United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarter ended March 31, 1997
OR
[ ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For The Transition Period From ____________ to ___________
Commission File Number: 0-25442
WILMINGTON TRUST CORPORATION
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0328154
- -------------------------------- --------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890
-------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(302) 651-1000
----------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
Number of shares of issuer's common stock ($1.00 par value) outstanding at March
31, 1997 - 33,747,750 shares
<PAGE>
Wilmington Trust Corporation and Subsidiaries
Form 10-Q
Index
Page
-------
Part I. Financial Information
Item 1 - Financial Statements
Consolidated Statements of Condition 3
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 7
Note to Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Item 1 - Legal Proceedings 19
Item 2 - Changes in Securities 19
Item 3 - Defaults Upon Senior Securities 19
Item 4 - Submission of Matters to a Vote of Security Holders 19
Item 5 - Other Information 19
Item 6 - Exhibits and Reports on Form 8-K 19
Exhibit 11
Exhibit 27
2
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION (unaudited)
Wilmington Trust Corporation and Subsidiaries
--------------------------
March 31, December 31,
1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 190,294 $ 231,233
--------------------------
Interest-bearing time deposits in other banks ---- ----
--------------------------
Federal funds sold and securities purchased
under agreements to resell 71,900 134,190
--------------------------
Investment securities available for sale:
U.S. Treasury and government agencies 549,160 545,772
Obligations of state and political subdivisions 13,317 13,377
Other securities 249,112 239,370
- -----------------------------------------------------------------------------------------------------
Total investment securities available for sale 811,589 798,519
--------------------------
Investment securities held to maturity:
U.S. Treasury and government agencies 267,273 267,502
Obligations of state and political subdivisions 18,141 19,121
Other securities 162,188 181,009
- -----------------------------------------------------------------------------------------------------
Total investment securities held to maturity (market values
were $441,993 and $466,763, respectively) 447,602 467,632
--------------------------
Loans:
Commercial, financial and agricultural 1,251,984 1,237,061
Real estate-construction 122,542 123,111
Mortgage-commercial 885,260 862,974
Mortgage-residential 699,720 678,800
Consumer 881,083 881,994
Unearned income (14,006) (12,456)
- -----------------------------------------------------------------------------------------------------
Total loans net of unearned income 3,826,583 3,771,484
Reserve for loan losses (55,375) (54,361)
- -----------------------------------------------------------------------------------------------------
Net loans 3,771,208 3,717,123
--------------------------
Premises and equipment, net 99,763 94,387
Other assets 123,043 121,325
- -----------------------------------------------------------------------------------------------------
Total assets $ 5,515,399 $ 5,564,409
==========================
3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 770,123 $ 840,987
Interest-bearing:
Savings 370,673 352,431
Interest-bearing demand 1,077,503 1,062,917
Certificates under $100,000 1,240,421 1,269,206
Certificates $100,000 and over 315,883 388,157
- --------------------------------------------------------------------------------------------------------
Total deposits 3,774,603 3,913,698
--------------------------
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 1,065,125 983,017
U.S. Treasury demand 64,550 53,526
- --------------------------------------------------------------------------------------------------------
Total short-term borrowings 1,129,675 1,036,543
--------------------------
Other liabilities 100,834 106,451
Long-term debt 43,000 43,000
- --------------------------------------------------------------------------------------------------------
Total liabilities 5,048,112 5,099,692
--------------------------
Stockholders' equity:
Common stock ($1.00 par value) authorized
150,000,000 shares; issued 39,107,462
and 39,107,462 shares, respectively 39,107 39,107
Capital surplus 59,422 59,463
Retained earnings 528,809 515,072
Net unrealized (loss)/gain on investment securities
available for sale, net of taxes (2,155) 1,004
- --------------------------------------------------------------------------------------------------------
Total contributed capital and retained earnings 625,183 614,646
Less: Treasury stock at cost 5,359,712 and
5,214,158 shares, respectively (157,896) (149,929)
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity 467,287 464,717
--------------------------
Total liabilities and stockholders' equity $ 5,515,399 $ 5,564,409
==========================
See Note to Consolidated Financial Statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Wilmington Trust Corporation and Subsidiaries
--------------------------
For the three months ended
March 31,
--------------------------
(in thousands; except per share data) 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
NET INTEREST INCOME
Interest and fees on loans $ 82,107 $ 77,958
Interest and dividends on investment securities:
Taxable interest 16,844 17,723
Tax-exempt interest 413 499
Dividends 1,938 2,197
Interest on time deposits in other banks ---- ----
Interest on federal funds sold and securities
purchased under agreements to resell 343 386
- -----------------------------------------------------------------------------
Total interest income 101,645 98,763
--------------------------
Interest on deposits 30,945 31,517
Interest on short-term borrowings 14,705 15,618
Interest on long-term debt 337 393
- -----------------------------------------------------------------------------
Total interest expense 45,987 47,528
--------------------------
Net interest income 55,658 51,235
Provision for loan losses (4,500) (3,500)
- -----------------------------------------------------------------------------
Net interest income after provision
for loan losses 51,158 47,735
--------------------------
OTHER INCOME
Trust and asset management fees 25,913 23,100
Service charges on deposit accounts 4,679 4,710
Other operating income 4,964 4,623
Securities gains/(losses) 1 (3)
- -----------------------------------------------------------------------------
Total other income 35,557 32,430
--------------------------
Net interest and other income 86,715 80,165
--------------------------
OTHER EXPENSE
Salaries and employment benefits 31,507 29,169
Net occupancy 2,853 2,698
Furniture and equipment 3,630 3,446
Stationery and supplies 1,458 1,480
Other operating expense 10,250 9,316
- -----------------------------------------------------------------------------
5
<PAGE>
Total other expense 49,698 46,109
--------------------------
NET INCOME
Income before income taxes 37,017 34,056
Applicable income taxes 12,096 11,037
- -----------------------------------------------------------------------------
Net income $ 24,921 $ 23,019
==========================
Net income per share $ 0.74 $ 0.66
==========================
Weighted average shares outstanding 33,868 35,008
Cash dividends per share $ 0.33 $ 0.30
See Note to Consolidated Financial Statements
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Wilmington Trust Corporation and Subsidiaries
--------------------------
For the three months ended
March 31,
(in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 24,921 $ 23,019
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 4,500 3,500
Provision for depreciation 2,524 2,597
Amortization of investment securities available for sale discounts
and premiums 852 976
(Accretion)/amortization of investment securities held to
maturity discounts and premiums (8) 13
Deferred income taxes 1,776 2,315
Losses on sales of loans 90 133
Securities (gains)/losses (1) 3
Increase in other assets (1,718) (9,502)
(Decrease)/increase in other liabilities (5,616) 10,468
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 27,320 33,522
----------------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale ---- 5,733
Proceeds from maturities of investment securities available for sale 237,738 311,954
Proceeds from maturities of investment securities held to maturity 20,035 24,082
Purchases of investment securities available for sale (256,592) (344,280)
Purchases of investment securities held to maturity ---- (78,879)
Gross proceeds from sales of loans 5,446 13,251
Net increase in loans (64,121) (2,859)
Net increase in premises and equipment (7,900) (4,627)
- ------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (65,394) (75,625)
----------------------
FINANCING ACTIVITIES
Net decrease in demand, savings and interest-bearing
demand deposits (38,036) (25,454)
Net (decrease)/increase in certificates of deposit (101,059) 32,740
Net increase in federal funds purchased and securities sold
under agreements to repurchase 82,108 29,983
Net increase in U.S. Treasury demand 11,024 9,467
Cash dividends (11,184) (10,519)
Proceeds from common stock issued under employment benefit plans 1,867 1,103
Payments for common stock acquired through buybacks (9,875) (15,552)
- ------------------------------------------------------------------------------------------------------------
Net cash (used for)/provided by financing activities (65,155) 21,768
----------------------
7
<PAGE>
Decrease in cash and cash equivalents (103,229) (20,335)
Cash and cash equivalents at beginning of period 365,423 331,697
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 262,194 $ 311,362
======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 52,067 $ 46,820
Taxes 1,027 958
Loans transferred during the year:
To other real estate owned $ 1,651 $ 7,516
From other real estate owned 1,239 3,894
See Note to Consolidated Financial Statements
</TABLE>
8
<PAGE>
Note to Consolidated Financial Statements
Wilmington Trust Corporation and Subsidiaries
Note 1 - Accounting and Reporting Policies
The accounting and reporting policies of Wilmington Trust Corporation
(the "Corporation"), a holding company which owns all the issued and outstanding
shares of capital stock of Wilmington Trust Company, Wilmington Trust of
Pennsylvania and Wilmington Trust FSB, conform to generally accepted accounting
principles and practices in the banking industry for interim financial
information. The information for the interim periods is unaudited and includes
all adjustments which are of a normal recurring nature and which management
believes to be necessary for fair presentation. Results of the interim periods
are not necessarily indicative of the results that may be expected for the full
year. This note is presented and should be read in conjunction with the Notes to
the Consolidated Financial Statements included in the Corporation's 1996 Annual
Report to Stockholders.
9
<PAGE>
Wilmington Trust Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SUMMARY
- -------
Net income for the first quarter of 1997 was $24.9 million, or $.74 per share, a
record for first quarter earnings. This was an 8% increase over the $23.0
million, or $.66 per share, reported for the first quarter of 1996.
Net interest income for the first quarter of 1997 rose $4.4 million, or 9%, to
$55.7 million, over the first quarter 1996 level on the strength of an expanded
loan portfolio and a higher net interest margin.
The quarterly provision for loan losses of $4.5 million was an increase of $1
million, or 29%, over the first quarter 1996 provision. The provision was
offset, in part, by increased levels of net chargeoffs, which were $3.5 million
for the quarter. The reserve for loan losses at March 31, 1997 was $55.4
million, or 1.45% of period-end loans outstanding, up 2% over the $54.4 million,
or 1.44% of loans outstanding, reported at December 31, 1996.
Noninterest income for the first quarter of 1997 rose $3.1 million, or 10%, to
$35.6 million on the strength of higher trust and asset management fees, which
increased $2.8 million, or 12%.
Operating expenses for the first quarter of 1997 rose $3.6 million, or 8%, to
$49.7 million due primarily to higher personnel expense, which increased $2.3
million, or 8%, to $31.5 million.
Return on assets for the three months ended March 31, 1997, on an annualized
basis, was 1.87%, up over the 1.76% reported for the corresponding period a year
ago. Return on stockholders' equity, also on an annualized basis, was 21.67%, up
over the 20.09% reported for the first three months of 1996.
STATEMENT OF CONDITION
- ----------------------
Total assets for the first quarter of 1997 were $5.51 billion, down $49 million,
or 1%, from the year-end level of $5.56 billion. Total earning assets at March
31, 1997 were $5.16 billion, a decrease of $14.2 million, or .3%, from the $5.17
billion reported at year-end 1996.
Total loans at March 31, 1997 were $3.83 billion, an increase of $55.1 million,
or 1%, over the December 31, 1996 level of 3.77 billion. Commercial loans rose
$14.9 million, or 1%, to $1.25 billion; commercial mortgage loans rose $22.3
million, or 3%, to $885.3 million and residential mortgage loans rose $20.9
million, or 3%, to $699.7 million.
Interest-bearing liabilities at quarter-end were $4.18 billion, up $24.9
million, or .6%, over the year-end level of $4.15 billion, as higher levels of
Federal funds purchased offset declines in certificate of deposit balances.
Certificates of deposit under $100,000 were $1.24 billion at quarter-end, down
$28.8 million, or 2%, from year-end levels, while certificates of deposit
$100,000 and over were $315.9 million, down $72.3 million, or 19%, from year-end
levels. Noninterest-bearing demand balances were $770.1 million, down $70.9
million, or 8%, from year-end levels. Offsetting these decreases, in part, was
an increase in the level of Federal funds purchased, which rose $82.1 million,
or 8%, to $1.07 billion.
Stockholders' equity at March 31, 1997 was $467.3 million, up $2.6 million, or
.5%, from the year-end level as first quarter earnings of $24.9 million and $1.9
million in stock issued in connection with the excercise of stock options were
offset, in part, by $11.2 million in cash dividends, $9.9 million for the stock
buyback program and a $3.2 million valuation reserve adjustment for the
investment portfolio.
10
<PAGE>
NET INTEREST INCOME
- -------------------
Net interest income for the first quarter of 1997 on a fully tax-equivalent
("FTE") basis was $57.9 million. This was a $4.0 million, or 7%, increase over
the $53.9 million reported for the first quarter of 1996.
Interest income (FTE) for the first quarter of 1997 rose $2.5 million, or 2%, to
$103.9 million from $101.4 million for the first quarter of 1996. Contributing
to this increase was a $160.2 million increase in the average level of earning
assets for the first quarter of 1997 versus the corresponding period last year.
Interest revenues rose $3.4 million as a result of this increase in earning
assets. Partially offsetting this $3.4 million increase was a $.9 million
decrease in interest revenues associated with the lower interest rate
environment. The average prime lending rate the for the first quarter of 1997
was 8.27%, seven basis points lower than the 8.34% for the first quarter of
1996.
Interest expense for the first quarter of 1997 declined $1.5 million to $46
million from the $47.5 million reported for the first quarter of last year.
Contributing to this decrease in interest expense was a 24-basis point drop in
the average rate paid on interest-bearing liabilities, which resulted in a $2.9
million decrease in interest expense. Partially offsetting this $2.9 million
decrease was a $1.3 million increase in interest expense associated with a
$113.9 million rise in the average level of interest-bearing liabilities. The
average rate the Corporation paid for its funds during the first quarter of 1997
was 3.66%, versus 3.89% for the first quarter of 1996.
The Corporation's net interest margin for the first quarter of 1997 was 4.57%,
up 21 basis points over the 4.36% reported for the first quarter a year ago. The
following two tables present comparative net interest income data and a
rate-volume analysis of changes in net interest income for the first quarters of
1997 and 1996.
11
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY ANALYSIS OF EARNINGS
1997 First Quarter 1996 First Quarter
---------------------------------------- ----------------------------------
(in thousands; rates on Average Income/ Average Average Income/ Average
tax-equivalent basis) balance expense rate balance expense rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Time deposits in other banks $ ---- $ ---- ----% $ ---- $ ---- ----%
Federal funds sold and
securities purchased under
agreements to resell 25,066 343 5.47 26,839 386 5.69
- ------------------------------------------------------------------------------ -------------------------
Total short-term investments 25,066 343 5.47 26,839 386 5.69
------------------------------------------------------------------------------
U.S. Treasury and government
agencies 817,588 13,045 6.38 791,489 12,174 6.21
State and municipal 31,889 641 8.10 38,907 771 7.95
Preferred stock 131,525 2,324 7.11 143,520 2,649 7.30
Asset-backed securities 192,636 2,906 6.03 304,261 4,407 5.79
Other 88,307 1,203 5.46 106,877 1,447 5.46
- ------------------------------------------------------------------------------ -------------------------
Total investment securities 1,261,945 20,119 6.38 1,385,054 21,448 6.22
------------------------------------------------------------------------------
Commercial, financial and
agricultural 1,214,949 26,032 8.58 1,135,374 25,317 8.84
Real estate-construction 124,441 2,860 9.20 106,782 2,480 9.19
Mortgage-commercial 873,870 20,462 9.37 773,437 19,002 9.72
Mortgage-residential 689,854 13,381 7.76 665,453 13,142 7.90
Consumer 876,051 20,731 9.58 813,078 19,667 9.70
- ------------------------------------------------------------------------------ -------------------------
Total loans 3,779,165 83,466 8.86 3,494,124 79,608 9.07
------------------------------------------------------------------------------
Total earning assets $5,066,176 103,928 8.23 $4,906,017 101,442 8.25
==============================================================================
Funds supporting earning assets
Savings $ 357,586 2,068 2.35 $ 346,798 2,077 2.41
Interest-bearing demand 1,035,728 6,329 2.48 991,793 6,483 2.63
Certificates under $100,000 1,259,602 17,494 5.63 1,239,179 18,325 5.95
Certificates $100,000 and over 378,299 5,054 5.34 332,152 4,632 5.52
- ------------------------------------------------------------------------------ -------------------------
Total interest-bearing
deposits 3,031,215 30,945 4.13 2,909,922 31,517 4.35
------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase 1,066,431 14,117 5.30 1,098,145 15,153 5.50
U.S. Treasury demand 45,964 588 5.12 36,688 465 5.01
- ------------------------------------------------------------------------------ -------------------------
Total short-term borrowings 1,112,395 14,705 5.29 1,134,833 15,618 5.49
------------------------------------------------------------------------------
Long-term debt 43,000 337 3.18 28,000 393 5.65
- ------------------------------------------------------------------------------ -------------------------
Total interest-bearing
liabilities 4,186,610 45,987 4.43 4,072,755 47,528 4.67
------------------------------------------------------------------------------
12
<PAGE>
Other noninterest funds 879,566 ---- ---- 833,262 ---- ----
- ------------------------------------------------------------------------------ -------------------------
Total funds used to support
earning assets $5,066,176 45,987 3.66 $4,906,017 47,528 3.89
==============================================================================
Net interest income/yield 57,941 4.57 53,914 4.36
Tax-equivalent adjustment (2,283) (2,679)
-----------------------------------------------------
Net interest income $ 55,658 $ 51,235
=====================================================
</TABLE>
Average rates are calculated using average balances based on historical cost and
do not reflect the market valuation adjustment required by Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective January 1, 1994.
13
<PAGE>
RATE-VOLUME ANALYSIS OF NET INTEREST INCOME
------------------------------
For the three months ended
March 31,
------------------------------
1997/1996
Increase (Decrease)
due to change in
------------------------------
1 2
(in thousands) Volume Rate Total
- ------------------------------------------------------------------------------
Interest income:
Time deposits in other banks $ ---- $ ---- $ ----
Federal funds sold and securities
purchased under agreements to resell (25) (18) (43)
- ------------------------------------------------------------------------------
Total short-term investments (25) (18) (43)
------------------------------
U.S. Treasury and government agencies 511 360 871
State and municipal * (142) 12 (130)
Preferred stock * (234) (91) (325)
Asset-backed securities (1,617) 116 (1,501)
Other * (244) ---- (244)
- ------------------------------------------------------------------------------
Total investment securities (1,814) 485 (1,329)
------------------------------
Commercial, financial and agricultural * 1,735 (1,020) 715
Real estate-construction 400 (20) 380
Mortgage-commercial * 2,407 (947) 1,460
Mortgage-residential 475 (236) 239
Consumer 1,506 (442) 1,064
- ------------------------------------------------------------------------------
Total loans 6,375 (2,517) 3,858
- ------------------------------------------------------------------------------
Total interest income $ 3,389 $ (903) $ 2,486
==============================
Interest expense:
Savings $ 64 $ (73) $ (9)
Interest-bearing demand 285 (439) (154)
Certificates under $100,000 300 (1,131) (831)
Certificates $100,000 and over 637 (215) 422
- ------------------------------------------------------------------------------
Total interest-bearing deposits 1,301 (1,873) (572)
------------------------------
Federal funds purchased and securities
sold under agreements to repurchase (436) (600) (1,036)
U.S. Treasury demand 116 7 123
- ------------------------------------------------------------------------------
14
<PAGE>
Total short-term borrowings (308) (605) (913)
------------------------------
Long-term debt 209 (265) (56)
- ------------------------------------------------------------------------------
Total interest expense $ 1,311 $(2,852) $(1,541)
==============================
Changes in net interest income $ 4,027
=======
* Variances are calculated on a fully tax-equivalent basis, which includes
the effects of any disallowed interest expense deduction.
1 Changes attributable to volume are defined as change in average balance
multiplied by the prior year's rate.
2 Changes attributable to rate are defined as a change in rate multiplied by
the average balance in the applicable period of the prior year. A change in
rate/volume (change in rate multiplied by change in volume) has been
allocated to the change in rate.
The detail in the above table does not sum to the respective totals due to
changes in the mix of interest-earning assets and interest-bearing
liabilities from year to year.
15
<PAGE>
Noninterest Revenues and Operating Expenses
- -------------------------------------------
Noninterest revenues for the first quarter of 1997 rose $3.1 million, or 10%, to
$35.6 million.
Trust and asset management fees contributed $2.8 million, or 90%, of this
increase, rising 12% over first quarter levels a year ago to $25.9 million.
Personal trust fees rose $1.5 million, or 14%, to $12.6 million. Corporate trust
fees rose $.7 million, or 11%, to $7.4 million and asset management fees rose
$.5 million, or 10%, to $5.9 million.
Service charges on deposit accounts of $4.7 million were unchanged from year-ago
levels, while other operating income rose $.3 million, or 7%, to $5 million due,
in part, to higher levels of loan and credit card fees.
Operating expenses for the first quarter of 1997 were up $3.6 million, or 8%, to
$49.7 million. Personnel expenses for the quarter rose $2.3 million, or 8%, to
$31.5 million. Contributing to this increase was a $1.6 million, or 8%, increase
in salaries and wages, a $.4 million, or 26%, increase in incentive payments,
and a $.3 million, or 12%, increase in health insurance costs. Other operating
expense rose $.9 million, or 10%, to $10.3 million for the quarter due to higher
levels of legal, audit, consulting and travel and entertainment expenses.
Interest Rate Sensitivity
- -------------------------
The Corporation's interest rate sensitivity, as measured by gap analysis,
increased slightly since the end of the last quarter. At March 31, 1997, the
Corporation's one-year cumulative gap, as a percentage of rate-sensitive assets,
was a negative 26%. At December 31, 1996, the Corporation's one-year cumulative
gap was a negative 20.6%.
Gap analysis, used to measure the difference between volumes of interest
rate-sensitive assets and liabilities, examines the Corporation's balance sheet
at one point in time, but does not capture any balance sheet dynamics that may
be present. Because of these inherent limitations, gap reports cannot predict
accurately the change in net interest income that may occur given a particular
change in interest rates. The Corporation employs simulation models to measure
dynamic changes in interest rate-sensitive assets and liabilities caused by
variations in interest rates. The Corporation also enters into interest rate
swaps ("swaps") and interest rate floor agreements ("floors") as hedges against
fluctuations in the interest rates of identifiable asset categories. The swaps
represent an exchange of interest payments computed on notional amounts. The
Corporation receives fixed-rate interest payments in return for floating-rate
payments on the swaps. At March 31, 1997, the swap portfolio totaled $350
million and had final maturities of between 1 and 37 months, with a weighted
average maturity of 18 months. The floors generate interest payments based on
notional amounts when the floating-rate index falls below the fixed-rate strike
price. When that index is equal to or above the strike price, no payments are
received. A single upfront payment was made to purchase each of the floors.
These payments are amortized over each floor's original life.
At March 31, 1997, the floor portfolio totaled $300 million and had final
maturities of between 28 and 60 months, with a weighted average maturity of 38
months. The net interest differential which the Corporation currently receives
on these swaps and floors is reported under the caption "Interest and fees on
loans" in the Corporation's Consolidated Statements of Income, and is recognized
over the lives of the respective agreements.
16
<PAGE>
Liquidity
- ---------
A financial institution's liquidity represents its ability to meet, in a timely
manner, cash flow requirements that may arise. Liquidity of the asset side of
the balance sheet is provided by the maturity and marketability of loans, money
market assets and investments. Liquidity of the liability side of the balance
sheet is usually provided through a stable base of core deposits.
The Corporation's quarter-end liquidity ratio, calculated in accordance with
regulatory requirements of the FDIC, was 23.49%. Management believes that
maturities of the Corporation's investment securities, other readily marketable
assets and external sources of funds offer more than adequate liquidity to meet
any cash flow requirements that may arise. Sources of funds have historically
consisted of deposits, amortization and prepayments of outstanding loans,
maturities of investment securities, borrowings, and interest income. Management
monitors the Corporation's existing and projected liquidity requirements on an
ongoing basis and implements appropriate strategies when deemed necessary.
Asset Quality and Loan Loss Provision
- -------------------------------------
The Corporation's provision for loan losses for the first quarter of 1997 was
$4.5 million, an increase of $1 million, or 29%, over the $3.5 million provided
for the first quarter of 1996. The reserve at March 31, 1997 was $55.4 million,
an increase of $1 million, or 2%, over the $54.4 million reported at December
31, 1996. The reserve as a percentage of total period-end loans outstanding was
1.45%, up slightly over the year-end level of 1.44%. Net chargeoffs for the
first quarter of 1997 were $3.5 million, up $.6 million, or 23%, over the first
quarter of 1996.
The following table presents the risk elements in the Corporation's loan
portfolio:
<TABLE>
<CAPTION>
Risk Elements (in thousands) March 31, 1997 December 31, 1996 March 31, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccruing $37,811 $40,735 $27,531
Restructured ---- ---- ----
Past due 90 days or more 18,720 20,440 19,673
- ---------------------------------------------------------------------------------------------
Total $56,531 $61,175 $47,204
======================================================
Percent of total loans at period-end 1.48% 1.62% 1.35%
Other real estate owned $ 5,543 $ 5,131 $17,910
</TABLE>
Nonaccruing loans at March 31, 1997 were $37.8 million, a decrease of $2.9
million from the $40.7 million reported at December 31, 1996. Other real estate
owned, which is reported as a component of other assets in the Consolidated
Statements of Condition, consists of assets that have been acquired through
foreclosure. These assets are recorded on the books of the Corporation at the
lower of their cost or the estimated fair value less cost to sell, adjusted
periodically based upon current appraisals. Nonperforming assets (other real
estate owned plus nonaccrual loans) at March 31, 1997 totaled $43.4 million, or
1% of period-end loans outstanding. This was a decrease of $2.5 million, or 5%,
from the $45.9 million, or 1.22% of period-end loans outstanding, reported at
December 31, 1996. As a result of the Corporation's ongoing monitoring of its
loan portfolio, at March 31, 1997, approximately $11.0 million of its loans were
identified which are either currently performing in accordance with their terms
or are less than 90 days past due but for which, in management's opinion,
serious doubt exists as to the borrowers' ability to continue to repay their
loans in full on a timely basis.
17
<PAGE>
The reserve for loan losses at quarter-end was 1.46 times the level of
nonaccrual loans. Management believes the reserve is adequate, based upon
currently available information. The Corporation's determination of the adequacy
of its reserve is based upon an evaluation of its classified loans and other
assets, past loss experience, current economic and real estate market conditions
and any regulatory recommendations.
Capital Resources
- -----------------
A strong capital position provides a margin of safety for both depositors and
stockholders and enables a financial institution to take advantage of profitable
opportunities and provide for future growth. The Corporation's total risk-based
capital ratio at the end of the first quarter of 1997 was 12.24%, and its core
(Tier 1) leveraged capital ratio was 8.54%. The corresponding ratios at year-end
1996 were 12.01% and 8.59%, respectively. Both of these ratios are well in
excess of the current regulatory minimums of 8.00% and 4.00%, respectively.
Reflecting the Corporation's performance and favorable outlook, the Board of
Directors, at its April meeting, increased the quarterly dividend by 9% to 36
cents per share. This raises the per-share annual dividend rate to $1.44 and
marks the sixteenth consecutive year in which dividends have been increased.
Management monitors the Corporation's capital position and will make adjustments
as needed to insure that the capital base will satisfy existing and impending
regulatory requirements, as well as meet appropriate standards of safety and
provide for future growth.
Other Information
- -----------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128 - "Earnings Per Share," which is required to be adopted on
December 31, 1997. At that time, the Corporation will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of basic and fully diluted earnings per share for the
quarters ended March 31, 1997 and March 31, 1996 is not expected to be material.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 129 - "Disclosure of Information about Capital Structure." Statement 129
consolidates existing guidance and requires entities to disclose certain
information about the entity's capital structure. This Statement is effective
for financial statements for periods ending after December 15, 1997. It contains
no change in disclosure requirements for entities such as the Corporation that
were previously subject to the requirements of Opinions 10 - "Omnibus Opinion -
1966" and 15 - "Earnings Per Share" and Statement 47 - "Disclosure of Long-Term
Obligations." Accordingly, this statement imposes no new reporting requirements
on the Corporation.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Change In Securities
Not Applicable
Item 3 - Defaults Upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
At the Corporation's Annual Stockholder's Meeting held on
April 17, 1997 (the "Annual Meeting"), the nominees for
director proposed by the Corporation were elected. The votes
for those nominees were as set forth below:
For Withheld
---------------- ------------
Ted T. Cecala 27,518,207 353,161
Richard R. Collins 27,535,606 335,761
Andrew B. Kirkpatrick, Jr. 27,408,273 463,095
Hugh E. Miller 27,512,661 358,706
David P. Roselle 27,486,081 385,287
Thomas P. Sweeney 27,411,716 459,651
Mary Jornlin-Theisen 27,529,394 341,973
In addition, at the Annual Meeting, the Corporation's stockholders
ratified the selection of Ernst & Young LLP as the Corporation's
independent public accountants for 1997. The vote for that ratification
was as set forth below:
For Against Abstain
----------------- ------------------ -----------------
27,796,023 24,028 51,316
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
The exhibits listed below are being filed as part of this report. These
exhibits will be made available to any shareholder upon receipt of a
written request therefor, together with payment of $.20 per page for
duplicating costs.
Exhibit Number Exhibit
- -------------- ----------------------------------------------------
11 Statement re computation of per share earnings
27 Financial data schedule
19
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1997 /s/ Ted T. Cecala
------------------------------------
Name: Ted T. Cecala
Title: Chairman of the Board and
Chief Executive Officer
Date: May 14, 1997 /s/ David R. Gibson
------------------------------------
Name: David R. Gibson
Title: Senior Vice President and
Chief Financial Officer
20
Exhibit 11
Statement Re Computation of Per Share Earnings
- ----------------------------------------------
Earnings per share of $.74 for the first quarter of 1997 were computed by
dividing net income of $24,920,682 by the weighted average number of shares of
common stock outstanding during the quarter of 33,867,692.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information
extracted from the Corporation's Form 10-Q for the period
ended March 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 190,294
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 71,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 811,589
<INVESTMENTS-CARRYING> 447,602
<INVESTMENTS-MARKET> 441,993
<LOANS> 3,826,583
<ALLOWANCE> 55,375
<TOTAL-ASSETS> 5,515,399
<DEPOSITS> 3,774,603
<SHORT-TERM> 1,129,675
<LIABILITIES-OTHER> 100,834
<LONG-TERM> 43,000
0
0
<COMMON> 39,107
<OTHER-SE> 428,180
<TOTAL-LIABILITIES-AND-EQUITY> 5,515,399
<INTEREST-LOAN> 82,107
<INTEREST-INVEST> 19,195
<INTEREST-OTHER> 343
<INTEREST-TOTAL> 101,645
<INTEREST-DEPOSIT> 30,945
<INTEREST-EXPENSE> 45,987
<INTEREST-INCOME-NET> 55,658
<LOAN-LOSSES> 4,500
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 49,698
<INCOME-PRETAX> 37,017
<INCOME-PRE-EXTRAORDINARY> 24,921
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,921
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 4.57
<LOANS-NON> 36,622
<LOANS-PAST> 18,720
<LOANS-TROUBLED> 1,189
<LOANS-PROBLEM> 10,958
<ALLOWANCE-OPEN> 54,361
<CHARGE-OFFS> 4,257
<RECOVERIES> 771
<ALLOWANCE-CLOSE> 55,375
<ALLOWANCE-DOMESTIC> 55,375
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
