funds purchased and securities sold under agreements to repurchase 1,027,184 55,583 5.41 U.S. Treasury demand 49,338 2,377 4.82 ---------------------------- TOTAL SHORT-TERM BORROWINGS 1,076,522 57,960 5.38 Long-term debt 125,877 7,546 5.99 ---------------------------- TOTAL INTEREST-BEARING LIABILITIES 4,881,937 219,242 4.49 Demand deposits 747,791 Other noninterest funds 167,346 ---------------------------- TOTAL FUNDS USED TO SUPPORT EARNING ASSETS 5,797,074 219,242 3.79 Stockholders' equity 526,742 Equity used to support earning assets (167,346) Other liabilities 95,969 -------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,252,439 Net interest income/yield $ 246,068 4.26% Tax-equivalent adjustment (8,371) ----------- Net interest income 237,697 Provision for loan losses (20,000) ----------- Net interest income after provision for loan losses 217,697 Other income Total advisory fees net of affiliate manager goodwill amortization 128,801 Service charges on deposit accounts 21,934 Other operating income 26,496 Securities gains/(losses) 6,686 ----------- TOTAL OTHER INCOME 183,917 ----------- NET INTEREST AND OTHER INCOME 401,614 Other expense Salaries and employment benefits 137,917 Net occupancy 13,236 Furniture and equipment 19,024 Other operating expense* 59,889 ----------- TOTAL OTHER EXPENSE 230,066 Income before income taxes and cumulative effect of change in accounting principle 171,548 Applicable income taxes 57,223 ----------- NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 114,325 Cumulative effect of change in accounting principle (net of income taxes of $584) -- ----------- NET INCOME * $ 114,325 NET INCOME PER SHARE - DILUTED BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 3.34 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -------------------------------------------------------------------------------------------------------------------------- $ 3.34
1997 ---- AVERAGE INCOME/ AVERAGE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; RATES ON TAX-EQUIVALENT BASIS) BALANCE EXPENSE RATE ---------------------------------------------------------------------------------------------------------------------- FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL $ 22,369 $ 1,280 5.72% ----------------------------- U.S. Treasury and government agencies 868,296 55,579 6.41 State and municipal(1) 27,918 2,223 7.99 Preferred stock(1) 131,693 9,906 7.63 Asset-backed securities(1) 272,527 17,581 6.46 Other(1) 85,865 5,078 5.93 --------------------------- TOTAL INVESTMENT SECURITIES 1,386,299 90,367 6.53 Commercial, financial, and agricultural 1,211,703 105,758 8.73 Real estate - construction 131,745 12,980 9.85 Mortgage - commercial 904,063 85,260 9.43 Mortgage - residential 764,246 58,406 7.64 Installment loans to individuals 909,736 85,953 9.45 --------------------------- TOTAL LOANS(1,2) 3,921,493 348,357 8.88 Total earning assets 5,330,161 440,004 8.26 Other assets 349,826 ---------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 5,679,987 Savings $ 397,179 $ 9,561 2.41% Interest-bearing demand 1,078,685 27,393 2.54 Certificates under $100,000 1,209,750 68,621 5.67 Certificates $100,000 and over 506,089 28,601 5.65 --------------------------- TOTAL INTEREST-BEARING DEPOSITS 3,191,703 134,176 4.20 Federal funds purchased and securities sold under agreements to repurchase 1,142,106 63,123 5.53 U.S. Treasury demand 46,108 2,450 5.31 --------------------------- TOTAL SHORT-TERM BORROWINGS 1,188,214 65,573 5.52 Long-term debt 43,000 874 2.03 --------------------------- TOTAL INTEREST-BEARING LIABILITIES 4,422,917 200,623 4.54 Demand deposits 678,683 Other noninterest funds 228,561 --------------------------- TOTAL FUNDS USED TO SUPPORT EARNING ASSETS 5,330,161 200,623 3.77 Stockholders' equity 478,814 Equity used to support earning assets (228,561) Other liabilities 99,573 ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,679,987 Net interest income/yield $ 239,381 4.49% Tax-equivalent adjustment (9,365) ----------- Net interest income 230,016 Provision for loan losses (21,500) ----------- Net interest income after provision for loan losses 208,516 Other income Total advisory fees net of affiliate manager goodwill amortization 114,501 Service charges on deposit accounts 20,964 Other operating income 22,050 Securities gains/(losses) 27 ----------- TOTAL OTHER INCOME 157,542 ----------- NET INTEREST AND OTHER INCOME 366,058 Other expense Salaries and employment benefits 129,816 Net occupancy 11,763 Furniture and equipment 16,361 Other operating expense* 49,731 ----------- TOTAL OTHER EXPENSE 207,671 Income before income taxes and cumulative effect of change in accounting principle 158,387 Applicable income taxes 52,343 ----------- NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 106,044 Cumulative effect of change in accounting principle (net of income taxes of $584) -- ----------- NET INCOME * $ 106,044 NET INCOME PER SHARE - DILUTED BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 3.08 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- ---------------------------------------------------------------------------------------------------------------------- $ 3.08
12 MANAGEMENT'S DISCUSSION AND ANALYSIS STATEMENT OF CONDITION Total banking assets at December 31, 2001, were $7.5 billion, or $196.8 million and 3% higher than at year-end 2000, due primarily to the growth in the loan portfolio. Average total assets for the year were $7.2 billion, or $20.5 million and 0.3%, higher than last year, also due primarily to growth in the loan portfolio. The year-to-year growth in the loan portfolio was $299.6 million, or 6%, to $5.5 billion. The growth in the loan portfolio was offset partially by a contraction of the investment portfolio, which declined by $179.4 million to $1.28 billion. The growth in the loan portfolio was fueled by commercial lending within three major categories - commercial, financial, and agricultural loans; real estate construction loans; and commercial mortgage loans - which together grew $285.7 million, or 10%, to $3.27 billion. Retail lending, which includes loans to individuals consisting of residential mortgage and consumer loans, increased $13.9 million, or 0.6%, to $2.22 billion. Contributing to the increase in commercial lending were a $239.1 million, or 15%, increase in commercial, financial, and agricultural loans; a $27.8 million, or 8%, increase in real estate construction loans; and a $19.0 million, or 2%, increase in commercial mortgage loans. Contributing to the increase in the retail lending was a $74.5 million, or 6%, increase in consumer loans, consisting of installment, credit card, home equity, and secured demand loans. This increase was offset partially by a $60.6 million, or 7%, decrease in residential mortgage loans. The Corporation sold approximately $87.9 million of newly originated residential mortgage loans into the secondary market during 2001. At December 31, 2001, the Corporation's banking affiliates had approximately $2.7 billion in loan commitments outstanding that had not been drawn. Approximately 44% of the loan growth in 2001 occurred within the Corporation's Delaware market, while 42% originated in the southeastern Pennsylvania market and the remainder came from those markets served by the Corporation's thrift subsidiary, Wilmington Trust FSB. In the Delaware market, where it already has an estimated 40% market share, loans, on average, grew $80.9 million, driven by a mixture of new and existing business relationships. In the Pennsylvania market, where it has a single-digit market share, the Corporation's ability to grow its loan portfolio is dependent on developing new business relationships. Over the years, the Corporation's experience in growing the loan portfolio in southeastern Pennsylvania has been excellent. During 2001, the balance, on average, of loans originated in the southeastern Pennsylvania market reached $960.2 million. This is representative of a trend of steady loan growth since the Corporation's entry into this market in 1993. The investment portfolio at year-end 2001 was $1.28 billion, or $179.5 million and 12%, below its prior year-end level, as securities matured, were called, or were sold and not replaced. The available-for-sale portfolio of $1.26 billion was $175.2 million, or 12%, below that at year-end 2000, and the held-to-maturity portfolio of $16.5 million was $4.3 million, or 21%, below that at year-end 2000. The available-for-sale portfolio at year-end 2001, which is subject to mark-to-market rules, included net unrealized gains of $14.6 million. This was a $21.5 million improvement over December 31, 2000, and was the result of the decline in interest rates during 2001. The Corporation continued to invest in technology and facilities during the year, resulting in a $9.3 million, or 7%, increase in its premises and equipment category. The Corporation made investments in its global trust accounting and customer relationship management systems during 2001, as well as making enhancements to its online banking systems. Renovations were completed on the Corporation's headquarters and existing offices in Philadelphia, Pennsylvania, and Las Vegas, Nevada, and new offices were opened in Orange County, California, and Morristown, New Jersey. Goodwill increased $36.4 million, or 21%, to $208.4 million. During the year, the Corporation raised its ownership interest by $44.5 million in affiliate asset manager Roxbury Capital Management, LLC. The increase in goodwill was offset by $8.1 million of amortization expense. Total liabilities at year-end 2001 increased $106.2 million, or 2%, to $6.8 billion, with virtually all of this increase due to higher levels of deposits. Deposit levels increased $304.8 million, or 6%, over their prior year-end levels due primarily to noninterest-bearing demand deposits, which increased $302.7 million, or 32%. Short-term borrowings declined $190.6 million, or 17%, 13 due primarily to a $271.2 million, or 25%, decrease in federal funds purchased and securities sold under agreements to repurchase. As existing funding matured during the year, certificates of deposit were less expensive than term federal funds of similar maturities. As a result, there was a modest shift in the Corporation's funding sources, as 85% came from deposits compared with 82% at the prior year-end. Should further funding needs arise, the Corporation anticipates that it will be able to meet those funding needs in both a timely and cost-effective manner. See "Liquidity." Other liabilities increased $16.6 million, or 22%, to $93.5 million. Income taxes payable associated with unrealized gains in the available-for-sale investment portfolio increased $7.3 million and federal income taxes payable increased $5.4 million. Employee benefit accruals for salaries, health care, and pension costs increased $3.7 million. Total stockholders' equity at December 31, 2001, was $682.5 million, an increase of $90.6 million, or 15%, over the $591.9 million reported at year-end 2000. Additions to equity from earnings and the improvement in the level of unrealized gains within the available-for-sale investment portfolio were partially offset by dividends and ongoing purchases of the Corporation's stock. See "Capital Resources." NET INTEREST INCOME Net interest income is the difference between interest income received on earning assets, such as loans and investment securities, and interest expense paid on liabilities, such as deposits and short-term borrowings. Movements in interest rates and the relative levels of earning assets and interest-bearing liabilities held by the Corporation affect its net interest margin and the resulting net interest income. The net interest margin is determined by dividing fully tax-equivalent (FTE) net interest income by average total earning assets. The Corporation's net interest income for 2001, on an FTE basis, was $265.5 million, an increase of $3.0 million, or 1%, over last year. The Corporation's net interest margin for 2001 was 4.02%, 10 basis points above the 3.92% reported for 2000. The Federal Reserve Board lowered short-term interest rates 11 times during 2001, reducing the discount rate to 1.25%, 475 basis points below the 6.00% at which it began the year. These rate reductions caused both interest revenue and interest expense to decline during the year. Interest revenue (FTE) for 2001 totaled $475.4 million, a decrease of $62.3 million, or 12%, from the $537.8 million reported for 2000. Interest revenue declined $62.0 million as the average rate earned on the Corporation's assets fell 82 basis points to 7.21%. Interest revenues declined another $285,000 due to a $43.8 million decrease in the average level of earning assets to $6.6 billion. The Corporation's average prime lending rate (the rate at which banks lend to their most creditworthy customers) was 6.93%, 231 basis points below the 9.24% for 2000. Interest expense for 2001 was $210.0 million, a decrease of $65.4 million, or 24%, from last year. Interest expense declined $58.7 million, as the average rate the Corporation paid on its interest-bearing liabilities fell 92 basis points to 3.19%. The aforementioned reductions in the discount rate by the Federal Reserve Board were responsible for this decrease. Interest expense declined an additional $6.7 million, due to a $166.2 million decrease in the average level of interest-bearing liabilities to $5.5 billion. The average discount rate (the rate at which the Federal Reserve Banks lend money to their member banks) was 3.4%, compared with a corresponding average rate for 2000 of 6.24%. See "Quantitative and Qualitative Disclosures about Market Risk." NONINTEREST REVENUES AND OPERATING EXPENSES Growth in the Corporation's fee-based businesses was the impetus behind improved noninterest revenues. The percentage of operating revenues derived from these fee-based businesses continued to increase, accounting for 48% of operating revenues for 2001 compared with 47% for 2000. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS Operating revenues, excluding securities gains and losses and amortization of goodwill associated with affiliate asset manager acquisitions, were $493.5 million, an increase of $14.2 million, or 3%, over the $479.3 million reported for 2000.
% of % of Operating Operating (in thousands) 2001 revenues 2000 revenues ---------------------------------------------------------------------------------------------------- Net interest income $ 258,813 52% $ 255,139 53% Fee income: Advisory fees 185,036 37% 172,521 36% Service charges 27,240 6% 25,344 5% Other operating income* 22,400 5% 26,248 6% ---------------------------------------------------------------------------------------------------- TOTAL FEE INCOME $ 234,676 48% $ 224,113 47% Total operating revenues $ 493,489 100% $ 479,252 100% Affiliate manager goodwill amortization (8,195) (7,487) Securities gains/(losses) 1,522 (416) ---------------------------------------------------------------------------------------------------- NET INTEREST AND OTHER INCOME, BEFORE LOAN LOSS PROVISION $ 486,816 $ 471,349
* Includes $7.2 million of gains from branch sales in 2000. Total advisory fees during 2001 were $185.0 million, an increase of $12.5 million, or 7%, over last year. This represented 79% of fee income and 37% of operating revenues for 2001, compared with corresponding ratios of 77% and 36%, respectively, for last year. Private client advisory fees were $106.1 million, $6.3 million, or 6%, higher than last year. New business development was strong throughout the United States, with record sales posted in New York and California. This is noteworthy given that the Nasdaq, Dow Jones Industrial Average, and S&P 500 were down 21%, 5%, and 12%, respectively, and that approximately 70% of our private client advisory fees are tied to securities valuations. These fees primarily are based on 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. The Corporation also offers a broad range of institutional portfolio management services to domestic and foreign entities, including fixed-income investments and short-term cash management, and, through its affiliates, manages a variety of mutual funds. In addition, the Corporation provides brokerage services through Wilmington Brokerage Services Company, a subsidiary of Wilmington Trust Company. Assets under management at year-end 2001, excluding those of our affiliate asset managers, were $24.6 billion, down 12% from $28.0 billion at year-end 2000. Affiliate asset manager fees for 2001 were $20.6 million. This was a decline of $764,000, or 4%, from the $21.3 million reported last year. The difficult market conditions of 2001 were the primary cause of this decline, with results tied to the investment style of each affiliate. Revenues from Cramer Rosenthal McGlynn, a value-style manager, increased to $6.3 million, as assets under management increased 37% to $4.6 billion at year-end 2001. Cramer Rosenthal McGlynn bills revenues in arrears and calculates certain revenues and compensation expense based on peer statistics. These statistics are not available at the time the Corporation consolidates its results. Therefore, earnings from Cramer Rosenthal McGlynn recognized in the Corporation's results of operations are based on estimates. Revenues from Roxbury Capital Management, a growth-style manager, declined 28% to $14.2 million, as assets under management declined 32% to $7.7 billion at year-end 2001. Roxbury calculates certain compensation expense on the results of operations. This compensation expense is not available at the time the Corporation consolidates its results. Consequently, net earnings from Roxbury recognized in the Corporation's earnings are based on estimates. Corporate financial services fees for 2001 were $58.4 million, $6.9 million, or 13%, higher than last year. Double-digit increases were realized by the capital markets trust service and nexus and holding company service components of this business. Capital market trust services increased 35% to $29.8 million, while nexus and holding company services increased 17% to 15 $12.4 million. The majority of our corporate financial services revenue is generated on a fee-for-service basis. The balance, approximately 25%, is tied to asset valuations. The Corporation provides a wide range of trust, custody, and specialized administrative services to domestic and international corporate clients and financial intermediaries. The Corporation acts as trustee for leased capital equipment, collateralized securities, bond financings, corporate restructurings, and bankruptcy liquidations, and provides fiduciary services for most types of employee benefit trusts. The Corporation also provides administrative services in its capacity as agent or trustee in special purpose entity transactions in jurisdictions such as the Cayman Islands, Channel Islands, Nevada, and Delaware. In some capital equipment transactions, such as those involving aircraft, railcars, and vessels, the Corporation serves as the owner trustee, representing large institutional investors. In this capacity, the Corporation receives an annual fee for providing administrative services for the trusts, but maintains no economic interest and does not provide any investment banking advice or credit offerings in these transactions. Furthermore, the Corporation limits its liability through indemnification provisions in the operative documents for each such transaction. Expense associated with the amortization of acquisition goodwill increased $708,000, or 9%, due to additional equity interests acquired in Roxbury. At December 31, 2001, the Corporation held a 56.53% equity position in Cramer Rosenthal McGlynn. The Corporation has a 100% interest in the preferred shares of Roxbury, entitling it to a 30% share of its revenues, together with a 40.25% interest in Roxbury's common shares, entitling it to a like percentage of net income. On January 2, 2002, the Corporation completed its acquisition of a 100% equity interest and an 80% profits interest in Balentine & Company, LLC. Headquartered in Atlanta, Balentine oversees management for $3.5 billion in assets for high net worth families, foundations, and endowments. It has particular expertise in selecting independent investment managers to meet the needs of clients. The results of Balentine's operations will not be included in the Corporation's financial statements until 2002. Service charges on deposit accounts for 2001 were $27.2 million, an increase of $1.9 million, or 7%, over last year. This increase was due principally to increases in fees for automated teller machines, returned items and overdrafts, and service charges on regular and other related checking accounts. Business checking fee income for 2001 was $6.7 million, a $1.4 million, or 26%, increase over last year due in part to a fee increase implemented in the first half of 2001. Loan fees for 2001 were $7.7 million, an increase of $1.9 million, or 32%, over last year. Key drivers of this increase included increases in commercial and retail loan fees, letter of credit fees, loan application fees, and documentary fees. Other operating income for 2001 was $4.4 million, a $6.0 million, or 58%, decrease from last year. Gains of $7.2 million reported in 2000 from the sale of certain of the Corporation's Pennsylvania and Maryland branches in connection with its branch reconfiguration strategy primarily were responsible for this decrease. Securities gains of $1.5 million were recognized in 2001, compared with $416,000 in losses for last year, as the Corporation sold selective fixed-rate investments and had outstanding warrants called in connection with a merger. Operating expenses for 2001 were $276.9 million, an increase of $12.2 million, or 5%, over last year. The Corporation experienced increases in expenses for salaries and employment benefits, net occupancy, servicing and consulting fees, and other operating costs. Salaries and employment benefits expenses for 2001 were $166.8 million, a $3.9 million, or 2%, increase over last year. Salary and wage expense during 2001 increased $6.7 million, or 7%, to $109.8 million. The Corporation's full-time equivalent employee count at December 31, 2001 was 2,316, compared with 2,299 at December 31, 2000. The year-end 2000 count was a decrease of 135 staff positions from 1999, reflecting the outsourcing of the Corporation's item processing unit late in 1999 and early 2000. The increase in salaries and wages in 2001 was offset partially by a decline in incentives and bonuses, which decreased $4.2 million, due principally to a $5.5 million drop in the profit-sharing bonus. This bonus is based on a formula driven by return on equity and net income growth. Employment benefits expense increased $1.3 million, or 5%, to $29.2 million, due primarily to higher payroll tax, health insurance, and pension expenses. Net occupancy and furniture and equipment expenses during 2001 increased $1.8 million, or 5%, over last year. Depreciation expense increased $881,000, or 5%, to $18.5 million, reflecting the Corporation's investment in new software, which targets new products and services, internal efficiencies, internet services, and the Corporation's trust system. Further contributing to these 16 MANAGEMENT'S DISCUSSION AND ANALYSIS increases were expenses associated with the opening of new offices in Orange County, California, and Morristown, New Jersey; expansion of the offices in Philadelphia and Las Vegas; and renovations to the Corporation's headquarters. Servicing and consulting expense in 2001 was $9.1 million, an increase of $904,000, or 11%, over last year, resulting primarily from the Corporation's outsourcing of its trust tax return preparation work to a third-party vendor and increased advisory fees paid to its affiliate asset managers. Other operating expense in 2001 was $51.6 million, a $5.3 million, or 12%, increase over last year. This increase was attributable to outsourcing item processing, legal expenses, and training expenses. The provision for income taxes for 2001 was $66.0 million, a $2.2 million, or 3%, increase over last year. Federal income tax expense was $61.4 million, an increase of $3.3 million, or 6%, while state income tax expense was $4.6 million, a decrease of $1.2 million, or 20%. A refund received from a prior year's state tax filing, coupled with the Corporation's lower tax rate for its investment holding companies, were responsible for the decrease in state income tax expense. The Corporation's effective tax rate for the year was 34.7%, compared with 34.5% in 2000. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Net interest income is an important determinant of the Corporation's financial performance. Through management of its interest rate sensitivity exposure, the Corporation seeks to maximize the growth of net interest income on a consistent basis by minimizing the effects of fluctuations associated with changing market interest rates. The Corporation employs simulation models to measure the effect of variations in interest rates on net interest income. The composition of assets, liabilities, and off-balance-sheet instruments and their respective repricing and maturity characteristics, as well as certain external factors such as the level of market interest rates, are evaluated in assessing the Corporation's exposure to changes in interest rates. Net interest income is projected using multiple interest rate scenarios. The results are compared to net interest income projected using stable interest rates. The Corporation's model generally employs interest rate scenarios in which interest rates gradually move up or down 250 basis points over one year. As of December 31, 2001, the declining rate scenario would gradually move down 175 basis points until the federal funds rate equals zero. This change ensures that negative rates are not created within the simulation model. The rising rate scenario remains unchanged and would gradually increase 250 basis points. The simulation model projects, as of December 31, 2001, that a gradual 250 basis point increase in market interest rates would increase net interest income by 2.7% over a one-year period. This compares to a decrease of 0.2% as measured at December 31, 2000. If interest rates were to decrease gradually 175 basis points, the simulation model projects, as of December 31, 2001, that net interest income would decrease 5.1% over a one-year period. This compares to a decrease of 2.4% the simulation projected would occur on a gradual 250-basis-point decline in market interest rates as measured at December 31, 2000. The movement in the rate sensitivity measurements over the past year has been driven primarily by several key changes. The relative proportion of fixed-rate and floating-rate assets has shifted as loans matured or were repaid and mortgages were sold, while new loans were originated that had a floating interest rate. In addition, the change in the absolute level of short-term interest rates affects the simulation results. For example, the rates currently offered on retail deposits are currently at levels that are essentially floors, meaning that they are unlikely to decline further given any additional rate declines. The Corporation's objective is to keep any interest rate imbalance from reducing net interest income by 10% within a one-year period, as projected by the simulation model. Should it be determined that a course of action is necessary, based on the simulation model, strategies will be developed and presented to the Corporation's Board of Directors. The preceding paragraphs contain certain forward-looking statements regarding the anticipated effects on the Corporation's net interest income resulting from hypothetical changes in market interest rates. The assumptions that the Corporation uses regarding the effects of changes in interest rates on the adjustment of retail deposit rates and the prepayment of residential mortgages, asset-backed securities, and collateralized mortgage obligations play a significant role in the results the simulation model projects. Rate and prepayment assumptions used in the Bank's simulation 17 model differ for both assets and liabilities in rising as compared to declining interest rate environments. Nevertheless, these assumptions are inherently uncertain and, as a result, the simulation model cannot predict precisely the impact of changes in interest rates on net interest income. Management reviews the Corporation's exposure to interest rate risk regularly, and may employ a variety of strategies as needed to adjust its sensitivity. This includes changing the relative proportions of fixed-rate and floating-rate assets and liabilities, changing the number and maturity of funding sources and asset securitizations, and utilizing derivative contracts, such as interest rate swaps and interest rate floors. The Corporation previously entered into floors to hedge against the impact of adverse market interest rate changes on the cash flows of floating-rate commercial loans. Changes in the intrinsic value of the contracts were expected to be highly effective in offsetting changes in cash flows attributable to fluctuations in market interest rates below the strike price of the floors. However, at December 31, 2001, all floors had been sold. Net gains and/or losses remaining in "Accumulated Other Comprehensive Income" are being amortized over the original intended hedge period and recorded in "Interest and Fees on Loans" in the Consolidated Statements of Income. 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. The maturity and marketability of loans and investments provide liquidity, along with all time deposits at other banks, federal funds sold, and securities purchased under agreements to resell. Liquidity also results from the Corporation's internally-generated capital, core deposits, large certificates of deposit, federal funds purchased, securities sold under agreements to repurchase, and other credit facilities. In 2001, the proportion of funding provided by core deposits -- demand deposits, interest-bearing demand deposits, and certificates of deposit -- was stable when compared to the prior year. As total assets on average were stable year to year, funding sources were also stable, with the relative proportions of core deposits and short-term borrowings (principally federal funds purchased and securities sold under agreements to repurchase) virtually unchanged. The Corporation is a guarantor for 57% -- its ownership interest -- of three obligations of its affiliate, Cramer Rosenthal McGlynn. The guaranty is for two lines of credit totaling $8 million, at LIBOR plus 2%, which expire December 8, 2002. The third credit facility is a $2 million amortizing term loan, at LIBOR plus 2%, the balance of which was $666,667 at December 31, 2001. Management continuously monitors the Corporation's existing and projected liquidity requirements. 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 Bank is a member of the Federal Home Loan Bank of Pittsburgh, which provides an additional source of funds. ASSET QUALITY AND LOAN LOSS PROVISION Net chargeoffs for 2001 were $15.8 million, a decrease of $6.3 million, or 28%, from the $22.1 million reported for 2000. The Corporation's provision for loan losses for 2001 was $19.9 million. This was $2.1 million, or 9%, lower than last year. The reserve for loan losses at December 31, 2001, was $80.8 million, an increase of $4.0 million, or 5%, over the $76.7 million at December 31, 2000. The reserve at year-end as a percentage of loans outstanding was 1.47%, a decrease of one basis point from the 1.48% reported at year-end 2000. Loans past due 90 days or more, nonaccrual loans, and restructured loans at December 31, 2001, totaled $51.9 million. This represented a decrease of $4.4 million, or 8%, from the $56.3 million reported at year-end 2000. Loans past due 90 days or more at December 31, 2001, totaled $13.5 million, unchanged from year-end 2000. Nonaccrual loans at year-end 2001 were $38.0 million. This was $2.1 million, or 5%, below the $40.2 million of nonaccrual loans at year-end 2000. At year-end 2001, $375,000 of loans were classified as restructured compared with $2.6 million at year-end 2000. Other real estate owned (OREO) at year-end 2001 was $398,000, down $319,000, or 44%, from $717,000 at year-end 2000. 18 Management's Discussion and Analysis The overall level of nonperforming loans during 2001 decreased $2.5 million, or 6%. Deteriorating economic conditions or any further deterioration in markets the Corporation serves have the potential to 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, 2001, an analysis of loans past due 90 days or more totaled $13.5 million and indicated that approximately 68% of those loans were in the Corporation's commercial loan portfolio, 23% in the residential mortgage loan portfolio, and 9% in the consumer loan portfolio. The corresponding ratios at December 31, 2000 were 65%, 24%, and 11%, respectively. As a result of the Corporation's ongoing monitoring of its loan portfolios, at December 31, 2001, approximately $60.6 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. This compares with the $44.8 million in loans at year-end 2000 about which the Corporation had serious doubt. In light of the current levels of past due, nonaccrual, and problem loans, management believes that the Corporation's reserve for loan losses is a reasonable estimate of the known and inherent losses in the loan portfolio. The Corporation's loan loss reserve methodology is sound and has provided an appropriate level of reserve adequacy over an extended period of time. The Corporation's reserve is reflective of estimated credit losses for specifically identified and estimated probable losses inherent in the remainder of the portfolio based on loan type and risk rating classification. The methodology includes an analysis of the business climate and the potential effect on credit losses, which is the basis for an unallocated portion of the reserve assessment. The business climate includes shifts in current market conditions, loan growth in expansion markets, the average loan size and complexity within the portfolio, trends in delinquent payment performance, the direction of risk rating migration within the portfolio, the level of serious doubt loans, the impact of litigation, and trends in bankruptcy filings. The unallocated and allocated portions of the reserve are reassessed quarterly during the regular application of the reserve methodology. At December 31, 2001, approximately $6.3 million, or 8%, of the reserve for loan losses was unallocated. This compares with $5.1 million, or 7%, of the reserve that was unallocated at year-end 2000. Loan growth has been addressed through the allocation of reserves to the new loans within the parameters of the reserve methodology. Delinquency trends and serious doubt levels both declined from prior year-end levels. The percentage of loans carrying a pass rating remained high, at 95%, unchanged from the prior year. CAPITAL RESOURCES Management continues to review the Corporation's capital position and make adjustments as needed to assure that the Corporation's capital base is sufficient to satisfy existing and impending regulatory requirements, as well as to meet appropriate standards of safety and provide for future growth. The Corporation's capital increased in 2001 due primarily to increased earnings and improvement in the market value of the Corporation's investment portfolio. The Corporation's 2001 capital generation rate was 10.8%, a decrease from the 12.8% reported for 2000. Current year earnings of $125.1 million, net of $61.5 million in cash dividends, added $63.6 million to the Corporation's capital. The improvement in the market value of the Corporation's available-for-sale investment portfolio added an additional $13.8 million to equity. Common stock issued under employee benefit plans added another $16.0 million, while the acquisition of treasury stock reduced equity by $3.5 million. The remainder of the increase, $748,000, was the result of net unrealized holding gains, which arose during the year on derivatives held as cash flow hedges. The Federal Reserve Board's risk-based capital guidelines establish the minimum levels of capital for a bank holding company. 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 19 the risk-based capital guidelines. At December 31, 2001, the Corporation's total risk-based capital ratio was 11.16%, compared with 10.80% reported at the corresponding date a year ago. The Corporation's Tier 1 risk-based capital ratio at that date was 7.78%, compared with 7.33% reported at year-end 2000, and its Tier 1 leverage capital ratio was 6.49%, compared with 5.87% reported a year ago. Each of these ratios exceeded the minimum levels required for adequately capitalized institutions of 8%, 4%, and 4%, respectively, as well as the levels required for well-capitalized institutions of 10%, 6%, and 5%, respectively. In April 2001, the Corporation's Board of Directors increased the quarterly dividend to $0.48 per share. This marked the twentieth consecutive year of increased cash dividends. Dividends paid for 2001 totaled $1.89 per share, a 7% increase over the $1.77 per share paid in 2000. The Corporation's dividend payout ratio for 2001 was 49.15%, compared to the 47.26% pay-out ratio for last year. In April 1996, the Corporation's Board of Directors authorized the buyback of 4,000,000 shares of the Corporation's common stock. At year-end 2000, 3,666,779 shares had been bought under the program at a cost of $179.7 million. During 2001, 57,408 additional shares were purchased at a cost of $3.5 million, bringing the total number of shares repurchased under the current program to 3,724,187. The Corporation's common stock is traded on the New York Stock Exchange under the symbol "WL." The table below summarizes the price ranges of the Corporation's common stock and its quarterly dividends. COMMON STOCK PRICE RANGE AND DIVIDEND RATE BY QUARTER
2001 2000 Quarter High Low Dividend High Low Dividend ------------------------------------------------------------------------------------------------------- First quarter $ 62.85 $ 53.34 $ 0.45 $ 55.44 $ 40.56 $ 0.42 Second quarter $ 66.35 $ 56.20 $ 0.48 $ 54.38 $ 42.63 $ 0.45 Third quarter $ 67.00 $ 50.20 $ 0.48 $ 55.63 $ 42.19 $ 0.45 Fourth quarter $ 63.45 $ 51.00 $ 0.48 $ 63.38 $ 47.75 $ 0.45
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 holding company's performance. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. The impact, therefore, of inflation on a bank holding company's financial performance is indeterminable. FINANCIAL ANALYSIS 2000/1999 Net income for 2000 was $120.9 million, or $3.74 per share. This was a 13% increase over the $107.3 million, or $3.26 per share, reported for 1999. On a diluted basis, earnings per share were $3.70, a 15% increase over the $3.21 reported for 1999. The Corporation's 1999 results included a one-time, pre-tax charge to earnings primarily for the outsourcing of certain back office data processing functions. New business and record income levels from the Corporation's fee businesses propelled earnings growth for the year. These contributed 47% of total revenues in 2000, compared with 45% during 1999. STATEMENT OF CONDITION Total banking assets at December 31, 2000, were $7.3 billion, an increase of $119.7 million, or 2%, over the $7.2 billion at December 31, 1999. Virtually all of this increase was due to growth in the level of loans outstanding as the loan portfolio increased $368.3 million, or 8%, to $5.2 billion. Contributing to this increase was a $168.3 million, or 15%, increase in consumer loans, a $101.3 million, or 7%, increase in commercial loans, a $71.1 million, or 8%, increase in commercial mortgage loans, and a $69.0 million, or 23%, increase in real estate construction loans. These increases were offset in part by a $42.3 million, or 4%, decrease in residential mortgage loans. Approximately 60% of this 2000 loan growth was realized outside of the Corporation's Delaware market, with one-third originating in the southeastern Pennsylvania market. 20 Management's Discussion and Analysis The investment securities portfolio at December 31, 2000, was $1.46 billion, a decrease of $256.7 million, or 15%, from the $1.72 billion at the corresponding date in 1999. The available-for-sale portfolio decreased $246.2 million, or 15%, as low-yielding, fixed-rate securities matured or were sold in the latter portion of the year and were not replaced to reduce leverage in the Corporation's balance sheet. Contributing to this decrease were maturities of U.S. Treasury and government agency securities, which decreased $118.9 million, or 12%, to $878.9 million, and asset-backed securities, which decreased $57.7 million, or 16%, to $293.1 million. Goodwill increased $24.0 million, or 16%, to $172.0 million, as the Corporation increased its ownership in its affiliate asset managers. Total liabilities at December 31, 2000, were $6.73 billion, an increase of $26.0 million, or 0.4%, over the prior year-end amount. Interest-bearing liabilities at December 31, 2000, were $5.65 billion, an increase of $11.9 million, or 0.2%, over their prior year-end amount. Noninterest-bearing demand account balances at year-end 2000 were $955.7 million, down $39.0 million, or 4%, from the prior year-end. Interest-bearing deposit account balances at year-end 2000 were $4.3 billion, down $44.5 million, or 1%. Short-term borrowings increased $56.3 million, or 5%, to $1.15 billion, offsetting the declines in core deposit balances. Overnight federal fund balances increased $171.9 million, or 542%, to $203.6 million, further offsetting declines in core deposit and other short-term borrowing balance categories. Stockholders' equity at December 31, 2000, was $591.9 million, up $93.7 million, or 19%, more than the $498.2 million at December 31, 1999. Earnings of $120.9 million, a $30.4 million improvement in unrealized gains within the available-for-sale investment portfolio, and $8.5 million of stock issued under employment benefit plans were offset, in part, by $57.2 million of cash dividends and $8.9 million of treasury stock acquisitions. NET INTEREST INCOME The Corporation's net interest income (FTE) for 2000 increased $8.6 million, or 3%, to $262.5 million from $253.8 million in 1999. This resulted from a $67.7 million increase in interest revenues and a $59.1 million increase in interest expense. The increase in interest revenues was partially the result of a $493.3 million increase in the average level of earning assets. The earning asset increase contributed $43.0 million of the $67.7 million interest revenue increase, with the remaining $24.7 million resulting from the higher rate environment. The average rate earned on the Corporation's assets for 2000 was 8.03%, a 41-basis-point increase over the 7.62% earned for 1999. Interest expense for 2000 increased $59.1 million, or 23%, to $275.3 million from $216.3 million for 1999. Interest expense increased $29.4 million as the result of a $479.0 million increase in the average level of interest-bearing liabilities. Interest expense increased an additional $29.6 million as a result of the higher interest rate environment. The average interest rate paid on the Corporation's liabilities during 2000 was 4.11%, a 60-basis-point increase over the 3.51% paid during 1999. The Corporation's net interest margin for 2000 was 3.92%, down 19 basis points from the 4.11% reported for 1999. ASSET QUALITY The provision for loan losses for 2000 was $21.9 million. This was $4.4 million, or 25%, higher than the $17.5 million provision for 1999. The reserve for loan losses at December 31, 2000, was $76.7 million, or 1.48% of loans outstanding. This compares with corresponding levels of $76.9 million and 1.60% of loans outstanding reported at year-end 1999. Loans past due 90 days or more, nonaccrual loans, and restructured loans at December 31, 2000, totaled $53.7 million. This was a $7.9 million, or 17%, increase over the corresponding level of $45.8 million reported at December 31, 1999. Nonaccrual loans at year-end 2000 were $40.2 million, including $2.6 million in loans that were also classified as restructured. This was $11.0 million, or 38%, above the $29.2 million reported at year-end 1999. At December 31, 2000, $2.6 million of loans were classified as restructured, compared with $55,000 at the previous year-end. The OREO portfolio at December 31, 2000, totaled $717,000, an increase of $141,000, or 24%, over the $576,000 reported at year-end 1999. Approximately $1.9 million of properties securing non-performing loans were added to this portfolio during 2000, while $1.8 million were removed through chargeoffs and sales. Chargeoffs in this portfolio during 2000 were $20,000. The remainder was liquidated through sales, which resulted in net gains of $287,000. Expenses incurred to carry this 21 portfolio during 2000 were $133,000. These amounts compare with chargeoffs of $727,000, net gains on dispositions of $886,000, and portfolio expenses of $156,000 during 1999. NONINTEREST REVENUES AND OPERATING EXPENSES Revenues from noninterest sources in 2000 increased $24.8 million, or 13%, to $216.2 million, above the $191.5 million reported for 1999. Net total advisory fees increased $16.6 million, or 11%, to $165.0 million. All three components of this revenue source -- private client advisory fees, corporate financial services fees, and affiliate asset manager fees -- contributed to this increase. Private client advisory fees were $99.7 million, or $5.9 million and 6%, above the $93.9 million reported for 1999. Record levels of new business activity, up 23% to $12.8 million, were offset, in part, by lower fees resulting from the market value of assets under management. The S&P 500 and the Nasdaq Composite indices declined 9% and 39%, respectively, during 2000. Corporate financial services fees were $51.5 million, $6.8 million, or 15%, above the $44.6 million reported for 1999. All three components of this business -- capital markets trust services, nexus and holding company services, and employee benefit services -- posted double-digit increases for the year. Affiliate asset manager fees, before amortization expense, were $21.3 million, and $5.2 million, or 32%, above the $16.1 million reported for 1999. The Corporation's affiliations with Cramer Rosenthal McGlynn and Roxbury Capital Management contributed to this increase. Assets under management of these two affiliates increased to $17.3 billion at September 30, 2000, before declining to $14.7 billion at year-end 2000. Service charges on deposit accounts in 2000 were $25.3 million, an increase of $1.5 million, or 6%, over the $23.8 million reported for 1999. This was due primarily to higher levels of fees for automated teller machines, returned items and overdrafts, service charges on regular checking accounts, and other related checking account fees. Card fees were $10.0 million, an increase of $661,000, or 7%, above the $9.4 million reported for 1999, due to higher merchant discount and interchange fees. Other operating income increased $7.6 million, or 88%, to $16.2 million, as gains of $7.2 million were recorded on the sale of certain of the Corporation's Pennsylvania and Maryland branches as part of its branch reconfiguration strategy. Increased loan fees of $838,000, or 17%, to $5.8 million also contributed to this increase. Securities losses of $416,000 were recognized in 2000, compared with $1.2 million in gains for 1999, as the Corporation sold selective fixed-rate, low-yielding investments during 2000. Operating expenses for 2000 increased $6.5 million, or 3%, to $264.7 million. Personnel expenses increased $15.7 million, or 11%, to $162.9 million. These increased costs were to staff the Corporation's new locations and higher levels of bonuses and incentives. This amount included $6.4 million of increased profit-sharing bonus expense. Net occupancy and furniture and equipment expenses during 2000 increased $1.8 million, or 5%, due, in part, to higher depreciation and maintenance expense on electronic data processing equipment and rent expense on new office locations. Advertising and contributions expense decreased $846,000, or 9%, to $8.5 million, as lower levels of advertising and marketing research offset higher levels of charitable giving. Servicing and consulting expense increased $872,000, or 12%, to $8.2 million, as the Corporation engaged a third-party vendor to outsource its trust statement processing. The 1999 results included a $13.4 million one-time, pre-tax charge, primarily for outsourcing those and certain other back-office data processing functions. Other operating expense of $46.3 million was an increase of $2.3 million, or 5%, over the $44.0 million for 1999. This increase was attributable to higher originating and processing fees associated with the Corporation's outsourcing of its item processing. The provision for income taxes for 2000 increased $9.5 million, or 17%, to $63.8 million. Higher pre-tax income was primarily responsible for this increase. The Corporation's effective tax rate for 2000 was 34.5%, compared with 33.6% for 1999. 22 ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133,"Accounting for Derivative Instruments and Hedging Activities." This statement, as amended by SFAS No. 137,"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133" in June 1999 and SFAS No. 138,"Accounting for Certain Derivative Instruments and Certain Hedging Activities" in June 2000, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. The Statement requires the Corporation to recognize all derivatives on its balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be recognized in earnings immediately. SFAS No. 133, as amended, was effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The adoption of Statement No. 133 on January 1, 2001, resulted in the cumulative effect of the accounting change of $1.1 million after-tax being recognized as income in the Consolidated Statements of Income. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This Statement supersedes and replaces the guidance in SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, although it carries over most of SFAS No. 125's provisions without reconsideration. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001, and recognition and reclassification of collateral and disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. This Statement is to be applied prospectively with certain exceptions. Other than those exceptions, earlier or retroactive application of its accounting provisions is not permitted. The adoption of this Statement did not have an impact on the Corporation's earnings, financial condition, or equity. In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This Statement addresses financial accounting and reporting for business combinations and supersedes Accounting Principles Board (APB) Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." All business combinations within the scope of this Statement are to be accounted for using the purchase method, thereby eliminating use of the pooling-of-interests method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. This Statement also applies to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. The adoption of this Statement did not have an impact on the Corporation's earnings, financial condition, or equity. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001, except that goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to the nonamortization and amortization provisions of the Statement. Early application is permitted for entities with fiscal years beginning after March 15, 2001, provided that the first interim financial statements have not previously been issued. This Statement is required to be applied at the beginning of an entity's fiscal year and to all goodwill and other intangible assets recognized in financial statements at that date. Beginning January 1, 2002, annual amortization expense will be reduced by approximately $8.8 million, resulting in increased after-tax income of $5.8 million. Other than the cessation of amortization, the Corporation does not anticipate an 23 impact on earnings, financial condition, or equity upon adoption. As of December 31, 2001, the Corporation has tested its goodwill related to affiliate asset managers and found none to be impaired. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and/or normal operation of a long-lived asset, except for certain obligations of lessees. The Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. This Statement amends SFAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies," and it applies to all entities. It is effective for financial statements issued for fiscal years beginning after June 15, 2002. Earlier application is encouraged. The Corporation does not expect the adoption of this Statement to have an impact on its earnings, financial condition, or equity. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." However, this Statement retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. This Statement supersedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." However, this Statement retains the requirement of APB Opinion No. 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sale, by abandonment, or in distribution to owners) or is classified as held for sale. This Statement also amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a temporarily controlled subsidiary. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with earlier application encouraged. The provisions of this Statement generally are to be applied prospectively. The Corporation does not expect the adoption of this Statement to have an impact on its earnings, financial condition, or equity. 24/25 CONSOLIDATED ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED AVERAGE STATEMENTS OF CONDITION Assets: Cash and due from banks $ 215,790 $ 194,720 $ 198,002 Short-term investments 28,654 29,530 31,521 Investment securities 1,341,869 1,567,010 1,594,354 Loans 5,235,297 5,053,079 4,530,423 Reserve for loan losses (77,795) (75,292) (73,295) ------------------------------------------------------------------------------------------------------------------------------------ Net loans 5,157,502 4,977,787 4,457,128 Other 485,419 439,673 408,060 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $ 7,229,234 $ 7,208,720 $ 6,689,065 Liabilities and stockholders' equity: Demand deposits (noninterest-bearing) $ 927,947 $ 889,686 $ 856,171 Deposits (interest-bearing) 4,335,220 4,381,365 3,910,205 Short-term borrowings 1,027,647 1,145,950 1,138,113 Other 131,360 92,248 84,984 Long-term debt 166,274 168,000 168,000 ------------------------------------------------------------------------------------------------------------------------------------ Total 6,588,448 6,677,249 6,157,473 Stockholders' equity 640,786 531,471 531,592 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $ 7,229,234 $ 7,208,720 $ 6,689,065 CONSOLIDATED STATEMENTS OF INCOME Net interest income $ 258,813 $ 255,139 $ 245,913 ------------------------------------------------------------------------------------------------------------------------------------ Total advisory fees net of amortization of goodwill 176,841 165,034 148,413 Other noninterest revenues 49,640 51,592 41,796 Securities gains/(losses) 1,522 (416) 1,244 ------------------------------------------------------------------------------------------------------------------------------------ Total noninterest income 228,003 216,210 191,453 ------------------------------------------------------------------------------------------------------------------------------------ Net interest and other income 486,816 471,349 437,366 ------------------------------------------------------------------------------------------------------------------------------------ Provision for loan losses (19,850) (21,900) (17,500) ------------------------------------------------------------------------------------------------------------------------------------ Salaries and employment benefits 166,794 162,939 147,219 Other operating expenses* 110,123 101,743 110,985 ------------------------------------------------------------------------------------------------------------------------------------ Total other expense 276,917 264,682 258,204 Income before income taxes and cumulative effect of change in accounting principle 190,049 184,767 161,662 Applicable income taxes 66,009 63,828 54,365 ------------------------------------------------------------------------------------------------------------------------------------ Income before cumulative effect of change in accounting principle 124,040 120,939 107,297 Cumulative effect of change in accounting principle (net of income taxes of $584 in 2001 and income tax benefit of $8,296 in 1992) 1,130 -- -- ------------------------------------------------------------------------------------------------------------------------------------ NET INCOME* $ 125,170 $ 120,939 $ 107,297 Net income per share - diluted: Income before cumulative effect of change in accounting principle $ 3.77 $ 3.70 $ 3.21 Cumulative effect of change in accounting principle 0.03 -- -- ------------------------------------------------------------------------------------------------------------------------------------ Net income per share - diluted $ 3.80 $ 3.70 $ 3.21 PERCENTAGE CHANGE FROM PRIOR YEAR 3% 15% (4)% SELECTED FINANCIAL RATIOS AND STATISTICS Net income as a percentage of: Average stockholders' equity 19.53% 22.76% 20.18% Average total assets 1.73 1.68 1.60 ------------------------------------------------------------------------------------------------------------------------------------ Loan quality: Percentage of average total loans: Net charge-offs 0.30% 0.44% 0.28% Nonaccruing loans 0.73 0.79 0.64 Percentage of total loans: Reserve for loan losses** 1.47 1.48 1.60 ------------------------------------------------------------------------------------------------------------------------------------ Selected per share data: Dividends paid $ 1.89 $ 1.77 $ 1.65 Book value** 20.87 18.27 15.40 Stock price** 63.31 62.06 48.25 ------------------------------------------------------------------------------------------------------------------------------------ Staff members (full-time equivalents)** 2,316 2,299 2,434 Stockholders** 8,841 9,189 9,617 ------------------------------------------------------------------------------------------------------------------------------------ Net income per staff member(1) $ 54,046 $ 52,605 $ 44,083 Efficiency ratio(1,2) 56.12% 55.30% 54.98% Capital generation rate(1,3) 10.75% 12.80% 9.69% Risk-based capital ratio** 11.16% 10.80% 10.67% Price/earnings multiple** 16.49 16.59 14.80 ------------------------------------------------------------------------------------------------------------------------------------
* 1999 results included a $13.4 million one-time write-off. ** At year-end. (1) Based upon income before the cumulative effect of change in accounting principle or one-time write-off. (2) Total other expenses as a percentage of net interest and other income on a tax-equivalent basis. (3) Net income less dividends paid as a percentage of prior year-end stockholders' equity.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1996 1995 ---------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED AVERAGE STATEMENTS OF CONDITION Assets: Cash and due from banks $ 188,183 $ 190,243 $ 187,473 $ 194,224 Short-term investments 31,081 22,369 26,459 17,522 Investment securities 1,609,595 1,386,299 1,343,007 1,184,002 Loans 4,156,398 3,921,493 3,602,430 3,390,782 Reserve for loan losses (66,178) (56,747) (50,768) (47,895) ---------------------------------------------------------------------------------------------------------------------------------- Net loans 4,090,220 3,864,746 3,551,662 3,342,887 Other 333,360 216,330 198,762 194,231 ---------------------------------------------------------------------------------------------------------------------------------- TOTAL $ 6,252,439 $ 5,679,987 $ 5,307,363 $ 4,932,866 Liabilities and stockholders' equity: Demand deposits (noninterest-bearing) $ 747,791 $ 678,683 $ 633,066 $ 580,928 Deposits (interest-bearing) 3,679,538 3,191,703 2,890,944 2,583,995 Short-term borrowings 1,076,522 1,188,214 1,195,762 1,239,416 Other 95,969 99,573 101,764 86,703 Long-term debt 125,877 43,000 30,910 6,981 ---------------------------------------------------------------------------------------------------------------------------------- Total 5,725,697 5,201,173 4,852,446 4,498,023 Stockholders' equity 526,742 478,814 454,917 434,843 ---------------------------------------------------------------------------------------------------------------------------------- TOTAL $ 6,252,439 $ 5,679,987 $ 5,307,363 $ 4,932,866 CONSOLIDATED STATEMENTS OF INCOME Net interest income $ 237,697 $ 230,016 $ 214,221 $ 197,364 ---------------------------------------------------------------------------------------------------------------------------------- Total advisory fees net of amortization of goodwill 128,801 114,501 98,247 87,982 Other noninterest revenues 48,430 43,014 38,802 37,391 Securities gains/(losses) 6,686 27 1,188 2,267 ---------------------------------------------------------------------------------------------------------------------------------- Total noninterest income 183,917 157,542 138,237 127,640 ---------------------------------------------------------------------------------------------------------------------------------- Net interest and other income 421,614 387,558 352,458 325,004 ---------------------------------------------------------------------------------------------------------------------------------- Provision for loan losses (20,000) (21,500) (16,000) (12,280) ---------------------------------------------------------------------------------------------------------------------------------- Salaries and employment benefits 137,917 129,816 119,574 110,670 Other operating expenses* 92,149 77,855 72,765 70,334 ---------------------------------------------------------------------------------------------------------------------------------- Total other expense 230,066 207,671 192,339 181,004 Income before income taxes and cumulative effect of change in accounting principle 171,548 158,387 144,119 131,720 Applicable income taxes 57,223 52,343 46,841 41,689 ---------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of change in accounting principle 114,325 106,044 97,278 90,031 Cumulative effect of change in accounting principle (net of income taxes of $584 in 2001 and income tax benefit of $8,296 in 1992) -- -- -- -- ---------------------------------------------------------------------------------------------------------------------------------- NET INCOME* $ 114,325 $ 106,044 $ 97,278 $ 90,031 Net income per share - diluted: Income before cumulative effect of change in accounting principle $ 3.34 $ 3.08 $ 2.79 $ 2.53 Cumulative effect of change in accounting principle -- -- -- -- ---------------------------------------------------------------------------------------------------------------------------------- Net income per share - diluted $ 3.34 $ 3.08 $ 2.79 $ 2.53 PERCENTAGE CHANGE FROM PRIOR YEAR 8% 10% 10% 8% SELECTED FINANCIAL RATIOS AND STATISTICS Net income as a percentage of: Average stockholders' equity 21.70% 22.15% 21.38% 20.70% Average total assets 1.83 1.87 1.83 1.83 ---------------------------------------------------------------------------------------------------------------------------------- Loan quality: Percentage of average total loans: Net charge-offs 0.29% 0.31% 0.32% 0.33% Nonaccruing loans 0.74 0.73 1.13 0.99 Percentage of total loans: Reserve for loan losses** 1.66 1.60 1.44 1.42 ---------------------------------------------------------------------------------------------------------------------------------- Selected per share data: Dividends paid $ 1.53 $ 1.41 $ 1.29 $ 1.17 Book value** 16.39 15.02 13.71 13.09 Stock price** 61.63 62.38 39.50 30.88 ---------------------------------------------------------------------------------------------------------------------------------- Staff members (full-time equivalents)** 2,442 2,428 2,418 2,332 Stockholders** 9,868 10,164 10,241 9,000 ---------------------------------------------------------------------------------------------------------------------------------- Net income per staff member(1) $ 46,816 $ 43,675 $ 40,231 $ 38,607 Efficiency ratio(1,2) 53.51% 52.32% 53.04% 53.86% Capital generation rate(1,3) 12.54% 12.59% 11.51% 11.68% Risk-based capital ratio** 12.47% 12.38% 12.01% 12.06% Price/earnings multiple** 18.07 19.80 13.96 12.06 ----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 1993 1992 1991 ----------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED AVERAGE STATEMENTS OF CONDITION Assets: Cash and due from banks $ 202,777 $ 194,808 $ 180,747 $ 167,438 Short-term investments 26,425 21,248 72,787 73,258 Investment securities 1,060,015 946,052 803,936 901,273 Loans 3,114,384 2,949,909 2,979,576 2,932,963 Reserve for loan losses (50,258) (48,619) (45,615) (43,724) ----------------------------------------------------------------------------------------------------------------------------------- Net loans 3,064,126 2,901,290 2,933,961 2,889,239 Other 168,702 158,414 144,364 126,486 ----------------------------------------------------------------------------------------------------------------------------------- TOTAL $ 4,522,045 $ 4,221,812 $ 4,135,795 $ 4,157,694 Liabilities and stockholders' equity: Demand deposits (noninterest-bearing) $ 559,574 $ 500,396 $ 443,205 $ 393,260 Deposits (interest-bearing) 2,704,736 2,718,885 2,778,768 2,858,595 Short-term borrowings 775,302 545,012 479,577 499,083 Other 73,786 65,737 67,101 61,705 Long-term debt -- -- -- -- ----------------------------------------------------------------------------------------------------------------------------------- Total 4,113,398 3,830,030 3,768,651 3,812,643 Stockholders' equity 408,647 391,782 367,144 345,051 ----------------------------------------------------------------------------------------------------------------------------------- TOTAL $ 4,522,045 $ 4,221,812 $ 4,135,795 $ 4,157,694 CONSOLIDATED STATEMENTS OF INCOME Net interest income $ 184,330 $ 174,847 $ 165,214 $ 152,891 ----------------------------------------------------------------------------------------------------------------------------------- Total advisory fees net of amortization of goodwill 82,542 78,313 77,002 72,605 Other noninterest revenues 32,696 35,086 31,006 29,132 Securities gains/(losses) (2,157) 268 2,259 574 ----------------------------------------------------------------------------------------------------------------------------------- Total noninterest income 113,081 113,667 110,267 102,311 ----------------------------------------------------------------------------------------------------------------------------------- Net interest and other income 297,411 288,514 275,481 255,202 ----------------------------------------------------------------------------------------------------------------------------------- Provision for loan losses (4,550) (9,500) (13,000) (15,702) ----------------------------------------------------------------------------------------------------------------------------------- Salaries and employment benefits 101,813 95,849 90,419 85,204 Other operating expenses* 70,214 65,937 63,362 58,380 ----------------------------------------------------------------------------------------------------------------------------------- Total other expense 172,027 161,786 153,781 143,584 Income before income taxes and cumulative effect of change in accounting principle 120,834 117,228 108,700 95,916 Applicable income taxes 35,665 34,467 29,938 23,155 ----------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of change in accounting principle 85,169 82,761 78,762 72,761 Cumulative effect of change in accounting principle (net of income taxes of $584 in 2001 and income tax benefit of $8,296 in 1992) -- -- (14,748) -- ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME* $ 85,169 $ 82,761 $ 64,014 $ 72,761 Net income per share - diluted: Income before cumulative effect of change in accounting principle $ 2.35 $ 2.21 $ 2.06 $ 1.89 Cumulative effect of change in accounting principle -- -- (0.38) -- ----------------------------------------------------------------------------------------------------------------------------------- Net income per share - diluted $ 2.35 $ 2.21 $ 1.68 $ 1.89 PERCENTAGE CHANGE FROM PRIOR YEAR 6% 32% (11)% 6% SELECTED FINANCIAL RATIOS AND STATISTICS Net income as a percentage of: Average stockholders' equity 20.84% 21.12% 20.62% 21.09% Average total assets 1.88 1.96 1.90 1.75 -------------------------------------------------------------------------------------------------------------------------------- Loan quality: Percentage of average total loans: Net charge-offs 0.23% 0.28% 0.37% 0.45% Nonaccruing loans 0.93 0.75 1.00 1.84 Percentage of total loans: Reserve for loan losses** 1.48 1.69 1.56 1.48 -------------------------------------------------------------------------------------------------------------------------------- Selected per share data: Dividends paid $ 1.06 $ 0.975 $ 0.88 $ 0.80 Book value** 11.80 10.87 10.12 9.79 Stock price** 22.75 26.25 26.50 29.00 -------------------------------------------------------------------------------------------------------------------------------- Staff members (full-time equivalents)** 2,303 2,254 2,188 2,213 Stockholders** 9,097 8,880 8,261 7,477 -------------------------------------------------------------------------------------------------------------------------------- Net income per staff member(1) $ 36,982 $ 36,717 $ 35,997 $ 32,879 Efficiency ratio(1,2) 55.86% 53.97% 53.47% 52.71% Capital generation rate(1,3) 11.88% 12.35% 12.18% 13.43% Risk-based capital ratio** 12.51% 12.36% 12.36% 12.13% Price/earnings multiple** 9.60 11.72 15.59 15.10 -----------------------------------------------------------------------------------------------------------------------------------
COMPOUND GROWTH RATES (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1991 TO 2001 1996 TO 2001 ------------------------------------------------------------------------------------------------- CONSOLIDATED AVERAGE STATEMENTS OF CONDITION Assets: Cash and due from banks 2.57% 2.85 Short-term investments (8.96) 1.61 Investment securities 4.06 (0.02) Loans 5.97 7.76 Reserve for loan losses 5.93 8.91 ------------------------------------------------------------------------------------------------- Net loans 5.97 7.75 Other 14.40 19.55 ------------------------------------------------------------------------------------------------- TOTAL 5.69 6.38 Liabilities and stockholders' equity: Demand deposits (noninterest-bearing) 8.96 7.95 Deposits (interest-bearing) 4.25 8.44 Short-term borrowings 7.49 (2.98) Other 7.85 5.24 Long-term debt -- 40.01 ------------------------------------------------------------------------------------------------- Total 5.62 6.31 Stockholders' equity 6.39 7.09 ------------------------------------------------------------------------------------------------- TOTAL 5.69 6.38 CONSOLIDATED STATEMENTS OF INCOME Net interest income 5.40 3.85 ------------------------------------------------------------------------------------------------- Total advisory fees net of amortization of goodwill 9.31 12.47 Other noninterest revenues 5.47 5.05 Securities gains/(losses) 10.24 5.08 ------------------------------------------------------------------------------------------------- Total noninterest income 8.34 10.53 ------------------------------------------------------------------------------------------------- Net interest and other income 6.67 6.67 ------------------------------------------------------------------------------------------------- Provision for loan losses 2.37 4.41 ------------------------------------------------------------------------------------------------- Salaries and employment benefits 6.95 6.88 Other operating expenses* 6.55 8.64 ------------------------------------------------------------------------------------------------- Total other expense 6.79 7.56 Income before income taxes and cumulative effect of change in accounting principle 7.08 5.69 Applicable income taxes 11.04 7.10 ------------------------------------------------------------------------------------------------- Income before cumulative effect of change in accounting principle 5.48 4.98 Cumulative effect of change in accounting principle (net of income taxes of $584 in 2001 and income tax benefit of $8,296 in 1992) -- -- ------------------------------------------------------------------------------------------------- NET INCOME* 5.57 5.17 Net income per share - diluted: Income before cumulative effect of change in accounting principle 7.15 6.21 Cumulative effect of change in accounting principle -- -- ------------------------------------------------------------------------------------------------- Net income per share - diluted 7.23 6.37 PERCENTAGE CHANGE FROM PRIOR YEAR SELECTED FINANCIAL RATIOS AND STATISTICS Net income as a percentage of: Average stockholders' equity Average total assets ---------------------------------------------------------------------- Loan quality: Percentage of average total loans: Net charge-offs Nonaccruing loans Percentage of total loans: Reserve for loan losses** ---------------------------------------------------------------------- Selected per share data: Dividends paid Book value** Stock price** ---------------------------------------------------------------------- Staff members (full-time equivalents)** Stockholders** ---------------------------------------------------------------------- Net income per staff member(1) Efficiency ratio(1,2) Capital generation rate(1,3) Risk-based capital ratio** Price/earnings multiple** ---------------------------------------------------------------------------------------------------
26 CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) A summary of the unaudited quarterly results of operations for the years ended December 31 is as follows:
2001 2000 ----------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) DEC. 31 SEPT. 30 JUNE 30 MAR. 31 DEC. 31 SEPT. 30 JUNE 30 MAR. 31 ----------------------------------------------------------------------------------------------------------------------------------- Interest income $ 104,003 $ 115,196 $ 121,834 $ 127,765 $ 136,651 $ 135,203 $ 132,582 $ 126,018 Interest expense 38,273 49,320 56,828 65,564 72,443 72,587 67,957 62,328 ----------------------------------------------------------------------------------------------------------------------------------- Net interest income 65,730 65,876 65,006 62,201 64,208 62,616 64,625 63,690 Provision for loan losses (4,600) (5,300) (4,700) (5,250) (5,000) (6,400) (5,000) (5,500) ----------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 61,130 60,576 60,306 56,951 59,208 56,216 59,625 58,190 Other income 59,872 55,838 54,805 55,966 56,039 58,823 51,037 50,727 Securities gains/(losses) 738 2 71 711 1,360 (3,436) 185 1,475 ----------------------------------------------------------------------------------------------------------------------------------- Net interest and other income 121,740 116,416 115,182 113,628 116,607 111,603 110,847 110,392 Other expense 71,861 68,858 68,134 68,064 70,565 64,527 65,027 64,563 ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of change in accounting principle 49,879 47,558 47,048 45,564 46,042 47,076 45,820 45,829 Applicable income taxes 18,141 16,305 16,066 15,497 17,237 15,986 15,377 15,228 ----------------------------------------------------------------------------------------------------------------------------------- Net income before cumulative effect of change in accounting principle $ 31,738 $ 31,253 $ 30,982 $ 30,067 $ 28,805 $ 31,090 $ 30,443 $ 30,601 Cumulative effect of change in accounting principle (net of income taxes of $584) -- -- -- 1,130 -- -- -- -- ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 31,738 $ 31,253 $ 30,982 $ 31,197 $ 28,805 $ 31,090 $ 30,443 $ 30,601 Net income per share - basic before cumulative effect of change in accounting principle $ 0.97 $ 0.96 $ 0.95 $ 0.93 $ 0.89 $ 0.96 $ 0.94 $ 0.95 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -- -- 0.03 -- -- -- -- ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME PER SHARE - BASIC $ 0.97 $ 0.96 $ 0.95 $ 0.96 $ 0.89 $ 0.96 $ 0.94 $ 0.95 NET INCOME PER SHARE - DILUTED BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 0.96 $ 0.95 $ 0.94 $ 0.92 $ 0.87 $ 0.95 $ 0.94 $ 0.94 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -- -- 0.03 -- -- -- -- ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME PER SHARE - DILUTED $ 0.96 $ 0.95 $ 0.94 $ 0.95 $ 0.87 $ 0.95 $ 0.94 $ 0.94
27 CONSOLIDATED STATEMENTS OF CONDITION
FOR THE YEAR ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2001 2000 --------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 210,104 $ 223,819 Federal funds sold and securities purchased under agreements to resell 104,999 50,175 Investment securities available for sale 1,264,848 1,440,065 Investment securities held to maturity (market value of $17,086 in 2001 and $20,984 in 2000) 16,452 20,738 Loans: Commercial, financial and agricultural 1,861,727 1,622,654 Real estate - construction 400,534 372,702 Mortgage - commercial 1,009,442 990,433 Mortgage - residential 865,305 925,938 Installment loans to individuals 1,351,825 1,277,291 Unearned income (874) (609) --------------------------------------------------------------------------------------------------------- Total loans net of unearned income 5,487,959 5,188,409 Reserve for loan losses (80,784) (76,739) --------------------------------------------------------------------------------------------------------- Net loans 5,407,175 5,111,670 Premises and equipment, net 140,224 130,910 Goodwill and other intangible assets, net of accumulated amortization of $25,383 in 2001 and $17,187 in 2000 208,373 172,015 Accrued interest receivable 40,558 49,200 Other assets 125,729 123,024 --------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 7,518,462 $ 7,321,616 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing demand $ 1,258,322 $ 955,651 Interest-bearing: Savings 356,182 350,213 Interest-bearing demand 1,410,280 1,413,173 Certificates under $100,000 900,059 927,500 Certificates $100,000 and over 1,665,942 1,639,479 --------------------------------------------------------------------------------------------------------- Total deposits 5,590,785 5,286,016 Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 828,261 1,099,445 U.S.Treasury demand 94,871 30,757 Line of credit 33,500 17,000 --------------------------------------------------------------------------------------------------------- Total short-term borrowings 956,632 1,147,202 Accrued interest payable 34,540 51,655 Other liabilities 93,475 76,843 Long-term debt 160,500 168,000 --------------------------------------------------------------------------------------------------------- Total liabilities 6,835,932 6,729,716 Stockholders' equity: Common stock: $1.00 par value, authorized 150,000,000 shares; issued 39,264,173 shares 39,264 39,264 Capital surplus 78,190 72,817 Retained earnings 817,017 753,373 Accumulated other comprehensive income 10,078 (4,429) --------------------------------------------------------------------------------------------------------- Total contributed capital and retained earnings 944,549 861,025 Less: Treasury stock; 6,563,956 shares in 2001 and 6,870,855 shares in 2000, at cost (262,019) (269,125) --------------------------------------------------------------------------------------------------------- Total stockholders' equity 682,530 591,900 --------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,518,462 $ 7,321,616
See notes to consolidated financial statements. 28 CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2001 2000 1999 ---------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 389,517 $ 430,233 $ 367,063 Interest and dividends on investment securities: Taxable interest 69,408 88,486 83,233 Tax-exempt interest 1,862 742 722 Dividends 7,013 9,183 9,592 Interest on federal funds sold and securities purchased under agreements to resell 998 1,810 1,566 ---------------------------------------------------------------------------------------------------------- Total interest income 468,798 530,454 462,176 ---------------------------------------- Interest on deposits 152,042 192,200 147,494 Interest on short-term borrowings 46,989 72,054 57,708 Interest on long-term debt 10,954 11,061 11,061 ---------------------------------------------------------------------------------------------------------- Total interest expense 209,985 275,315 216,263 ---------------------------------------- Net interest income 258,813 255,139 245,913 Provision for loan losses (19,850) (21,900) (17,500) ---------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 238,963 233,239 228,413 ---------------------------------------------------------------------------------------------------------- OTHER INCOME Total advisory fees: Private client advisory services 106,074 99,732 93,853 Corporate financial services 58,407 51,470 44,642 Affiliate managers 20,555 21,319 16,101 ---------------------------------------------------------------------------------------------------------- Total advisory fees 185,036 172,521 154,596 Amortization of goodwill (8,195) (7,487) (6,183) ---------------------------------------- Net total advisory fees after amortization of goodwill 176,841 165,034 148,413 ---------------------------------------- Service charges on deposit accounts 27,240 25,344 23,817 Loan fees and late charges 7,691 5,812 4,974 Card fees 10,313 10,004 9,343 Other operating income 4,396 10,432 3,662 Securities gains/(losses) 1,522 (416) 1,244 ---------------------------------------------------------------------------------------------------------- Total other income 228,003 216,210 191,453 ---------------------------------------- Net interest and other income 466,966 449,449 419,866 ---------------------------------------- OTHER EXPENSE Salaries and employment benefits 166,794 162,939 147,219 Net occupancy 16,846 15,741 15,440 Furniture and equipment 23,665 23,013 21,513 Advertising and contributions 8,932 8,542 9,388 Servicing and consulting fees 9,066 8,162 7,290 Abandonment of fixed assets and other related charges -- -- 13,401 Other operating expense 51,614 46,285 43,953 ---------------------------------------------------------------------------------------------------------- Total other expense 276,917 264,682 258,204 ---------------------------------------- NET INCOME Income before income taxes and cumulative effect of change in accounting principle 190,049 184,767 161,662 Income tax expense 66,009 63,828 54,365 ---------------------------------------------------------------------------------------------------------- Net income before cumulative effect of change in accounting principle $ 124,040 $ 120,939 $ 107,297 Cumulative effect of change in accounting principle (net of income taxes of $584) 1,130 -- -- ---------------------------------------------------------------------------------------------------------- NET INCOME $ 125,170 $ 120,939 $ 107,297 ---------------------------------------- Net income per share - basic: Before cumulative effect of change in accounting principle $ 3.81 $ 3.74 $ 3.26 Cumulative effect of change in accounting principle 0.03 -- -- ---------------------------------------- NET INCOME PER SHARE - BASIC $ 3.84 $ 3.74 $ 3.26 Net income per share - diluted: Before cumulative effect of change in accounting principle $ 3.77 $ 3.70 $ 3.21 Cumulative effect of change in accounting principle 0.03 -- -- ---------------------------------------- NET INCOME PER SHARE - DILUTED $ 3.80 $ 3.70 $ 3.21 Weighted average shares outstanding: basic 32,573 32,305 32,913 diluted 32,971 32,680 33,383
See notes to consolidated financial statements. 29 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ACCUMULATED OTHER COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STOCK SURPLUS EARNINGS INCOME STOCK TOTAL -------------------------------------------------------------------------------------------------------------------------------- 1999 Balance, January 1 $ 39,264 $ 67,047 $ 636,662 $ 5,928 $(202,692) $ 546,209 Comprehensive income: Net income -- -- 107,297 -- -- 107,297 Other comprehensive income, net of tax Unrealized losses on securities, net of income taxes of ($22,459) -- -- -- (39,928) -- (39,928) Reclassification adjustment for security gains included in net income, net of income taxes of ($448) -- -- -- (796) -- (796) --------- Net unrealized losses on securities -- -- -- (40,724) -- -- --------- Total comprehensive income -- -- -- -- -- 66,573 Cash dividends paid - $1.65 per share -- -- (54,361) -- -- (54,361) Common stock issued under employment benefit plans (404,751 shares issued) -- 3,702 -- -- 10,999 14,701 Acquisition of treasury stock (1,381,077 shares acquired) -- -- -- -- (74,891) (74,891) -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31 39,264 70,749 689,598 (34,796) (266,584) 498,231 2000 Comprehensive income: Net income -- -- 120,939 -- -- 120,939 Other comprehensive income, net of tax Unrealized gains on securities, net of income taxes of $16,931 -- -- -- 30,101 -- 30,101 Reclassification adjustment for security losses included in net income, net of income taxes of $150 -- -- -- 266 -- 266 --------- Net unrealized gains on securities -- -- -- 30,367 -- -- --------- Total comprehensive income -- -- -- -- -- 151,306 Cash dividends paid - $1.77 per share -- -- (57,164) -- -- (57,164) Common stock issued under employment benefit plans (227,929 shares issued) -- 1,949 -- -- 6,395 8,344 Nonemployee stock option expense -- 119 -- -- -- 119 Acquisition of treasury stock (187,386 shares acquired) -- -- -- -- (8,936) (8,936) -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31 39,264 72,817 753,373 (4,429) (269,125) 591,900 2001 Comprehensive income: Net income -- -- 125,170 -- -- 125,170 Other comprehensive income, net of tax Unrealized gains on securities, net of income taxes of $8,288 -- -- -- 14,733 -- 14,733 Reclassification adjustment for security gains included in net income, net of income taxes of ($548) -- -- -- (974) -- (974) --------- Net unrealized gains on securities -- -- -- 13,759 -- -- Net unrealized holding gains arising during the year on derivatives used for cash flow hedge, net of income taxes of $373 -- -- -- 944 -- 944 Reclassification adjustment for derivative gains included in net income, net of income taxes of ($21) -- -- -- (196) -- (196) --------- Total comprehensive income -- -- -- -- -- 139,677 Cash dividends paid - $1.89 per share -- -- (61,526) -- -- (61,526) Common stock issued under employment benefit plans (364,307 shares issued) -- 5,254 -- -- 10,602 15,856 Nonemployee stock option expense -- 119 -- -- -- 119 Acquisition of treasury stock (57,408 shares acquired) -- -- -- -- (3,496) (3,496) -------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31 $ 39,264 $ 78,190 $ 817,017 $ 10,078 $(262,019) $ 682,530
See notes to consolidated financial statements. 30 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31 (IN THOUSANDS) 2001 2000 1999 ---------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 125,170 $ 120,939 $ 107,297 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 19,850 21,900 17,500 Provision for depreciation 18,496 17,615 16,467 Compensation expense - nonemployee stock options 119 119 -- Amortization of investment securities available for sale discounts and premiums 11,267 6,624 3,643 Amortization/(accretion) of investment securities held to maturity discounts and premiums 6 (12) (56) Deferred income taxes (2,932) (2,346) (8,080) Gross proceeds from sales of loans 88,852 111,346 76,743 Gains on sales of loans (932) (1,859) (492) Securities (gains)/losses (1,522) 416 (1,244) Decrease/(increase) in other assets 18,164 (54,650) 20,047 (Decrease)/increase in other liabilities (6,884) 36,812 11,468 ---------------------------------------------------------------------------------------------------- Net cash provided by operating activities 269,654 256,904 243,293 INVESTING ACTIVITIES Proceeds from sales of investment securities available for sale 54,661 495,749 981,744 Proceeds from maturities of investment securities available for sale 463,517 241,092 273,839 Proceeds from maturities of investment securities held to maturity 4,280 10,656 43,755 Purchases of investment securities available for sale (331,207) (450,231) (1,709,160) Purchases of investment securities held to maturity -- (150) (1,000) Investments in affiliates (44,553) (33,017) (27,658) Purchases of loans (12,020) (10,262) (12,341) Net increase in loans (391,255) (489,641) (576,837) Purchases of premises and equipment (49,639) (27,172) (28,396) Dispositions of premises and equipment 21,829 10,807 25,261 ---------------------------------------------------------------------------------------------------- Net cash used for investing activities (284,387) (252,169) (1,030,793) FINANCING ACTIVITIES Net increase/(decrease) in demand, savings and interest-bearing demand deposits 305,747 (66,930) 43,933 Net (decrease)/increase in certificates of deposit (978) (16,538) 788,788 Net (decrease)/increase in federal funds purchased and securities sold under agreements to repurchase (271,184) 128,587 38,512 Net increase/(decrease) in U.S. Treasury demand 64,114 (64,243) 76,056 Maturity of long-term debt (7,500) -- -- Net increase/(decrease) in line of credit 16,500 (8,000) 25,000 Cash dividends (61,526) (57,164) (54,361) Proceeds from common stock issued under employment benefit plans, net of taxes 14,165 7,578 11,289 Payments for common stock acquired through buybacks (3,496) (8,936) (74,891) ---------------------------------------------------------------------------------------------------- Net cash provided by/(used for) financing activities 55,842 (85,646) 854,326 ---------------------------------------------------------------------------------------------------- Increase/(decrease) in cash and cash equivalents 41,109 (80,911) 66,826 Cash and cash equivalents at beginning of year 273,994 354,905 288,079 ---------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 315,103 $ 273,994 $ 354,905 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 227,100 $ 279,672 $ 204,804 Taxes 62,822 68,043 63,869 Loans transferred during the year: To other real estate owned $ 966 $ 1,935 $ 1,805 From other real estate owned 1,285 1,794 2,761
See notes to consolidated financial statements. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. In December 2000 the Corporation became a financial holding company under the Bank Holding Company Act. It holds all of the outstanding capital stock of Wilmington Trust Company (WTC), a Delaware-chartered bank and trust company engaged in commercial and trust banking activities since 1903. WTC is the largest full-service bank in Delaware, with 45 branch offices and 11 principal operating subsidiaries through which it engages in various lines of business. The Corporation also owns two other depository institutions, Wilmington Trust of Pennsylvania (WTPA), a Pennsylvania-chartered bank and trust company acquired in 1993, and Wilmington Trust FSB (WTFSB), a Federally chartered savings bank organized in 1994, a registered investment advisor, Rodney Square Management Corporation (RSMC), and an investment holding company, WT Investments, Inc. (WTI). Through its subsidiaries, the Corporation engages in residential, commercial, and construction lending, deposit-taking, insurance, investment advisory, fiduciary, wealth management, and broker-dealer services. The Corporation presently conducts activities through its subsidiaries in California, Delaware, Florida, Georgia, Maryland, Nevada, New Jersey, New York, Pennsylvania, London, the Cayman Islands, and the Channel Islands. The Corporation and its subsidiaries are subject to competition from other financial institutions. They are also subject to the regulations of certain federal and state regulatory agencies and undergo periodic examination by those authorities. On January 2, 1998, WTI consummated a transaction 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. As a result of this transaction, WTI acquired a 24% equity interest in the firm, with the ability to acquire additional ownership in the future. WTI increased its equity interest in the firm to 34% in 1999, and to 56.53% in 2000. Under the agreement, principal members and certain key employees of the LLC were granted options to purchase shares in the LLC. If all of these shares were exercised at December 31, 2001, WTI's equity interest would be reduced to 33.4%. Additionally, these same principal members and key employees, subject to certain restrictions, can exercise options to put their shares of the LLC to WTI, which would increase WTI's equity interest. Conversely, WTI, subject to certain restrictions, can exercise options to call shares held by principal members and key employees, which would increase WTI's equity interest. In the event of a change in control of WTI, the principal members and key employees can call all of the shares held by WTI and retain ownership. The investment is accounted for under the equity method of accounting and is recorded in the "goodwill and other intangible assets" and the "other assets" lines of the Corporation's Consolidated Statements of Condition. The financial results of Cramer Rosenthal McGlynn are not consolidated with those of the Corporation, in part because of the control the other owners of those entities retain over numerous important governance matters. On July 31, 1998, WTI consummated a transaction with Roxbury Capital Management, LLC, an asset management firm headquartered in Santa Monica, California, performing investment management services relating to large-capitalization stocks for institutional and individual clients. As a result of this transaction, WTI acquired 100% of the preferred shares, which entitled it to a preferred profits interest equal to 30% of revenues in the firm. In 2000, WTI acquired 32 10.96% of the common shares and increased its ownership of the common shares to 40.25% in 2001. Under the agreement, principal members and certain key employees were granted options to purchase common shares in the LLC owned by WTI. If all of these options were exercised at December 31, 2001, WTI's common share interest would be reduced to 33.6%. Additionally, these same principal members and key employees can exercise options to put their common shares of the LLC to WTI, which would increase WTI's ownership. Conversely, WTI, subject to certain restrictions, can exercise options to call common shares held by principal members and key employees, which would increase WTI's ownership. The investment is accounted for under the equity method of accounting and is recorded in the "goodwill and other intangible assets" and the "other assets" lines of the Corporation's Consolidated Statements of Condition. The excess of the carrying value over the underlying equity resulting from these transactions was $208 million and $171 million at December 31, 2001, and 2000, respectively. On January 2, 2002, the Corporation completed its acquisition of a 100% equity interest and an 80% profits interest in Balentine & Company, LLC. Balentine, headquartered in Atlanta, Georgia, with offices in Nashville, Tennessee, oversees management for nearly $3.5 billion in assets for high net worth families, foundations, and endowments. The Corporation issued 141,489 shares of its common stock to shareholders of Balentine at the closing of this transaction, and will issue additional shares representing the balance of the purchase price in five annual installments from 2003 to 2007. The transaction will be accounted for under the purchase method of accounting and Balentine's 2002 operating results will be consolidated beginning with the Corporation's 2002 financial statements. BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include, after elimination of material intercompany balances and transactions, the accounts of the Corporation, WTC, WTPA, WTFSB, RSMC, WTI, and WTC's subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 and recognition of income from affiliates. Certain prior year amounts have been reclassified to conform to current year presentation. ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" in June 1999 and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" in June 2000, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. The Statement requires the Corporation to recognize all derivatives on its balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be recognized in earnings immediately. SFAS No. 133, as amended, was effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The adoption of Statement No. 133 on January 1, 2001, resulted in the cumulative effect of the accounting change of $1.1 million after-tax being recognized as income in the Consolidated Statements of Income. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This Statement supersedes and replaces the guidance in SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and 33 Extinguishments of Liabilities." It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, although it carries over most of SFAS No. 125's provisions without reconsideration. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001, and recognition and reclassification of collateral and disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. This Statement is to be applied prospectively with certain exceptions. Other than those exceptions, earlier or retroactive application of its accounting provisions is not permitted. The adoption of this Statement did not have an impact on the Corporation's earnings, financial condition, or equity. In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This Statement addresses financial accounting and reporting for business combinations and supersedes Accounting Principles Board Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." All business combinations within the scope of this Statement are to be accounted for using the purchase method, thereby eliminating use of the pooling-of-interests method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. This Statement also applies to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. The adoption of this Statement did not have an impact on the Corporation's earnings, financial condition, or equity. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001, except that goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to the nonamortization and amortization provisions of the Statement. Early application is permitted for entities with fiscal years beginning after March 15, 2001, provided that the first interim financial statements have not previously been issued. This Statement is required to be applied at the beginning of an entity's fiscal year and to all goodwill and other intangible assets recognized in financial statements at that date. Beginning January 1, 2002, annual amortization expense will be reduced by approximately $8.8 million, resulting in increased after-tax income of $5.8 million. Other than the cessation of amortization, the Corporation does not anticipate an impact on earnings, financial condition, or equity upon adoption. As of December 31, 2001, the Corporation has tested its goodwill related to affiliate asset managers and found none to be impaired. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and/or normal operation of a long-lived asset, except for certain obligations of lessees. The Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. This Statement amends SFAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies," and it applies to all entities. It is effective for financial statements issued for fiscal years beginning after June 15, 2002. Earlier application is encouraged. The Corporation does not expect the adoption of this Statement to have an impact on its earnings, financial condition, or equity. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." However, this Statement retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. This Statement supersedes the accounting and reporting provisions 34 of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." However, this Statement retains the requirement of APB Opinion 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sale, by abandonment, or in distribution to owners) or is classified as held for sale. This Statement also amends Accounting Research Bulletin (ARB) No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a temporarily controlled subsidiary. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with earlier application encouraged. The provisions of this Statement generally are to be applied prospectively. The Corporation does not expect the adoption of this Statement to have an impact on its earnings, financial condition, or equity. 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 pre- payments on the underlying assets. 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 utilizing the interest method. 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. It is the policy of the Corporation to maintain a reserve for loan losses which is management's best estimate of known and inherent estimated losses based on subjective judgments regarding the collectibility of loans within the reported portfolio. The reserve for loan losses is evaluated on a quarterly basis by personnel independent of the various lending functions. In evaluating the reserve, specific consideration is given to current micro- and macro-economic factors, historical net loss experience, current delinquency trends, and movement within the internally reported loan quality classifications among other matters. The methodology employed to determine the necessary level of reserve to maintain has been applied on a basis consistent with prior periods. 35 Reserve allocations for the commercial portfolios are maintained at various levels. Impairment reserve allocations typically are established for nonperforming commercial credits as identified for evaluation in accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and are based on the present value of anticipated cash flows discounted at 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. Specific reserve allocations are typically established for large problem or problem credits not considered to be impaired. Specific reserve allocations represent subjective estimates of probable losses and consider estimated collateral shortfalls. All commercial credits and letters of credit not subject to impairment or specific reserve allocations are allocated a general allowance based on their internal risk-rating classification. An eight-point risk-rating classification system is maintained. The definitions and allowance allocation percentages for all adverse classifications are consistent with current regulatory guidelines. Reserve allocations for the retail portfolios are determined statistically. Specific allocations are established for identified problem credits which typically represent loans nearing the policy guidelines for chargeoff recognition. General allocations are established for the remaining retail portfolios by applying a ratio to the outstanding balances which considers the net loss experience recognized over an historical period for the respective product. Adjustments are made as information becomes known that adversely affects the perceived quality of an individual retail portfolio. A portion of the reserve is not specifically allocated to the commercial or retail portfolios and represents probable or inherent losses caused by certain business conditions not accounted for otherwise. Typically, business conditions, including current economic/market conditions, portfolio complexity, payment performance, loan portfolio risk rating migration, the level of "serious doubt" loans, litigation impact and bankruptcy trends are the core of the unallocated reserve position. The determination of the reserve is inherently subjective, 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. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents the unamortized balance of the excess of the purchase price over the proportionate underlying fair value of net equity at the time of the Corporation's investments in its affiliate asset managers. In addition to periodic testing, a substantial and permanent loss of either customer accounts and/or assets under management would trigger testing for impairment. A discounted cash flow approach would be taken utilizing the risk-adjusted cost of capital as a discount rate. 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 basis 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, Wilmington Trust (Cayman), Ltd., Wilmington Trust (Channel Islands), Ltd., and Rodney Square Investors, L.P., file separate returns. Wilmington Trust (Cayman), Ltd., and Wilmington Trust (Channel Islands), Ltd., are foreign companies and are not subject to United States federal income taxes. TRUST AND ASSET MANAGEMENT FEES Trust income is recognized on an accrual basis, except for certain amounts that are recorded when billed. Recording income when billed does not have a material effect on net income. 36 PER-SHARE DATA 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. COMPREHENSIVE INCOME SFAS No. 130, "Reporting Comprehensive Income," establishes rules for the reporting and display of comprehensive income and its components. The statement requires, among other things, unrealized gains or losses on the Corporation's available-for-sale securities to be included in comprehensive income. DERIVATIVE INTEREST RATE CONTRACTS The Corporation enters into interest rate swap and interest rate floor contracts in managing interest rate risk 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-rate interest amounts computed on contractual notional principal amounts. The Corporation has entered into swaps in which it pays a fixed rate and it receives a floating rate. The net interest differential associated with the swaps is reported in "Interest and Fees on Loans" in the Consolidated Statements of Income. The net gains or losses resulting from the changes in fair value of the swaps are recorded to "Other Operating Income" in the Consolidated Statements of Income. Floors are contracts that generate interest payments to the Corporation based on the difference between the floating-rate index and a predetermined 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 made or received by the Corporation. The Corporation enters into these contracts to hedge against the impact of adverse market interest rate changes on the cash flows of floating-rate commercial loans. Hedge effectiveness is assessed by comparing the changes in intrinsic value of the interest rate floors with the changes in the variable interest rates for the commercial loans. Changes in the fair value of the floors attributed to the change in "time value" are excluded in assessing the hedge's effectiveness and are recorded to "Other Operating Income" in the Consolidated Statements of Income. Changes in the fair value that are determined to be ineffective are also recorded to "Other Operating Income" in the Consolidated Statements of Income. The effective portion of the change in fair value is recorded in "Other Comprehensive Income" in the Consolidated Statements of Condition. The Corporation does not hold or issue derivative financial instruments for trading purposes. Other operating income for the period ended December 31, 2001, includes net gains of $596,048 resulting from the change in fair value of the floors that was excluded in assessing hedge effectiveness. Net gains or losses resulting from the cash flow hedges' ineffectiveness were immaterial. The amounts recorded to "Other Comprehensive Income" are subsequently reclassified to "Interest and Fees on Loans" in the Consolidated Statements of Income as a yield adjustment in the same period in which the hedged forecasted transaction affects earnings. On April 17, 2001, the Corporation sold all of its floors at a gain of $32,682. For the twelve months ended December 31, 2001, $217,143 of gains in "Accumulated Other Comprehensive Income" were reclassified to earnings. During the 12 months ending December 31, 2002, $298,812 of gains in "Accumulated Other Comprehensive Income" are expected to be reclassified to earnings. OTHER REAL ESTATE OWNED Other real estate owned (OREO), 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 periodi- cally 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 $12,017,244 and $4,723,074 during the years ended December 31, 2001, and December 31, 2000, respectively. 37 NOTE 3 INVESTMENT SECURITIES The amortized cost and estimated market value of securities are as follows:
BALANCE, DECEMBER 31, 2001 Amortized Cost Gross Gross Estimated market value ------------------------- unrealized unrealized ------------------------- (in thousands) Debt Equity gains losses Debt Equity ------------------------------------------------------------------------------------------------------------------------------------ Investment securities available for sale: U.S. Treasury and government agencies $ 744,798 $ -- $ 14,596 $ (12) $ 759,382 $ -- Obligations of state and political subdivisions 12,385 -- 585 -- 12,970 -- Other securities: Preferred stock -- 87,654 -- (3,263) -- 84,391 Asset-backed securities 259,936 -- 6,324 -- 266,260 -- Other debt securities 100,950 -- 1,149 (4,968) 97,131 -- Other marketable equity securities -- 44,547 167 -- -- 44,714 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $1,118,069 $ 132,201 $ 22,821 $ (8,243) $1,135,743 $ 129,105 Investment securities held to maturity: U.S. Treasury and government agencies $ 10,593 $ -- $ 363 $ -- $ 10,956 $ -- Obligations of state and political subdivisions 4,921 -- 271 -- 5,192 -- Other securities: Asset-backed securities 938 -- -- -- 938 -- Other debt securities -- -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $ 16,452 $ -- $ 634 $ -- $ 17,086 $ -- BALANCE, DECEMBER 31, 2000 (in thousands) ------------------------------------------------------------------------------------------------------------------------------------ Investment securities available for sale: U.S. Treasury and government agencies $ 878,267 $ -- $ 4,646 $ (3,981) $ 878,932 $ -- Obligations of state and political subdivisions 11,443 -- 333 -- 11,776 -- Other securities: Preferred stock -- 106,727 -- (6,264) -- 100,463 Asset-backed securities 293,345 -- 697 (893) 293,149 -- Other debt securities 116,475 -- 501 (2,197) 114,779 -- Other marketable equity securities -- 40,728 238 -- -- 40,966 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $1,299,530 $ 147,455 $ 6,415 $ (13,335) $1,298,636 $ 141,429 Investment securities held to maturity: U.S. Treasury and government agencies $ 11,003 $ -- $ -- $ (22) $ 10,981 $ -- Obligations of state and political subdivisions 6,640 -- 273 -- 6,913 -- Other securities: Asset-backed securities 2,195 -- -- (5) 2,190 -- Other debt securities 900 -- -- -- 900 -- ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $ 20,738 $ -- $ 273 $ (27) $ 20,984 $ --
38 The amortized cost and estimated market value of debt securities at December 31, 2001 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 $ 254,987 $ 256,476 $ 10,000 $ 10,359 Due after one year through five years 303,287 313,388 822 842 Due after five years through ten years 129,226 132,963 3,593 3,838 Due after ten years 430,569 432,916 2,037 2,047 ----------------------------------------------------------------------------------------------------------------- $1,118,069 $1,135,743 $ 16,452 $ 17,086
Proceeds from the sales of investment securities available for sale during 2001, 2000, and 1999 were $54,660,516, $495,749,632, and $981,744,446, respectively. Gross gains of $1,501,958, $3,328,419, and $1,252,594 in 2001, 2000, and 1999, respectively, were realized on those sales, with offsetting losses of $4,067,760 and $8,192 in 2000 and 1999, respectively. There were no offsetting losses in 2001. Gross gains of $19,602 and $323,212 in 2001 and 2000, respectively, were realized on called securities with no offsetting losses. No gains were realized in 1999 on called securities. Securities with an aggregate book value of $969,221,716 at December 31, 2001 were pledged to secure deposits and other commitments. The Corporation's preferred stock portfolio consists of cumulative and noncumulative preferred stocks. At December 31, 2001, the Corporation's asset-backed securities portfolio consisted primarily of collateralized mortgage obligations. The portfolio has an approximate average life of 2.39 years. The portfolio's aggregate average yield-to-maturity was 6.09%. NOTE 4 CONCENTRATIONS OF LOANS The Corporation's lending activity primarily is focused within Delaware, Pennsylvania, Maryland, and Florida. The Corporation makes no foreign loans. At December 31, 2001, approximately 7% of the Corporation's total loan portfolio consisted of real estate construction loans, while approximately 34% represented commercial loans, 18% represented commercial mortgage loans, which were secured by income-producing properties, and approximately 16% and 25%, respectively, represented residential mortgage loans and installment loans to individuals. These ratios are consistent with the corresponding ratios reported at December 31, 2000. In addition to these loans outstanding, at December 31, 2001 and 2000, unfunded commitments to lend in the real estate sector were approximately $785,634,000 and $499,934,000, respectively. The Corporation generally requires collateral on all real estate exposure and a loan-to-value ratio of no greater than 80% when underwritten. NOTE 5 RESERVE FOR LOAN LOSSES The following is an analysis of the reserve for loan losses:
(in thousands) 2001 2000 1999 ------------------------------------------------------------------------- Balance, January 1 $ 76,739 $ 76,925 $ 71,906 ------------------------------------------------------------------------- Charge-offs (19,335) (26,383) (16,500) Recoveries 3,530 4,297 4,019 ------------------------------------------------------------------------- Net charge-offs (15,805) (22,086) (12,481) Provision charged to operations 19,850 21,900 17,500 ------------------------------------------------------------------------- BALANCE, DECEMBER 31 $ 80,784 $ 76,739 $ 76,925
39 Information with respect to loans that are considered to be impaired under SFAS No. 114 for the year ended December 31 is as follows:
(in thousands) 2001 2000 1999 -------------------------------------------------------------------------------------------------------- Average recorded investment in impaired loans $ 34,178 $ 42,290 $ 52,403 -------------------------------------------------------------------------------------------------------- Recorded investment in impaired loans at year-end subject to a reserve for loan losses (2001 reserve -- $6,297; 2000 reserve -- $10,066; 1999 reserve -- $7,222) $ 34,535 $ 36,213 $ 26,157 Recorded investment in impaired loans at year-end requiring no reserve for loan losses 316 303 8,043 -------------------------------------------------------------------------------------------------------- RECORDED INVESTMENT IN IMPAIRED LOANS AT YEAR-END $ 34,851 $ 36,516 $ 34,200 Recorded investment in impaired loans at year-end classified as nonaccruing $ 32,601 $ 36,484 $ 27,135 -------------------------------------------------------------------------------------------------------- Interest income recognized $ 1,961 $ 4,646 $ 3,245 Interest income recognized using the cash basis method of income recognition 1,842 4,618 2,555
The following is an analysis of interest on nonaccruing loans:
(in thousands) 2001 2000 1999 -------------------------------------------------------------------------------------------------------- Nonaccruing loans at December 31 $ 38,016 $ 40,161 $ 29,184 -------------------------------------------------------------------------------------------------------- Interest income which would have been recognized under original terms $ 2,707 $ 5,754 $ 3,584 Interest accrued or received 2,021 4,743 2,644
NOTE 6 PREMISES AND EQUIPMENT A summary of premises and equipment at December 31 is as follows:
(in thousands) 2001 2000 -------------------------------------------------------------------------------------------------------- Land $ 9,406 $ 10,036 Buildings and improvements 123,326 113,003 Furniture and equipment 144,104 128,628 -------------------------------------------------------------------------------------------------------- 276,836 251,667 Accumulated depreciation (136,612) (120,757) -------------------------------------------------------------------------------------------------------- PREMISES AND EQUIPMENT, NET $140,224 $ 130,910
During the fourth quarter of 1999, the Corporation announced plans to outsource its check processing and core accounting processing for personal and institutional trust accounts. The Corporation determined that these processing functions could be performed more cost-effectively by an external provider. In conjunction with the Corporation's commitment to outsource these functions, assets including imaging equipment and capitalized software with a carrying value of $11,181,342 were abandoned during 1999 in full. In addition, the Corporation closed several retail branch locations during 1999. Accordingly, the Corporation evaluated the ongoing value of furniture and fixtures associated with those locations. Based on the evaluation performed, the Corporation determined that the related assets, including property, with a carrying value of $886,062 were impaired. A charge of $758,330 was recognized to reduce the related assets to their fair value based on available market prices. In conjunction with the identified outsourcing plans and branch closures, additional expenses amounting to $1,461,419 were recognized in the fourth quarter of 1999. These expenses represented charges associated with automated teller machines and software reconfiguration. 40 NOTE 7 SHORT-TERM BORROWINGS Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, U.S. Treasury demand notes, and lines of credit. Federal funds purchased and securities sold under agreements to repurchase generally mature within 365 days from the transaction date. The securities underlying the agreements are U.S. Treasury bills, notes, and bonds that are held at the Federal Reserve as collateral. U.S. Treasury demand notes are generally repaid within seven to 180 days from the transaction date. At December 31, 2001, and 2000, the balance outstanding under a line of credit between the Corporation and an unaffiliated bank was $33,500,000 and $17,000,000, respectively. At December 31, 2001, and 2000, the line of credit provided for interest to be paid on outstanding balances at the London Interbank Offered Rate (LIBOR) plus .35%. During 2001, the credit agreement was amended increasing the line of credit from $35,000,000 to $50,000,000. The agreement requires the Corporation to maintain certain financial ratios pertaining to loan quality, limitations on debt, and risk-based capital. The Corporation was in compliance with all required covenants contained in the agreement at December 31, 2001 and 2000. A summary of securities sold under agreements to repurchase at December 31 is as follows:
(in thousands) 2001 2000 ---------------------------------------------------------------------------- Maximum amount outstanding at any month-end $290,576 $242,686 Daily average amount outstanding during the period 235,600 207,669
NOTE 8 LONG-TERM DEBT WTC has obtained advances from the Federal Home Loan Bank of Pittsburgh to finance its operations facility, the Wilmington Trust Plaza. 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. On October 9, 2001, a $7,500,000 advance with a 6.20% fixed interest rate and an original term of five years matured. Information with respect to the advances is as follows:
Principal amount (in thousands) Term (years) Fixed interest rate Maturity date ------------------------------------------------------------------------------------------------ $28,000 15 6.55% October 4, 2010 7,500 10 6.41 November 6, 2006
On May 4, 1998, the Corporation issued $125,000,000 in unsecured subordinated notes due May 1, 2008. Semiannual interest payments are due on May 1 and November 1 of each year at a fixed interest rate of 6.625%. The notes are not redeemable prior to maturity and will not be subject to any sinking fund. Under a shelf registration statement filed on March 31, 1998, with the Securities and Exchange Commission, the Corporation has registered but not issued debt securities, which may be either senior or subordinated, of $100,000,000 at December 31, 2001. The interest rate will be set at the time of issue. 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 Corporation's consolidated financial condition. NOTE 10 FAIR VALUE OF FINANCIAL INSTRUMENTS The following discloses the fair value of financial instruments held by the Corporation as of December 31, 2001, and 2000, whether or not recognized in the Consolidated Statements of Condition. In cases in which quoted market prices were not available, fair values were based 41 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 do not require that certain financial instruments and all nonfinancial instruments be included in 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," "Interest-bearing time deposits in other 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- 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 carrying amount of accrued interest receivable approximates its fair value. The fair value 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 utilizes 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. 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. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (see note 1), was adopted on January 1, 2001, and requires the Corporation to recognize all derivatives on its balance sheet at their fair value. Interest rate swap and floor contracts are recorded in the "Other Assets" and the "Other Liabilities" lines of the Corporation's Consolidated Statements of Condition. Prior to the adoption of SFAS No. 133, interest rate swap and floor contracts were classified as off-balance-sheet financial instruments. Some of the Corporation's commercial loan customers minimize their interest rate risk by entering into swaps with the Corporation, in which they exchange the floating interest rate for a fixed rate on a particular loan. The Corporation in turn offsets this interest rate risk by entering into mirror swaps with a third party, in which it exchanges the loan customer's fixed interest payments for floating rate payments. The swaps listed in the following table represent those types of interest rate swaps. At December 31, 2001, the Corporation did not have any other interest rate swaps. 42 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:
2001 2000 (in thousands) Carrying value Fair value Carrying value Fair value ---------------------------------------------------------------------------------------------------- Financial assets: Cash and due from banks $ 210,104 $ 210,104 $ 223,819 $ 223,819 Short-term investments 104,999 104,999 50,175 50,175 Investment securities 1,281,300 1,281,934 1,460,803 1,461,049 Loans, net of reserves 5,407,175 5,551,734 5,111,670 5,045,906 Interest rate swap contracts 1,339 1,339 -- -- Accrued interest receivable 40,558 40,558 49,200 49,200 Financial liabilities: Deposits 5,590,785 5,571,138 5,286,016 5,287,742 Short-term borrowings 956,632 956,632 1,147,202 1,147,202 Interest rate swap contracts 1,339 1,339 -- -- Accrued interest payable 34,540 34,540 51,655 51,655 Long-term debt 160,500 158,579 168,000 166,190
Contractual Fair Contractual Fair (in thousands) amount value amount value ---------------------------------------------------------------------------------------------------- Off-balance-sheet financial instruments: Unfunded commitments to extend credit $2,658,374 $ 10,240 $2,151,443 $ 8,113 Standby and commercial letters of credit 246,484 3,697 144,005 2,160 Interest rate swap contracts -- -- 10,161 (408) Interest rate floor contracts -- -- 175,000 3,172
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. A summary of off-balance-sheet financial agreements at December 31 is shown in the table above for Note 10, "Fair Value of Financial Instruments." 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 (e.g., securities, receivables, inventory, 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, 2000, swaps with a total notional principal of $10,160,713 were in effect and had a weighted average original and remaining term to maturity of approximately 5.1 and 4.7 years, respectively. The weighted average variable interest rate that the Corporation received was 6.52% on December 31, 2000, while the weighted average fixed interest rate that the Corporation paid on that date was 7.16%. 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. There were no floors in effect at December 31, 2001. At December 31, 2000, floors with a total notional principal of $175 million were in effect and had a weighted average original and remaining term to maturity of approximately 4.9 and 3.3 years, respectively. The weighted average strike rate on December 31, 2000, was 6%. 43 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 result in 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, 2001, and 2000, 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 depository 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 above categorizations. 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:
To be well-capitalized For capital under prompt corrective Actual adequacy purposes action provisions ----------------- -------------------------- -------------------------- Amount Ratio Amount Ratio Greater Than Greater Than Greater Than Greater Than (in thousands) Amount Ratio or Equal To or Equal To or Equal To or Equal To ---------------------------------------------------------------------------------------------------------------------------- As of December 31, 2001: Total capital (to risk-weighted assets): Wilmington Trust Corporation $653,365 11.16% Wilmington Trust Company 587,088 10.81 $434,628 8.00% $543,285 10.00% Tier 1 capital (to risk-weighted assets): Wilmington Trust Corporation 455,108 7.78 Wilmington Trust Company 519,109 9.56 217,314 4.00 325,973 6.00 Tier 1 capital (to average assets): Wilmington Trust Corporation 455,108 6.49 Wilmington Trust Company 519,109 7.49 277,398 4.00 346,747 5.00 As of December 31, 2000: Total capital (to risk-weighted assets): Wilmington Trust Corporation $607,948 10.80% Wilmington Trust Company 543,265 10.36 $419,476 8.00% $524,345 10.00% Tier 1 capital (to risk-weighted assets): Wilmington Trust Corporation 412,497 7.33 Wilmington Trust Company 477,665 9.11 209,738 4.00 314,607 6.00 Tier 1 capital (to average assets): Wilmington Trust Corporation 412,497 5.87 Wilmington Trust Company 477,665 6.93 275,570 4.00 344,463 5.00
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 permits a corporation to pay dividends only out of its capital surplus. 44 In April 1996, the Corporation, after obtaining approval of its Board of Directors, announced a plan to buy back 4,000,000 shares of its stock. During the years ended December 31, 2001, 2000, and 1999, 57,408 shares, 187,386 shares, and 1,381,077 shares, respectively, were acquired under this program at a total cost of $87,322,916. Under this 4,000,000 share program, 3,724,187 shares have been repurchased at a total cost of $183,188,285. 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, 2001, and 2000, loans to executive officers and directors of the Corporation and its principal affiliates, including loans to their associates, totaled $66,483,271 and $64,341,761, respectively. During 2001, loan additions were $14,546,559, loan repayments were $12,326,154, and other changes were $(78,895). Other changes include the loan activity of retired executive officers and directors. The Corporation is a guarantor for 57% - its ownership interest - of three obligations of its affiliate, Cramer Rosenthal McGlynn. The guaranty is for two lines of credit totaling $8 million, at LIBOR plus 2%, which expire December 8, 2002. The third credit facility is a $2 million amortizing term loan, at LIBOR plus 2%, the balance of which was $666,667 at December 31, 2001. While eliminated in the consolidated financial statements, WTC is the sole source of federal funds and term federal funds to WTPA and WTFSB. For the years ended December 31, 2001 and December 31, 2000, federal funds to WTPA averaged $63,053,666 and $41,291,683, respectively, and term federal funds to WTPA averaged $345,389,041 and $259,412,732, respectively. For the years ended December 31, 2001 and December 31, 2000, federal funds to WTFSB averaged $31,685,815 and $18,841,192, respectively, and term federal funds to WTFSB averaged $125,326,027 and $87,421,421, respectively. NOTE 14 EMPLOYMENT BENEFIT PLANS STOCK-BASED COMPENSATION PLANS At December 31, 2001, the Corporation had three types of stock-based compensation plans, which are described below. The Corporation applies 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 three types of stock-based compensation plans had been determined based on the fair value at the grant dates for awards under those plans consistent with the methods outlined in SFAS No. 123, "Accounting for Stock-Based Compensation," the Corporation's net income would have been as follows:
2001 2000 1999 ------------------------------------------------------------ Net income As reported $125,170 $120,939 $107,297 Pro forma 120,283 116,570 103,645 Basic earnings per share: As reported $ 3.84 $ 3.74 $ 3.26 Pro forma 3.69 3.61 3.15 Diluted earnings per share: As reported $ 3.80 $ 3.70 $ 3.21 Pro forma 3.65 3.57 3.10
45 1999 LONG-TERM INCENTIVE PLAN Under its 1999 long-term incentive plan, the Corporation may grant incentive stock options, nonstatutory stock options, and other stock-based and cash-based awards to officers and other key staff members for up to 1,500,000 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:
2001 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted average average average Options exercise Options exercise Options exercise outstanding price outstanding price outstanding price ---------------------------------------------------------------------------------------------------------------------------- Balance, January 1 1,886,400 $ 45.71 1,627,692 $ 42.99 1,616,842 $ 35.67 Options granted 485,406 61.76 511,370 50.38 397,926 57.38 Options exercised (311,155) 37.78 (170,999) 29.77 (348,776) 24.36 Options forfeited (51,159) 55.22 (81,663) 54.04 (38,300) 53.47 ---------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31 2,009,492 50.58 1,886,400 45.71 1,627,692 42.99 OPTIONS EXERCISABLE, DECEMBER 31 1,090,686 1,054,358 1,202,501 Weighted average fair value of option granted during the year $ 12.38 $ 9.82 $ 10.90
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:
2001 2000 1999 ---------------------------------------------------------------------------------- Dividend yields 2.99% 2.93% 3.57% Expected volatility 27.05 - 28.20 22.07 - 27.08 21.36 - 22.05 Risk-free interest rate 3.74 - 3.99 4.76 - 4.89 6.41 - 6.50 Expected option life (years) 3 - 5 3 - 5 3 - 5
A summary of the stock options outstanding at December 31, 2001, 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 $19.50 - 48.00 680,235 4.1 $43.62 655,350 $34.80 48.19 - 58.50 660,841 6.9 54.76 190,404 57.52 58.60 - 66.50 668,416 8.1 62.10 244,932 62.65 ------------------------------------------------------------------------------------------------------------------------------ $19.50 - 66.50 2,009,492 6.3 $50.58 1,090,686 $45.02
2000 EMPLOYEE STOCK PURCHASE PLAN Under the Corporation's 2000 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: 46
Shares reserved for future Subscriptions Price subscriptions outstanding per share ---------------------------------------------------------------------------------------------- Balance, January 1, 1999 289,137 54,152 ------------------------------------------------------------------------- Subscriptions entered into on June 1, 1999 (59,959) 59,959 $ 49.78 Forfeitures 3,865 (3,865) 49.78 - 51.53 Shares issued -- (52,829) 49.99 ---------------------------------------------------------------------------------------------- Balance, December 31, 1999 233,043 57,417 Appropriation-new plan 400,000 -- Subscriptions entered into on June 1, 2000 (54,812) 54,812 $ 44.57 Forfeitures 6,515 (6,515) 44.57 - 49.78 Shares issued -- (53,786) 43.14 Cancellation-old plan (236,674) -- ---------------------------------------------------------------------------------------------- Balance, December 31, 2000 348,072 51,928 Subscriptions entered into on June 1, 2001 (49,922) 49,922 $ 54.53 Forfeitures 2,208 (2,208) 44.57 - 54.53 Shares issued -- (50,896) 44.57 ---------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2001 300,358 48,746
2001 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN Under the Corporation's 2001 non-employee director stock option plan, the Compensation Committee of the Board of Directors may grant nonstatutory stock options to non-employee directors for up to 100,000 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 ten years. Information with respect to that plan is as follows:
Shares available Options Price for grant outstanding per share --------------------------------------------------------------------------------------------------- Appropriation - new plan 100,000 -- Options granted (56,000) 56,000 $62.75 --------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2001 44,000 56,000
PENSION PLAN The Wilmington Trust Pension Plan is a noncontributory, 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 the equity and fixed-income portfolios of the Wilmington Funds managed by WTC's affiliates. Participation in these funds by the plan was $95,855,172 and $131,935,813 at December 31, 2001, and 2000, respectively. The projected benefit obligation and the accumulated benefit obligation exceeded the plan assets by $16,473,572 and $3,854,627, respectively, at December 31, 2001. At December 31, 2000, the projected benefit obligation and the accumulated benefit obligation did not exceed the plan's assets. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN In 1989, the Corporation adopted a Supplemental Executive Retirement Plan (SERP). The plan, covering selected officers, is a nonqualified defined benefit plan. Assumptions used in determining the net periodic pension costs are similar to those used in determining the cost of the Corporation's pension plan. The Corporation has invested in corporate-owned life insurance contracts to meet its future obligations under this plan. The projected benefit obligation and the accumulated benefit obligation exceeded the plan assets by $12,108,777 and $9,270,709, respectively, at December 31, 2001, and $11,186,667 and $8,034,528, respectively, at December 31, 2000. 47 POSTEMPLOYMENT 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 younger than age 65, and up to $4,000 toward the premium if they are age 65 or older. 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. Information with respect to the pension, SERP, and postemployment benefit plans is as follows:
Pension/SERP benefits Postemployment benefits ---------------------------------------------------------------------------------------- (in thousands) 2001 2000 2001 2000 ---------------------------------------------------------------------------------------- Change in benefit obligation: Net benefit obligation at beginning of year $ 108,458 $ 100,434 $ 26,811 $ 29,809 Service cost 3,837 3,721 604 635 Interest cost 8,563 7,944 1,979 2,142 Plan participants' contributions -- -- 247 136 Plan amendments -- 3,938 -- -- Actuarial loss/(gain) 9,019 (2,493) 6,956 (3,264) Gross benefits paid (5,392) (5,086) (3,006) (2,647) ---------------------------------------------------------------------------------------- NET BENEFIT OBLIGATION AT END OF YEAR $ 124,485 $ 108,458 $ 33,591 $ 26,811 Change in plan assets: Fair value of plan assets at beginning of year $ 122,261 $ 105,715 $ -- $ -- Actual return on plan assets (21,409) 21,147 -- -- Employer contribution 442 485 2,759 2,511 Plan participants' contributions -- -- 247 136 Gross benefits paid (5,392) (5,086) (3,006) (2,647) ---------------------------------------------------------------------------------------- FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 95,902 $ 122,261 $ -- $ -- Funded status at end of year $ (28,583) $ 13,803 $ (33,591) $ (26,811) Unrecognized net actuarial loss/(gain) 11,367 (30,330) 5,823 (1,132) Unrecognized net transition obligation/(asset) (2,184) (2,951) -- -- Unrecognized prior service cost 8,377 9,520 -- -- ---------------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED AT END OF YEAR $ (11,023) $ (9,958) $ (27,768) $ (27,943) Amounts recognized in the Consolidated Statements of Condition consist of: Accrued benefit cost $ (11,023) $ (9,958) $ (27,768) $ (27,943) Accrued benefit liability (3,309) (3,233) -- -- Intangible asset 3,303 3,233 -- -- Accumulated other comprehensive income 6 -- -- -- ---------------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED AT END OF YEAR $ (11,023) $ (9,958) $ (27,768) $ (27,943)
48
Pension/SERP benefits Postemployment benefits ------------------------------------------------------------------------------------------------------ (in thousands) 2001 2000 1999 2001 2000 1999 ------------------------------------------------------------------------------------------------------ Weighted average assumptions used were as follows: Discount rate 7.25% 7.75% 7.50% 7.25% 7.75% 7.50% Expected return on plan assets 9.50 9.50 9.50 Rate of compensation increase 4.50 4.50 4.50 Components of net periodic benefit cost: Service cost $3,837 $3,721 $4,029 $ 604 $ 635 $ 586 Interest cost 8,563 7,944 7,240 1,979 2,142 2,017 Expected return on plan assets (10,553) (9,745) -- -- -- Amortization of transition obligation/(asset) (768) (768) (751) -- -- -- Amortization of prior service cost 1,143 1,063 824 -- -- -- Recognized actuarial (gain)/loss (744) (353) 192 -- -- -- --------------------------------------------------------------------------------------------------------- NET PERIODIC BENEFIT COST $1,478 $1,862 $2,441 $2,583 $2,777 $2,603
For measurement purposes, the assumed health care cost trend rate for 2002 is 11.00%. This rate is assumed to decrease gradually to 5.00% for 2008 and remain at that level thereafter. A one-percentage-point change in the assumed health care cost trend rate would have the following effect:
(in thousands) 1% increase 1% decrease ---------------------------------------------------------------------------------------- Effect on total service and interest cost components of net periodic postemployment health care benefit cost $ (78) $ 73 Effect on accumulated postretirement benefit obligation for health care benefits (990) 971
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 $0.50 on each $1.00. The amounts contributed by the Corporation to this plan were $2,814,654, $2,503,123, and $2,436,249 in 2001, 2000, and 1999, respectively. 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) 2001 2000 1999 -------------------------------------------------------------------------------------------- Income before taxes and cumulative effect of change in accounting principle $ 190,049 $ 184,767 $ 161,662 ------------------------------------------------------------------------------------------- Income tax at statutory rate of 35% $ 66,517 $ 64,668 $ 56,582 Tax effect of tax-exempt and dividend income (4,323) (4,748) (5,152) State taxes, net of federal tax benefit 2,989 3,746 3,462 Other 826 162 (527) -------------------------------------------------------------------------------------------- TOTAL INCOME TAXES $ 66,009 $ 63,828 $ 54,365 Taxes currently payable: Federal $ 64,342 $ 60,411 $ 57,119 State 4,599 5,763 5,326 Deferred taxes (benefit): Federal (2,932) (2,346) (8,080) -------------------------------------------------------------------------------------------- TOTAL INCOME TAXES $ 66,009 $ 63,828 $ 54,365
49 The Corporation adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as of January 1, 2001. The cumulative effect of the adoption was a $1,130,000 increase to consolidated income net of $584,000 of tax expense. The significant components of the deferred tax liabilities and assets at December 31 are as follows:
(in thousands) 2001 2000 -------------------------------------------------------------------------------- Deferred tax liabilities: Tax depreciation $ 1,584 $ 2,708 Prepaid VEBA costs 6,510 7,980 Automobile and equipment leases 6,355 6,110 System development costs 1,348 1,545 Partnerships 7,653 5,699 Market valuation on investment securities 5,601 -- Other 2,094 2,094 -------------------------------------------------------------------------------- Total deferred tax liabilities 31,145 26,136 -------------------------------------------------------------------------------- Deferred tax assets: Loan loss provision 28,289 26,878 OPEB obligation 9,719 9,780 Unearned fees 8,168 7,490 Pension and SERP 3,836 3,425 Market valuation on investment securities -- 2,491 Other 2,307 2,406 -------------------------------------------------------------------------------- Total deferred tax assets 52,319 52,470 -------------------------------------------------------------------------------- NET DEFERRED TAX ASSETS $21,174 $26,334
No valuation allowance was recognized for the deferred tax assets at December 31, 2001 and 2000. Management believes it is more likely than not that the deferred tax assets will be realized. NOTE 16 EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
(in thousands) 2001 2000 1999 ------------------------------------------------------------------------------------ Numerator: Net income $125,170 $120,939 $107,297 ------------------------------------------------------------------------------------ Denominator: Denominator for basic earnings per share- -- weighted-average shares 32,573 32,305 32,913 ------------------------------------------------------------------------------------ Effect of dilutive securities: Employee stock options 398 375 470 ------------------------------------------------------------------------------------ Denominator for diluted earnings per share- -- adjusted weighted-average shares and assumed conversions 32,971 32,680 33,383 ------------------------------------------------------------------------------------ BASIC EARNINGS PER SHARE $ 3.84 $ 3.74 $ 3.26 DILUTED EARNINGS PER SHARE $ 3.80 $ 3.70 $ 3.21
NOTE 17 SEGMENT REPORTING For the purposes of reporting our results, we divide our business activities into two segments. Our banking and advisory fee-based segments comprise the services we provide to customers. Previously we also reported a funds management segment, which included activities not directly customer-related, but which were undertaken primarily for the Corporation's general purposes. Those activities included management of the investment portfolio, funding, and interest rate risk management. Those activities now are reflected in the banking and advisory fee-based segments, and the 2000 amounts have been restated to reflect this change. 50 The banking and advisory fee-based segments are managed separately but have overlapping markets, customers, and systems. The Corporation's strategy to develop full relationships across a broad product array allows these two segments to market separate products and services to a common base of customers. The banking segment includes lending, deposit-taking, and branch banking in our primary banking markets of Delaware, Pennsylvania, and Maryland, along with institutional deposit-taking on a national basis. Lending activities include commercial loans, commercial and residential mortgages, and construction and consumer loans. Deposit products include demand checking, certificates of deposit, negotiable order of withdrawal accounts, and various savings and money market accounts. The advisory fee-based segment includes private client advisory services, asset management, mutual fund, corporate trust, and corporate retirement plan services to individuals and corporations in the United States and more than 50 other countries. Private client advisory service activities include investment management, trust services, private banking, estate settlement, financial planning, and tax preparation. Asset management activities include a broad range of portfolio management services, including fixed-income, short-term cash management, and contributions resulting from affiliations with Cramer Rosenthal McGlynn and Roxbury Capital Management. Corporate trust activities include custody services and trusteeships for capital leases, collateralized securities, corporate restructurings, and bankruptcies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Corporation evaluates performance based on profit or loss from operations before income taxes and without including nonrecurring gains and losses. The Corporation generally records intersegment sales and transfers as if the sales or transfers were to third parties (i.e., at current market prices). Profit or loss from infrequent events such as the sale of a business are reported separately for each segment. Financial data by segment for the years 2001 through 1999 is as follows:
Banking Fee-based YEAR ENDED DECEMBER 31, 2001 (in thousands) business business Totals ----------------------------------------------------------------------------------------------- Net interest income $ 221,037 $ 37,776 $ 258,813 Provision for loan losses (19,480) (370) (19,850) ----------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 201,557 37,406 238,963 Total advisory fees: Private client advisory services 6,459 99,615 106,074 Corporate financial services 2,704 55,703 58,407 Affiliate managers -- 20,555 20,555 ----------------------------------------------------------------------------------------------- Total advisory fees 9,163 175,873 185,036 Amortization of goodwill -- (8,195) (8,195) ----------------------------------------------------------------------------------------------- Net total advisory fees 9,163 167,678 176,841 Other operating income 46,298 3,342 49,640 Securities gains/(losses) 1,522 -- 1,522 ----------------------------------------------------------------------------------------------- Net interest and other income 258,540 208,426 466,966 Other expense (149,339) (127,578) (276,917) ----------------------------------------------------------------------------------------------- Segment profit from operations 109,201 80,848 190,049 Segment gain/(loss) from infrequent events 1,714 -- 1,714 ----------------------------------------------------------------------------------------------- SEGMENT PROFIT BEFORE INCOME TAXES $ 110,915 $ 80,848 $ 191,763 Intersegment revenue $ -- $ -- $ -- Depreciation and amortization 19,375 11,336 30,711 Investment in equity method investees -- 221,195 221,195 Segment average assets 6,085,212 1,144,022 7,229,234
51
Banking Fee-based YEAR ENDED DECEMBER 31, 2000 (in thousands) business business Totals ------------------------------------------------------------------------------------------------- Net interest income $ 224,967 $ 30,172 $ 255,139 Provision for loan losses (21,362) (538) (21,900) -------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 203,605 29,634 233,239 Total advisory fees: Private client advisory services 6,549 93,183 99,732 Corporate financial services -- 51,470 51,470 Affiliate managers -- 21,319 21,319 -------------------------------------------------------------------------------------------------- Total advisory fees 6,549 165,972 172,521 Amortization of goodwill -- (7,487) (7,487) -------------------------------------------------------------------------------------------------- Net total advisory fees 6,549 158,485 165,034 Other operating income 42,753 1,567 44,320 Securities gains/(losses) (333) (83) (416) -------------------------------------------------------------------------------------------------- Net interest and other income 252,574 189,603 442,177 Other expense (146,563) (118,119) (264,682) -------------------------------------------------------------------------------------------------- Segment profit from operations 106,011 71,484 177,495 Segment gain/(loss) from infrequent events 6,018 1,254 7,272 ------------------------------------------------------------------------------------------------- SEGMENT PROFIT BEFORE INCOME TAXES $ 112,029 $ 72,738 $ 184,767 Intersegment revenue $ -- $ -- $ -- Depreciation and amortization 16,031 9,227 25,258 Investment in equity method investees -- 186,071 186,071 Segment average assets 5,919,585 1,289,135 7,208,720 YEAR ENDED DECEMBER 31, 1999 (in thousands) -------------------------------------------------------------------------------------------------- Net interest income $ 218,363 $ 27,550 $ 245,913 Provision for loan losses (17,207) (293) (17,500) ------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 201,156 27,257 228,413 Total advisory fees: Private client advisory services 6,223 87,630 93,853 Corporate financial services -- 44,642 44,642 Affiliate managers -- 16,101 16,101 -------------------------------------------------------------------------------------------------- Total advisory fees 6,223 148,373 154,596 Amortization of goodwill -- (6,183) (6,183) -------------------------------------------------------------------------------------------------- Net total advisory fees 6,223 142,190 148,413 Other operating income 35,001 5,969 40,970 Securities gains/(losses) 996 248 1,244 -------------------------------------------------------------------------------------------------- Net interest and other income 243,376 175,664 419,040 Other expense (138,450) (106,353) (244,803) -------------------------------------------------------------------------------------------------- Segment profit from operations 104,926 69,311 174,237 Segment gain/(loss) from infrequent events (3,301) (9,274) (12,575) -------------------------------------------------------------------------------------------------- SEGMENT PROFIT BEFORE INCOME TAXES $ 101,625 $ 60,037 $ 161,662 Intersegment revenue $ -- $ -- $ -- Depreciation and amortization 13,761 7,418 21,179 Investment in equity method investees -- 157,910 157,910 Segment average assets 5,480,238 1,208,827 6,689,065
52 A reconciliation of reportable segment amounts to the consolidated balances is as follows:
Year ended December 31 (in thousands) 2001 2000 1999 ------------------------------------------------------------------------------------------------ Revenue: Net interest income $ 258,813 $ 255,139 $ 245,913 Net total advisory fees 176,841 165,034 148,413 Other operating income 49,640 44,320 40,970 Securities gains/(losses) 1,522 (416) 1,244 ------------------------------------------------------------------------------------------------ Total revenues for reportable segments 486,816 464,077 436,540 Nonrecurring revenues 1,713 7,272 826 Elimination of intersegment revenues -- -- -- ------------------------------------------------------------------------------------------------ TOTAL REVENUES PER CONSOLIDATED STATEMENTS OF INCOME $ 488,529 $ 471,349 $ 437,366 Profit or loss: Total profit or loss for reportable segments $ 190,048 $ 177,495 $ 174,237 Elimination of intersegment profits -- -- -- ------------------------------------------------------------------------------------------------ TOTAL SEGMENT PROFIT FROM OPERATIONS $ 190,048 $ 177,495 $ 174,237 Assets: Total assets for reportable segments $ 7,229,234 $ 7,208,720 $ 6,689,065 Elimination of intersegment assets -- -- -- ------------------------------------------------------------------------------------------------ CONSOLIDATED TOTAL AVERAGE ASSETS $ 7,229,234 $ 7,208,720 $ 6,689,065
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) 2001 2000 -------------------------------------------------------------------------------- Assets Cash and due from banks $ 4,023 $ 3,989 Investment in subsidiaries 726,878 643,194 Investment securities available for sale 14,622 131 Advance to subsidiary 88,100 80,800 Income taxes receivable 7,480 5,918 Other assets 2,463 2,200 -------------------------------------------------------------------------------- TOTAL ASSETS $843,566 $736,232 Liabilities and stockholders' equity Liabilities $ 2,536 $ 2,332 Line of credit 33,500 17,000 Long-term debt 125,000 125,000 Stockholders' equity 682,530 591,900 -------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $843,566 $736,232
53 STATEMENTS OF INCOME
For the year ended December 31 (in thousands) 2001 2000 1999 --------------------------------------------------------------------------------------------- Income Dividend from subsidiaries $ 83,800 $ 78,550 $ 123,350 Interest on advance to subsidiary 4,301 6,447 5,594 Interest 232 47 194 Other operating income 41 -- -- --------------------------------------------------------------------------------------------- Total income 88,374 85,044 129,138 --------------------------------------------------------------------------------------------- Expense Interest on other borrowings 855 1,322 468 Interest on long-term debt 8,281 8,281 8,281 Salaries and employment benefits 119 119 -- Stationery and supplies 1 -- -- Other operating expense 1,243 1,301 1,065 --------------------------------------------------------------------------------------------- Total expense 10,499 11,023 9,814 --------------------------------------------------------------------------------------------- Income before income tax benefit and equity in undistributed income of subsidiaries 77,875 74,021 119,324 Applicable income tax benefit (2,074) (1,579) (1,287) Dividends in excess of subsidiary income -- -- (13,314) Equity in undistributed income of subsidiaries 45,221 45,339 -- --------------------------------------------------------------------------------------------- NET INCOME $ 125,170 $ 120,939 $ 107,297
STATEMENT OF CASH FLOWS
For the year ended December 31 (in thousands) 2001 2000 1999 ---------------------------------------------------------------------------------------------- Operating activities Net income $ 125,170 $ 120,939 $ 107,297 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries (45,221) (45,339) -- Dividends in excess of subsidiary income -- -- 13,314 Compensation expense -- nonemployee stock options 119 119 -- Accretion of investment securities available for sale discounts -- -- (8) (Increase)/decrease in other assets (134) 19,963 (21,509) Increase/(decrease) in other liabilities 204 (4,032) 4,348 ---------------------------------------------------------------------------------------------- Net cash provided by operating activities 80,138 91,650 103,442 ---------------------------------------------------------------------------------------------- Investing activities Proceeds from sales of investment securities available for sale 45,041 22,550 58,509 Purchases of investment securities available for sale (59,532) (22,547) (34,571) Capital contribution to subsidiaries (23,000) (28,126) (26,338) Advance to subsidiary (17,350) (2,800) (10,318) Repayment of advance to subsidiary 10,050 6,000 6,000 Purchase of indirect subsidiary (956) -- -- ---------------------------------------------------------------------------------------------- Net cash used for investing activities (45,747) (24,923) (6,718) ---------------------------------------------------------------------------------------------- Financing activities Cash dividends (61,526) (57,164) (54,361) Net increase/(decrease) in line of credit 16,500 (8,000) 25,000 Proceeds from common stock issued under employment benefit plans, net of taxes 14,165 7,578 11,289 Payments for common stock acquired through buybacks (3,496) (8,936) (74,891) ---------------------------------------------------------------------------------------------- Net cash used for financing activities (34,357) (66,522) (92,963) ---------------------------------------------------------------------------------------------- Increase in cash and cash equivalents 34 205 3,761 Cash and cash equivalents at beginning of year 3,989 3,784 23 ---------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,023 $ 3,989 $ 3,784
54 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of Wilmington Trust Corporation (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 accounting principles generally accepted in the United States 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 reviewed continually for its effectiveness and is revised, when appropriate, due to changing circumstances and requirements. Independent auditors are appointed by the Board of Directors to audit the financial statements in accordance with auditing standards generally accepted in the United States 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, Chief Operating Senior Vice President and Chief Executive Officer Officer, and Treasurer Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS The Board of Directors Wilmington Trust Corporation: We have audited the accompanying consolidated statement of condition of Wilmington Trust Corporation (the Corporation) as of December 31, 2001, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended. 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 audit. The accompanying consolidated financial statements of Wilmington Trust Corporation as of December 31, 2000 and for the years ended December 31, 2000 and 1999, were audited by other auditors whose report thereon dated January 26, 2001, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, the 2001 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wilmington Trust Corporation as of December 31, 2001, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, the Corporation adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, in 2001. January 15, 2002 /s/ KPMG LLP 55 DIRECTORS AND COMMITTEES BOARD OF DIRECTORS BETSY S. ATKINS Chief Executive Officer of Accordiant Ventures CAROLYN S. BURGER Principal, CB Associates, Inc.; Director, PJM Interconnection, L.L.C. TED T. CECALA Chairman and Chief Executive Officer; Member, Board of Managers, Cramer Rosenthal McGlynn, LLC, and Roxbury Capital Management, LLC RICHARD R. COLLINS Retired, Chief Executive Officer and Chief Operating Officer, American Life Insurance Company CHARLES S. CROMPTON JR., ESQUIRE Attorney, Counsel, Law Firm of Potter, Anderson and Corroon, LLP EDWARD B. DU PONT Private Investor; Director, E. I. du Pont de Nemours and Company R. KEITH ELLIOTT Retired Director, Chairman, Hercules Incorporated; Director, Computer Task Group, Checkpoint Systems, Inc., The Sithe Energies Company, and The Institute for Defense Analyses DEBORAH I. FINE President of Avon Products - Teen Division ROBERT V. A. HARRA JR. President, Chief Operating Officer, and Treasurer REX L. MEARS President, Ray L. Mears and Sons, Inc. WALTER D. MERTZ (1) Retired Senior Vice President HUGH E. MILLER Retired Vice Chairman, ICI Americas Incorporated; Chairman and Director, MGI PHARMA, Inc. STACEY J. MOBLEY Senior Vice President, General Counsel, and Chief Administrative Officer, E. I. du Pont de Nemours and Company LEONARD W. QUILL Retired Chairman of the Board DR. DAVID P. ROSELLE President, University of Delaware H. RODNEY SHARP III Retired Manager, E. I. du Pont de Nemours and Company; Director, E. I. du Pont de Nemours and Company THOMAS P. SWEENEY, ESQUIRE Attorney, Member, Law Firm of Richards, Layton and Finger, P.A. ROBERT W. TUNNELL JR. Managing Partner, Tunnell Companies, L.P. STANDING COMMITTEES EXECUTIVE COMMITTEE Ted T. Cecala, Chairperson Carolyn S. Burger Charles S. Crompton Jr. Edward B. du Pont R. Keith Elliott Robert V. A. Harra Jr. David P. Roselle AUDIT COMMITTEE Carolyn S. Burger, Chairperson Richard R. Collins Edward B. du Pont Hugh E. Miller COMPENSATION COMMITTEE Stacey J. Mobley, Chairperson Charles S. Crompton Jr. R. Keith Elliott Rex L. Mears H. Rodney Sharp III NOMINATING AND CORPORATE GOVERNANCE COMMITTEE Rex L. Mears, Chairperson Hugh E. Miller H. Rodney Sharp III Thomas P. Sweeney Robert W. Tunnell Jr. (1) Associate Director 56 OFFICERS AND SUBSIDIARIES WILMINGTON TRUST CORPORATION WILMINGTON TRUST COMPANY PRINCIPAL OFFICERS TED T. CECALA Chairman and Chief Executive Officer ROBERT V. A. HARRA JR. President, Chief Operating Officer, and Treasurer ROBERT J. CHRISTIAN Senior Vice President and Chief Investment Officer, Asset Management HOWARD K. COHEN Senior Vice President, Corporate Financial Services WILLIAM J. FARRELL II Senior Vice President, Information Technology, Trust Operations, and Systems Development DAVID R. GIBSON Senior Vice President, Finance and Administration, and Chief Financial Officer HUGH D. LEAHY JR. Senior Vice President, Personal Financial Services ROBERT A. MATARESE Senior Vice President, Commercial Banking RITA C. TURNER Senior Vice President, Marketing RODNEY P. WOOD Senior Vice President, Private Client Advisory Services REGIONAL PRESIDENTS ROBERT M. BALENTINE Georgia ALAN K. BONDE California MARK A. GRAHAM Pennsylvania PETER E. "TONY" GUERNSEY JR. New York KEMP C. STICKNEY Florida OPERATING SUBSIDIARIES WILMINGTON TRUST COMPANY Brandywine Finance Corporation Brandywine Insurance Agency, Inc. Brandywine Life Insurance Company, Inc. Delaware Corporate Management, Inc. Nevada Corporate Management, Inc. Organization Services, Inc. Wilmington Brokerage Services Company Wilmington Trust Global Services, Ltd. Wilmington Trust (Cayman),Ltd. Wilmington Trust (Channel Islands), Ltd. WTC Corporate Services, Inc. RODNEY SQUARE MANAGEMENT CORPORATION WILMINGTON TRUST OF PENNSYLVANIA WILMINGTON TRUST FSB WT INVESTMENTS, INC. STOCKHOLDER INFORMATION CORPORATE HEADQUARTERS Wilmington Trust Center Rodney Square North 1100 North Market Street Wilmington, DE 19890-0001 (302) 651-1000 (800) 441-7120 www.wilmingtontrust.com COMMON STOCK Wilmington Trust Corporation common stock is traded under the symbol WL on the New York Stock Exchange. DIVIDENDS Dividends usually are declared in the first month of each quarter to stockholders of record as of the first business day in February, May, August, and November. Dividend payment dates usually are two weeks later. Wilmington Trust has paid cash dividends on its common stock since 1914. STOCK TRANSFER AGENT, DIVIDEND REINVESTMENT AGENT, AND REGISTRAR OF STOCK Inquiries relating to stockholder records, stock transfers, changes of ownership, changes of address, duplicate mailings, dividend payments, and the dividend reinvestment plan should be directed to the stock transfer agent: WELLS FARGO SHAREOWNER SERVICES Telephone: (800) 999-9867 Mailing Address: P.O. Box 64854 St. Paul, MN 55164 Street Address: 161 North Concord Exchange South St. Paul, MN 55075 DIVIDEND REINVESTMENT AND VOLUNTARY STOCK PURCHASE PLAN The Corporation offers a plan under which participating stockholders can purchase additional shares of the Corporation's common stock through automatic reinvestment of their regular quarterly cash dividends and/or voluntary cash payments. All commissions and fees connected with the purchase and safekeeping of the shares are paid by the Corporation. For details of the plan, contact the stock transfer agent. DUPLICATE MAILINGS You may receive more than one copy of this annual report due to multiple accounts within your household. The Corporation is required to mail an annual report to each name on our stockholder list unless the stockholder requests that duplicate mailings be eliminated. To eliminate duplicate mailings, please send a written request to the stock transfer agent. ANNUAL MEETING The annual meeting of the Corporation's stockholders will be held at the Wilmington Trust Plaza, 301 West 11th Street, Wilmington, Delaware, on Thursday, April 18, 2002, at 10:00 a.m. INFORMATION REQUESTS Analysts, investors, news media representatives, and others seeking financial information, including requests for the annual report on Form 10-K filed with the Securities and Exchange Commission, should contact Ellen J. Roberts,Vice President, Media and Investor Relations, (302) 651-8069. WILMINGTON TRUST OFFICE LOCATIONS Wilmington Trust Corporation Corporate Headquarters Rodney Square North 302.651.1000 1100 North Market Street 800.441.7120 Wilmington, DE 19890-0001 wilmingtontrust.com CALIFORNIA NEVADA LONDON COSTA MESA 714.384.4150 LAS VEGAS 702.866.2200 44.207.877.0627 SANTA MONICA 310.899.7000 FLORIDA NEW JERSEY CAYMAN ISLANDS BOCA RATON 561.620.3245 MORRISTOWN 973.285.3341 345.946.4091 NORTH PALM BEACH 561.630.1477 STUART 561.286.3686 NEW YORK CHANNEL ISLANDS VERO BEACH 561.234.1700 MANHATTAN 212.751.9500 44.1534.501.888 GEORGIA PENNSYLVANIA ATLANTA 404.760.2150 DOYLESTOWN 267.880.7004 PHILADELPHIA 215.419.6570 VILLANOVA 610.520.1430 MARYLAND WEST CHESTER 610.430.2202 SALISBURY 410.219.5161 [WILMINGTON TRUST LOGO]