UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.DC 20549
FORM 10-K
X Annual Report Pursuant to Section---------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 orOR 15(d) of the
---
Securities Exchange Act ofOF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)(FEE REQUIRED)
For the fiscal year ended December 31, 19951996, or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR ___ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)(NO FEE REQUIRED)
For the transition period from _____________________ to _____________________
Commission File Number: 0-10587
FULTON FINANCIAL CORPORATION
------------------------------------------------------------
Exact-------------------------------------------------------------------
(Exact name of registrant as specified in its charter
Pennsylvaniacharter)
PENNSYLVANIA 23-2195389
- ------------------------------ ------------------
State-------------------------------------------------------------------
(State or other jurisdiction of I. R. S.(I.R.S. Employer
incorporation or organizationorganization) Identification No.)
One Penn Square, P. O. BoxO .Box 4887, Lancaster, Pennsylvania 17604
- -------------------------------------- ---------
Address-------------------------------------------------------------------
(Address of principal executive offices Zip Code
Registrant'soffices) (Zip Code)
(717) 291-2411
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(Registrant's telephone number, including area code: (717)291-2411code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each Exchange
Title of each class on which registered
- ----------------------------- ------------------------------------------------------- -------------------
Common Stock, $2.50 Par Value None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K X
---
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X[X] No [_].
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1
The aggregate market value of 25,892,59232,818,915 shares of common stock held by
non-affiliates, calculated based on the average of the bid and asked prices on
February 28, 1996,March 13, 1997, was $566,400,450.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes____ No___.$789,707,067.
As of February 28, 1996March 13, 1997 there were 28,301,51235,973,617 shares of Fulton Financial
Corporation common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference:
Part of Form 10-K into
Document which incorporated
-------- ----------------------------------------
Definitive Proxy Statement of Part III
Fulton Financial Corporation
dated March 26, 1996
225, 1997
PART I
Item 1. Description of Business
- --------------------------------
Fulton Financial Corporation (the Corporation) is a Pennsylvania business
corporation which was organized on February 8, 1982 and became a bank holding
company through the acquisition of all of the outstanding stock of Fulton Bank
on June 30, 1982. Fulton Financial Corporation provides a wide variety of
banking and trust services to businesses and consumers located primarily in
southeastern Pennsylvania, southern New Jersey, northern Maryland and southern
Delaware through the followingits nine wholly-owned banking subsidiaries: Fulton Bank,
Farmers Trust Bank, Swineford National Bank, Lafayette Bank, FNB Bank, N.A.,
Great Valley Savings Bank, Hagerstown Trust Company, and Delaware National Bank.Bank, and
The Bank of Gloucester County. On February 28, 1997, the Corporation completed
its acquisition of its tenth banking subsidiary, The Woodstown National Bank &
Trust Company.
In addition, Fulton Financial Corporation owns all of the outstanding stock
of two nonbankingfour nonbank subsidiaries: (i) Fulton Financial Realty Company, which holds
title to or leases certain properties upon which Fulton Bank and Farmers Trust
Bank branch offices and other Fulton Bank facilities are located, and (ii) Fulton
Life Insurance Company, which reinsuresengages in the business of reinsuring credit life
and accident and health insurance ondirectly related to extensions of credit by
the Corporation's banking subsidiaries.subsidiaries of the Corporation (iii) Central Pennsylvania Financial
Corporation which owns certain limited partnership interests in partnerships
invested in low and moderate income housing projects and two nonbank companies
in various stages of liquidation and (iv) FFC Management, Inc. which owns
certain investment securities.
Fulton Financial Corporation is registered with the Federal Reserve Board
in accordance with the requirements of the Federal Bank Holding Company Act of
1956, as amended, and is subject to regulation by the Federal Reserve Board, the
Office of the Comptroller of the Currency, the Pennsylvania Department of
Banking, and the State of Maryland.
3
Maryland, and the New Jersey Department of Banking.
The common stock of Fulton Financial Corporation is listed for quotation on
the National Market System of the National Association of Securities Dealers
Automated Quotation System under the symbol FULT.
The table on page 5 summarizes relevant information about the Corporation's
banking subsidiaries.
All of the Corporation's banking subsidiaries face significant competition from
commercial banks, savings banks, credit unions, and othervarious nonbank providers of
financial services. None of the Corporation's banking subsidiaries is dependent
upon any single customer, and the loss of any single customer or a few customers
would not have a material adverse impact on any of the banking subsidiaries. 4
FULTON FINANCIAL CORPORATION
BANKING SUBSIDIARIES
As of December 31, 1995The
table below summarizes selected information about the Corporation's banking
subsidiaries.
Main Office Total Total
Office Assets Deposits No. of Employees
------------------------
Banking Subsidiary Location (000's) (000's)Assets Deposits Full-time Part-time
-------- ---------- ---------------------------------------------------- ----------------- ----------- ----------- --------- ---------
(in thousands)
Fulton Bank Lancaster, PA $1,616,987 $1,260,059 649 195$1,739,000 $1,351,000 634 253
Farmers Trust Bank Lebanon, PA 167,004 125,299 56166,000 135,000 54 24
Swineford National Bank Hummels Wharf, PA 205,961 182,505 82 43217,000 185,000 78 37
Lafayette Bank Easton, PA 406,309 351,578 175 74428,000 362,000 164 70
FNB Bank, N.AN.A. Danville, PA 246,418 209,401 84 22246,000 209,000 80 24
Great Valley Savings Bank Reading, PA 257,360 214,757 85 13270,000 214,000 80 16
Hagerstown Trust Company Hagerstown, MD 347,603 297,749 181 9364,000 301,000 170 15
Delaware National Bank Georgetown, DE 108,622 98,185 58 11
--------- ---------
1,370 391
========= =========122,000 106,000 55 18
The Bank of Gloucester County Woodbury, NJ 235,000 204,000 86 35
-------- --------
1,401 492
======== ========
5
Fulton Bank
-----------
Fulton Bank is a full-service commercial bank which was originally
chartered as a national banking association on February 8, 1882, and which
converted to a Pennsylvania bank and trust company on July 1, 1974. As a state-
chartered bank whose deposits are insured by the Federal Deposit Insurance
Corporation (FDIC) and which is not a member of the Federal Reserve System,
Fulton Bank is subject to regulation and periodic examination by the FDIC and
the Pennsylvania Department of Banking.
Fulton Bank offers a full range of general retail and wholesale banking
services, including the following: demand, savings and time deposits;
commercial, consumer and mortgage loans; vehicle and equipment leasing and
financing; VISA and Mastercard credit cards; VISA debit cards; and a wide range
of international services such as letters of credit and currency exchange.
Fulton Bank maintains a network of automated teller machines, which is
integrated with the MAC/tm/MACtm regional and CIRRUS/tm/CIRRUStm and PLUS/tm/PLUStm national automated
teller systems, as well as telephone banking services through the Bank-By-Phone
system.
Fulton Bank maintains correspondent relationships with major banks in New
York, Philadelphia, Pittsburgh and Baltimore and through them offers a variety
of collection and funds transfer services. Fulton Bank is a member of the
Federal Home Loan Bank of Pittsburgh.
Fulton Bank has trust powers and maintains a staff of investment, trust and
trust
administrative officers.financial professionals. Personal services
6
available through the Investment
Management and Trust Services Department of Fulton Bank include Personal Trusttrust and Estate Planning, Investment Management, Estate Settlement, Asset Management
Accounts,estate
planning, investment management, estate settlement, private banking, a Mutual Fund Asset Allocationmutual
fund asset allocation program, and IRA Rollovers.rollovers. Institutional services
available include full service Employee Benefitretirement plan management and 401(k) programs,
including administration andcash reserve investment management Cash Reserve Investment
Management accounts, administrative and investment
services for Foundations and Endowments and comprehensive Corporate Trustcorporate trust
services.
The trade area of Fulton Bank consists of Lancaster County, with a
population of 422,822 (1990 Census Update), Dauphin County, with a population of
237,813 (1990 Census Update), portions of Cumberland County, with a population
of 195,257 (1990 Census Update), portions of Chester County, with a population
of 376,396 (1990 Census Update) and portions of York County, with a population
of 339,574 (1990 Census Update). For marketing purposes, the Fulton Bank trade
area is divided into two regions: the Lancaster Region, consisting of Lancaster
and Chester counties, and the Capital Region, consisting of Dauphin, Cumberland,
and York Counties. Approximately 75 percent of the business of Fulton Bank is
derived from the Lancaster Region, where its administrative headquarters,
thirtytwenty-nine branch offices, and six remote service facilities are located.
Approximately 25 percent of the business of Fulton Bank is derived from the
Capital Region, where it maintains twelvethirteen branch offices. Both regions have
stable economies and have experienced unemployment rates which are 7
consistent withbelow the
average state and national levels.
Diversity is the key to the economic well-being of the Lancaster Region.
Twenty-nine of the top employersleading manufacturing companies located in the Lancaster
Region have 500 or more employees. ThisThe Lancaster Region also ranks as one of the top
twenty agricultural production areas in the country.
The economy ofWhile the Capital Region also has a wide range of industry, its economy is
strongly influencedanchored by the thousands of workers who are employed by the state government headquartered in
the capital Citycapitol city of Harrisburg. The state
government provides employment to thousandsHarrisburg and by the employees of workers in the region and also
supports local businesses. In recent years, the employment levels of the state
government have remained fairly constant, providing economic stability to the
region.
In addition to the state government, the capital region also boasts a
diverse industry base and is home to several large service
organizations, including Capital Blue Cross/Pennsylvania Blue Shield.Shield which is
located in Cumberland County. Government employment figures are fairly constant
and are therefore an important factor in the below-average unemployment rate
experienced in the Capital Region.
Fulton Bank maintains a competitive posture within its market.market area. The
trade area of Fulton Bank is characterized by active competition among state and
national banks. There are 2342 full-service commercial banks and thrifts with offices in the
Lancaster Region and 3135 full-service commercial banks with offices in the
Capital Region. Fulton Bank rankedranks first in market share (based on total
deposits) in Lancaster County, seventheighth in market share in Dauphin County, fourteenthtwelfth
in market share in Cumberland County, thirty-secondtwentieth in market share in York County,
and twenty-ninthtwenty-seventh in market
8
share in Chester County, according to the most
recent available deposit survey.
Farmers Trust Bank
------------------
Farmers Trust Bank is a full-service commercial bank which was chartered
under the laws of the Commonwealth of Pennsylvania in 1892. Farmers Trust Bank
is a member of the Federal Reserve System and its deposits are insured by the
FDIC. Farmers Trust Bank is subject to regulation and periodic examination by
the Federal Reserve Bank of Philadelphia and by the Pennsylvania Department of
Banking. In addition to its administrative headquarters located in Lebanon,
Pennsylvania, Farmers Trust Bank maintains seven branch offices and one remote
service facility.
Farmers Trust Bank offers a full range of general retail and commercial
banking services, including demand, savings and time deposits, and commercial,
consumer, and mortgage loans. Farmers Trust Bank maintains automated teller
machines which are integrated with the MAC/tm/MACtm regional and CIRRUS/tm/CIRRUStm and PLUS/tm/PLUStm
national automated teller systems. Farmers Trust Bank maintains correspondent
relationships with major banks in New York and Philadelphia and through them
offers a variety of collection and funds transfer services. Farmers Trust Bank
is a member of the Federal Home Loan Bank of Pittsburgh.
Farmers Trust Bank has trust powers and offers a variety of services
through its Trust Department, including estate planning, executorships, estate
administration, living trusts, life insurance trusts, testamentary trusts,
custodianships, guardianships, 9
investment management accounts, escrow accounts
and mutual fund asset allocation accounts.
The trade area of Farmers Trust Bank consists of Lebanon County,
Pennsylvania with a population of 113,744 (1990 Census Update), along with a
portion of western Berks County. There are seventen full-service commercial banks and thrifts
with offices in Lebanon County. Farmers Trust Bank ranked fifthranks fourth in Lebanon
County based on its market share of deposits, according to the most recent
available deposit survey.
Swineford National Bank
-----------------------
Swineford National Bank is a national banking association which was
chartered in 1903. Swineford National Bank is a member of the Federal Reserve
System and its deposits are insured by the FDIC. As a national banking
association, Swineford National Bank is subject to regulation and periodic
examination by the Office of the Comptroller of the Currency. In addition to its
administrative headquarters located in Hummels Wharf, Pennsylvania, Swineford
National Bank maintains sevensix branch offices.
Swineford National Bank offers a full range of general retail and
commercial banking services, including demand, savings and time deposits and
commercial, consumer and mortgage loans. Swineford National Bank maintains
automated teller machines which are integrated with the MAC/tm/MACtm regional and
CIRRUS/tm/CIRRUStm national automated teller systems. Swineford National Bank maintains a
correspondent relationship with major banks in New York and Philadelphia and
through them offers a variety of collection and funds transfer 10
services.
Swineford National Bank is a member of the Federal Home Loan Bank of Pittsburgh.
The trade area of Swineford National Bank consists of Snyder County, with a
population of 37,69936,680 (1990 Census Update), Northumberland County, with a
population of 95,73296,771 (1990 Census Update) and Union County, with a population of
37,29836,176 (1990 Census Update). There are four full-service commercial banks and thrifts with
offices in Snyder County, fifteen full-service commercial banks with offices in Northumberland County and
seven full service bankseight with offices in Union County. Swineford National Bank rankedranks first in
Snyder County, thirteenth in Northumberland and sixth in Union County, based on
market share of deposits, according to the most recent available deposit survey.
Lafayette Bank
--------------
Lafayette Bank is a full-service commercial bank which was originally
chartered under the laws of the Commonwealth of Pennsylvania in 1922 as
Lafayette Trust Bank. During 1988, Lafayette Trust Bank and the Pen Argyl
National Bank, both wholly-owned subsidiaries of Fulton Financial Corporation,
merged to form Lafayette Bank. During 1991, Second National Bank of Nazareth, a
wholly-owned subsidiary of Fulton Financial Corporation serving the same market
area, was merged into Lafayette Bank.
As a state-chartered bank whose deposits are insured by the FDIC and which
is not a member of the Federal Reserve System, Lafayette Bank is subject to
regulation and periodic examination by the FDIC and by the Pennsylvania
Department of Banking. In 11
addition to its administrative headquarters located in
the City of Easton, Lafayette Bank currently maintains thirteentwelve branch offices.
Lafayette Bank offers a full range of general retail and commercial banking
services, including demand, savings and time deposits, and commercial, consumer
and mortgage loans. Lafayette Bank maintains automated teller machines which are
integrated with the MAC/tm/MACtm regional and CIRRUS/tm/CIRRUStm and PLUS/tm/PLUStm national automated
teller systems. Lafayette Bank maintains correspondent relationships with major
banks in New York and Philadelphia and through them offers a variety of
collection and funds transfer services. Lafayette Bank is a member of the
Federal Home Loan Bank of Pittsburgh.
Lafayette Bank has trust powers and offers a variety of services through
its Trust Department, including estate planning, estate administration, living
trusts, life insurance trusts, testamentary trusts, custodianships,
guardianships, investment management accounts, escrow accounts, and IRA rollover
accounts.
The trade area of Lafayette Bank consists primarily of Northampton County, with a
population of 247,105 (1990 Census Update). There are thirteen full-
service commercialeighteen full-service
banks and thrifts with offices in Northampton County. Lafayette Bank rankedranks third
in theNorthampton County in market share of deposits, based on the most recent
available deposit survey.
12
FNB Bank, N.A.
--------------
FNB Bank, N.A. is a national banking association which was chartered in
1864. FNB Bank, N.A. is a member of the Federal Reserve System and its deposits
are insured by the FDIC. As a national banking association, FNB Bank, N.A. is
subject to regulation and periodic examination by the Office of the Comptroller
of the Currency. In addition to its administrative headquarters located in
Danville, PA, FNB Bank, N.A. currently maintains sevensix branch offices.
FNB Bank, N.A. offers a full range of general retail and commercial banking
services, including demand, savings and time deposits and commercial, consumer
and mortgage loans. FNB Bank, N.A. maintains automated teller machines which are
integrated with the MAC/tm/MACtm regional automated teller system. FNB Bank, N.A.
maintains a correspondent relationship with major banks in New York and
Philadelphia and through them offers a variety of collection and funds transfer
services. FNB Bank, N.A. is a member of the Federal Home Loan Bank of
Pittsburgh.
FNB Bank, N.A. has trust powers and offers a variety of services including
estate planning, executorships, estate administration, living trusts, life
insurance trusts, testamentary trusts, agency accounts, guardianships and asset
management accounts.
The trade area of FNB Bank, N.A. consists of Montour County, with a
population of 17,735 (1990 Census Update), Lycoming County, with a population of
118,710 (1990 Census Update) and 13
Northumberland County, with a population of
96,771 (1990 Census Update). There are four full-service commercial banks and thrifts with
offices in Montour County, eleven full-service commercial banks with offices in Lycoming County and thirteen full-
service commercial banksfifteen
with offices in Northumberland County. FNB Bank, N.A. rankedranks first in Montour
County fourteenth in Lycoming County and secondfourth in Northumberland County, based on market share of deposits,
according to the most current available deposit survey. FNB Bank, N.A. ranks
fifteenth in Lycoming County due to the presence of several large credit unions.
Great Valley Savings Bank
-------------------------
Great Valley Savings Bank was organized as a Pennsylvania chartered mutual
savings association in 1974. During 1991, Great Valley Savings Bank converted to
a Pennsylvania chartered stock savings bank. As a state-chartered savings bank
whose deposits are insured by the FDIC and which is not a member of the Federal
Reserve System, Great Valley Savings Bank is subject to regulation and periodic
examination by the FDIC and by the Pennsylvania Department of Banking. In
addition to its administrative headquarters located in the City of Reading,
Great Valley Savings Bank maintains seveneight branch offices and operates one remote
site.offices.
Great Valley Savings Bank offers retail banking services, principally in
the form of demand, savings and time deposits, as well as commercial, mortgage
and consumer loans. Great Valley Savings Bank maintains a correspondent banking
relationship with the Federal Home Loan Bank of Pittsburgh.
The market area of Great Valley Savings Bank consists of seven branches in
Berks County, with a population of 336,523 (1990 Census 14
Update), and one branch
in Montgomery County, with a population of 678,111 (1990 Census Update), along
with a portion of contiguous counties. There are three
savings19 full-service banks and
thrifts with offices in Berks County and fifteen43 with offices in Montgomery County.
Great Valley Savings Bank ranked second among savings banksranks eighth in Berks County based on market share of
deposits and thirteendeposits. Great Valley Savings Bank ranks 48th in market share in Montgomery
County accordingdue to the most recent available deposit survey.
The market for banking services in Great Valley Savings Bank's trade area
is highly competitive, as sixteen commercial banks maintain offices in Berks
County and twenty-six commercial banks maintain offices in Montgomery County.presence of several large credit unions.
Hagerstown Trust Company
------------------------
Hagerstown Trust Company is a full-service commercial bank which was
chartered under the laws of the State of Maryland in 1933. As a state-chartered
bank whose deposits are insured by the FDIC and which is not a member of the
Federal Reserve System, Hagerstown Trust Company is subject to regulation and
periodic examination by the FDIC and by the Bank Commissioner of the Statestate of
Maryland. In addition to its administrative headquarters located in Hagerstown,
Maryland, Hagerstown Trust Company maintains thirteen offices and twelveten remote
service facilities.
The trade area of Hagerstown Trust Company consists of Washington County,
Maryland with a population 121,393 (1990 Census Update), along with a portion of
the surrounding counties. There are seventen full-service commercial banks and thrifts with
offices in Washington County, Maryland. Hagerstown Trust Company rankedranks first
15
in
Washington County, Maryland based on its market share of deposits, according to
the most recent available deposit survey.
Hagerstown Trust Company offers a full range of general retail and
wholesale banking services, including demand, savings and time deposits and
commercial, consumer and mortgage loans. Hagerstown Trust Company maintains
automated teller machines which are integrated with MAC/tm/MACtm and MOST/tm/MOSTtm regional
and CIRRUS/tm/CIRRUStm national automated teller systems. Hagerstown Trust Company
maintains a correspondent relationship with major banks in Philadelphia, New
York, Richmond and Baltimore. Hagerstown Trust Company is a member of the
Federal Home Loan Bank of Atlanta.
Hagerstown Trust Company has trust powers and offers a variety of services
including estate administration, estate planning, living trusts, life insurance
trusts, testamentary trusts, custodianships, guardianships, investment
management accounts, agency accounts, escrow accounts, employee benefits,
pension and profit sharing accounts, and mutual fund accounts.
Delaware National Bank
----------------------
Delaware National Bank is a national banking association chartered in 1979.
Delaware National Bank is a member of the Federal Reserve System and its
deposits are insured by the FDIC. Delaware National Bank is subject to
regulation and periodic examination by the Office of the Comptroller of the
Currency. Delaware National Bank maintains six branch offices in addition to an
operations and administrative facility.
16
Delaware National Bank offers a full range of banking services including
retail and commercial checking, savings and time deposits, and consumer,
mortgage, and commercial loans. At this time, Delaware National Bank does not
have trust powers and does not offer investment or discount brokerage services.
Delaware National Bank currently has five drive-up automated teller machines on
the MAC/tm/ regional automated teller system. Delaware National Bank maintains a
correspondent relationship with major banks in Baltimore and the Federal Home
Loan Bank of Pittsburgh.
The primary market area for Delaware National Bank is Sussex County,
Delaware, with a population of 113,229 (1990 Census Update). There are currently
ten financial institutionstwelve full-service banks and thrifts with over 51 branch offices in the county.Sussex County. Delaware
National ranked fifthranks seventh in the Sussex County based on market share of deposits,
according to the most recent available deposit summary.
The Bank of Gloucester County
-----------------------------
The Bank of Gloucester County is a state bank chartered by the State of New
Jersey in 1989. The deposits of The Bank of Gloucester County are insured by the
FDIC and the bank is subject to regulation and periodic examinations by both the
State of New Jersey and the FDIC. The Bank of Gloucester County maintains seven
branch offices in addition to an operations facility.
The Bank of Gloucester County offers a full range of banking services
including retail and commercial checking, savings and time deposits, and
consumer, mortgage, and commercial loans. At this time, the bank does not have
trust powers and does not offer investment or discount brokerage services.
Currently, the Bank of Gloucester County has four automated teller machines on
the MAC/tm/ regional automated teller system. The Bank of Gloucester County
maintains a correspondent relationship with major banks in Philadelphia and the
Federal Home Loan Bank of New York.
The primary market area of The Bank of Gloucester County is Gloucester
County, New Jersey with a population of 232,444 (1990 Census update). There are
currently 26 full-service banks and thrifts with offices in Gloucester County.
The Bank of Gloucester County ranks third in the county in market share of
deposits based on updates of most recently available deposit summary
information.
The Woodstown National Bank & Trust Company
-------------------------------------------
On February 29, 1996,28, 1997, the Corporation completed the previously announcedits acquisition of Gloucester County Bankshares, Inc. (Gloucester County)The
Woodstown National Bank & Trust Company (Woodstown). As provided under the terms
of the merger agreement, Gloucester County was merged
with and intoWoodstown became a wholly-owned subsidiary of the
Corporation and each of the outstanding shares of the common stock of Gloucester CountyWoodstown
was converted into 1.581.6 shares of the common stock of the Corporation. The
Corporation issued approximately 1.62.9 million shares of its common stock in
connection with this merger.
Upon consummation of the merger, Woodstown became the tenth banking
subsidiary of the Corporation assumed ownership of its
ninth banking subsidiary, The Bank of Gloucester
17
County. The Bank of Gloucester County,and the second in New Jersey. Woodstown, with
approximately $200$260 million in assets, is headquartered in Woodbury,Woodstown, New Jersey
and operates six branch
officesoperated four branches in Salem County and two in Gloucester County, New Jersey. The acquisition provides the
Corporation with it first banking subsidiary in New Jersey.County.
Certain additional statistical information relating to the business of
Fulton Financial Corporation is set forth in the following tables.
18
FULTON FINANCIAL CORPORATION
COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
Year Ended December 31
---------------------------------------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)thousands) 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
ASSETS Balance Interest Rate Balance Interest
Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ----------- ----------- ------- ------------ ---------
Interest-earning assets:
Loans and direct lease financing(1) $2,265,870 $197,433 8.71% $1,963,786 $160,743 8.19% $1,792,632 149,303 8.33%leases (1).......................... $ 2,617,739 225,595 8.62% $ 2,390,737 $ 210,562
Taxable investment securities(2) 548,363 30,167 5.50 618,735 31,016 5.01 563,319 30,462 5.41securities (2)............. 634,386 37,390 5.89 585,415 32,233
Tax-exempt investment securities(2) 73,905 4,722 6.39 85,787 5,589 6.51 97,937 6,562 6.70securities (2).......... 54,826 3,315 6.05 76,546 4,843
Equity securities(2) 37,266 1,939 5.20 28,519 1,398 4.90 23,533 1,299 5.52securities (2)......................... 39,590 2,037 5.15 37,731 1,976
Short-term investments 28,415 1,639 5.77 17,564 736 4.19 77,739 2,433 3.13
---------- -------- ---------- -------- ---------- --------investments........................ 5,392 320 5.93 34,198 2,055
----------- ----------- ------- ------------ ---------
Total interest-earning assets 2,953,819 235,900 7.99 2,714,391 199,482 7.35 2,555,160 190,059 7.44assets................... 3,351,933 268,657 8.01 3,124,627 251,669
Noninterest-earning assets:
Cash and due from banks 135,397 144,439 142,470banks....................... 145,005 143,089
Premises and equipment 42,491 39,790 38,608equipment........................ 49,829 46,265
Other assets(2) 103,921 80,696 63,968............................... 109,147 106,076
Less: Allowance for loan losses (36,231) (31,196) (29,505)
---------- ---------- ----------losses............... (39,780) (37,988)
----------- ------------
Total Assets $3,199,397 $2,948,120 $2,770,701
========== ========== ==========Assets.......................... $ 3,616,134 $ 3,382,069
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand depositsdeposits............................... $ 324,888366,912 6,570 1.79% $ 6,467 1.99%365,868 $ 328,9557,646
Savings deposits.............................. 762,272 18,519 2.43 772,663 20,287
Time deposits................................. 1,421,090 78,308 5.51 1,298,697 71,590
Short-term borrowings......................... 179,536 8,541 4.76 125,219 6,291
Long-term debt................................ 28,662 1,864 6.50 31,643 2,081
----------- ----------- ------- ------------ ---------
Total interest-bearing liabilities.............. 2,758,472 113,802 4.13 2,594,090 107,895
Noninterest-bearing liabilities:
Demand deposits............................... 425,079 385,686
Other......................................... 65,197 66,660
----------- ------------
Total Liabilities..................... 3,248,748 3,046,436
Shareholders' equity............................ 367,386 335,633
----------- ------------
Total Liabilities and
Shareholders' Equity................ $ 5,870 1.78%3,616,134 $ 311,6783,382,069
=========== ============
Net interest income............................. 154,855 143,774
Net yield on interest-earning assets............ 4.62%
Tax equivalent adjustment (3)................... 3,698 4,473
----------- ------- ---------
Net interest margin............................. 158,553 4.73% $ 6,955 2.23%148,247
=========== ======= =========
Year Ended December 31
(Dollars in thousands) 1994
- ---------------------------------------------------------------------------------------------------------
Yield/ Average Yield/
ASSETS Rate Balance Interest Rate
- ------------------------------------------------ ------ ------------ --------- ------
Interest-earning assets:
Loans and leases (1).......................... 8.81% $ 2,059,883 $ 169,894 8.25%
Taxable investment securities (2)............. 5.51 651,684 32,707 5.02
Tax-exempt investment securities (2).......... 6.33 85,787 5,588 6.51
Equity securities (2)......................... 5.24 28,519 1,398 4.90
Short-term investments........................ 6.01 23,369 963 4.12
------ ------------ --------- ------
Total interest-earning assets................... 8.05 2,849,242 210,550 7.39
Noninterest-earning assets:
Cash and due from banks....................... 151,353
Premises and equipment........................ 42,283
Other assets(2)............................... 81,411
Less: Allowance for loan losses............... (32,569)
------------
Total Assets.......................... $ 3,091,720
============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand deposits............................... 2.09% $ 382,012 $ 7,038 1.84%
Savings deposits 731,876 19,302 2.64 793,441 19,148deposits.............................. 2.63 815,801 19,643 2.41
798,038 21,559 2.70
Time deposits 1,235,634 68,038deposits................................. 5.51 976,315 43,889 4.50 962,178 43,960 4.571,014,723 45,535 4.49
Short-term borrowings 125,219 6,292borrowings......................... 5.02 140,857 5,288 3.75
63,531 1,612 2.54
Long-term debt 30,647 2,011 6.56debt................................ 6.58 17,750 1,116 6.29
11,545 890 7.71
---------- -------- ---------- -------- ---------- -------------- ------------ --------- ------
Total interest-bearing liabilities 2,448,264 102,110 4.17 2,257,318 75,311 3.34 2,146,970 74,976 3.49liabilities.............. 4.16 2,371,143 78,620 3.32
Noninterest-bearing liabilities:
Demand deposits 362,511 341,399 311,392
Other 65,974 51,909 44,036
---------- ---------- ----------deposits............................... 360,201
Other......................................... 52,103
------------
Total Liabilities 2,876,749 2,650,626 2,502,398Liabilities..................... 2,783,447
Shareholders' equity 322,648 297,494 268,303
---------- ---------- ----------equity............................ 308,273
------------
Total Liabilities and
Shareholders' Equity $3,199,397 $2,948,120 $2,770,701
========== ========== ==========Equity................ $ 3,091,720
============
Net interest income 133,790 124,171 115,083income............................. 131,930
Net yield on interest-earning assets 4.53% 4.57% 4.50%
==== ==== ====assets............ 4.60% 4.63%
Tax equivalent adjustment(3) 4,473adjustment (3)................... 4,557
5,149
-------- -------- -------------- --------- ------
Net interest margin $138,263 4.68% $128,728margin............................. 4.74% $120,232 4.71%
======== ==== ======== ==== ======== ====$ 136,487 4.79%
====== ========= ======
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes nonperforming assets.loans.
(2) Balances reflect amortized historical cost for available for sale
securities. The related unrealized holding gain on securities of $6,962$10,440
in 1996, $6,462 in 1995 and $9,346 in 1994 is included in other assets.
(3) Based on marginal Federal income tax rate applicable to 1995, 1994 and 1993
and statutory interest expense
disallowances.
19
FULTON FINANCIAL CORPORATION
CHANGES IN INTEREST INCOME/EXPENSE DUE TO VOLUME AND RATE CHANGE
The following table sets forth for the periods indicated a summary of
changes in interest income and interest expense resulting from corresponding
volume and rate changes:
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
Increase (decrease) due Increase (decrease) due
to change in to change in
----------------------------- ------------------------------------------------------------------------ ------------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In---------- ---------- ------------ ----------- ---------- --------
(in thousands)
Interest income on:
Loans and direct lease financing............financing.... $ 24,72719,993 $ 11,963(4,960) $ 36,69015,033 $ 14,25527,288 $ (2,815)13,380 $ 11,44040,668
Taxable investment securities............... (3,528) 2,679 (849) 2,997 (2,443) 554securities....... 2,696 2,461 5,157 (3,326) 2,852 (474)
Tax-exempt investment securities............ (774) (93) (867) (814) (159) (973)securities.... (1,374) (154) (1,528) (602) (143) (745)
Equity securities........................... 429 112 541 275 (176) 99securities................... 97 (36) 61 452 126 578
Short-term investments...................... 455 448 903 (1,883) 186 (1,697)investments.............. (1,731) (4) (1,735) 446 646 1,092
-------- -------- -------- -------- -------- --------
Total interest-earning assets..... $ 21,30919,681 $ 15,109(2,693) $ 36,41816,988 $ 14,83024,258 $ (5,407)16,861 $ 9,42341,119
======== ======== ======== ======== ======== ========
Interest expense on:
Demand deposits.............................deposits..................... $ (73)22 $ 670(1,098) $ 597(1,076) $ 386(297) $ (1,471)905 $ (1,085)608
Savings deposits............................ (1,486) 1,640 154 (124) (2,287) (2,411)deposits.................... (273) (1,495) (1,768) (1,039) 1,683 644
Time deposits............................... 11,657 12,492 24,149 646 (717) (71)deposits....................... 6,747 (29) 6,718 12,743 13,312 26,055
Short-term borrowings.......................borrowings............... 2,729 (479) 2,250 (587) 1,591 1,004 1,960 1,716 3,6761,590 1,003
Long-term debt.............................. 811 84 895 478 (252) 226debt...................... (196) (21) (217) 873 92 965
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities $ 10,3229,029 $ 16,477(3,122) $ 26,7995,907 $ 3,34611,693 $ (3,011)17,582 $ 33529,275
======== ======== ======== ======== ======== ========
NOTE:Note: The rate/volume variances are allocated in the table above by applying
the changes in volume times the prior period rate and by applying the changes
in rate times the current period volume on a consistent basis throughout.
20
FULTON FINANCIAL CORPORATION
INVESTMENT PORTFOLIO
The following table sets forth the carrying amount of investment securities
held to maturity (HTM) and available for sale (AFS) as of December 31:the dates shown:
December 31
--------------------------------------------------------------------------------------
1996 1995
1994 1993
---------------------------- ---------------------------- ---------------------------------------------------------------------- ----------------------------------------
HTM AFS TOTALTotal HTM AFS TOTAL HTM AFS TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- --------
(InTotal
------------ ----------- ----------- ---------- ---------- -------------
(in thousands)
United States Treasury and U.S.
Government agencies and
corporations $208,758 $124,227 $332,985 $225,927 $ 75,274 $301,201 $221,961 $ 86,351 $308,312corporations.................... $104,719 $159,148 $263,867 $209,580 $144,058 $353,638
State and municipal 61,959 -- 61,959 84,884 -- 84,884 91,495 340 91,835municipal.................. 50,490 - 50,490 62,606 - 62,606
Other securitiessecurities..................... 1,326 - 1,326 10,960 --- 10,960
37,639 -- 37,639 67,984 1,044 69,028
Equity securities -- 50,446 50,446 -- 47,487 47,487 -- 36,305 36,305securities.................... - 59,772 59,772 - 56,120 56,120
Mortgage-backed securities 220,004 47,672 267,676 159,036 51,450 210,486 137,180 94,138 231,318securities........... 237,173 98,189 335,362 220,780 56,202 276,982
-------- -------- -------- -------- -------- --------
-------- -------- --------
$501,681 $222,345 $724,026 $507,486 $174,211 $681,697 $518,620 $218,178 $736,798Totals......................... $393,708 $317,109 $710,817 $503,926 $256,380 $760,306
======== ======== ======== ======== ======== ========
December 31
-----------------------------------------
1994
HTM AFS Total
------------- ----------- ----------
United States Treasury and U.S.
Government agencies and
corporations.................... $226,754 $ 95,497 $322,251
State and municipal.................. 88,166 - 88,166
Other securities..................... 41,107 - 41,107
Equity securities.................... - 47,487 47,487
Mortgage-backed securities........... 159,036 52,223 211,259
-------- -------- --------
Totals......................... $515,063 $195,207 $710,270
======== ======== ========
21
FULTON FINANCIAL CORPORATION
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
The following tables set forth the maturities of investment securities at
December 31, 19951996 and the weighted average yields of such securities (calculated
based upon historical cost).
HELD TO MATURITY (at amortized cost).
- ----------------
HELD TO MATURITY (at amortized cost) MATURING
- ---------------- -----------------------------------------------------------------------------------------
(Dollars in thousands)
Within-------------------------------------------------------------------------------------
After One But After Five But
AfterWithin One Year Within Five Years Within Ten Years
Ten Years
-------- ----------------- ----------------- ------------------------------------ -------------------------- -------------------------
Amount Yield Amount Yield Amount Yield
Amount Yield
-------- ----- -------- ----- -------- ----- ------- ------------------- ----------- -------------- ---------- -------------- ---------
(dollars in thousands)
United States Treasury and
other U.S. Government
agencies and corporationscorporations....... $ 90,828 5.80% $112,665 5.80%68,545 5.77% $ 4,924 6.43%32,831 6.03% $ 341 11.253,004 6.29%
State and municipal 10,340 9.65 37,804 8.69 9,734 9.34 4,081 9.48(1).............. 11,041 9.93 25,993 8.90 10,604 8.93
Other securities..................... 797 6.23 318 4.73 211 6.52
-------------- ----------- -------------- ---------- -------------- ---------
Totals............................ $ 80,383 6.35% $ 59,142 7.28% $ 13,819 8.32%
============== =========== ============== ========== ============== =========
Mortgage-backed securities 2,148 5.80 8,258 5.01 554 6.61 -- --
-------- ----- -------- ----- ------- ----- ------ -----
$103,616 6.19% $158,727 6.45% $15,212 8.30% $4,422 9.61%
======== ===== ======== ===== ======= ===== ======= =====
Tax-equivalent adjustment for
calculation of yield(2)....... $ 237,173 6.13%
============== ===========
--------------------------------
After Ten Years
--------------------------------
Amount Yield
-------------- ----------------
United States Treasury and
other U.S. Government
agencies and corporations....... $ 339 7.61%
State and municipal (1).............. 2,852 9.44
Other securities..................... - -
-------------- ----------------
Totals............................ $ 349 $ 1,150 $ 318 $ 135
======== ======== ======= ======
Mortgage-back3,191 9.25%
============== ================
Mortgage-backed securities $220,004 6.31%
======== =====(2).......
AVAILABLE FOR SALE (at estimated fair value)
MATURING
- ------------------
-----------------------------------------------------------------------------------------
(Dollars in thousands)
WithinMATURING
------------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years
-------- ----------------- ----------------------------------------------- -------------------------------- --------------------------
Amount Yield Amount Yield Amount Yield
-------- ----- -------- ----- -------- ------------------- -------------- ---------------- -------------- ------------- -----------
(dollars in thousands)
UnitesUnited States Treasury and
other U.S. Government
agencies and corporations $20,261 5.40% $101,197 5.93% $2,769 5.42%
======= ===== ======== ===== ====== =====corporations....... $ 46,611 6.28% $ 108,647 5.90% $ 3,890 6.62%
============== ============ ================ ============= ============= ===========
Mortgage-backed securities $47,672 6.22%
======= =====(2)....... $ 98,189 6.17%
============== ============
(1) Weighted average yields on tax-exempt securities have been computed on
a fully tax-equivalent basis assuming a tax rate of 35 percent.
22(2) Maturities for mortgage-backed securities are dependent upon the interest
rate environment and prepayments on the underlying loans. For the purpose
of this table, the entire balance and weighted average rate is shown in one
period.
FULTON FINANCIAL CORPORATION
LOAN PORTFOLIO BY TYPE
The amounts of gross loans outstanding as(including unearned income) at the
indicated dates for the periods are shown in the following table by type of December 31 followsloan
(1):
December 31
--------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
1991
---------- ---------- ---------- ---------- ----------
(In-------------- -------------- -------------- -------------- --------------
(in thousands)
Commercial, financial and agricultural.........agricultural..... $ 337,582366,223 $ 332,165362,009 $ 341,747350,278 $ 350,146360,868 $ 350,413365,210
Real estate - construction..................... 76,665 82,692 56,490 56,305 46,621construction................. 110,747 92,717 94,711 65,795 60,715
Real estate - mortgage......................... 1,512,667 1,446,912 1,154,152 1,093,543 1,036,510
Consumer....................................... 404,083 357,872 282,172 272,779 287,121mortgage..................... 1,729,817 1,573,663 1,499,509 1,195,116 1,123,313
Consumer .................................. 532,982 439,873 386,589 295,462 281,386
Leasing and other..............................other.......................... 43,818 33,771 25,205 18,428 15,149
18,795
---------- ---------- ---------- ---------- ----------
$2,364,768 $2,244,846 $1,852,989 $1,787,922 $1,739,460
========== ========== ========== ========== ==========-------------- -------------- -------------- -------------- --------------
Totals.................................. $ 2,783,587 $ 2,502,033 $ 2,356,292 $ 1,935,669 $ 1,845,773
============== ============== ============== ============== ==============
(1) At December 31, 1995,1996, Fulton Financial Corporation did not have any loan
concentrations to borrowers engaged in the same or similar industries that
exceeded 10% of total income.loans.
MATURITY & SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
AS OF DECEMBERThe following table summarizes the maturity and sensitivity of loans to
changes in interest rates as of December 31, 19951996:
Due after one year
Due one yearOne
One Year Through More Than
or less through five years Due after five yearsLess Five Years Five Years Total
-------------------- ------------------ --------------------- ----------
(In--------------- --------------- --------------- ---------------
(in thousands)
Floating rate.............. $898,196 $181,311rate........ $ 34,938 $1,114,4451,036,655 $ 110,460 $ 5,350 $ 1,152,465
Fixed rate................. 82,880 473,687 693,756 1,250,323
-------- -------- -------- ----------
Total loans.............. $981,076 $654,998 $728,694 $2,364,768
======== ======== ======== ==========rate........... 107,013 658,413 865,696 1,631,122
--------------- --------------- --------------- ---------------
Totals.......... $ 1,143,668 $ 768,873 $ 871,046 $ 2,783,587
=============== =============== =============== ===============
23
FULTON FINANCIAL CORPORATION
RISK ELEMENTS IN LOAN PORTFOLIO
The following table presents information concerning the aggregate amount of
nonaccrual, past due and restructured loans and other nonperforming assets as
of December 31 (4):
December 31
--------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
1991
------- ------- ------- ------- -------
(In--------- --------- --------- --------- ---------
(in thousands)
Nonaccrual loans (1) (2) (3).................. $11,764 $14,875 $14,605 $20,817 $10,520............... $ 12,879 $ 12,795 $ 15,846 $ 15,135 $ 21,133
Accruing loans past due 90 days or more (3)... 7,321 5,463 5,634 6,046 9,632more.... 6,776 7,928 5,654 5,807 6,068
Other real estate............................. 1,737estate.......................... 1,750 1,785 2,870 2,282 1,705
1,472
------- ------- ------- ------- -------
$20,822 $23,208 $22,521 $28,568 $21,624
======= ======= ======= ======= =======--------- --------- --------- --------- ---------
Totals................................ $ 21,405 $ 22,508 $ 24,370 $ 23,224 $ 28,906
========= ========= ========= ========= =========
(1) Includes impaired loans as defined by Statement of Financial Accounting
Standards No. 114 of approximately $10.3$11.3 million at December 31, 1995.1996.
(2) As of December 31, 1995,1996, the gross interest income that would have been
recorded during 19951996 if nonaccrual loans had been current in accordance
with their original terms was approximately $1.5 million. The amount of
interest income on those nonaccrual loans that was included in 19951996 net
income was approximately $682,000.$720,000. At December 31, 1995, $9.21996, $12.4 million of
nonaccrual loans are considered to be adequately secured.
(3) Accrual of interest income is generally discontinued when a loan becomes 90 days
past due as to principal and interest. When interest accruals are
discontinued, interest credited to income in the current year is reversed
and interest accrued in any prior year is charged to the allowance for loan
loses.reversed. Nonaccrual loans are
restored to accrual status when all delinquent principal and interest
becomes current or the loan is considered secured and in the process of
collection. Certain loans, primarily residential mortgages, that are
determined to be sufficiently collateralized may continue to accrue
interest after reaching 90 days past due.
(4) Excluded from the amounts presented above at December 31, 19951996 are $8.5$11.2
million in domestic commercial loans for which payments were current, but
as to which the borrowers were experiencing significant financial
difficulties. These loans are subject to constant management attention and
their classification is reviewed monthly.
24
FULTON FINANCIAL CORPORATION
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Corporation's loan loss experience is as follows:
Year Ended December 31
------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(Dollars(dollars in thousands)
Amount of loans and leasesLoans outstanding at end of period..$2,356,057 $2,233,894 $1,841,992 $1,773,055 $1,718,165year................... $2,776,225 $2,493,322 $2,345,340 $1,923,124 $1,829,981
========== ========== ========== ========== ==========
Daily average amountbalance of loans and leases.................$2,265,870 $1,963,786 $1,792,632 $1,737,712 $1,678,592leases.......... $2,617,739 $2,390,737 $2,059,883 $1,861,478 $1,782,209
========== ========== ========== ========== ==========
Balance of allowance for loan losses
at beginning of period....................................year............................ $ 35,77538,272 $ 28,67937,279 $ 29,54929,932 $ 23,89530,282 $ 19,91224,393
Loans charged-off:
Commercial, financial and agricultural................. 1,754 1,719 3,415 6,170 2,507agricultural.......... 1,528 1,808 1,759 3,652 6,539
Real estate - construction............................. --construction...................... 30 - 144 -- -- 9- -
Real estate - mortgage................................. 1,748 924mortgage.......................... 1,133 1,974 1,205 3,856 2,832
204
Consumer............................................... 1,554 1,015 1,419 1,660 1,887Consumer........................................ 2,392 1,650 1,044 1,425 1,666
Leasing and other......................................other............................... 50 59 33 51 56 120
---------- ---------- ---------- ---------- ----------
Total loans charged-off.............................. 5,115 3,835 8,741 10,718 4,727charged-off......................... 5,133 5,491 4,185 8,984 11,093
---------- ---------- ---------- ---------- ----------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural................. 1,446 1,047 2,096 654 449agricultural.......... 1,173 1,459 1,188 2,109 679
Real estate - construction............................. --construction...................... - - 58 -- -- --- -
Real estate - mortgage................................. 466mortgage.......................... 1,373 471 587 228 242
51
Consumer............................................... 668Consumer........................................ 908 701 485 559 614
506
Leasing and other......................................other............................... 22 20 29 62 10 8
---------- ---------- ---------- ---------- ----------
Total recoveries..................................... 2,600 2,206 2,945 1,520 1,014recoveries................................ 3,476 2,651 2,347 2,958 1,545
---------- ---------- ---------- ---------- ----------
Net loans charged-off.................................... 2,515 1,629 5,796 9,198 3,713
Additions to allowance charged to operations............. 2,033 2,255 4,926 14,852 6,091charged-off............................... 1,657 2,840 1,838 6,026 9,548
Provision for loan losses........................... 4,192 3,833 2,715 5,676 15,437
Allowance purchased from
Central Pennsylvania Financial Corp. (1994) and Great Valley Savings Bank (1991) --Corp.............. - - 6,470 -- -- 1,605- -
---------- ---------- ---------- ---------- ----------
Balance at end of period.................................year.............................. $ 35,29340,807 $ 35,77538,272 $ 28,67937,279 $ 29,54929,932 $ 23,89530,282
========== ========== ========== ========== ==========
Ratio of net charge-offs during period to
average loans outstanding...................................... .11 .08 .32 .53 .22loans.................................... 0.06% 0.12% 0.09% 0.32% 0.54%
========== ========== ========== ========== ==========
Ratio of reserveallowance for loan losses to loans
outstanding at end of period... 1.50 1.60 1.56 1.67 1.39year....................... 1.47% 1.53% 1.59% 1.56% 1.65%
========== ========== ========== ========== ==========
25
FULTON FINANCIAL CORPORATION
ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for loan losses has been allocated as follows asto provide for
the possibility of December 31:losses being incurred within the following categories of
loans at the dates indicated:
December 31
------------------------------------------------------------------------------------
1996 1995 1994
1993 1992 1991
------------------------------------------------------------------------------------------------------------------
(Dollars------------------------- ------------------------- -------------------------
(dollars in thousands)
Percent Percent Percent Percent Percent% of loans% of loans of loans of loans% of
loans in eachloans in loans in
each in each in each
in eachAllowance category Allowance category Allowance category
category category
to total to total to total to total to total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
------------------ ------------------ ------------------ ------------------ --------------------------- -------- --------- -------- --------- --------
Commercial, financial
& agricultural.. $10,013 14.3% $13,859 14.8% $13,522 18.5% $16,774 19.6% $9,918 20.1%agriculture............. $ 9,604 13.2% $ 11,503 14.5% $ 14,611 14.9%
Real estate - construction
& mortgages..... 11,129 67.2 12,164 68.1 10,712 65.3 8,911 64.3 3,881 62.3mortgages............... 11,427 66.1 12,023 66.6 12,615 67.6
Consumer, leasing
& other......... 2,014 18.5 2,091 17.1 2,415 16.2 2,718 16.1 3,451 17.6
Unallocated...other................... 2,561 20.7 2,609 18.9 2,392 17.5
Unallocated................. 17,215 - 12,137 N/A- 7,661 N/A-
---------- ---------- ---------- ---------- ---------- ----------
Totals.................... $ 40,807 100.0% $ 38,272 100.0% $ 37,279 100.0%
========== ========== ========== ========== ========== ==========
December 31
------------------------------------------------------
1993 1992
------------------------- -------------------------
(dollars in thousands)
% of % of
loans in loans in
each each
Allowance category Allowance category
--------- -------- --------- --------
Commercial, financial
& agriculture............. $ 14,149 18.6% $ 17,141 19.8%
Real estate - construction
& mortgages............... 11,088 65.1 9,131 64.2
Consumer, leasing
& other................... 2,665 16.3 2,864 16.0
Unallocated................. 2,030 N/A- 1,146 N/A 6,645 N/A
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
$35,293 100.00% $35,775 100.00% $28,679 100.00% $29,549 100.00% $23,895 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======-
---------- ---------- ---------- ----------
Totals.................... $ 29,932 100.0% $ 30,282 100.0%
========== ========== ========== ==========
(1) The Corporation allocates the allowance for possible loan losses in three components:
(1) specific accounts,accounts; (2) 50% of doubtful, 15% of substandard and 10% of
fair internally risk rated loans (excluding those subject to specific
allocation under (1)); and (3) based upon historical experienceaverages for the
remaining balances. As of December 31, 1995,1996, the Corporation has allocated
$7.7$9.5 million based on a
four yearfour-year historical average: $2.7averages, as follows: $3.7
million commercial, $1.9$2.5 million consumer, $3.0$3.3 million mortgage, and
$70,000$89,000 leasing. The allocation was $385,000Additional allocations of the allowance for loan losses
include: $143,000 for specific accounts, $7.8accounts; $7.4 million for fair rated loans, $6.7loans;
$6.0 million for substandard rated loans, $386,000loans; $322,000 for doubtful rated loans,loans;
and $227,000$178,000 for off-balance sheet risk for standby letters of credit.
(2) Charge-offs for 19961997 are not anticipated to exceed $4.8 million,$2.7 million:
commercial - $2.2 million,$1.0 million; consumer - $1.5 million,$1.0 million; mortgage - $1.0 million,$600,000 and
leases - $100,000. The overall risk factors in the portfolio are best
evidenced by a 30 day and over delinquency rate in the 2.00% to 2.50% range
and overall credit risk ratings of satisfactory and above for 75% of the
commercial and real estate portfolios.
26
FULTON FINANCIAL CORPORATION
DEPOSITS
The average daily balances of deposits and rates paid on such deposits are
summarized as follows for the years ended December 31:periods indicated in the following table:
Year Ended December 31
------------------------------------------------------------------------------
1996 1995 1994
1993
---- ---- ------------------------- --------------------- ---------------------
Amount Rate Amount Rate Amount Rate
---------- ------------ ---------- ------------ ---------- ----
(Dollars--------
(dollars in thousands)
Noninterest-bearing demand deposits...................deposits...... $ 362,511 --425,079 - % $ 341,399 --385,686 - % $ 311,392 --360,201 - %
Interest-bearing demand deposits...................... 324,888 1.99 328,955 1.78 311,678 2.23deposits......... 366,912 1.79 365,868 2.09 382,012 1.84
Savings deposits...................................... 731,876 2.64 793,441deposits......................... 762,272 2.43 772,663 2.63 815,801 2.41
798,038 2.70
Time deposits......................................... 1,235,634deposits............................ 1,421,090 5.51 976,315 4.50 962,178 4.571,298,697 5.51 1,014,723 4.49
---------- ----------- ---------- ---------- ---------- ----
$2,654,909------
Totals................................... $2,975,353 3.47% $2,822,914 3.53% $2,440,110 2.82% $2,383,286 3.04%$2,572,737 2.81%
========== =========== ========== ========== ========== ====
Maturities of time deposits of $100,000 or more outstanding at December 31, 1995======
Maturities of time deposits of $100,000 or more outstanding at December 31,
1996 are summarized as follows:
(In
Time Deposits
Over $100,000
-----------------
(in thousands)
Three months or less..................................less.................. $ 59,62964,452
Over three through six months......................... 27,336months......... 25,676
Over six through twelve months........................ 19,633months........ 31,514
Over twelve months.................................... 33,306
-------
$139,904
=======months.................... 38,562
-----------------
Totals................................ $ 160,204
=================
27
FULTON FINANCIAL CORPORATION
SHORT-TERM BORROWINGS
The following table presents information related to Federal funds purchased
and securities sold under agreements to repurchase. No other categories of
short-term borrowings exceeded 30% of shareholdersshareholders' equity at December 31, 1995.1996.
December 31
-------------------------------------------
1996 1995 1994
1993
---- ---- ----
(Dollars----------- ----------- -----------
(dollars in thousands)
Amount outstanding at December 31.............. $135,872 $191,523 $76,18931................... $211,440 $126,372 $183,923
Weighted average interest rate at year end.....end.......... 4.86% 4.88% 4.93% 2.28%
Maximum amount outstanding at any month end....end......... $233,564 $216,650 $201,187 $81,414
Average amount outstanding during the year.....year.......... $179,536 $125,219 $140,857 $63,531
Weighted average interest rate during the year.year...... 4.76% 5.02% 3.75% 2.54%
28
FULTON FINANCIAL CORPORATION
RETURN ON EQUITY AND ASSETS
The ratio of net income to average shareholders' equity and to average
total assets and certain other ratios are as follows:
Year Ended December 31
---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993(1) 1992
1991
---- ---- ---- ---- -------------- ---------- ---------- ---------- ----------
Percentage of net income to:
Average shareholders' equity................. 14.13% 13.61% 12.32% 10.67% 12.91%14.16% 14.10% 13.79% 12.39% 10.53%
Average total assets......................... 1.42 1.371.44 1.40 1.38 1.19 1.00 1.180.99
Percentage of dividends declared per common
share to net income per common share......... 40.9 40.4 44.7 46.0 37.542.1 39.3 38.5 43.0 43.2
Percentage of average shareholders' equity
to average total assets...................... 10.1 10.1 9.710.2 9.9 10.0 9.6 9.4 9.1
(1) Percentage of income before cumulative effect of changes in accounting
principles to average shareholders' equity and average total assets was
13.61%13.64% and 1.32%1.31%, respectively.
29
FULTON FINANCIAL CORPORATION
INTEREST SENSITIVITY TABLE
December 31, 1996
FULTON FINANCIAL CORPORATION
INTEREST SENSITIVITY TABLE
December 31, 1995
(In thousands)
Floating Three Three to Six -to Greater
or Daily Months - Six Twelve Than
Balance Sheet Category
Adjustable or Less Months Months One Year Total
------------ ------------ ------------ ------------ ------------ ------------
(in thousands)
Assets
- ---------------------- ---------- ------- ------ ------ -------- -----
AssetsInterest-bearing deposits.............. $ 351 $ 1,677 $ - ------
Interest-bearing deposits $ 780- $ 3,645- $ -- $ -- $ -- $ 4,425
Taxable-investments -- 110,451 63,090 99,894 337,883 611,3182,028
Taxable investments.................... - 80,675 69,066 145,928 305,958 601,627
Tax exempt investments -- 4,871 2,276 9,065 45,747 61,959investments................. - 7,414 1,373 10,776 30,926 50,489
Equity securities -- 600 600 1,201 35,311 37,712securities...................... - 744 744 1,486 41,282 44,256
Loans and direct lease financing 636,283 165,715 138,218 295,439 1,121,015 2,356,670
-------- -------- -------- -------- ---------- ----------financing....... 694,641 183,123 152,190 318,980 1,427,291 2,776,225
------------ ------------ ------------ ------------ ------------ ------------
Total rate sensitive assets $637,063 $285,282 $204,184 $405,599 $1,539,956 $3,072,084
======== ======== ======== ======== ========== ==========assets......... $ 694,992 $ 273,633 $ 223,373 $ 477,170 $ 1,805,457 $ 3,474,625
============ ============ ============ ============ ============ ============
Liabilities
- -----------
Demand deposits (A)(1).................... $ 76,37295,375 $ 5,1585,872 $ 5,1585,872 $ 10,31711,744 $ 227,935254,862 $ 324,940373,725
Savings deposits (B) 336,226 18,283 18,283 38,244 304,994 716,030(2)................... 340,620 8,426 8,426 18,232 364,708 740,412
Time deposits 28,520 266,874 216,078 246,866 531,540 1,289,878deposits.......................... 27,451 312,716 251,176 308,285 551,734 1,451,362
Short-term debt 140,930 -- -- -- -- 140,930debt........................ 216,432 - - - - 216,432
Long-term debt -- 5,966 7,457 499 20,767 34,689
-------- -------- -------- -------- ---------- ----------debt......................... - 932 205 423 47,600 49,160
------------ ------------ ------------ ------------ ------------ ------------
Total rate sensitive liabilities $582,048 $296,281 $246,976 $295,926 $1,085,236 $2,506,467
======== ======== ======== ======== ========== ==========liabilities.... $ 679,878 $ 327,946 $ 265,679 $ 338,684 $ 1,218,904 $ 2,831,091
============ ============ ============ ============ ============ ============
Period gap 1.09gap............................. 1.02 0.83 0.84 1.41 1.48
Cumulative gap......................... 1.02 0.96 0.83 1.37 1.42
Cumulative gap 1.09 1.05 1.00 1.080.94 1.04 1.23
(A)(1) NOW accounts - Despite the fact that NOW account funds could be withdrawn at
any time, experience reflects only the normal monthly (beginning, middle,
and end of the month) balance changes coupled with until recently, slow but stable growth.
These accounts historically have exhibited all the characteristics of
transaction accounts and are therefore somewhat insensitive to minor
fluctuations in interest rates. The table assumes that 14%18% of theNOW account
balances are subject to repricing within one year or approximately $36$48
million dollars. This percentage has been based upon recent trends as well
as management's assessment of the effect of current conditions.
(B)(2) Savings deposits include money market accounts, -statements savings accounts
and passbook savings accounts. In view of the historic stable deposit levels
and after analysis of recent deposit flows, management feels it is realistic
to use 19%9% to project passbook and statement savings repricings within one
year. Other components of savings
deposits include moneyMoney market deposit accounts and super NOW accounts, both
of which can be subject to repricing as
frequently as daily.
30
Item 2. Properties
- -------------------------------------
The administrative headquarters of Fulton Financial Corporation and
Fulton Bank is located in a six-story brick building at the northeast corner of
Penn Square in the City of Lancaster, Pennsylvania. This building, together with
fourteen properties upon which Fulton Bank branch offices are located, are owned
in fee by Fulton Bank, free and clear of encumbrances. Five properties upon
which Fulton Bank branch offices are located and four properties upon which
remote service facilities are located are leased by Fulton Bank from
nonaffiliated persons. Eighteen properties upon which Fulton Bank branch offices
are located and two properties upon which remote service facilities are located
are owned or leased by Fulton Financial Realty Company and subleased to Fulton
Bank. Office space is leased by Fulton Financial Realty Company and subleased to
Fulton Financial Corporation and Fulton Bank. TheseThe foregoing leases expire
at various datesintermittently over the years through the year 2023 and most are subject to one
or more renewal options. The Fulton Bank Administrative Service Center is
located on property which is owned free and clear of encumbrances by Fulton
Financial Realty Company.
The administrative headquarters of Farmers Trust Bank is located in a
five-
storyfive-story building at 817 Cumberland Street in Lebanon, Pennsylvania. This
building together with twoand three branch offices are owned in fee by Farmers Trust Bank, free
and clear of encumbrances. One of the properties upon which a Farmers Trust Bank
branch office is located is leased by Fulton Financial Realty
31
Company and
subleased to Farmers Trust Bank, while three additional properties are owned by
Fulton Financial Realty Company and leased to Farmers Trust Bank for branch
offices. Farmers Trust Bank has erected a remote service facility on an
additional property, which is leased from a nonaffiliated person. These leases
expire intermittently over the years through the year 2009 and are subject to
two renewal options.
The administrative headquarters and operations center of Swineford
National Bank are located in a one-story brick building on Routes 11 and 15 in
Hummels Wharf, Pennsylvania. In addition to a branch located at the site of the
operations center, Swineford National Bank operates sevenfive other branch offices.
The Hummels Wharf property and four branch offices are owned free and clear of
encumbrances by Swineford National Bank. ThreeOne additional propertiesproperty used for a
branch offices areoffice is leased by Swineford National Bank from nonaffiliated persons.
These leases expire intermittently over the years through the year 2002a non-affiliated person.
This lease expires in 1997 and areis subject to twoone renewal options.option.
The administrative headquarters of Lafayette Bank is located in a
three-
storythree-story brick building at 360 Northampton Street, Easton, Pennsylvania.
Lafayette Bank maintains two other sites housing administrative operations of
the bank. In addition to these three buildings, which are owned in fee by
Lafayette Bank, free and clear of encumbrances, six branch offices and another
structure are also owned in fee by Lafayette Bank, free and clear of
encumbrances. Seven additional properties are leased by Lafayette Bank from
32
nonaffiliated persons; these leases expire intermittently over the years through
the year 2020 and are subject to one or more renewal options. Six of these
leased properties are used as branch offices and one of these properties is a
branch that was relocated and is no longer used as a branch office.
The administrative headquarters of FNB Bank, N.A. is located at 354
Mill Street, Danville, Pennsylvania. This building and fourthree branch offices are
owned in fee by FNB Bank, N.A. free and clear of encumbrances. Two other branch
facilities are leased by FNB Bank, N.A. from nonaffiliated persons. These leases
expire intermittently over the years through the year 2014 and are subject to
one or more options.
The administrative headquarters of Great Valley Savings Bank is
located in a two-story building at 210 North Fifth Street, Reading,
Pennsylvania. This building and two branches are owned in fee by Great Valley
Savings Bank, free and clear of encumbrances. Five branch offices are leased by
Great Valley Savings Bank from nonaffiliated persons. These leases expire
intermittently over the years through the year 2023 and are subject to two or
more options.
The administrative headquarters of Hagerstown Trust Company is
located in a three story brick building at 83 West Washington Street,
Hagerstown, Maryland. This building and eleven branch offices are owned in fee
by Hagerstown Trust Company, free and clear of encumbrances. Two branch offices
and seven remote facilities are leased by Hagerstown Trust Company from
non-affiliated persons. These leases expire intermittently over the 33
years
through the year 2006 and are subject to one or more options.
The administrative headquarters and principal offices ofoperations center for Delaware
National Bank are located at 9 South Dupont Highway, Georgetown, in Sussex
County, Delaware. The facility is approximately 8,000 square feet on the first
and second floors of a two-story brick office buildingformer bank operations facility leased from a
non-affiliated entity. Two bank branch offices are leased from non-affiliated
entities. These leases expire intermittently over the years through the year
2012 and are subject to one or more renewal options. Four branch offices are
owned free and clear of encumbrances by Delaware National Bank.
The administrative headquarters of The Bank of Gloucester County is
located at Route 113 North and Edwards
Street, Georgetown, Delaware.100 Park Avenue, Woodbury, in Gloucester County, New Jersey. This
building and four of Delaware National Bank's
branchesfive branch offices are owned by the bank.bank, free and clear of
encumbrances. The remainingoperations center and one branch isoffice are leased through 2009.
Delaware National Bank's Administrative and Operations Center is leased through
2021.from
non-affiliated entities at market rates for varying terms.
Item 3. Legal Proceedings
- --------------------------
There are no legal proceedings pending against Fulton Financial
Corporation or any of its subsidiaries which are expected to have a material
impact upon the financial position and/or the operating results of the
Corporation.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders of Fulton
Financial Corporation during the fourth quarter of 1995.
341996.
PART II
Item 5. Market for Registrant's Common Equity and Related - ----------------------------------------------------------
Stockholder Matters
-------------------- ------------------------------------------------------------------------------
The information appearing under the heading "Capital Resources"
and "Common Stock" in Item 7 "Managements"Management's Discussion and Analysis of Financial
Condition and Results of Operations" is incorporated herein by reference.
35
Item 6. Selected Financial Data
- --------------------------------
FULTON FINANCIAL CORPORATION
5-YEAR CONSOLIDATED SUMMARY OF OPERATIONS
For the Year
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- -------------- ------------- ------------- -------------
(Dollars in thousands, except per-share data)
FOR THE YEAR 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Interest incomeincome............................. $ 235,900268,657 $ 199,482251,669 $ 190,059210,550 $ 203,951198,201 $ 225,483210,175
Interest expense 102,110 75,311 74,976 96,387 124,459
---------- ---------- ---------- ---------- ----------expense............................ 113,802 107,895 78,620 77,499 98,836
------------- -------------- ------------- ------------- -------------
Net interest income 133,790 124,171 115,083 107,564 101,024income......................... 154,855 143,774 131,930 120,702 111,339
Provision for loan losses 2,033 2,255 4,926 14,852 6,091losses................... 4,192 3,833 2,715 5,676 15,437
Other income 28,961 25,801 28,432 24,743 19,381income................................ 32,803 29,889 26,397 29,939 25,636
Other expenses 100,039 94,004 91,782 84,435 76,862
---------- ---------- ---------- ---------- ----------expenses.............................. 110,151 104,611 97,508 95,006 87,025
------------- -------------- ------------- ------------- -------------
Income before income taxes 60,679 53,713 46,807 33,020 37,452taxes.................. 73,315 65,219 58,104 49,959 34,513
Income taxes 15,099 13,233 10,285 6,077 7,334
---------- ---------- ---------- ---------- ----------taxes................................ 21,297 17,907 15,587 12,043 7,064
------------- -------------- ------------- ------------- -------------
Income before cumulative effect of changes
in accounting principles 45,580 40,480 36,522 26,943 30,118principles............... 52,018 47,312 42,517 37,916 27,449
Cumulative effect of changes
in accounting principles -- --principles............... - - - (3,457) -- --
---------- ---------- ---------- ---------- -----------
------------- -------------- ------------- ------------- -------------
Net incomeincome.................................. $ 45,58052,018 $ 40,48047,312 $ 33,06542,517 $ 26,94334,459 $ 30,118
========== ========== ========== ========== ==========27,449
============= ============== ============= ============= =============
PER-SHARE DATA*DATA (1)
- -----------------------------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes
in accounting principlesprinciples............... $ 1.611.58 $ 1.44 $ 1.30 $ .961.17 $ 1.080.86
Net income 1.61income.................................. 1.58 1.44 1.18 .96 1.081.30 1.06 0.86
Cash dividends .656 .581 .527 .431 .407dividends.............................. 0.665 0.566 0.501 0.456 0.376
AT YEAR END
- ----------------------------------------------------------------------------------------------------------------------------------------------
Total assets $3,334,729 $3,178,696 $2,824,312 $2,791,039 $2,654,209assets................................ $ 3,769,385 $3,524,568 $3,338,427 $2,954,908 $2,896,010
Net loans 2,320,764 2,198,119 1,813,313 1,743,506 1,694,270
Deposits 2,730,370 2,591,048 2,378,320 2,443,147 2,325,984loans................................... 2,735,418 2,455,050 2,308,061 1,894,445 1,800,432
Deposits.................................... 3,054,174 2,915,269 2,738,897 2,496,581 2,538,503
Long-term debtdebt.............................. 49,160 34,689 27,283 13,051 16,764
15,199
Shareholders' equity 339,914 308,332 288,302 260,926 245,419equity........................ 385,678 354,014 319,608 298,581 269,811
Average shareholders' equity 322,648 297,494 268,303 252,395 233,212equity................ 367,386 335,633 308,273 278,026 260,619
Average total assets 3,199,397 2,948,120 2,770,701 2,687,869 2,561,855
- -----------------------------------------------------------------------------------------------------------------------------------assets........................ 3,616,134 3,382,069 3,091,720 2,884,838 2,770,438
*Per-share(1) Per-share data is based on the weighted average outstanding shares adjusted
for stock dividends and stock splits.
36
Item 7. Management's Discussion and Analysis of Financial Condition - -------------------------------------------------------------------
and Results
- -------------------------------------------------------------------------------
of Operations
-------------------------- -------------
This discussion concerns Fulton Financial Corporation (the
Corporation), a bank holding company incorporated under the laws of the
Commonwealth of Pennsylvania in 1982, and its wholly-owned subsidiaries. This
discussion and analysis should be read in conjunction with the consolidated
financial statements and other financial information presented in this report.
MERGER ACTIVITY
- ---------------
During 1995,1996, the Corporation continued to expand its marketsexternal growth through
acquisition.strategic acquisitions. One acquisition of a new banking affiliate was completed
during the year, while a second acquisition was announced..
On August 31, 1995,February 29, 1996, the Corporation completed the previously
announced acquisition of Delaware NationalGloucester County Bankshares, Corp. (Delaware National)Inc. (Gloucester County).
As provided under the terms of the acquisitionmerger agreement, Delaware NationalGloucester County was
merged with and into the Corporation and each of the 763,051 outstanding shares of the
common stock of Delaware NationalGloucester County was converted into 1.2441.74 shares of the common
stock of the Corporation.
The Corporation issued a total of 949,2351.8 million shares of its common
stock in connection with the Delaware NationalGloucester County merger. The transaction was
accounted for as a pooling of interests and, therefore, allthe financial
information presented herein has been restated to include the accounts of
Delaware NationalGloucester County for all periods presented.
Delaware National Bank, Delaware National's banking subsidiary, with over
$100 million in assets, providesThrough this transaction, the Corporation withacquired ownership of The
Bank of Gloucester County, its first banking subsidiary in Delaware, long considered an area for strategic expansionNew Jersey. The Bank
of Gloucester County, with approximately $235 million in assets as of December
31, 1996, is headquartered in Woodbury, New Jersey, and operates seven branch
offices in Gloucester County, New Jersey.
On February 28, 1997, the Corporation completed the previously
announced acquisition of The Woodstown National Bank & Trust Company
(Woodstown). Woodstown, with approximately $270 million in assets, is
headquartered in Woodstown, New Jersey and operates four branches in Salem
County and two branches in Gloucester County. As provided under the terms of the
Corporation's
37
community bank philosophy. Delaware National Bank operates six banking officesmerger agreement, Woodstown became a subsidiary of the Corporation and each of
the outstanding shares of the common stock of Woodstown was converted into 1.6
shares of the common stock of the Corporation.
The Corporation issued approximately 2.9 million shares of its common
stock in Sussex County, Delaware.connection with the Woodstown merger. The transaction was accounted for
as a pooling of interests. Since consummation of the merger occurred subsequent
to December 31, 1996, the financial information presented herein does not
include the accounts of Woodstown.
On October 1, 1994, the Corporation acquired Central Pennsylvania
Financial CorporationCorp. (CPFC), a savings and loan holding company headquartered in
Shamokin, Pennsylvania. In accordance with the Agreement and Plan of Merger (the
Agreement), CPFC was merged into the Corporation and the Corporation purchased
all of the outstanding shares of CPFC's common stockPennsylvania, in exchange for cash in the amount of
$23.00 per share. The total consideration paid in connection with the
acquisition was approximately $45.9 million.
Through this transaction, the Corporation acquired ownership of Central
Pennsylvania Savings Association, F.A. (CPSA), a federal savings association
which was headquartered in Shamokin. Immediately following the merger,
approximately $260 million of CPSA's assets and $225 million of its liabilities
were distributed among the Corporation's various banking subsidiaries. The major
portion of the net assets distributed represented ten branches in Cumberland,
Dauphin, Lycoming, Montour, Northumberland, Snyder and Union Counties,
Pennsylvania.
The transaction was accounted for as a purchase of assets and
assumption of liabilities. The Corporation's financial statements include the
accounts and
results of CPFC from the October 1, 1994 acquisition date forward.
On February 29, 1996, the Corporation completed the previously announced
acquisition of Gloucester County Bankshares, Inc. (Gloucester County). As
provided under the terms of the merger
38
agreement, Gloucester County was merged with and into the Corporation and each
of the outstanding shares of the common stock of Gloucester County was converted
into 1.58 shares of the common stock of the Corporation.
The Corporation issued approximately 1.6 million shares of its common stock
in connection with the Gloucester County merger. The transaction was accounted
for as a pooling of interest. Since consummation of the merger occurred
subsequent to December 31, 1995, the consolidated financial statements do not
include the accounts of Gloucester County.
Gloucester County, with approximately $200 million in assets, is
headquartered in Woodbury, New Jersey, and operates six branch offices in
Gloucester County, New Jersey, through it wholly-owned subsidiary, The Bank of
Gloucester County. The acquisition provides the Corporation with its first
banking subsidiary in New Jersey.
39
RESULTS OF OPERATIONS
- ---------------------
The Corporation achieved record net income of $45.6$52.0 million for the
year ended 1995.1996. This represents an increase of $5.1$4.7 million or 12.6%9.9% over 1994's1995's
net income of $40.5$47.3 million, which was an increase of $7.4$4.8 million or 22.4%11.3% over
1993's1994's net income of $33.1$42.5 million.
Net income for 1993 was significantly impacted by the adoption of
Statements of Financial Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and No. 109 "Accounting for Income
Taxes", which resulted in a net charge to income of $3.5 million. The
Corporation's income before the cumulative effect of these accounting changes,
which is indicative of ongoing operations, increased $4.0 million or 10.8% in
1994. All ratios presented herein for 1993 reflect income before the cumulative
effect of changes in accounting principles.
The Corporation continued to achieve an outstandinga strong return on average
assets (ROA), a widely used performance barometer within the financial services
industry. This ratio was 1.42%1.44% for 1996 compared to 1.40% for 1995 compared to 1.37%and
1.38% for 1994 and 1.32% for
1993.1994. Return on average shareholders' equity (ROE), another measure of
performance, increased in 1996 to 14.16% from 14.10% in 1995 to 14.13% from the 13.61% level achievedand 13.79% in both
1994 and 1993.1994.
The 12.6%9.9% increase in earnings in 19951996 was driven by significant growth in both
net interest income and other income, offset somewhat by related increases in
noninterest expenses.
40
As a financial institution, netNet Interest Income
Net interest income is a majorthe most significant contributor to the
Corporation's net income. During 1995,1996, net interest income increased 7.7% to
$133.8$154.9 million compared to increases of 7.9%9.0% and 7.0%9.3% during 19941995 and 1993,1994,
respectively. The "Comparative Average Balance Sheets and Net Interest Income
Analysis" on page 1915 summarizes the components of the net interest income
growth. The increases in interest income and interest expense during 1996 were
due mainly to both
the growth in interest-earning assets and interest-bearing liabilities
while average rates over the period remained fairly stable. In 1995, increases
were a result of both rate and the
increases in interest rates.volume fluctuations.
Interest income increased $36.4$17.0 million or 18.3% during6.8% from $251.7 million
in 1995 reflectingto $268.7 million in 1996 This increase reflects the growth in average
interest-earning assets, as well as the increase in the yield on
these assets.
Interest-earning assetswhich increased $239.4$227.3 million or 8.8%7.3% during 1996,
after increasing $275.4 million or 9.7% during 1995 after
increasing $159.2and $187.3 million or 6.2%7.0%
during 1994. The Corporation generated significant growth in loans as a result
of the strong economy in its markets. Average loans increased $227.0 million
(9.5%), $330.9 million (16.1%) and $198.4 million (10.7%) during 1996, 1995 and
1994, and $136.1 million or 5.6% during
1993.respectively. A significant portion of thethis growth during 1995 and 1994 iswas due to the
October 1, 1994 acquisition of CPFC.
The Corporation has generated significant
growth in loans reflecting the strong economy in its markets. Loans increased
$302.1 million (15.4%), $171.2 million (9.5%) and $118.6 million (7.1%) during
1995, 1994 and 1993, respectively. These increases in loans were partially
funded by decreases in investments (including short-term investments), of $62.7
million (8.3%) and $11.9 million (1.6%) during 1995 and 1994, respectively.
The yield on interest-earning assets increased 8.7%decreased to 7.99%8.01% in 1996 from
8.05% in 1995. The slight decrease in the 1996 yield is primarily a result of
the yield on loans declining by 19 basis points, offset by an increase in yields
on investments. Many of the Corporation's loans are adjustable rate and, as
such, the overall loan portfolio yield is influenced by changes in certain
market indices, such as the prime rate. The Fulton Bank prime rate declined from
an average of 8.8% in 1995 from
7.35%to 8.3% in 1996.
The 1995 yield on interest-earning assets was 8.9% higher than the
7.39% yield in 1994. TheThis increase is a result of two factors. First, in 1995,
the yield on loans increased 56 basis points to 8.81% from 8.25% in 1994 yield representsas the
average prime rate increased from 7.1% to 8.8%. Secondly, a 1.2% decrease from 7.44% in 1993.
41
The changes in the yields reflect both the shiftmore significant
change in the composition of the
Corporation's interest-earning assets and the fluctuationsoccurred. Loans increased
to 77% of the interest rate
environment. The shift in the composition of the Corporation'stotal interest-earning assets with a greater proportion representing loans and a lesser proportion
representing investments, has positively impacted yields, sincefrom 72% in 1994. Since loans generally
earn interest athave a higher ratesyield than investments. The interest rate environment
positively impacted the yield in 1995. The prime rate, a reliable gauge of
interest rates in general, was 8.5% at December 31, 1995 and 1994. However the
average prime rate was 8.8% for 1995 compared to 7.1% for 1994.investments, this shift also influenced overall yields.
Interest expense increased at a much greater rate than interest income
during 1995, increasing $26.8$5.9 million or 35.6%5.5%, reflecting both the
growth in interest-bearing liabilities as well as the increase in the cost of these funds.during 1996. Interest-bearing liabilities
increased $190.9$164.4 million or 8.5%6.3% during 1996, after increasing $222.9 million or
9.4% during 1995 after
increasing $110.3and $134.0 million or 5.1%6.0% during 1994 and $85.6 million or 4.2% during
1993.1994. While a significant
portion of the growth during 1995 and 1994 iswas due to the October 1, 1994 acquisition of CPFC,
increases in interest-bearing liabilities were required to fund continued loan
growth. Average interest-bearing deposits have provided much of this growth,
increasing $113.0 million (4.6%), $224.7 million (10.2%) and $50.4 million
(2.3%) during 1996, 1995 and 1994, respectively. As competition for customer
deposits has intensified over the past few years, the Corporation has also
been ableturned to generate deposit growth through its competitive marketing efforts. Total
interest-bearing depositsshort-term borrowings as an additional funding source. In 1996,
short-term borrowings increased $193.754.3 million (9.2%), $26.8 million (1.3%)
and $58.1 million (2.9%) during 1995, 1994 and 1993, respectively. These
increases provided funding for loans.or 43.4% over 1995. The cost of
interest-bearing liabilities increased 24.9%decreased slightly from 3.34% for 1994 to 4.17%4.16% for 1995 to 4.13% for
1996, after decreasing 4.3%
duringincreasing from 3.32% in 1994. The changes in the 42
cost of funds
primarily reflectsreflect fluctuations of the interest rate environment
and the ever increasing competitionenvironment.
Provision for customer deposits.Loan Losses
The provision for loan losses for 19951996 totaled $2.0$4.2 million, compared
to the 19941995 and 19931994 provisions of $2.3$3.8 million and $4.9$2.7 million, respectively.
The statement of income for 1994 does not reflect the addition to the allowance
for loan losses of $6.5 million as a result of the CPFC acquisition. At December
31, 1995,1996, the allowance for loan losses as a percentage of loans (net of
unearned income) stood at 1.50%1.47%, which is consistent with the levels of 1.60%as compared to 1.53% and 1.56%
registered1.59% at December 31,
19941995 and 1993,1994, respectively.
The Corporation's subsidiary banks continued their excellent net
charge-off record during 1995.1996. For the year, the subsidiary banks recorded net
charge-offs of $2.5$1.7 million or 0.11%0.06% of average loans outstanding. This
represents an
increasea decrease from the levellevels recorded during 1994, $1.61995, $2.8 million or
0.08%0.12%, and a
decline from the net charge-offs recorded during 1993, $5.81994, $1.8 million or
0.32%
0.09%. In management's opinion, the allowance for loan losses of $35.3$40.8 million,
or 1.50%1.47% of loans and 1.691.91 times nonperforming assets (1.54(1.70 at December 31,
1994)1995) is adequate to absorb any foreseeable loan losses.
The detail of nonperforming assets as of December 31, and net
charge-
offscharge-offs by category for 19951996 and 19941995 is as follows:
43
Nonperforming Assets Net Charge-offsCharge-Offs
------------------------------------- ----------------------------------
1996 1995 1996 1995
---------------- --------------- -------------- ---------------
(in thousands) 1995 1994 1995 1994
- -----------------------------------------------------------------
Real Estate Loans $13,071 $14,669Loans................. $ 1,28211,151 $ 42314,495 $ (210) $ 1,503
Commercial &
Industrial Loans 4,480 4,695 347 676Loans............. 5,131 4,570 355 349
Consumer Loans 1,534 974 886 530Loans.................... 3,373 1,658 1,512 988
Other Real Estate Owned 1,737 2,870 -- --
------- ------- ------- -------
Total $20,822 $23,208Owned........... 1,750 1,785 - -
---------------- --------------- -------------- ---------------
$ 2,51521,405 $ 1,629
======= ======= ======= =======
- -----------------------------------------------------------------22,508 $ 1,657 $ 2,840
================ =============== ============== ===============
Nonperforming assets include all loans 90 days or more past due as to
principal or interest, nonaccrual loans and other real estate owned. It should
be noted that the greatThe
majority of the nonperforming real estate loans above represents residential
real estate loans which, in the opinion of management, are adequately secured.
Other Income
Noninterest income was $29.0$32.8 million for 1995.1996. This represents an
increase of $3.2$2.9 million or 12.2%9.7% over the 19941995 total of $25.8$29.9 million, which, in
turn, was 9.3% lower13.2% higher than the 19931994 total of $28.4$26.4 million. Almost all
noninterest income categories increased during 1995,1996, reflecting the
Corporation's growth.
The 1994 decrease was primarily due to a $3.1 million decrease in gains on sales
of mortgage loans from the 1993 level as refinance volume virtually disappeared
with rising interest rates.
Investment management and trust services income reached a record
level of $7.3$7.8 million in 1996, an increase of $423,000 or 5.8%, following a 1995 an
increase of $390,000 or 5.6%, following. Adjusting for a 1994one-time change in the method of
recognizing income on certain employee benefit plans, the increase of $132,000 or 1.9%.in income was
9.4% in 1996 and 6.7% in 1995. The growth 44
during 19951996 and 19941995 was due to
ongoing expansion and increased marketing of traditional trust services as well
as the continued success of several innovative investment management products.
The customized Cash Reserve Investment Management product continued to grow as
an important vehicle for companies, municipalities, and not-for-profit
institutions looking to enhance the short-term return on their invested funds.
Likewise, the Asset Management
Account,private banking, which integrates personalized investment portfolio
management with traditional commercial bank deposit and loan services, continued
to attract new clients. An expanded, full-service 401(k) program was introduced
toward the end of 1995 which should significantly contributecontributed to trust revenue growth induring 1996.
Service charges on deposit accounts increased $443,000$2.2 million or 4.7% for 1995,20.8%
during 1996, after decreasing $140,000increasing $606,000 or 1.5%6.0% in 1994.1995. The significant increase
in 19951996 is attributable to changes in fee structures on many of the
Corporation's deposit products and services, including the introduction of
foreign ATM charges by certain subsidiary banks, and continued growth in the
Corporation's fee-based deposits, as a result of both
internally generated growth and the acquisition of CPFC.deposits. The decrease in 1994
was also volume driven, since the Corporation had not made significant changes
in service charge pricing during the past few years. Product pricing is reviewed
throughuses a product review and
development process inthrough which all products and services provided by the
Corporation's subsidiary banks both in terms of
features and price, are reviewed on a rotating basis. TheThis review
allows the Corporation recently
introduced revised fee schedules at certain affiliate banksto formally assess product features and pricing in
an effortcomparison to enhance fee income, while remaining competitive in its markets.competitors.
Other service charges and fees increased $1.6$244,000 or 3.2% during 1996
after increasing $1.5 million, or 26.2%
45
during 1995 after remaining flat25.3% in 1994. Other customer fees increased
$454,000, largely from increased customer usage of debit cards. Fulton Bank, the
Corporation's lead bank, unveiled a debit card during 1994 which continues to
significantly enhance fee income as the program gains acceptance and is expanded
to the market areas serviced by the Corporation's other subsidiary banks.
Mortgage servicing fees increased $254,0001995. The increase in 1996 was mainly
due to growth in the Corporation's
servicing portfolio caused by continuing sales in the secondary market and the
acquisition of the servicing portfolio from CPFC in the fourth quarter of 1994.
The category ofnormal growth. In 1995, however, other service charges and fees also benefittedwere
positively impacted by the first full year of income from certain
nonrecurring itemsthe Corporation's
debit card, which was introduced in late 1994. This product produced additional
revenue of approximately $450,000 in 1995 and $650,000 in 1996. Income in 1995
also increased as a result of several non-recurring items, including the receipt of$180,000 in
life insurance proceeds of
$180,000 and $371,000 from gains on the dispositiondispositions of other real
estate of $371,000.estate.
Investment security gains increased $879,000decreased $81,000 or 37.8%2.5% to a level of
$3.2$3.1 million for 1995.1996. As a percentage of noninterest income, investment
security gains represented 11.1%9.5%, 9.0%10.7% and 6.6%8.1% during 1996, 1995 and 1994,
and 1993, respectively. AllThe majority of the gains realized during 19951996, $2.9 million, were
generated from the sale of equity securities. Management continuously reviews the performance and quality of securities
within the investment portfolio. During 1995, management concluded that several
of the equity securities inmonitors the
Corporation's portfolio hadavailable for sale securities and makes periodic sale and
investment decisions based on current and expected market prices likely
to decline in the near future. The securitiesconditions. During
1996, certain investments were sold resulting inas a result of management's assessment of
market conditions.
Other Expenses
Noninterest expenses for 1996 increased gains.
46
Noninterest expense for 1995 rose $6.0$5.6 million or 6.4%5.3% to
$110.2 million, from the 19941995 total of $94.0$104.6 million, after increasing only $2.2$7.1
million or 2.4%7.3% during 1994. The
increase in noninterest expense primarily reflects the effect of the fourth
quarter 1994 CPFC acquisition.
The largest noninterest expense increase occurred in salaries1995.
Salaries and employee benefits expense, which accounts for the
largest portion of other expenses, increased $3.8$1.8 million or 7.9%3.3% during 1995.1996.
Increases of $2.5$4.2 million, or 5.4%8.4%, and $3.3$2.8 million, or 7.8%5.9%, were registered
for 19941995 and 1993,1994, respectively. The 1995moderate increase reflects the growth in the number of employees,
inflationary increases in salaries and an additional bonus paid to all
employees.benefits
in 1996 was in line with the Corporation's target of a 4% increase. In 1996
there were no significant or unusual changes in the organization which impacted
salaries and benefits. The average number of full-time equivalent employees
increased from an
average of 1,588 in 1994remained constant at 1,735 for both 1996 and 1995. The Corporation continued to
1,664 in 1995, an increase of 4.8%. While the number
of average full-time equivalents increased,improve salary efficiencies by reducing the ratio of employees perto million
dollars of average assets decreased to .520.48 in 1996 from 0.51 in 1995. The Corporation
continues to evaluate its structure to improve operating efficiencies.
The increase in salaries and benefits expense in 1995 as compared to .54was a result of
two primary factors. First, 1995 was the first full year in 1994.
This decreasewhich CPFC was due,a
part of the Corporation. Secondly, in part, to1995, the acquisition of CPFC and the related
integration of branches and backroom operations. Management continues to balance
the minimal increases in staffing levels with the commitment to providing the
superior service that customers have come to expect. TheCorporation paid an additional
bonus which
was paid to substantially all employees,employees. This bonus cost the Corporation
approximately $715,000. SeveralExcluding these items, occurred during 1994 and 1993 which distort underlying
trends. During 1993, as previously discussed, the Corporation adopted Statement
of Financial Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other Than
47
Pensions," which increased 1993 employee retiree benefit1995 increase in expense by $828,000, to
$1.0 million. During 1994, after concluding that major changes in the healthcare
system through Federal legislation were not imminent, and having conducted an
employer peer group review of retiree health benefits, the Corporation reduced
the level of healthcare coverage which would be provided to future retirees. The
changes resulted in a significantly reduced cost to the Corporation of $291,000
for 1994, a $729,000 reduction over the $1.0 million recognized in 1993.
In addition, during 1993 the Corporation accrued $376,000 for certain
supplemental retirement benefit liabilities assumed from a merged institution.
Employee benefits expense, particularly medical benefits, has been an area
of management focus in recent years. Management will continue to monitor and
study employee benefits with the goal of providing a competitive and supportive
benefit package at a reasonable cost.
Excluding the impact of the bonus, the supplemental retirement expense and
the accounting change in 1993, salaries and employees benefits expense increased
by 6.4% in 1995 and 8.0% in 1994.was
approximately 4%.
Net occupancy expense increased $986,000$517,000 or 13.6%5.8% during 1995,1996,
compared to an increase of $1.2 million or 15.5% in 1995 and a decrease of
$291,000$257,000 or 3.9%3.2% in 1994 and an increase of $1.6 million or 27.5%
in 1993.1994. The significant increase in 1995 reflects the cost of
operating the eight remaining branches acquired from CPFC in 1994, as well new
branches opened during 1994 and 1995.
48
During 1993, the Corporation accrued $525,000 for the estimated cost of
remediation and monitoring of ground water contamination and $145,000 for the
early termination of a branch lease. The core results for each year may be
obtained by factoring out these items. For 1994 adjusted net occupancy expense
rose $379,000 or 5.0% as compared to an increases of $956,000 or 16.2% for 1993.
Equipment expense decreased $296,000increased $308,000 or 5.8%5.9% in 1996, after
decreasing $235,000 or 4.3% in 1995 afterand increasing $159,000$187,000 or 3.2%3.5% in 1994 and $396,000 or 8.6%1994. The
increase in 1993. The decrease in 19951996 is attributable to tighter expense controls in this areadepreciation on new equipment acquired
during the year.1995 and 1996.
FDIC assessment expense decreased significantly during 1995 ($2.1$320,000 or 9.0% in 1996 after
decreasing $2.2 million or 38.6%) as38.5% in 1995. These decreases reflect both the
changes in the assessment rates set by the FDIC and the effect of recent
legislation. The Corporation has approximately $400 million in Savings
Association Insurance Fund (SAIF)-insured deposits, consisting of all of the
deposits at Great Valley Savings Bank and all of the deposits acquired from
CPFC, which were distributed to three other banking affiliates. The remaining
deposits of the Corporation are Bank Insurance Fund (BIF) reached maximum funding. The
assessment-insured. Effective
June 1, 1995, the rate for the majority ofon the Corporation's BIF-insured deposits decreasedwas reduced
from 23 basis points to four4 basis points effective June 1, 1995. Underas the current
insurance system, bank strength is measured on three factors: 1) asset quality,
2) capital strength, and 3) management. Premium assessments are assigned based
on an institution's overall rating, with stronger institutions paying lower
premium assessment rates. As of January 1, 1995 and 1994, eachBIF became fully funded at its
mandated minimum level. All of the Corporation's banking subsidiariesBIF-insured deposits qualified
for the lowest premium rate.rate as its banks met the prescribed measures of strength. The
FDIC has reducedsignificant decline in 1995 expense was a direct result of this reduction.
Effective January 1, 1996, the assessment rate on BIFthe Corporation's BIF-insured
deposits for the first six
months of 1996was reduced from four basis points to zero, with a requirement for a
minimum annual premium of $2,000 per covered institution. This willHowever, these savings, which
approximated $2.8 million in 1996, were offset by a special one-time assessment
on SAIF-insured deposits. On September 30, 1996, legislation was enacted to
adequately fund the SAIF, which remained undercapitalized as a result in a substantial reductionof the
savings and loan crisis in the late 1980s. The legislation called for a one-time
assessment on SAIF-insured deposits. The Corporation's FDIC
49
share of this assessment,
expensewhich was expensed in 1996.
In additionthe third quarter, was approximately $2.5 million. As a
result of this special one-time assessment, the SAIF became fully funded, and
SAIF insurance rates were reduced to the BIF levels.
This legislation also provided that the repayment of the Financing
Corporation (FICO) bonds, which had been issued to finance the thrift bailout,
be shared by both banks and thrifts. For the three-year period beginning January
1, 1997, SAIF-insured deposits will be assessed at an annual rate of 0.0644%
while BIF-insured deposits will pay an assessment rate of .0129%. Beginning
January 1, 2000, both BIF and SAIF-insured deposits will be assessed at an
annual rate of 0.0243%.
For the Corporation, the decrease in its SAIF assessment (from 23
basis points to 6.44 basis points) will be greater than the increase in its BIF
deposits, the Corporation has approximately $400
million in deposits that are insured by the Savings Association Insurance Fund
(SAIF). These consist of deposits at Great Valley Savings Bank and deposits
acquired from CPSA which have been distributedassessment (from zero to the Corporation's bank
subsidiaries. Congress has been considering a one-time surcharge on SAIF
deposits to re-capitalize the fund. This surcharge, if enacted as presently
proposed, could result in an additional expense of approximately $3.0 million
($2.0 million net of tax)1.29 basis points). The same proposal provides for the merging of BIF and
SAIF, and the reduction of FDIC insurance premiums on SAIF deposits to the
current BIF levels. If enacted, this proposal could reduce the Corporation's FDIC insurance
expense calculated by $750,000 annually.applying the 1997 assessment rates to its 1996 year-end
deposit balances is expected to be approximately $600,000.
Special services expense, which represents the cost of data
processing, increased $530,000$797,000 or 10.9%13.9% during 1996 after increasing $702,000 or
14.0% in 1995 after remaining relatively flat during
1994 and 1993.decreasing $228,000 or 4.3% in 1994. The Corporation has
generally been able to control this cost by implementing and maintaining a
common system for all subsidiaries under a corporate contract. The 1996 and 1995
increase isincreases are due to growth in trust operations and loans, resulting in larger
transaction volumes and costs. In addition, the Corporation outsourced its student
loan processing in 1995, which increased this expense by approximately $75,000.
Other expenses increased 13.7%$2.5 million or $3.1 million9.3% during 19951996 after
increasing minimally$3.4 million or 14.9% during 1994.1995. Expenses in this category include
stationery and supplies, postage, audits,
50
telecommunications, Pennsylvania
shares tax, advertising, insurance, legal fees and goodwill amortization. The
increase in 1996 was due mainly to operating risk losses (increase of $492,000
or 58.7%); OREO expense, ($269,000 or 140.1%) due to certain properties held by
one of the Corporation's subsidiary banks; and other insurance ($334,000 or
56.4%) as a result of expense related to the Corporation's Life Insurance Plan.
Other increases are a result of normal growth in the Corporation. Contributing
to the significant increase during 1995 were goodwill amortization (increase of $840,000 or
117.9%) related to the CPFC acquisition which was effective October 1, 1994);1994;
stationary and supplies (increase of $408,000$601,000 or 18.3%27.0%) due to increases in both
volume and increased paper costs in general)general; advertising ($671,000 or 26.4%
increase); and postage (increase of $255,000$337,000 or 13.8%18.3%) due to increases in both
volume and postage rates).
Also included in other expenses are the noncash operating losses recorded
by the Corporation under the equity method related to its investment in
affordable housing projects. Operating losses of $1.7 million, $1.3 million, and
$1.0 million, were recorded in 1995, 1994 and 1993, respectively.
Other expenses during these periods were affected by shares tax related to
Denver National Bank, which was acquired by the Corporation in 1993 and merged
into Fulton Bank. During 1994, the state agreed to a settlement which allowed
the Corporation to reverse $693,000 of amounts previously accrued. During 1995,
the Corporation received $320,000 in settlement of related claims.rates.
Income Taxes
Income tax expense continuescontinued to increase both in absolute dollars and
as a percentage of pretax income. The effective tax rate was 24.9%29.0% in 1996
compared to 27.5% and 26.8% in 1995 compared
to 24.6% and 22.0% in 1994, and 1993, respectively. The increase in the
effective tax rate reflects the reduction in the beneficial effect of tax-exempt
income.
Income tax expense was reduced by $3.0 million, $2.1 million and $2.3 million
during 1995, 1994 and 1993, respectively,
51
by Federal income tax credits received fromas the Corporation's investments in low
and moderate income housing projects.
As previously discussed, the Corporation adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" as of January 1,
1993. The application of this statement did not have a material effect on the
Corporation's tax provision in 1995, 1994 or 1993.free securities continued to
decline.
FULTON FINANCIAL CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS
Month Ended December 31
------------------------------------------------------------
1996 1995 1994
------------ ------------ ------------
ASSETS (in thousands)
- ------
Cash and due from banks........................................... $ 140,701 $ 142,583 $ 151,201
Interest-bearing deposits with other banks........................ 2,038 4,302 2,540
Federal funds sold................................................ 387 18,297 14,632
Investment securities............................................. 711,352 730,009 718,941
Loans, including loans held for sale.............................. 2,766,148 2,473,449 2,336,379
Less: Allowance for loan losses................................... (41,541) (38,209) (38,120)
----------- ----------- -----------
Net Loans................................................ 2,724,607 2,435,240 2,298,259
----------- ----------- -----------
Premises and equipment............................................ 50,879 47,375 45,768
Other assets...................................................... 105,129 100,706 99,475
----------- ----------- -----------
Total Assets............................................. $ 3,735,093 $ 3,478,512 $ 3,330,816
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest-bearing............................................. $ 454,506 $ 406,455 $ 380,851
Interest-bearing................................................ 2,555,606 2,482,496 2,355,360
----------- ----------- -----------
Total Deposits........................................... 3,010,112 2,888,951 2,736,211
----------- ----------- -----------
Short-term borrowings............................................. 235,642 129,227 185,491
Long-term debt.................................................... 38,234 34,692 27,928
Other liabilities................................................. 68,794 73,853 60,614
----------- ----------- -----------
Total Liabilities........................................ 3,352,782 3,126,723 3,010,244
----------- ----------- -----------
Total Shareholders' Equity............................... 382,311 351,789 320,572
----------- ----------- -----------
Total Liabilities and Shareholders' Equity............... $ 3,735,093 $ 3,478,512 $ 3,330,816
=========== =========== ===========
FINANCIAL CONDITION
- -------------------
The Corporation functions as a financial intermediary and therefore
its financial condition should beis analyzed in terms of its sources and uses of funds.
The table on page 5318 highlights the trends in the balance sheet over the past
two years. Because annual averages tend to conceal trends and year-end balances
can be distorted by one-day fluctuations, the December monthly averages for each
year are provided to give a better indication of trends in the balance sheet.
All references within the discussion that follows are to such average balances
unless specifically noted otherwise.
The Corporation's assets continued to grow during 1995,1996, reaching the
level of $3.3$3.7 billion, for 1995, an increase of $111.2$256.6 million or 3.5%7.4% as compared to
1994.1995. The rate of growth for 19951996 can be attributed to the continuing loan
demand throughout the Corporation's markets that resulted in loan growth of
approximately $113.3$292.7 million or 5.1%11.8% for the year. This loan growth was funded
primarily through a similaran increase in deposits.
52
deposits and short-term borrowings.
Loans
Loans outstanding (net of unearned income) increased $113.3$292.7 million
or 5.1%11.8% for 1995,1996, compared to the 1994a 1995 increase of $378.4$137.1 million or 20.5%5.9%. The dramatic
increase for 1994 reflects the approximately $220 million in loans acquired from
CPFC. Excluding these loans, the 1994 increase was 8.6%. The Corporation's loan
to deposit ratio increased slightly, from 86.0% for 1994 to 86.3% for 1995.
FULTON FINANCIAL CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS
December
------------------------------------
(Dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------------------
Cash and due from banks $ 133,834 $ 142,737 $ 134,739
Interest-bearing deposits in other banks 4,302 2,540 4,129
Federal funds sold - - 27,776
Investment securities 693,087 690,367 715,342
Loans, including loans held for sale 2,338,186 2,224,933 1,846,531
Less: Allowance for loan losses (36,135) (36,616) (28,848)
---------- ---------- ----------
Net Loans 2,302,051 2,188,317 1,817,683
---------- ---------- ----------
Premises and equipment 43,004 42,693 38,987
Other assets 98,995 97,398 65,155
---------- ---------- ----------
Total Assets $3,275,273 $3,164,052 $2,803,811
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing $ 380,245 $ 358,693 $ 328,082
Interest-bearing 2,328,090 2,229,669 2,046,401
---------- ---------- ----------
Total Deposits 2,708,335 2,588,362 2,374,483
---------- ---------- ----------
Short-term borrowings 121,072 178,459 81,977
Long-term debt 34,691 27,929 13,051
Other liabilities 73,094 60,006 55,582
---------- ---------- ----------
Total Liabilities 2,937,192 2,854,756 2,525,093
---------- ---------- ----------
Total Shareholders' Equity 338,081 309,296 278,718
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $3,275,273 $3,164,052 $2,803,811
========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------
53
Demand for consumer credit again provided a significant share of loan
growth during 1995,1996, increasing $74.4 million$170.8 or 12.2%23.5%. As in 1994, theThe dramatic increase was
largely due to the Corporation expanding its indirect lending operations. This
expansion, coupled with continued high demand for automobiles, resultingresulted in an
installment loan increase of $55.2approximately $154.0 million or 13.3%30.3%. The Corporation succeeded
in establishing financing relationships with additional automobile dealers in
its market areas. Also
contributing to the increase in consumer loans were student loans (increase of
$10.4$7.0 million or 24.0%13.0%), credit cards (increase of $2.8$2.9 million or 9.1%8.6%), and
leasing (increase of $3.4$6.5 million or 16.7%27.0%).
Commercial loans and commercial mortgages continued to exhibit growth
reflecting the strength of the economy. These loans increased $75.5$101.6 million or
8.6%9.8% in 1995,1996, compared to an increase of $109.3$91.9 million or 14.2%9.7% in 1994. The
1995 increase was1995.
Increases in both years were primarily in fixed rate categories, as customers
sought to lock in the relatively lower rates in effect throughout the two-year period.
Residential mortgage loans outstanding decreased $36.7increased $20.4 million or 5.0%2.9% in 1995,1996,
following a $144.4$44.0 million or 24.3% increase in 1994. After adjusting for the approximately
$170 million of mortgage loans acquired from CPFC during 1994, the 1994 decrease
was 4.4%. The 1995 decrease is wholly attributable to a5.9% decrease in fixed rate
residential loans. This portion of the residential loan portfolio was impacted
by maturities and refinancings, as well as1995. In general, the
Corporation's general policy of
selling newly originatedis to sell all conforming fixed-rate residential mortgage
production. In 1995, as mortgage rates continued to decline, fixed rate
mortgages were refinanced by borrowers at lower rates and the Corporation sold
the new loans. The fixed rate mortgage portfolio decreased $83.0 million or
17.2% as a result. In 1996, the refinance volume subsided, however new fixed
rate loans continued to be popular and the production continued to be sold in
the secondary market rather
than holding them
54
in the portfolio. Adjustablemarket. As a result, fixed rate mortgage balances increased $44.3remained stable
in 1996. Adjustable rate mortgages declined by $5.1 in 1996 million as fixed
rate loans remained preferable in the low rate environment.
Investment Securities
Investment securities decreased $18.7 million or 19.1%2.6% during 1995, after increasing $100.51996,
compared to an increase of $11.1 million or 76.7% in 1994. After
adjusting for the approximately $83 million of mortgage loans acquired from CPFC1.5% during 1994, this increase was $17.5 million or 13.3%.
Investment securities increased $2.7 million or 0.4% during 1995, compared
to a decrease of $25.0 million or 3.5% during 1994.1995. During both years,
a portion of the proceeds from maturities and sales were generallywas used to fund loan growth
rather than reinvestment in securities.
The growth in investment securities during 1995 consisted of increases in
mortgage-backed securities of $16.8 million, U.S. Government and agency
securities of $28.8 million and equity securities of $6.1 million offset by
decreases in corporate debt securities of $28.1 million and municipal
obligations of $20.9 million.
In recent years, the Corporation has increased the use of asset-backed
andits investments in
mortgage-backed securities. These securities have provided superiorhigher returns over
similarly rated conventional securities. As of December 31, 1995,1996, the
Corporation had mortgage-backed securities in its portfolio with an amortized
cost of $268.4$336.9 million as compared to $215.0$277.7 million at December 31, 1994 and
$231.1 million at December 31, 1993.1995.
The Corporation's investment in equity securities was $37.7$44.3 million
(amortized cost basis) at year end, of which $12.0$12.9 million represents holdings
of stock issued by the Federal Home Loan Bank 55
(FHLB). As of December 31, 1995,1996,
all subsidiary banks were members of the FHLB and therefore eligible for its
funding programs. The Corporation continues to follow an equity securities
investment strategy of seeking and maintaining long-
termlong-term investment positions in
regional financial institutions which in management's view represent solid
investment value.
The continuing declineInvestments in tax-exempt municipal securities decreased to $50.5
million at December 31, 1996 from $62.6 million at the end of 1995. This
continued decrease reflects the effect of the Tax Reform Act of 1986, which
sharply reduced the tax benefit of the majority of tax-exempt securities
acquired subsequent to its passage and thus reduced the Corporation's incentive
to invest in them.
In May of 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This Statement, which was adopted by the
Corporation effective December 31, 1993,Securities" requires that all investment
securities be classified as either (i) held to maturity, (ii) available for
sale, or (iii) a trading security. The Corporation possesses both the intent,
subject to credit impairment, and ability to hold each debt security in its
investment portfolio to maturity. Management does, however, recognize the
portfolio to be an important potential source of liquidity. Therefore at
December 31, 1995, $209.31996, $302.7 million or 29.4%43.5% (amortized cost basis) of the
portfolio was classified as available for sale. This compares to $171.8$243.3 million
or 25.3%32.6% classified as available for sale at December 31, 1994.1995.
Debt securities are classified as available for sale upon
56
purchase
primarily based upon liquidity considerations. All equity securities are
classified as available for sale since the Corporation does not engage in
trading activities.
During 1995, the Corporation transferred securities with an
amortized cost of $62.6 million and a fair value of $63.3 million from held to
maturity to available for sale. These transfers were made to address potential
liquidity considerations.
At December 31, 1995,1996, securities available for sale had aan estimated
fair value of $222.3$317.1 million and an amortized cost of $209.3$302.7 million compared to
aan estimated fair value of $174.2$256.4 million and an amortized cost of $171.8$243.3
million at December 31, 1994.1995. The significant increase in the aggregate unrealized
appreciation reflects the effect of decreasing interest rates on the market
value of fixed rate securities within this portfolio, as well as the favorable
performance of the Corporation's equity portfolio, offset by the gains realized
during 1995.1996.
At December 31, 1995,1996, securities held to maturity had an aggregateestimated
fair value of $504.0$393.7 million, $13,000 below their amortized cost, compared to an
estimated fair value of $506.4 million, $2.4 million above their amortized cost
compared to an
aggregate fair value of $492.5 million, $15.0 million below their amortized cost
at December 31, 1994.1995.
Short-term investments, which include Federal funds sold, money
market investments and interest-bearing deposits inwith other banks, have
decreased
significantly over the past several years in order to fund loan growth. Short-
termShort-term
investments increased $1.8decreased $20.2 million during 19951996 after decreasing $29.4increasing $5.4 million
during 1994.
57
1995.
Other Assets
Noninterest earning assets decreased $7.0increased $6.0 million or 2.5%2.1% in 19951996
after increasing $43.9decreasing $5.8 million or 18.4%1.9% in 1994.1995. The 1996 increase was due mainly
to new expenditures for premises and equipment. The 1995 decrease primarily
reflects a $9.1 million decrease in transaction balances maintained with
correspondent banks and vault cash. During 1995, the Corporation restructured
its check clearing procedures and switched this function to a different
correspondent bank, thereby reducing required cash balances. The 1994 increase was due to the
noninterest earning assets acquired from CPFC.balances
Capital expenditures on premises and equipment totaled $6.7$9.1 million
during 1996, compared to $7.2 million and $6.9 million during 1995 comparedand 1994,
respectively. The increases in capital expenditures reflect additional
investments in technology to $5.5 million and $4.4 million during 1994 and 1993,
respectively.strengthen the Corporation's competitive position
in its markets. In 1995, the Corporation completed the implementation of an
automated platform system at Fulton Bank that provided each branch with the
ability to more effectively and efficiently service customers and enhanced the
ability to cross-sell bank products. The Corporation anticipates that this
system will be implemented at additional subsidiary banks over the next several
years. Expansion of the branch office network of bank subsidiaries continued
during the year.
Capital expenditures inDuring 1996, are expected to total
approximately $7.8 million.
During 1995, the Corporation continued its participation in
affordable housing and community development projects through investments in
partnerships. Equity commitments totaling $3.6$1.9 million were made to fourtwo new
projects. The Corporation made its initial investment of this type during 1989
and is now involved in 2124 projects, all located in the various communities
served by its subsidiary banks.
58
The carrying value of such investments was
approximately $20.5$20.7 million at December 31, 1995.1996. With these investments, the
Corporation not only improves the quantity and quality of available housing for
low and moderate income individuals in its service area in support of its
subsidiary bank's Community Reinvestment Act compliance effort, but also becomes
eligible for tax credits under federal and, in some instances, state programs.
Deposits
Asset growth has been funded primarily by deposit growth.partially through growth in deposits.
During 1996, deposits increased $121.2 million or 4.2% to $3.0 billion. In 1995,
deposits increased $120.0$152.7 million or 4.6% to $2.7 billion, exceeding the growth
experienced in 1994 when deposits increased only $24.0 million or 1.0% (after
factoring out the increase attributable to the CPFC acquisition)5.6%. Deposit activity in the last few
years has been impacted bynot kept pace with loan growth as a result of increased competition
for consumer savings dollars from non-banks and other financial institutions.
Interest-bearing deposits grew $98.4$73.1 million or 4.4%2.9% in 1996 compared
to growth of $183.3$127.1 million or 9.0% (5.1% excluding the effect of CPFC savings deposits)5.4% in 1994.1995. Savings deposits, including money
market deposit accounts, decreased $59.7$25.2 million or 3.3% following a $62.8
million or 7.6% following a $21.5 million or 2.7% decrease during 1994.1995. These decreases reflect the movement of
customer funds into time deposit products, which the affiliate banks have
aggressively marketed.
Time deposits increased $168.1$98.3 million or 15.1%7.3% during 19951996 after
increasing $197.3$194.5 million or 21.6%16.8% in 1994 ($77.3 million or 8.5% excluding the
effect of CPFC time deposits). Negotiated rate jumbo1995. Short-term certificates of deposit,
increased significantlythose with initial maturities of less than two years, saw the majority of the
growth during 1995 to $101.5 million. This represented an
increase of $43.1 million
59
or 73.8% over 1994 and follows the increase of $25.81996 ($108.4 million or 79.1% during
1994.19.1% increase). This growth is theincrease was a
result of continuing aggressive pricing by the Corporation to obtainidentifying this customer preference and maintain funding for loan demand.
Significant growth in noninterest-bearingmarketing
these products with promotional rates.
Noninterest-bearing demand deposit accounts continued to grow during
1996 and 1995, and 1994, increasing $21.6$48.1 million or 6.0%11.8% and $30.6$25.6 million or 9.3%6.7%,
respectively.
Borrowings
Short-term borrowings, consisting of Federal funds purchased;
securities sold under agreements to repurchase (repurchase agreements); and
treasury, tax and loan notes, decreased $57.4increased $106.4 million or 32.2%82.3% in 19951996 after
increasing $96.5decreasing $56.3 million or 117.7%30.3% in 1994.1995. The net increase over the past two yearsyear is
attributable primarily to (1) the use of fed funds purchased to meet customer
loan demand in the face of lower deposit growth, and (2) the continuing flow of
corporate funds from deposit accounts into repurchase agreements due to the
availability of higher returns.
Federal funds purchased increased 304% from $20.0 million in 1995 to
$80.0 million in 1996. In 1995, federal funds purchased decreased $68.8 million
or 77%. During 19951996 and 1994,1995, repurchase agreements increased $25.4 million or
21.8% and $22.0 million or 23.3% and $15.8 million or 20.2%, respectively.
Long-term debt increased $3.5 million or 10.2% during 1996 after
increasing $6.8 million or 24.2% during 1995 after increasing
$14.9 million or 114.0% during 1994.1995. During 19951996 and 1994,1995, the
Corporation took advantage of certain FHLB funding programs. FHLB advances
represent the majority of the long-term debt balances.
During 1994, the Corporation redeemed $5.0 million of
subordinated debentures due to the availability of lower cost funding.Shareholders' Equity
Shareholders' equity continuescontinued to be an important funding 60
source,
providing a 19951996 funding level of $338.1$382.3 million, an increase of $28.8$30.5 million
or 9.3%8.7% from the $309.3$351.8 million provided in 1994.1995. In spite of increasing
dividends, the Corporation maintained a strong rate of internal capital
generation (8.7%(8.5% and 8.4%9.0% in 19951996 and 1994,1995, respectively). This internal capital
generation is dependent upon superiorstrong earnings performance in conjunction with a
prudent dividend policy, represented by payout ratios of 40.9%42.1% for 19951996 and
40.4%39.3% for 1994.
Liquidity and Interest Rate Sensitivity Management1995.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
- --------------------------------------------------
The goals of the Corporation's asset/liability management function
are to ensure adequate liquidity and to maintain an appropriate balance between
the relative rate sensitivity of interest-earning assets and interest-bearing
liabilities. Liquidity management encompasses the ability to meet the ongoing
cash flow requirements of customers, who, as depositors, may want to withdraw
funds or who, as borrowers, need credit availability. Interest rate sensitivity
management attempts to provide stable net interest margins through changing
interest rate environments and thereby achieve consistent growth in net interest
income.
Liquidity sources are found on both sides of the balance sheet.
Liquidity is provided on a continuous basis through scheduled and unscheduled
principal reductions and maturities, as well as interest payments on outstanding loans and investments.
Liquidity is also provided through the availability of deposits and borrowings.
At December 31, 1995,1996, liquid assets (defined as cash and due from
banks, short-term investments, securities available for sale, 61
and
non-mortgage-backed securities held to maturity due in one year or less) totaled
$470.2$564.5 million or 14.1%15.0% of total assets. This represents an increase from the
December 31, 19941995 total of $414.5$459.4 million or 13.0% of total assets. Liquidity is
also provided by non-mortgage-backed securities held to maturity due from one to
five years, which totaled $158.7$59.1 million and $238.3$103.7 million at December 31, 19951996
and 1994,1995, respectively. Scheduled and unscheduled principal payments received on
the $220.0held to maturity mortgage-backed securities portfolio also provides
liquidity. The Corporation had $237.2 million of such mortgage-backed securities
at December 31, 1996 and $220.8 million at December 31, 1995 ($159.0 million at
December 31, 1994) of mortgage-backed securities held to maturity also provide
liquidity.1995. The Corporation's
practice is to purchase mortgage-backed securities with relatively accurately
defined principal repayment schedules of short duration.
The loan portfolio provides an additional source of liquidity due to
the Corporation's ability to participate in the secondary mortgage market. Sales
of residential mortgages into the secondary market of $80.5 million and $80.7
million in 1996 and $76.0
million in 1995, and 1994, respectively, provided the necessary funding which
allowed the Corporation to meet the needs of its customers for new mortgage
financing.
From a funding standpoint, the Corporation has been able to rely over
the years on a stable base of "core" deposits. Even though the Corporation has
experienced notable changes in the composition and interest sensitivity of this
deposit base, it has been able to rely on the steady growth of this base to
provide needed liquidity.
62
The Corporation also has access to significant sources of large denomination or
jumbo time deposits and repurchase agreements as potential sources of liquidity.
However, the Corporation has attempted to minimize its reliance upon these more
volatile short-term funding sources and to use them primarily to meet the
requirements of its existing customer base or when it is profitable to do so.
Each of the Corporation's subsidiary banks are members of the Federal
Home Loan Bank, which provides them access to FHLB overnight and term credit
facilities. At December 31, 1995,1996, the Corporation had $31.7$47.0 million in term
advances from the FHLB with an additional $703$670 million of borrowing capacity
(including both short-term funding on its lines of credit and long-term
borrowings). This availability, along with Federal funds lines at various
correspondent commercial banks, provides the Corporation with additional
liquidity.
Interest rate sensitivity varies widely with different types of
interest-
earninginterest-earning assets and interest-bearing liabilities. At the short end of
the asset spectrum are overnight Federal funds, on which rates change daily, and
loans, whose rates float with the prime rate or a similar index. At the other
end are long-term investment securities and fixed-rate loans. On the liability
side, jumbo time deposits and short-term borrowings are much more interest rate
sensitive than passbook savings and FHLB advances.
While the interest rate sensitivity gap (the difference between
repricing opportunities available for interest-earning 63
assets and
interest-bearing liabilities) must be managed over all time horizons, the
Corporation focuses on the 6-month period as the key interval affecting net
interest income. This shorter period is monitored because a large percentage of
the Corporation's interestearninginterest-earning assets and interest-bearing liabilities are
subject to repricing or maturity within this period. In addition, short-term
interest rate swings can be more pronounced and provide a shorter time for
reaction or strategy adjustment.
The following showsis a summary of the interest sensitivity gaps for four
different time intervals as of December 31, 1995:1996:
Daily 0-90 91-180 181-365
Adjustable Days Days Days
- ----------------------------------------------------------------------------- ---------- ---------- ----------
GAP 1.09 .96 .83 1.37GAP............................. 1.02 0.83 0.84 1.41
CUMULATIVE GAP 1.09 1.05 1.00 1.08
- -------------------------------------------------------------------GAP.................. 1.02 0.96 0.94 1.04
The Corporation's policy provides for the 6-month cumulative gap to
be maintained between .85 and 1.15. The Corporation is was positioned within this
range throughout 19951996 and as of December 31, 1995.
Capital Resources
- -----------------
The capital resources of the Corporation as represented by the two major
components of regulatory capital, shareholders' equity and the allowance for
loan losses, displayed continued steady growth during 1995, increasing by a net
of 8.2% after increasing 12.5% in 1994. The majority of this growth has been in
shareholders' equity, as the allowance for loan losses has remained flat due to
improving credit quality and charge-off history.
Current capital guidelines attempt to measure the adequacy of a
64
bank holding company's capital by taking into consideration the differences in
risk associated with holding various types of assets as well as exposure to off-
balance sheet commitments. The guidelines call for a minimum Tier I capital
percentage of 4.0% and a minimum total capital of 8.0%. Tier I capital includes
common shareholders' equity less goodwill and non-qualified intangible assets.
Total capital includes all Tier I capital components plus the allowance for loan
losses.
The Corporation is also subject to a "leverage capital" requirement, which
compares capital (using the definition of Tier I capital) to total balance sheet
assets and is intended to supplement the risk-based capital ratios in measuring
capital adequacy. The minimum acceptable leverage capital ratio is 3% for
institutions which are highly-rated in terms of safety and soundness and which
are not experiencing or anticipating any significant growth. Other institutions
are expected to maintain capital levels at least one or two percent above the
minimum.
The following presents the Corporation's capital ratios as of December 31:
1995 1994 Minimum
- -------------------------------------------------------------------------
Tier I Capital 13.11% 12.74% 4.0%
Total Capital 14.36 13.99 8.0%
Leverage Capital 9.51 9.20 3.0%
- -------------------------------------------------------------------------
Due to its strong capital position, the Corporation possesses the
flexibility to meet opportunities for strategic expansion in
65
both banking and non-banking arenas.
In December, 1994 the Board of Directors approved a plan to repurchase up
to 500,000 shares of the Corporation's common stock through December 31, 1995.
In addition, treasury stock is also purchased under certain other programs
approved by the Board of Directors. Treasury stock acquired is used for various
Corporation plans, including profit sharing, dividend reinvestment, employee
stock purchase and option plans. Treasury stock may also be used for stock
dividends. During 1995 and 1994, the Corporation purchased a total of 520,844
shares at a total cost of approximately $10.0 million and re-issued a total of
457,786 shares for the above-mentioned plans. There were 101,236 shares held in
treasury as of December 31, 1995. In December, 1995, the Board of Directors
approved a new plan authorizing the purchase of up to 500,000 additional shares
of the Corporation's common stock through June 30, 1996.
The Corporation has continued the practice of sharing excellent earnings
performance with shareholders in the form of cash dividends. During 1995, cash
dividends per-share increased 12.9% from $0.581 declared in 1994 to $0.656 for
1995. As of year-end, the indicated annual per-share cash dividend was $0.68.
The earnings payout ratios for 1995, 1994, 1993, were 40.9%, 40.4% and 40.4%,
respectively. These ratios conform to the Corporation's dividend policy which
currently calls for the annual dividend payout to range between 35% and 50% of
net income.
66
Common Stock
- ------------
As of December 31, 1995,1996, the Corporation had 28,328,84733,022,957 shares of
$2.50 par value common stock outstanding held by 10,32011,429 shareholders. The common
stock of the Corporation is traded on the national market system of the National
Association of Securities Dealers Automated Quotation System (NASDAQ) under the
symbol FULT.
The following table presents the quarterly high and low prices of the
Corporation's common stock for the years 19951996 and 1994,1995, which have been
retroactively adjusted to reflect the effect of stock dividends declared.
Price Range Per-Share
1995-----------
High Low Dividend
- -------------------------------------------------------------------- --------- ----------
1996
- ----
First Quarter 18 41/64 17 17/64 .152
Second Quarter 19 1/4 17 61/64 .164
Third Quarter 20 1/8 17 3/4 .170
Fourth Quarter 22 3/4 19 1/2 .170
1994
- ------------------------------------------------------------
First Quarter 18 3/16 15 13/16 .133
Second QuarterQuarter.......... 20 15/64 18 23/13/32 .155
Second Quarter......... 20 3/4 18 3/4 .170
Third Quarter.......... 20 3/4 18 5/8 .170
Fourth Quarter......... 21 1/2 19 1/4 .170
1995
- ----
First Quarter.......... 16 15/16 15 45/64 .141.132
Second Quarter......... 17 1/2 16 21/64 .142
Third QuarterQuarter.......... 18 19/64 16 9/64 .146
Fourth Quarter......... 20 11/16 16 7/8 .158
Fourth Quarter 17 61/47/64 15 15/64 .149.146
67
Item 8. Financial Statements and Supplementary Data
- -----------------------------------------------------------------------------------------------------------------------------------
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
FULTON FINANCIAL CORPORATION
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31
(Dollars in thousands)-------------------------------------
1996 1995
1994--------------- -------------
Assets
- ------------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks ............................................................... $ 140,106164,975 $ 148,241152,143
Interest-bearing deposits inwith other banks ............................................ 2,028 4,425 2,539
Federal funds sold - 6,075
Mortgage loans held for sale .......................................................... 125 613 650
Investment securities:
Securities heldHeld to maturity (fair value - $504,038(estimated fair value- $393,695 in 19951996 and $492,502$506,359 in 1994) 501,681 507,486
Securities available1995) ... 393,708 503,926
Available for sale 222,345 174,211............................................................... 317,109 256,380
Loans 2,364,768 2,244,846................................................................................. 2,783,587 2,502,033
Less: Allowance for loan losses (35,293) (35,775)................................................. (40,807) (38,272)
Unearned income ........................................................ (7,362) (8,711)
(10,952)
---------- ------------------------- ---------------
Net Loans 2,320,764 2,198,119
---------- ----------.................................................... 2,735,418 2,455,050
--------------- ---------------
Premises and equipment 43,212 42,452................................................................ 51,095 47,606
Accrued interest receivable 23,694 20,727........................................................... 24,725 25,275
Other assets 77,889 78,196
---------- ----------.......................................................................... 80,202 79,150
--------------- ---------------
Total Assets $3,334,729 $3,178,696
========== ==========
LIABILITIES................................................. $ 3,769,385 $ 3,524,568
=============== ===============
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------- --- ------------------
Deposits:
Noninterest-bearing .............................................................. $ 399,522488,675 $ 359,895427,384
Interest-bearing 2,330,848 2,231,153
---------- ----------................................................................. 2,565,499 2,487,885
--------------- ---------------
Total Deposits 2,730,370 2,591,048
---------- ----------............................................... 3,054,174 2,915,269
--------------- ---------------
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase 135,872 191,523repurchase........ 211,440 126,372
Demand notes of U.S. Treasury .................................................... 4,992 5,058
5,000
---------- ------------------------- ---------------
Total Short-Term Borrowings 140,930 196,523
---------- ----------.................................. 216,432 131,430
--------------- ---------------
Accrued interest payable 19,084 12,857.............................................................. 19,741 19,357
Other liabilities 69,742 42,653..................................................................... 44,200 69,809
Long-term debt ........................................................................ 49,160 34,689
27,283
---------- ------------------------- ---------------
Total Liabilities 2,994,815 2,870,364
---------- ----------
Commitments and contingencies (Note L)
SHAREHOLDERS' EQUITY............................................ 3,383,707 3,170,554
--------------- ---------------
Shareholders' Equity
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Common stock ($2.50 par):
Shares: Authorized 100,000,000;100,000,000
Issued 28,430,083 (28,678,31633,022,957 (32,955,130 in 1994);1995)
Outstanding 28,328,847 (28,420,64833,022,957 (32,843,784 in 1994) 71,075 65,2401995) ......................... 82,557 74,907
Capital surplus 167,600 132,588....................................................................... 221,238 174,023
Retained earnings 94,952 113,401..................................................................... 72,494 98,746
Net unrealized holding gaingains on securities 8,475 1,577available for sale.......................... 9,389 8,526
Less: Treasury stock (101,236(111,346 shares in 1995 and 257,668 shares in 1994), at cost1995) ......................................... - (2,188)
(4,474)
---------- ------------------------- ---------------
Total Shareholders' Equity 339,914 308,332
---------- ----------................................... 385,678 354,014
--------------- ---------------
Total Liabilities and Shareholders' Equity $3,334,729 $3,178,696
========== ==========................... $ 3,769,385 $ 3,524,568
=============== ===============
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
68statements
FULTON FINANCIAL CORPORATION
- ----------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
--------------------------------------FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Year Ended December 31
------------------------------------------------------------
1996 1995 1994
1993--------------- --------------- ---------------
Interest Income
- ----------------------------------------------------------------------------------------------------------------
INTEREST INCOME
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Loans, including fees .............................................. $ 197,433225,595 $ 160,743210,562 $ 149,303169,894
Investment securities:
Taxable 30,322 31,194 30,266....................................................... 37,390 32,233 32,707
Tax-exempt 4,722.................................................... 3,315 4,843 5,588
6,893
Dividends 1,939..................................................... 2,037 1,976 1,398 1,304
Federal funds sold and repurchase agreements 1,212 389 1,696................................................. 162 1,783 793
Interest-bearing deposits inwith other banks ......................... 158 272 170
597
---------- ---------- ------------------------- --------------- ---------------
Total Interest Income 235,900 199,482 190,059
INTEREST EXPENSE.................... 268,657 251,669 210,550
Interest Expense
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Deposits 93,807 68,907 72,474........................................................... 103,397 99,523 72,216
Short-term borrowings 6,292.............................................. 8,541 6,291 5,288 1,612
Long-term debt 2,011..................................................... 1,864 2,081 1,116
890
---------- ---------- ------------------------- --------------- ---------------
Total Interest Expense 102,110 75,311 74,976
---------- ---------- ----------.................... 113,802 107,895 78,620
Net Interest Income 133,790 124,171 115,083
PROVISION FOR LOAN LOSSES 2,033 2,255 4,926
- ----------------------------------------------------------------------------------------------------------------....................... 154,855 143,774 131,930
Provision for Loan Losses .......................................... 4,192 3,833 2,715
--------------- --------------- ---------------
Net Interest Income After
Provision for Loan Losses 131,757 121,916 110,157
OTHER INCOME.......... 150,663 139,941 129,215
--------------- --------------- ---------------
Other Income
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Trust department ................................................... 7,757 7,334 6,944 6,812
Service charges on deposit accounts 9,811 9,368 9,508................................ 12,865 10,648 10,042
Other service charges and fees 7,537 5,974 5,979..................................... 7,872 7,628 6,089
Gain on sale of mortgage loans ..................................... 1,185 1,074 1,189 4,265
Investment securities gains ........................................ 3,124 3,205 2,326 1,868
---------- ---------- ----------
28,961 25,801 28,432
OTHER EXPENSES2,133
--------------- --------------- ---------------
32,803 29,889 26,397
Other Expenses
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits 52,278 48,464 45,971..................................... 56,541 54,753 50,533
Net occupancy expense 8,237 7,251 7,542.............................................. 9,366 8,849 7,663
Equipment expense 4,847 5,143 4,984.................................................. 5,553 5,245 5,480
FDIC assessment expense 3,373 5,495 5,482............................................ 3,221 3,541 5,760
Special services 5,371 4,841 5,098................................................... 6,524 5,727 5,025
Other 25,933 22,810 22,705
---------- ---------- ----------
100,039 94,004 91,782
---------- ---------- ----------.............................................................. 28,946 26,481 23,047
--------------- --------------- ---------------
110,151 104,596 97,508
--------------- --------------- ---------------
Income Before Income Taxes and Cumulative
Effect of Changes in Accounting Principles 60,679 53,713 46,807................ 73,315 65,234 58,104
Income taxes 15,099 13,233 10,285
---------- ---------- ----------
Income Before Cumulative Effect of Changes
in Accounting Principles 45,580 40,480 36,522
Cumulative effect of changes in accounting principles -- -- (3,457)
---------- ---------- ----------Taxes ....................................................... 21,297 17,922 15,587
--------------- --------------- ---------------
Net Income ................................ $ 45,58052,018 $ 40,48047,312 $ 33,065
========== ========== ==========42,517
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Per-Share Data:
Net Income before cumulative effect of changes
in accounting principles......................................................... $ 1.611.58 $ 1.44 $ 1.30
Cumulative effect of changes in accounting principles -- -- .12
---------- ---------- ----------
Net IncomeCash Dividends ..................................................... $ 1.610.665 $ 1.440.566 $ 1.18
========== ========== ==========
Cash dividends $ .656 $ .581 $ .5270.501
Weighted average shares outstanding 28,396,989 28,192,160 28,001,613................................ 32,953,845 32,918,731 32,693,447
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
69statements
FULTON FINANCIAL CORPORATION
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Net
Unrealized
Holding
Common Capital Retained Gain (Loss) on Treasury
(Dollars in thousands, except per-share data) Stock Surplus Earnings
Securities Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1993 $48,924 $105,547 $106,5551994................................................... $ -- (100) 260,92667,692 $ 133,664 89,310
Net income 33,065 33,065
Stock dividends issued - 10% (2,158,750 shares) 3,925 31,577 (35,568) (66)
Stock split payable in the form of a stock
dividend - 25% (4,771,067 shares) 10,844 (10,844) --
Stock issued for Employee Plans and
stock options exercised (91,583 shares) 167 960 1,127
Acquisition of treasury stock (23,419 shares) (396) (396)
Net unrealized holding gain on securities 8,411 8,411
Cash dividends - $.527 per share (14,765) (14,765)
------- -------- -------- -------- -------- --------
Balance at December 31, 1993 63,860 127,240 89,287 8,411 (496) 288,302
Net income 40,480 40,480income.............................................................. 42,517
Stock issued in connection with equity contracts (463,354)(509,628 shares)....... 1,053 3,975
Stock issued for employee plans and stock option exercises
(158,006 shares)................................................... 327 1,373
Acquisition of treasury stock (244,126 shares)..........................
Net unrealized holding loss on securities...............................
Cash dividends - $0.501 per share....................................... (16,365)
----------------------------------------------
Balance at December 31, 1994................................................. 69,072 139,012 115,462
Net income.............................................................. 47,312
Stock dividends issued - 10% (2,771,000 shares including
311,832 shares of treasury stock).................................. 5,591 34,656 (45,397)
Stock issued for employee plans and stock option exercises
(230,478 shares, including 191,672 shares of treasury stock)....... 244 355
Acquisition of treasury stock (331,448 shares)..........................
Net unrealized holding gain on securities...............................
Cash dividends - $.566 per share........................................ (18,631)
----------------------------------------------
Balance at December 31, 1995................................................. 74,907 174,023 98,746
Net income.............................................................. 52,018
Stock dividends issued - 10% (3,002,168 shares including
112,076 shares of treasury stock).................................. 7,225 46,859 (56,364)
Stock issued for employee plans and stock option exercises
(255,431 shares, including 75,528 shares of treasury stock)........ 425 356
Acquisition of treasury stock (76,258 shares) ..........................
Net unrealized holding gain on securities...............................
Cash dividends - $.665 per share........................................ (21,906)
---------------------------------------------
Balance at December 31, 1996................................................. $ 82,557 $ 221,238 72,494
=============================================
Net
Unrealized
Holding
Gain (Loss) Treasury
(Dollars in thousands, except per-share data) on Securities Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1994................................................... $ 8,411 $ (496) 298,581
Net income.............................................................. 42,517
Stock issued in connection with equity contracts (509,628 shares)....... 5,028
Stock issued for employee plans and stock optionsoption exercises
(143,658(158,006 shares) 327 1,373................................................... 1,700
Acquisition of treasury stock (219,490(244,126 shares).......................... (3,978) (3,978)
Net unrealized holding loss on securities (6,834) (6,834)securities............................... (7,875) (7,875)
Cash dividends - $.581$0.501 per share (16,366) (16,366)
------- -------- -------- -------- -------- --------share....................................... (16,365)
---------------------------------------------------
Balance at December 31, 1994 65,240 132,588 113,401 1,5771994................................................. 536 (4,474) 308,332319,608
Net income 45,580 45,580income.............................................................. 47,312
Stock dividends issued - 10% (2,519,396(2,771,000 shares including
283,518311,832 shares of treasury stock) 5,591 34,656 (45,398).................................. 4,934 (217)(216)
Stock issued for employee plans and stock options
exercised (205,553option exercises
(230,478 shares, including 174,268191,672 shares of treasury stock) 244 356....... 3,331 3,9313,930
Acquisition of treasury stock (301,354(331,448 shares).......................... (5,979) (5,979)
Net unrealized holding gain on securities 6,898 6,898securities............................... 7,990 7,990
Cash dividends - $.656$.566 per shareshare........................................ (18,631)
(18,631)
------- -------- -------- -------- -------- -----------------------------------------------------------
Balance at December 31, 1995 $71,075 $167,6001995................................................. 8,526 (2,188) 354,014
Net income.............................................................. 52,018
Stock dividends issued - 10% (3,002,168 shares including
112,076 shares of treasury stock).................................. 2,206 (74)
Stock issued for employee plans and stock option exercises
(255,431 shares, including 75,528 shares of treasury stock)........ 1,464 2,245
Acquisition of treasury stock (76,258 shares) .......................... (1,482) (1,482)
Net unrealized holding gain on securities............................... 863 863
Cash dividends - $.665 per share........................................ (21,906)
---------------------------------------------------
Balance at December 31, 1996................................................. $ 94,9529,389 $ 8,475 $ (2,188) $339,914
======= ======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------385,678
===================================================
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
70statements
FULTON FINANCIAL CORPORATION
- ----------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(In Thousands)
Year Ended December 31
------------------------------------------------
(Dollars in thousands)-----------------------------------------------------------
1996 1995 1994
1993
- ------------------------------------------------------------------------------------------------------------------------------------------------ --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:Cash Flows from Operating Activities:
Net income ...................................................... $ 45,58052,018 $ 40,48047,312 $ 33,065
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Cumulative effect of accounting changes - - 3,45742,517
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Provision for loan losses 2,033 2,255 4,926...................................... 4,192 3,833 2,715
Depreciation and amortization of premises and equipment 4,750 4,549 4,425........ 5,617 5,096 4,833
Net amortization of investment security premiums ............... 514 1,732 1,706 2,2721,685
Deferred income tax expense (benefit) 2,145 (411) (739)
Investment........................... 582 1,512 (565)
Gain on sale of investment securities gains.......................... (3,124) (3,205) (2,326) (1,868)(2,133)
Gain on sale of mortgage loansloans.................................. (1,185) (1,074) (1,189)
(4,265)
Proceeds from salessale of mortgage loansloans............................ 80,548 80,696 76,038 179,645
Originations of mortgage loans held for salesale.................... (78,875) (79,585) (65,099) (178,164)
Amortization of intangible assets .............................. 1,466 1,552 712
192
(Increase) decreaseDecrease (increase) in accrued interest receivable (2,967) (2,708) 791............. 550 (3,501) (2,392)
Increase in other assets (7,102) (3,956) (2,907)....................................... (3,568) (7,263) (3,888)
Increase (decrease) in accrued interest payable 6,227 1,714 (2,164)
Increase (decrease)........................... 384 6,340 1,773
(Decrease) increase in other liabilities 3,051 (207) 4,092
--------- --------- ---------liabilities........................ (2,767) 2,673 (1,518)
--------------- --------------- ---------------
Total adjustments 8,253 11,078 9,693
--------- --------- ---------adjustments......................................... 4,334 8,806 10,972
--------------- --------------- ---------------
Net cash provided by operating activities 53,833 51,558 42,758
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:........... 56,352 56,118 53,489
--------------- --------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale 8,918 19,503 32,180........... 47,149 14,918 31,373
Proceeds from maturities of securities held to maturity 186,826 256,841 -........ 186,295 198,426 257,041
Proceeds from maturities of securities available for sale 56,670...... 36,807 57,407 51,596 274,601
Purchase of securities held to maturity (221,807) (237,282) (357,855)........................ (100,298) (228,075) (243,015)
Purchase of securities available for sale (37,231) (38,287) -
Net decrease...................... (140,145) (55,353) (42,412)
Decrease (increase) in short-term investments 4,189.................. 2,397 (1,886) 22,424 86,514
Net increase in loans (124,678) (167,694) (74,486).......................................... (284,560) (150,822) (196,964)
Purchase of premises and equipment, (6,727) (5,532) (4,378)net......................... (9,106) (7,175) (6,854)
Payment for purchase of CPFC, net of cash acquiredacquired.............. - - (44,750)
-
Proceeds from sale of premises and equipment 1,217 118 580
--------- --------- ------------------------ --------------- ---------------
Net cash used in investing activities (132,623) (143,063) (42,844)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:............... (261,461) (172,560) (171,561)
--------------- --------------- ---------------
Cash Flows from Financing Activities:
Net (decrease) increase (decrease)in demand and savingsavings deposits (27,877) (81,364) 18,277.......... 49,857 (17,307) (65,074)
Net increase (decrease) in time deposits 167,199 99,593 (83,104).................................. 89,048 193,679 112,891
Addition to long-term debtdebt...................................... 27,478 8,383 -
2,993
Repayment of long-term debtlong -term debt.................................... (13,007) (977) (10,536)
(6,706)
NetIncrease (decrease) increase in short-term borrowings (55,593) 115,336 48,368................... 85,002 (51,418) 115,613
Dividends paid ................................................. (21,126) (18,215) (15,773) (13,925)
Net proceeds from issuance of common stock ..................... 2,171 3,714 1,029 1,0611,700
Acquisition of treasury stock .................................. (1,482) (5,979) (3,109) (396)
--------- --------- ---------(3,978)
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 70,655 105,176 (33,432)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (8,135) 13,671 (33,518)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 148,241 134,570 168,088
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEARactivities............ 217,941 111,880 134,843
--------------- --------------- ---------------
Net Increase (Decrease) in Cash and Due From Banks ............. 12,832 (4,562) 16,771
Cash and Due From Banks at Beginning of Period ................. 152,143 156,705 139,934
--------------- --------------- ---------------
Cash and Due From Banks at End of Period ....................... $ 140,106164,975 $ 148,241152,143 $ 134,570
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION156,705
=============== =============== ===============
Supplemental Disclosures of Cash Flow Information
Cash paid during the yearperiod for:
Interest ............................................ $ 96,135113,418 $ 73,597101,555 $ 77,14076,847
Income taxes 12,532 13,210 12,273........................................ $ 16,861 $ 14,444 $ 15,280
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
71statements
FULTON FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------------------------ --------------------------------------------------------------------------------
Business: Fulton Financial Corporation (Parent Company) provides a
full range of banking and financial services primarily to customers in the
mid-Atlantic regionbusinesses and consumers through
its wholly-owned subsidiaries (collectively,
the Corporation):banking subsidiaries: Fulton Bank, Farmers Trust Bank,
Swineford National Bank, Lafayette Bank, FNB Bank, N.A., Great Valley Savings
Bank, Hagerstown Trust Company, Delaware National Bank and The Bank of
Gloucester County. In addition, the Parent Company owns four non-banking
subsidiaries: Fulton Financial Realty Company, and
Fulton Life Insurance Company.Company,
Central Pennsylvania Financial Corporation and FFC Management, Inc.
Collectively, the Parent Company and its subsidiaries are referred to as the
Corporation.
The Corporation's primary source of revenue is interest income on loans and
investment securities and fee income on its products and services. The primaryIts expenses
areconsist of interest expense on deposits and borrowed funds and other operating
expenses. The Corporation is subject to competition from other financial
services providers operating in its region. The Corporation is also subject to
the regulations of certain federal and state agencies and undergoes periodic
examinations by such regulatory authorities.
The Corporation offers, through its nine banking subsidiaries, a full
range of retail and wholesale banking services throughout fourteen central and
eastern Pennsylvania counties, one Maryland county, one Delaware county and one
New Jersey county. Approximately 50% of the business is being conducted
throughout the south central Pennsylvania region. Industry diversity is the key
to the economic well-being of the south central Pennsylvania region. The
business of the Corporation is not dependent upon any single customer or
industry.
Basis of Financial Statement Presentation: The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles (GAAP) and include the accounts of the Parent Company and all
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The preparation of GAAP basisGAAP-basis financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements as well as revenues and expenses during the period. Actual results
could differ from those estimates.
Investments: Debt securities are generally acquired with the intent to hold
such securities until maturity. Accordingly, except as noted below, these
securities are classified as held to maturity and are carried at cost adjusted
for amortization of premiums and accretion of discounts using the effective
yield method. The Corporation does not engage in trading activities, however,
since the investment portfolio serves as a source of liquidity, certain specific
debt securities and all marketable equity securities are classified as available
for sale. Securities available for sale are carried at estimated fair value with
the related unrealized holding gains and losses reported as a separate component
of shareholders' equity, net of tax. Realized security gains and losses are
computed using the specific identification method and are recorded on a trade
date basis.
In December, 1995, the Corporation reclassified investment securities with
an amortized cost of $62.6 million and an estimated 72
fair value of $63.3 million
from held to maturity to available for sale. This reclassification was allowable
under Financial Accounting Standards Board (FASB) guidance which permitted
institutions to make a one-time reassessment of investment security
classifications. As a result of this reclassification, the unrealized gain on
securities recorded as a component of shareholders' equity increased
approximately $447,000, net of tax.
Revenue Recognition: Loan and lease financing receivables are stated at
their principal amount outstanding, except for mortgages held for sale which are
carried at the lower of aggregate cost or market value. Interest income on loans
is accrued as earned. Unearned income on installment loans is recognized on a
basis which approximates the interest method.
Accrual of interest income is generally discontinued when a loan becomes 90
days past due as to principal or interest. When interest accruals are
discontinued, interest credited to income in the current year
is reversed, and interest accrued in any prior year is charged to the
allowance for loan losses.reversed. Nonaccrual loans are
restored to accrual status when all delinquent principal and interest become
current or the loan is considered secured and in the process of collection.
Loan Origination Fees and Costs: Loan origination fees and the related
direct origination costs are offset and the net amount is deferred and amortized
over the life of the loan as an adjustment to interest income. For mortgage
loans sold, the net amount is included in gain (loss) upon the sale of the
related mortgage loan.
Allowance for Loan Losses: The allowance for loan losses is increased by
charges to income and decreased by charge-offs, net of recoveries. Management's
periodic evaluation of the adequacy of the allowance for loan losses is based on
the Corporation's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to repay,
the estimated fair value of the underlying collateral, and current economic
conditions. Management believes that the allowance for loan losses is adequate,
however, future additions to the allowance may be necessary based on changes in
economic conditions.
The Corporation adopted Statement of Financial Accounting Standards
No. 114, as amended, "Accounting by Creditors for Impairment of a Loan"
("Statement 114")(Statement 114) as of January 1, 1995. Statement 114 requires that impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's observable
market price or fair value of the collateral if the loan is collateral
dependent. A loan is considered to be impaired when, based on current
information and events, it is probable that the Corporation
73
will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Prior to adoption of Statement 114, the allowance for loan losses
related to impaired loans was based on undiscounted cash flows or the fair value
of the collateral for collateral dependent loans. Adoption of Statement 114 did
not materially affect the Corporation's financial statements.
Premises and Equipment: Premises and equipment are stated at cost, less
accumulated depreciation and amortization. The provision for depreciation and
amortization is generally computed using the straight-line method over the
estimated useful lives of the related assets, which are a maximum of 39 years
for buildings and improvements and eight years for furniture and equipment.
Interest costs incurred during the construction of major bank premises are
capitalized.
Other Real Estate Owned: Assets acquired in settlement of mortgage loan
indebtedness are recorded as other real estate owned and are included in other
assets initially at the lower of the estimated fair value of the asset or the
carrying amount of the loan. Costs to maintain the assets and subsequent gains
and losses on sales are included in other income and other expense.
Income Taxes: The provision for income taxes is based upon the results of
operations, adjusted primarily for the effect of tax-exempt income.income and the net
credits received as a result of investments in low and moderate income housing
partnerships. Certain items of income and expense are reported in different
periods for financial reporting and tax return purposes. The tax effects of
these temporary differences are recognized currently in the deferred income tax
provision or benefit. Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." Under
this accounting standard, deferredDeferred tax assets or liabilities are computed based on
the difference between the financial statement and income tax bases of assets
and liabilities using the applicable enacted marginal tax rate. Deferred income
tax expenses or benefits are based on the changes in the deferred tax asset or
liability from period to period.
Prior to January
1, 1993, deferred income tax expenses or benefits were recorded to reflect
the tax consequences of timing differences between the recording of income
and expenses for financial reporting purposes and for income tax return
purposes at the tax rates in effect for the period when the differences
arose. The Corporation recorded the cumulative effect of adoption on its
financial position at January 1, 1993 as a change in accounting principle,
which resulted in an increase in earnings of $1.8 million or $0.06 per
share for the year ended December 31, 1993.
Net Income and Dividends Per Share: Net income per share is based on the
weighted average number of shares outstanding, after
74
giving retroactive effect
to stock dividends. Unexercised options under the Incentive Stock Option Plan
are common stock equivalents and are included in the average number of shares
using the treasury stock method when the options are materially dilutive (none
in 1996, 1995 1994 or 1993).
Accounting for Postretirement Benefits Other than Pensions: Effective
January 1, 1993, the Corporation adopted Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions". This statement requires an employer to accrue the expected
cost of providing postretirement benefits other than pensions during the
years that an employee renders the necessary service to become eligible for
these benefits. Prior to January 1, 1993, the Corporation generally
recognized the cost of these benefits as claims were paid. Under the new
accounting standard, the Corporation accrues the expected cost of providing
these benefits during the years that an employee renders the necessary
service to become eligible for such benefits.
Upon adoption, the Corporation recognized the accumulated nonpension
postretirement benefit obligation (transition obligation) calculated as of
December 31, 1992 as a change in accounting principle. This resulted in a
pre-tax charge to earnings of $8.0 million ($0.29 per share) and an after-
tax charge of $5.2 million ($0.18 per share)1994).
Accounting for Mortgage Servicing Rights: In May, 1995, the FASB
issuedThe Corporation adopted Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights". (Statement 122) on January 1, 1996. This statement requires
capitalization of the cost of the rights to service mortgage loans when
originated mortgages are sold and servicing is retained, and for that cost to be
amortized over the period of estimated net servicing income. In addition, the
mortgage servicing rights must be periodically evaluated for impairment based on
their fair value. Statement 122 was adopted prospectively on January 1,
1996. NoThere has been no material financial statement impact is anticipated.as a
result of adopting Statement 122.
Accounting for Stock-Based Compensation: In October, 1995, the FASB issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (Statement 123). This statement requires a fair value approach to
valuing compensation expense associated with stock options and employee stock
purchase plans. This statement encourages, but does not require, the use of this
method for financial statement purposes. Companies that do not elect to adopt
this statement for financial statement purposes are required to present pro-formapro-
forma footnote disclosures of net income and earnings per share as if the fair
value approach were used. Statement
123 isbecame effective for the Corporation in 1996 and will beis applicable to all
options granted after January 1, 1995. Management intends to
75
adopthas adopted the disclosure
requirements of this statement only and, accordingly, there will behas been no impact
on the consolidated financial statements other than additional disclosures.disclosures as
provided in Note J --"Stock-Based Compensation Plans and Shareholders' Equity".
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities: Statement of Cash Flows: CashFinancial Accounting Standards No.
125, "Accounting for Transfers and cash equivalentsServicing of Financial Assets and
Extinguishments of Liabilities" (Statement 125) was issued in 1996 and is
effective for 1997. Statement 125 establishes standards for transfers and
servicing of financial assets and extinguishments of liabilities. Statement of
Financial Accounting Standards No. 127 (Statement 127) was also issued in 1996
and amended Statement 125 by deferring for one year the effective date for
certain provisions of Statement 125. The Corporation adopted Statement 125, as
disclosed in theamended, on January 1, 1997 and intends to adopt Statement 127 on January 1,
1998. No material financial statement of cash flows consists of cash and due from banks. Investment
securities cash flows for periods prior to 1994 have been presented as
securities available for sale cash flows.impact is expected.
Reclassifications: Certain amounts in the 19941995 and 19931994 consolidated
financial statements and notes have been reclassified to conform to the 19951996
presentation.
NOTE B - RESTRICTIONS ON CASH AND DUE FROM BANKS
------------------------------------------------------------------------------ --------------------------------------------------------------------------------
The Corporation's subsidiary banks are required to maintain reserves,
in the form of cash and balances with the Federal Reserve Bank, against their
deposit liabilities. The average amount of such reserves during 19951996 and 19941995
was approximately $43.3$40.4 million and $42.6$45.1 million, respectively.
NOTE C - INVESTMENT SECURITIES
------------------------------------------------------------------------------ --------------------------------------------------------------------------------
The following summarizes the amortized cost and estimated fair values of
investment securities as of December 31:31 (in thousands):
Gross Gross Estimated
1995 Held to Amortized Unrealized Unrealized Fair
1996 Held to Maturity Cost Gains Losses Value
------------------------------------------------------------------------------- ------------------------------------------- -------------- --------------- ------------- ---------------
U.S. Government and
agency securities $208,758securities..................... $ 1,186104,719 $ (490) $209,454423 $ (203) $ 104,939
State and municipal securities 61,959 2,070 (70) 63,959securities............. 50,490 1,230 (64) 51,656
Debt securities issued
by foreign governments 407 4 (1)governments................ 410 1 (3) 408
Corporate debt securities 10,553 3 (26) 10,530securities.................. 916 - (9) 907
Mortgage-backed securities 220,004 982 (1,301) 219,685
-------- ------- ------- --------
$501,681securities................. 237,173 389 (1,777) 235,785
$ 4,245 $(1,888) $504,038
======== ======= ======= ========393,708 $ 2,043 $ (2,056) $ 393,695
============== ============== ============= ==============
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
1996 Available for Sale Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------- -------------- --------------- ------------- ---------------
Equity securities........................... $ 44,255 $ 15,843 $ (326) $ 59,772
U.S. Government and
agency securities...................... 158,703 760 (315) 159,148
Mortgage-backed securities.................. 99,706 123 (1,640) 98,189
-------------- -------------- ------------- --------------
$ 302,664 $ 16,726 $ (2,281) $ 317,109
============== ============== ============= ==============
76
Gross Gross Estimated
1995 Available Amortized Unrealized Unrealized Fair
for sale Cost Gains Losses Value
------------------------------------------------------------------------------
Equity
securities $ 37,712 $12,977 $ (243) $ 50,446
U.S. Government
and agency
securities 123,218 1,412 (403) 124,227
Mortgage-backed
securities 48,378 45 (751) 47,672
-------- ------- ------- --------
$209,308 $14,434 $(1,397) $222,345
======== ======= ======= ========
------------------------------------------------------------------------------
Gross Gross Estimated
19941995 Held to Amortized Unrealized Unrealized Fair Maturity Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------- --------------- --------------- --------------- ---------------
U.S. Government and
agency securities $225,927securities...................... $ 68209,580 $ (6,756) $219,2391,234 $ (490) $ 210,324
State and municipal securities 84,884 1,996 (709) 86,171securities.............. 62,606 2,075 (70) 64,611
Debt securities issued
by foreign governments 417 - (28) 389governments................. 407 4 (1) 410
Corporate debt securities 37,222 30 (639) 36,613securities................... 10,553 3 (26) 10,530
Mortgage-backed securities 159,036 15 (8,961) 150,090
-------- ------ -------- --------
$507,486 $2,109 $(17,093) $492,502
======== ====== ======== ========
- --------------------------------------------------------------------------------
securities.................. 220,780 1,005 (1,301) 220,484
--------------- --------------- --------------- ---------------
$ 503,926 $ 4,321 $ (1,888) $ 506,359
=============== =============== =============== ===============
Gross Gross Estimated
1994 Available
Amortized Unrealized Unrealized Fair
1995 Available for saleSale Cost Gains Losses Value
- ------------------------------------------------------------------------------
-------------------------------------------- --------------- --------------- --------------- ---------------
Equity securitiessecurities........................... $ 37,936 $9,65443,386 $ (103)12,977 $ 47,487(243) $ 56,120
U.S. Government and
agency securities 77,863 4 (2,593) 75,274securities...................... 143,002 1,538 (482) 144,058
Mortgage-backed securities 55,985 2 (4,537) 51,450
-------- ------ -------- --------
$171,784 $9,660securities.................. 56,878 75 (751) 56,202
--------------- --------------- --------------- ---------------
$ (7,233) $174,211
======== ====== ======== ========
- --------------------------------------------------------------------------------243,266 $ 14,590 $ (1,476) $ 256,380
=============== =============== =============== ===============
The amortized cost and estimated fair valuesvalue of debt securities at
December 31, 19951996 by contractual maturity are shown below. Actual maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
77
Held to Maturity Available for Sale
---------------------- ----------------------
Estimated-------------------------------- ---------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Amortized Fair
Cost Value Cost Fair Value
- ----------------------------------------------------------------------------------------------- --------------- --------------- ---------------
(in thousands)
Due in one year or less $103,316 $103,432less................. $ 20,25980,383 $ 20,26180,710 $ 46,411 $ 46,611
Due from one year to five years 158,727 160,630 99,959 101,197years......... 59,142 59,839 108,292 108,647
Due from five years to ten years 15,212 15,730 3,000 2,769years........ 13,819 14,067 4,000 3,890
Due after ten years 4,422 4,561years..................... 3,191 3,294 - -
-------- -------- -------- --------
281,677 284,353 123,218 124,227--------------- --------------- --------------- ---------------
156,535 157,910 158,703 159,148
Mortgage-backed securities 220,004 219,685 48,378 47,672
-------- -------- -------- --------
$501,681 $504,038 $171,596 $171,899
======== ======== ======== ========securities.............. 237,173 235,785 99,706 98,189
--------------- --------------- --------------- ---------------
$393,708 $393,695 $258,409 $257,337
=============== =============== =============== ===============
Gains totaling $3.2$2.9 million, $2.2$3.2 million, and $2.0 million were
realized on the sale of equity securities during 1996, 1995 1994, and 1993,1994,
respectively. Gains totaling $261,000 and $84,000 were realized on the sale of
available for sale debt securities during 1994.1996 and 1994 respectively. There were
no sales of debt securities during 1995.
Securities carried at $386.1$401.5 million and $350.2$396.3 million at December 31,
19951996 and 1994,1995, respectively, were pledged as collateral to secure public and
trust deposits and for other purposes.
NOTE D - LOANS AND ALLOWANCE FOR LOAN LOSSES
------------------------------------------------------------------------ --------------------------------------------------------------------------------
Gross loans are summarized as follows as of December 31:
1996 1995
1994
- ---------------------------------------------------------------------------------------------- --------------
(in thousands)
Commercial, financial and agriculturalagricultural............ $ 337,582366,223 $ 332,165362,009
Real estate-construction 76,665 82,692estate-construction.......................... 110,747 92,717
Real estate-mortgage:
First and second-
residential 950,304 1,018,470
Commercial 562,363 428,442
Consumer 404,083 357,872second-residential................... 1,022,765 977,527
Commercial..................................... 707,052 596,136
Consumer.......................................... 532,982 439,873
Leasing and otherother................................ 43,818 33,771
25,205
---------- ----------
$2,364,768 $2,244,846
========== ==========
- -------------------------------------------------------------------------------
Changes in the allowance for loan losses were as follows:--------------- --------------
$ 2,783,587 $ 2,502,033
=============== ==============
Changes in the allowance for loan losses were as follows for the
years ended December 31:
1996 1995 1994
1993
- --------------------------------------------------------------------------------------------- -------------- -------------
(in thousands)
Balance at January 1 $35,775 $28,679 $29,549
------- ---------- ----------1.............................. $ 38,272 $ 37,279 $ 29,932
------------- -------------- -------------
Loans charged off (5,115) (3,835) (8,741)off................................. (5,133) (5,491) (4,185)
Recoveries of loans
previously charged off 2,600 2,206 2,945
------- ---------- ----------off....................... 3,476 2,651 2,347
------------- -------------- -------------
Net loans charged off (2,515) (1,629) (5,796)
------- ---------- ----------off............................. (1,657) (2,840) (1,838)
------------- -------------- -------------
Provision for loan losses 2,033 2,255 4,926losses......................... 4,192 3,833 2,715
Allowance for loan losses
purchased from CPFCCPFC.......................... - - 6,470
-
------- ---------- ----------------------- -------------- -------------
Balance at December 31 $35,293 $35,775 $28,679
======= ========== ==========
- -------------------------------------------------------------------------------31............................ $ 40,807 $ 38,272 $ 37,279
============= ============== =============
Nonaccrual loans aggregated approximately $11.8$12.9 million at December 31,
1996, $12.8 million at December 31, 1995 $14.9and $15.8 million at December 31, 1994 and $14.6 million at December 31,
1993.1994.
Interest of approximately $1.5 million, $1.0$1.6 million and $977,000$1.1 million was not
recognized as interest income due to the nonaccrual 78
status of loans during 1996,
1995 1994 and 1993,1994, respectively.
At December 31, 1995,1996, the recorded investment in loans that are
considered to be impaired as defined by Statement 114 was $12.4$14.2 million (of
which $10.3$11.3 million are included in nonaccrual loans). Included in this amount
is $12.3$12.2 million of impaired loans for which the related allowance for credit
losses is $2.0$2.3 million and $59,000$60,000 of impaired loans that as a result of write-downswrite-
downs do not have an allowance for credit losses. The average recorded
investment in impaired loans during the year ended December 31, 19951996 was
approximately $15.0$13.7 million.
The Corporation applies all payments received on nonaccruing impaired
loans to principal until such time as the principal is paid off, after which
time any additional payments received are recognized as interest income.
Payments received on accruing impaired loans are applied to principal and
interest according to the original terms of the loan. For the year ended
December 31, 1995,1996, the Corporation recognized interest income of approximately
$610,000$287,000 on impaired loans.
The Corporation has granted loans to the officers and directors of the
Corporation and to their associates. Related-party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than the normal risk of collectibility. The aggregate dollar
amount of these loans was $45.9$51.8 million and $36.5$47.2 million at December 31, 19951996
and 1994,1995, respectively. During 1995, $17.31996, $22.3 million of new loans were made and
repayments totaled $7.9$17.7 million.
The total portfolio of mortgage loans serviced by the Corporation for
unrelated third parties at December 31, 1996 and 1995 was $504.7 million and 1994 was
$516.6 million, and
$496.9 million, respectively.
NOTE E - PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
The following is a summary of premises and equipment
as of December 31:
1996 1995
1994
- ---------------------------------------------------------------------------------------------- --------------
(in thousands)
Premises and leasehold improvements $54,122 $52,022improvements...................... $ 62,774 $ 57,503
Furniture and equipment 34,447 31,702equipment.................................. 39,975 36,681
Construction in progressprogress................................. 1,404 2,008
1,977
------- -------
90,577 85,701-------------- --------------
104,153 96,192
Less accumulated depreciation and amortization (47,365) (43,249)
------- -------
$43,212 $42,452
======= =======
- --------------------------------------------------------------------------------amortization........... (53,058) (48,586)
-------------- --------------
$ 51,095 $ 47,606
============== ==============
NOTE F - LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt includes the following as of December 31:
1996 1995
1994
- ---------------------------------------------------------------------------------------------- --------------
(in thousands)
Federal Home Loan Bank advances $31,668 $23,268advances............... $ 47,028 $ 31,668
Collateralized mortgage obligationsobligations........... 2,098 2,969
3,946
OtherOther......................................... 34 52
69
------- -------
$34,689 $27,283
======= =======-------------- --------------
$ 49,160 $ 34,689
============== ==============
- --------------------------------------------------------------------------------
79
TheAs of December 31, the Corporation has a series of collateralized
Federal Home Loan Bank advances totaling $31.7$47.0 million. These advances mature
through July, 1998,June, 2000, and carry a weighted average interest rate of 6.02%5.96%. As of
December 31, 1995,1996, the Corporation can borrowhas an additional amountborrowing capacity of
approximately $156$670 million under its line of credit available fromwith the Federal Home Loan Bank.
In connection with the Central Pennsylvania Financial CorporationCorp. acquisition
(Note N), the Corporation assumed the responsibility for real estate mortgage
investment conduit (REMIC) status collateralized mortgage obligations. The
maturity and weighted average interest rate is July, 20102003 and 7.2%10.1%,
respectively.
NOTE G - DIVIDEND AND LOAN LIMITATIONS
------------------------------------------------------------------------------REGULATORY MATTERS
- --------------------------------------------------------------------------------
Dividend and Loan Limitations
The dividends that may be paid by subsidiary banks to the Parent Company
are subject to certain legal and regulatory limitations. Under such limitations,
the total amount available for payment of dividends by all subsidiary banks is
approximately $123$136 million at December 31, 1995.1996.
Under current Federal Reserve regulations, the subsidiary banks are
limited in the amount they may loan to their affiliates, including the Parent
Company. Loans to a single affiliate may not exceed 10%, and the aggregate of
loans to all affiliates may not exceed 20% of each bank subsidiary's capital and
surplus. At December 31, 1995,1996, the maximum amount available for transfer from
the subsidiary banks to the Parent Company in the form of loans and dividends
was approximately $151$158 million.
Regulatory Capital Requirements
The Corporation's subsidiary banks are subject to various regulatory
capital requirements administered by banking regulators. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the subsidiary banks must meet specific capital guidelines that involve
quantitative measures of the subsidiary banks' assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
subsidiary banks' capital amounts and classification are also 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 subsidiary banks to maintain minimum amounts and ratios of
total and Tier I capital (as defined in the regulations) to risk-weighted assets
(as defined), and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1996, that all of its bank subsidiaries
meet the capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notifications from The
Pennsylvania Department of Banking categorized the Corporation's two significant
subsidiaries -- Fulton Bank and Lafayette Bank -- as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, these banks must maintain minimum total risk-based, Tier I risk-
based, and Tier I leverage ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have
changed the institutions' categories
The table below presents the total risk-based, Tier I risk-based and
Tier I leverage requirements for the Corporation, Fulton Bank, and Lafayette
Bank. Actual capital amounts and ratios are also presented.
As of December 31, 1996
---------------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- --------- ---------- --------- ---------- ----------
(Dollars in thousands)
Total Capital (to Risk Weighted Assets):
Corporation................................... $395,359 14.3% $221,070 8.0% $276,338 10.0%
Fulton Bank................................... 179,555 13.1 102,084 8.0 127,605 10.0
Lafayette Bank................................ 42,801 14.3 24,017 8.0 30,022 10.0
Tier I Capital (to Risk Weighted Assets):
Corporation................................... $360,739 13.1% $110,535 4.0% $165,803 6.0%
Fulton Bank................................... 163,923 11.9 51,042 4.0 76,562 6.0
Lafayette Bank................................ 39,089 13.0 12,009 4.0 18,013 6.0
Tier I Capital (to Average Assets):
Corporation................................... $360,739 10.3% $108,193 3.0% $180,322 5.0%
Fulton Bank................................... 163,923 9.9 49,629 3.0 82,716 5.0
Lafayette Bank................................ 39,089 9.5 12,356 3.0 20,593 5.0
As of December 31, 1995
---------------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- --------- ---------- --------- ---------- ----------
(Dollars in thousands)
Total Capital (to Risk Weighted Assets):
Corporation................................... $360,619 14.2% $203,805 8.0% $254,756 10.0%
Fulton Bank................................... 165,530 12.9 102,626 8.0 128,282 10.0
Lafayette Bank................................ 39,869 14.0 22,847 8.0 28,559 10.0
Tier I Capital (to Risk Weighted Assets):
Corporation................................... $328,695 12.9% $101,902 4.0% $152,853 6.0%
Fulton Bank................................... 151,151 11.8 51,313 4.0 76,969 6.0
Lafayette Bank................................ 36,282 12.7 11,424 4.0 17,135 6.0
Tier I Capital (to Average Assets):
Corporation................................... $328,695 9.4% $104,602 3.0% $174,336 5.0%
Fulton Bank................................... 151,151 9.6 47,432 3.0 79,054 5.0
Lafayette Bank................................ 36,282 9.1 11,961 3.0 19,935 5.0
NOTE H - INCOME TAXES
------------------------------------------------------------------------------- --------------------------------------------------------------------------------
The components of the provision for income taxes are as follows:
Year ended December 31
------------------------------------------------------------------------
1996 1995 1994
1993
- ----------------------------------------------------------------------------- --------------- ------------
(in thousands)
Current tax expense (benefit) -
Federal $13,034 $13,269 $10,482
State (80) 375 542
------- ------- -------
12,954 13,644 11,024
------- ------- -------Federal............................. $ 20,559 $ 16,400 $ 15,682
State............................... 156 10 470
----------- --------------- ------------
20,715 16,410 16,152
----------- --------------- ------------
Deferred tax expense (benefit) -
Federal 2,145 (394) (851)
StateFederal............................. 582 1,512 (548)
State............................... - - (17)
112
------- ------- -------
2,145 (411) (739)
------- ------- -------
$15,099 $13,233 $10,285
======= ======= =======
- ----------------------------------------------------------------------------- --------------- ------------
582 1,512 (565)
----------- --------------- ------------
$ 21,297 $ 17,922 $ 15,587
=========== =============== ============
The deferred federal tax benefit for 1994 includes $309,000 resulting
from the federal statutory tax rate change from 34% to 35%.
80
The differences between the effective income tax rate and the federal
statutory income tax rate are as follows:
Year ended December 31
-----------------------------------------------
1996 1995 1994
1993
- ---------------------------------------------------------------------------- --------------- --------------
Statutory tax raterate...................................... 35.0% 35.0% 35.0%
Effect of tax-exempt income (4.4) (5.1) (6.1)
Lowincome............................. (3.4) (4.1) (4.7)
Effect of low income housing and historic
rehabilitation credits (4.9) (3.9) (5.6)investments................ (3.4) (2.9) (2.2)
Goodwill amortizationamortization................................... 0.6 0.7 0.3
-
Other (1.5) (1.7) (1.3)
---- ---- ----Other................................................... 0.2 (1.2) (1.6)
-------------- --------------- --------------
Effective income tax rate 24.9% 24.6% 22.0%
==== ==== ====
- --------------------------------------------------------------
rate............................... 29.0% 27.5% 26.8%
============== =============== ==============
The net deferred tax asset recorded by the Corporation consisted of the
following tax effects of temporary differences at December 31:
1996 1995
1994
- -------------------------------------------------------------------- --------------
(in thousands)
Allowance for loan losses $11,534 $12,041losses.............................................. $ 13,704 $ 12,453
Deferred loan fees 1,661 2,397fees..................................................... 1,215 1,814
Direct leasingleasing......................................................... (3,235) (2,539)
(1,786)
Deferred compensationcompensation.................................................. 1,675 1,711
1,707
Postretirement benefitsbenefits................................................ 3,129 3,101 3,091
Fixed asset depreciation (660) (546)
Other 1,589 1,638
------- -------depreciation............................................... (64) (727)
Other.................................................................. 1,437 1,466
-------------- --------------
Total operating 16,397 18,542operating.................................................. 17,861 17,279
Unrealized holding gains-gains on securities available for sale (4,563) (850)
------- -------
$11,834 $17,692
======= =======sale.............. (5,056) (4,589)
-------------- --------------
$ 12,805 $ 12,690
============== ==============
- --------------------------------------------------------------------------------
As of December 31, 19951996 and 1994,1995, the Corporation has not established
any valuation allowance against deferred tax assets since these tax benefits are
realizable either through carryback availability against prior years' taxable
income or the reversal of existing deferred tax liabilities.
NOTE I - EMPLOYEE BENEFIT PLANS
-------------------------------------------------------------------------------- --------------------------------------------------------------------------------
Description of Plans
The Corporation has a noncontributory defined contribution profit-sharingprofit-
sharing plan covering substantially all employees of the Parent Company, Fulton
Bank, Farmers Trust Bank and certain employees of Lafayette Bank.
Contributions are based on a formula providing for an amount not to exceed 15%
of each eligible employee's annual salary.salary for employees hired prior to January
1, 1996 and 10% of such annual salary for employees hired subsequent to January
1, 1996.
The Corporation also maintains a defined benefit pension plan which
covers substantially all full-time employees of Swineford National Bank, FNB
Bank, N.A., Lafayette Bank, Great Valley Savings Bank, and Hagerstown Trust Company.Company,
and Delaware National Bank. Pension contributions are actuarially determined and
funded as accrued. These funds are invested in guaranteed investment contracts,
U.S. Treasury securities, money market funds and common stock investment funds.
For employees covered under the defined benefit plan, the Corporation
provides an optional 401(k) plan. The terms of the plan allow eligible employees
to defer up to 10% of their pre-tax salary on an annual basis. On a
discretionary basis, the Corporation may also make a matching contribution which
is limited to a maximum of 3%.
81
The following summarizes the Corporation's expense under the above plans
for the years ended December 31:
1996 1995 1994
1993
- -------------------------------------------------------------------------------- -------------- ---------------
(in thousands)
Profit-sharing plan $4,422 $3,340 $2,432plan.................... $ 3,089 $ 2,969 $ 3,340
Defined benefit planplan................... 1,159 947 812
898
401(k) plan 317 238 200
------ ------ ------
$5,686 $4,390 $3,530
====== ====== ======
- ------------------------------------------------------------------plan............................ 393 355 273
-------------- -------------- ---------------
$ 4,641 $ 4,271 $ 4,425
============== ============== ===============
Defined Benefit Pension Plan
The net periodic pension cost for the Corporation's defined benefit
plan, as determined by consulting actuaries, consisted of the following
components for the years ended December 31:
1996 1995 1994
1993
- ------------------------------------------------------------------
-------------- -------------- ---------------
(in thousands)
Service cost-benefits earned
during periodperiod..................... $ 927 $ 657 $ 569 $ 554
Interest cost on projected
benefit obligationobligation................ 899 806 748 740
Actual return on assetsassets................ (808) (1,784) 13 (476)
Net amortization and deferraldeferral.......... 141 1,268 (518)
80
------- ----- ------------------- -------------- ---------------
Net periodic pension costcost.............. $ 1,159 $ 947 $ 812
$ 898
======= ===== =====
- ------------------------------------------------------------------
The accumulated plan benefits and funded status of the Corporation's
defined benefit plan are as follows as of December 31:
============== ============== ===============
In 1996, the Corporation changed the valuation date of the defined
benefit plan from December 31 to September 30. The accumulated plan benefits and
funded status of the Corporation's defined benefit plan are as follows:
1995 1994
- --------------------------------------------------------------------9/30/96 12/31/95
-------------- --------------
(in thousands)
Actuarial present value of benefit obligations:
Vested benefit obligationobligation........................... $ 9,436 $ 8,971
$ 6,588
======= =======-------------- --------------
Accumulated benefit obligationobligation...................... $ 9,683 $ 9,158
$ 6,695
======= =======-------------- --------------
Projected benefit obligation $12,417obligation........................ $ 9,64114,015 $ 12,417
Plan assets at fair valuevalue................................ 11,546 9,841
8,106
------- --------------------- --------------
Projected benefit obligation in excess of
plan assetsassets......................................... (2,469) (2,576) (1,535)
Unrecognized net loss (gain)loss.................................... 382 154 (346)
Service cost not yet recognized in net
periodic pension costcost............................... 39 45 51
Unrecognized net obligation at transitiontransition................ 690 825
960
------- --------------------- --------------
Pension liability recognized in the
consolidated balance sheets $(1,552)sheets......................... $ (870)
======= =======
- --------------------------------------------------------------------(1,358) $ (1,552)
============== ==============
The following rates were used in calculating net periodic pension cost
and the actuarial present value of benefit obligations:
1996 1995 1994
1993
- ----------------------------------------------------------------------------------- ----------- -----------
Discount rate-projected benefit obligationobligation....................... 7.25% 7.00% 8.00% 7.00%
Rate of increase in compensation level 5.00% 6.00% 5.28%level........................... 4.75 5.00 6.00
Expected long-term rate of return on plan 8.00% 8.00% 7.85%
assetsassets................. 8.00 8.00 8.00
- ------------------------------------------------------------------------
82
Postretirement Benefits
The Corporation currently provides medical and life insurance benefits
to retired full-time employees. Substantially all of the Corporation's full-time
employees, except for employees of The Bank of Gloucester County, may become
eligible for these discretionary benefits if they reach normal retirement age
while working for the Corporation. Effective January 1, 1994, the Corporation
made certain changes in the level of postretirement benefits which would be
provided to future retirees, the most significant of which was a change in the
vesting schedule.
The components of the expense for postretirement benefits other than
pensions are as follows for the years ended December 31:
1996 1995 1994
1993
- ------------------------------------------------------------------------------------------ --------------- --------------
(in thousands)
Service cost-benefits earned during the period $189 $221period............ $ 401230 $ 189 $ 221
Interest cost on accumulated benefit obligationobligation........... 367 377 302 623
Actual return on plan assetsassets.............................. (6) (10) (7) (4)
Net amortization and deferraldeferral............................. (269) (279) (225)
-
---- ---- -------------------- --------------- --------------
Net nonpension postretirement benefit cost $277 $291 $1,020
==== ==== ======
- -----------------------------------------------------------------------------cost................ $ 322 $ 277 $ 291
============== =============== ==============
The following table presents the status of the nonpension postretirement benefitbenefits
plan at December 31:
1996 1995
1994
- ------------------------------------------------------------------------------------- ---------------
(in thousands)
Accumulated postretirement benefit obligation:
Fully eligible active and former members $(1,108)members............ $ (973)(1,019) $ (1,108)
Other active membersmembers................................ (1,367) (1,162)
(889)
Retired membersmembers..................................... (3,193) (3,273)
(2,981)
------- -------
Total---------------- ---------------
(5,579) (5,543) (4,843)
Plan assets at fair valuevalue................................ 189 186 181
Unrecognized prior service costcost.......................... (2,489) (2,716) (2,942)
Unrecognized net gaingain.................................... (1,138) (845)
(1,288)
------- ----------------------- ---------------
Accrued postretirement benefit obligation $(8,918) $(8,892)
======= =======
- --------------------------------------------------------------------obligation................ $ (9,017) $ (8,918)
================ ===============
For measuring the nonpension postretirement benefitbenefits obligation, a 10.5%9.5% increase in
the per capita cost of health care benefits (6% for administrative costs) was
assumed for 1995.1996. This rate was assumed to gradually decline to 6%6.0% in 2000 and
remain at that level thereafter. This health care cost trend rate has a
significant impact on the amounts reported. Assuming a 1% change in the health
care cost trend rate, the accumulated postretirement benefit obligation would
increase or decrease by approximately $649,000$709,000 and the current period chargeexpense
would increase or decrease by approximately $80,000.$96,000. The discount rate used in
determining the accumulated postretirement benefit obligation was 7.0%7.25% and 8.0%7.0%
at December 31, 19951996 and 1994,1995, respectively.
NOTE J - STOCK-BASED COMPENSATION PLANS AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------
The Corporation maintains an--------------------------------------------------------------------------------
Incentive Stock Option Plan and Employee Stock Purchase Plan
The Corporation has an Incentive Stock Option Plan (Option Plan) and an
employee stock purchase plan (ESPP). The Option Plan, which was adopted in 1996,
replaces a prior plan that originated in 1986 and expired in 1996. The terms of
the plans are substantially the same. Under the Option Plan, options are granted
to key personnel for terms of up to 10 years at option prices equal to the fair
market value of the Corporation's stock on the date of grant. Options granted
are 100% vested immediately upon grant. The Plan has reserved 1.65 million
shares for grant under this plan through 2006. The number of options granted in
any year is dependent upon the Corporation's performance relative to that of a
self-defined peer group. A summary of stock option activity under the current
and prior plan follows:
Option Price Per Share
-----------------------------------------------
Stock Weighted
Options Range Average
------------- --------------------------- ------------------
Balance at January 1, 1994.................. 964,729 $ 5.27 - $ 14.63 $ 9.98
Granted................................... 139,590 6.68 - 18.08 15.67
Exercised................................. (142,212) 5.57 - 14.06 9.44
-------------
Balance at December 31, 1994................ 962,107 5.27 - 18.08 10.89
Granted................................... 123,420 16.48 16.48
Exercised................................. (112,419) 5.57 - 18.08 10.87
Canceled.................................. (5,508) 5.57 5.57
-------------
Balance at December 31, 1995................ 967,600 5.27 - 18.08 11.67
Granted................................... 115,125 19.13 19.13
Exercised................................. (245,384) 5.27 - 18.08 8.92
Canceled.................................. (62) 13.81 13.81
-------------
Balance at December 31, 1996................ 837,279 $ 5.27 - $ 19.13 $ 13.50
=============
The following table summarizes information concerning options
outstanding at December 31, 1996:
Weighted Weighted
Range of Unexercised Average Average
Exercise Stock Remaining Exercise
Prices Options Life (Years) Price
--------------- ----------- ------------ -----------
$5.00 - $10.00 220,461 5.12 $ 7.41
$10.00 - $15.00 282,145 4.38 13.05
$15.00 - $20.00 334,673 8.62 17.88
----------- ------------ -----------
837,279 6.27 $ 13.50
=========== ============ ===========
The ESPP allows eligible employees to purchase stock in the Corporation
at 85% of the fair market value of the stock on the date of exercise. Since inception, 285,353Under the
terms of the ESPP, 52,722 shares, 53,363 shares and 45,871 shares were issued in
1996, 1995 and 1994, respectively. A total of 329,989 shares have been issued
since the inception of the ESPP in 1986. As of December 31, 1996, 157,190 shares
have been reserved for future issuances under this plan.
Underthe ESPP.
The Corporation accounts for both the Option Plan and the ESPP under
Accounting Principles Board Opinion No. 25, and, accordingly, no compensation
expense has been recognized in the financial statements of the Corporation. Had
compensation cost for these plans been recorded in the financial statements of
the Corporation consistent with the provisions of Statement 123, the
Corporation's Incentive Stock Option Plan, optionsnet income and earnings per share would have been granted to key personnel for terms up to 10 years at options prices equalreduced to the
following pro-forma amounts (in thousands, except per-share data):
1996 1995
--------------- ---------------
Net income: As reported................ $ 52,018 $ 47,312
Proforma................... 51,364 46,775
Earnings per share: As reported................ $ 1.58 $ 1.44
Proforma................... 1.56 1.42
Weighted average fair value of options granted............ $ 4.51 $ 3.73
Because the Statement 123 method has not been applied to options
granted prior to January 1, 1995, the resulting pro-forma compensation cost may
not be representative of that to be expected in future years. The fair
market
value of the shareseach option grant is estimated on the date of grant. In addition, in
83
connectiongrant using the Black-
Scholes option pricing model with the acquisitionfollowing weighted average assumptions
used for grants in 1996 and 1995, respectively: risk-free interest rates of
Great Valley Savings Bank (Great Valley), the
Corporation granted nonqualified stock options totaling 53,242 common shares to
members of the Board of Directors of Great Valley. Since granting these options
45,426 shares have been issued. These options were granted at a price equal to
the purchase price6.74% and 6.65% and expected volatility of the Corporation's stock of 20.3% and
19.1%. The expected dividend yield was 3.2% and the expected option life was 6
years in the transactionboth 1996 and were
granted for a term of five years.
Stock option transactions during 1995, 1994 and 1993 are summarized below:
Stock Option Price
Options Range per Share
--------- ---------------
Balance at January 1, 1993 704,439 $ 1.49-$15.47
Granted 95,558 16.09
Exercised (102,434) 1.49- 16.09
Canceled (8,571) 14.22- 15.47
--------
Balance at December 31, 1993 688,992 $ 6.13-$16.09
Granted 100,100 19.89
Exercised (129,284) 6.13- 15.47
--------
Balance at December 31, 1994 659,808 $ 6.13-$19.89
Granted 112,200 18.13
Exercised (102,199) 6.13- 19.89
Canceled (5,007) 6.13
--------
Balance at December 31, 1995 664,802 $ 9.05-$19.89
========
1995.
Shareholder Rights
In 1989, the Corporation declared a dividend distribution of one
Right for each outstanding share of common stock to existing shareholders of
record. In addition, each share of common stock issued subsequent to the record
date of the dividend also entitles the holder to one Right. Upon distribution,
each Right entitles the holder to purchase one share of common stock or
depending on events, receive common stock having a value equal to two times the
exercise price of the Right. The purchase price was $90 per share in 1989 and is
currently $49.18$44.71 due to stock dividends and splits. The Rights are not
exercisable or transferable apart from the common stock prior to distribution.
Distribution of the Rights will occur ten business days following (1) a public
announcement that a person or group of persons ("Acquiring Person") has acquired
or obtained the right to acquire beneficial ownership of 20% or more of the
outstanding shares of common stock (the "Stock Acquisition Date") or (2) the
commencement of a tender offer or exchange offer that would result in a person
or group beneficially owning 25% or more of such outstanding shares of common
stock. The Rights are redeemable in full, but not in part, by the Corporation at
any time until ten business days following the Stock Acquisition Date, at a
price of $0.01 per Right. The Rights will expire at the close of business on
June 20, 1999, unless earlier redeemed.
NOTE K - LEASESK-LEASES
- --------------------------------------------------------------------------------
Certain branch offices and equipment are leased under agreements which
expire at varying dates through 2024.2025. Most leases contain renewal provisions at
the Corporation's option. Total rental expense was approximately $1.8$2.1 million in
1996 and 1995 $1.5and $1.7 million in 1994, and $1.6 million in 1993.
84
1994. Future minimum payments as of December
31, 19951996 under noncancelable operating leases are as follows:
- --------------------------------------------------------------------------------
1996 $ 1,811
1997 1,814
1998 1,736
1999 1,750
2000 1,753
Thereafter 34,126
-------
$42,990
=======
- --------------------------------------------------------------------------------
Minimum
Year Rent
------------------- --------------
(in thousands)
1997............... $ 1,999
1998............... 1,846
1999............... 1,852
2000............... 1,852
2001............... 1,819
Thereafter......... 33,362
--------------
$ 42,730
==============
NOTE L - COMMITMENTS AND CONTINGENCIES
- ----------------------------------------------------------------------------------------------------------------------
The Corporation has not engaged in the practice of trading, issuing or
holding derivative financial instruments such as futures, forward, swap, or
option contracts. The Corporation is, however, a party to financial instruments
with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit, letters of credit, and guarantees which involve,
to varying degrees, elements of credit and interest rate risk that are not
recognized in the consolidated balance sheets.
Exposure to credit loss in the event of non-performance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Corporation uses the same credit policies in making commitments as it does for
on-balance-sheet instruments. The Corporation had the following outstanding
commitments to fund loans as of December 31:
1996 1995
1994
- ------------------------------------------------------------------------- ----------
(in thousands)
Fixed rate
4.00% - 7.99%rate:
Less than 8.00%................... $ 15,454 $ 8,244
$ 13,019
8.00% - 8.99% 3,640 9,015.................... 24,164 3,641
9.00% - 9.99% 9,246 2,227.................... 6,926 10,500
10.00% - 10.99%.................... 30 346 44
11.00% - 18.00% 1,825 1,633
-------- --------.................... 2,314 2,028
----------- -----------
Total fixed rate 23,301 25,938
-------- --------rate..................... 48,888 24,759
Floating rate 684,174 588,128
-------- --------
Total $707,475 $614,066
======== ========
- ---------------------------------------------------------------rate........................ 834,582 708,575
----------- -----------
$ 883,470 $ 733,334
=========== ===========
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments is expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained upon extension of credit is based on management's credit evaluation of
the customer. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment and income producing commercial
properties. Commitments under outstanding standby letters of credit were $70.0$71.9
million at December 31, 19951996 and $66.4$75.4 million at December 31, 1994.
85
The Corporation offers, through its eight banking subsidiaries, a full
range of retail and wholesale banking services throughout fourteen central and
eastern Pennsylvania counties, one Maryland county and one Delaware County.
Approximately 50% of the business is being conducted throughout the south
central Pennsylvania region. Industry diversity is the key to the economic
well-being of the south central Pennsylvania region. The business of the
Corporation is not dependent upon any single customer or industry.
The Corporation has entered into a life insurance policy payable to the
Corporation on the lives of certain of its employees. The policy provides for
annual premiums of approximately $2,500 for each covered employee or
approximately $1,200,000. The Corporation has borrowed against the cash
surrender value of the policy to pay the premiums for certain years. As of
December 31, 1995, $15.7 million has been borrowed and has been offset against
the policy cash value of approximately $18.9 million in the consolidated balance
sheet.1995.
The Corporation, from time to time, may be a defendant in legal proceedings
relating to the conduct of its banking business. Most of such legal proceedings
are a normal part of the banking business, and in management's opinion, the
financial position and results of operations of the Corporation would not be
affected materially by the outcome of such legal proceedings.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The following are the estimated fair values of the Corporation's financial
instruments as of December 31 followed by a general description of the methods
and assumptions used to estimate such fair values. These fair values are
significantly affected by assumptions used, principally the timing of future
cash flows and the discount rate. Because assumptions are inherently subjective
in nature, the estimated fair values cannot be substantiated by comparison to
independent market quotes and, in many cases, the estimated fair values could
not necessarily be realized in an immediate sale or settlement of the
instrument. Further, certain financial instruments and all nonfinancial
instruments are excluded. Accordingly, the aggregate fair value amounts
presented do not necessarily represent management's estimation of the underlying
value of the Corporation.
December 31,1996 1995
December 31, 1994
---------------------- -------------------------------------------- -----------------------
Estimated Estimated
FINANCIAL ASSETS Book Value Fair Value Book Value Fair Value
- --------------------------------------------------------------------------------------------------------------------------- ---------- ---------- ---------- ----------
(in thousands)
Cash and due from banksbanks..................... $ 140,106164,975 $ 140,106164,975 $ 148,241152,143 $ 148,241152,143
Interest-bearing deposits
inwith other banksbanks......................... 2,028 2,028 4,425 4,425 2,539 2,539
Federal funds sold - - 6,075 6,075
Mortgage loans held for salesale................ 125 125 613 613 650 650
Securities held to maturity 501,681 504,038 507,486 492,502maturity................. 393,708 393,695 503,926 506,359
Securities available for sale 222,345 222,345 174,211 174,211sale............... 317,109 317,109 256,380 256,380
Net loans 2,320,764 2,336,366 2,198,119 2,139,498loans................................... 2,735,418 2,733,859 2,455,050 2,470,347
Accrued interest receivable 23,694 23,694 20,727 20,727receivable................. 24,725 24,725 25,275 25,275
Other financial assets 264assets...................... - - 264 634 634264
86
December 31,1996 1995
December 31, 1994
---------------------- ---------------------------------------------- -------------------------
Estimated Estimated
FINANCIAL LIABILITIES Book Value Fair Value Book Value Fair Value
- ------------------------------- ---------------------- ------------------------------------------------------------------- ----------- ----------- ----------- -----------
(in thousands)
Demand and savings deposits $1,440,489 $1,440,489 $1,466,334 $1,466,334deposits................. $ 1,602,811 $ 1,602,811 $ 1,552,954 $ 1,552,954
Time deposits 1,289,881 1,301,234 1,124,714 1,120,643deposits............................... 1,451,363 1,456,035 1,362,315 1,373,850
Short-term borrowings 140,930 140,930 196,523 196,523borrowings....................... 216,432 216,432 131,430 131,430
Accrued interest payable 19,084 19,084 12,857 12,857payable.................... 19,741 19,741 19,357 19,357
Other financial liabilitiesliabilities................. 18,400 18,400 43,670 43,670
16,355 16,355
Long-term debtdebt.............................. 49,160 49,129 34,689 34,939 27,283 26,773
- -------------------------------------------------------------------------------
For short-term financial instruments, defined as those with remaining
maturities of 90 days or less, the carrying amount was considered to be a
reasonable estimate of fair value. The following instruments are predominantly
short-term:
Assets Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks Demand and savings deposits
Interest-bearing deposits inwith Short-term borrowings
other banks Accrued interest payable
Federal funds sold Other financial liabilities
Securities purchased under
agreements to resell
Accrued interest receivable Other financial liabilities
Other financial assets
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
For those components of the above-listed financial instruments with
remaining maturities greater than 90 days, fair values were determined by
discounting contractual cash flows using rates which could be earned for assets
with similar remaining maturities and, in the case of liabilities, rates at
which the liabilities with similar remaining maturities could be issued as of
the balance sheet date.
As indicated in Note A, securities available for sale are carried at their
estimated fair values. The estimated fair values of securities held to maturity
as December 31, 19951996 and 19941995 were generally based on quoted market prices,
broker quotes or dealer quotes.
For short-term loans and variable rate loans which reprice within 90 days,
the carrying value was considered to be a reasonable estimate of fair value. For
other types of loans, fair value was estimated by discounting future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. In addition, for
loans secured by real estate, appraisal values for the collateral were
considered in the fair value determination.
The fair value of long-term debt was estimated by discounting the remaining
contractual cash flows using a rate at which the Corporation could issue debt
with a similar remaining maturity as of the balance sheet date.
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed 87
rates. The
fair value of standby letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.
The fair value of commitments to extend credit and standby letters of credit is
estimated to equal the value of the commitments.obligations.
NOTE N - MERGERS
- --------------------------------------------------------------------------------
Gloucester County Bankshares, Inc.
On August 31, 1995,February 29, 1996, the Corporation completed the previously announcedits acquisition of
Delaware NationalGloucester County Bankshares, Corp. (Delaware National)Inc. (Gloucester County). The
acquisition was carried out in accordance withAs provided under the
terms of an Agreement and
Plan of Merger (the Agreement). Delaware National, with approximately $109
million in assets, is headquartered in Georgetown, Delaware and through its
banking subsidiary, Delaware National Bank, operates six banking offices in
Sussexthe merger agreement, Gloucester County Delaware.
As provided in the Agreement, Delaware National was merged with and into the
Corporation and each of the outstanding shares of the common stock of Delaware NationalGloucester
County was converted into 1.2441.74 shares of the common stock of the Corporation.
A total of 949,235The Corporation issued approximately 1.8 million shares of the Corporation'sits common stock were
issued
in connection with the merger. TheGloucester County merger has beenin a transaction accounted for
as a pooling of interests, and accordingly,interests. Through this transaction, the consolidated financial statements
include the accountsCorporation acquired
The Bank of Delaware National for all periods presented.Gloucester County, headquartered in Woodbury, New Jersey. The Bank
of
Gloucester County, with approximately $235 million in assets as of December 31,
1996 operates seven branch offices in Gloucester County, New Jersey.
The following sets forth for the period prior to the merger selected items
for the Corporation and Delaware National:Gloucester County (in thousands):
Eight-Months Ended August 31, 1995
----------------------------------
Fulton
Financial DelawareTwo months ended
February 29, 1996
-------------------------
Gloucester
Corporation National
- ------------------------------------------------------County
----------- ------------
Net interest incomeincome..................... $ 85,560 $2,95922,575 $ 1,723
Non-interest income 18,011 372
-------- ------income..................... 5,261 186
----------- ------------
Total income $103,571 $3,331income....................... $ 27,836 $ 1,909
=========== ============
Net incomeincome.............................. $ 28,7607,696 $ 578552
=========== ============
The effect of the merger on the Corporation's previously reported revenues,
net income and net income per share follows:
Fulton
Financial Delaware
1994Gloucester
1995 Corporation NationalCounty Restated
- --------------------------------------------------------------------------------------------------------- ----------- ------------ ------------
(in thousands, except per-share data)
Net interest income $120,002 $4,169 $124,171income..................... $ 133,790 $ 9,984 $ 143,774
Non-interest income 25,361 440 25,801
------- ----- -------income..................... 28,961 928 29,889
----------- ------------ ------------
Total income $145,363 $4,609 $149,972income.......................... $ 162,751 $ 10,912 $ 173,663
=========== ============ ============
Net incomeincome.............................. $ 40,02845,580 $ 4521,732 $ 40,48047,312
=========== ============ ============
Net income per shareshare.................... $ 1.471.46 $ .581.79 $ 1.44
Fulton
Financial Delaware
1993=========== ============ ============
Gloucester
1994 Corporation NationalCounty Restated
- --------------------------------------------------------------------------------------------------------- ----------- ------------ ------------
(in thousands, except per-share data)
Net interest income $110,894 $4,189 $115,083income..................... $ 124,171 $ 7,759 $ 131,930
Non-interest income 27,964 468 28,432
-------- ------ --------income..................... 25,801 596 26,397
----------- ------------ ------------
Total income $138,858 $4,657 $143,515income.......................... $ 149,972 $ 8,355 $ 158,327
=========== ============ ============
Net incomeincome.............................. $ 32,008 $1,05740,480 $ 33,0652,037 $ 42,517
=========== ============ ============
Net income per shareshare.................... $ 1.181.31 $ 1.392.10 $ 1.181.30
=========== ============ ============
88
Central Pennsylvania Financial Corporation
On October 1, 1994, the Corporation completed the previously announcedits acquisition of Central
Pennsylvania Financial CorporationCorp. (CPFC). CPFC was headquartered in Shamokin,
Pennsylvania and, as of the acquisition date, its subsidiary, Central
Pennsylvania Savings Association, had approximately $260 million in assets
within its ten branches located in Cumberland, Dauphin, Lycoming, Montour, North
Cumberland, Snyder and Union counties, Pennsylvania. These branches were
distributed among the Corporation's affiliate banks.
The Corporation acquired all of the outstanding shares of CPFC for cash in
the amount of $23 per share. The total purchase price was approximately $45.9
million. This transaction was accounted for as thea purchase of assets and
assumption of liabilities therefore, the results of CPFC are included in the
accompanying consolidated financial statements beginning on October 1, 1994. The
purchase price exceeded the fair value of net assets acquired which resulted in
the Corporation recording goodwill of approximately $16.0 million which is being
amortized on a straight-line basis over 15 years.
The following sets forth selected unaudited financial data as though CPFC
was acquiredthe
acquisition occurred at the beginning of the years being presented.1994. During 1994, CPFC sold 13 branch
offices to unrelated third parties. The proforma adjustments reflect these
dispositions as well as the effect of purchase accounting on operations.
CPFC
Fulton Nine
Financial9 Months -- Proforma Proforma
1994 Corporation 9/30/94 Adjustments Combined
- ------------------------------------------------------------------------------------------------- ------------- --------------- ------------- ----------
(in thousands, except per-share data)
Net interest income $124,171income........... $ 131,930 $ 8,904 $ (12) $133,063$ 140,822
Non-interest income 25,801income........... 26,397 2,548 (2,549) 25,800
-------- ------- --------26,396
------------- --------------- ------------- ----------
Total income $149,972 $11,452 $(2,561) $158,863income................ $ 158,327 $ 11,452 $ (2,561) $ 167,218
============= =============== ============= ==========
Net incomeincome.................... $ 40,48042,517 $ 429426 $ 1,513 $ 42,42244,456
============= =============== ============= ==========
Net income per shareshare.......... $ 1.441.30 $ .22 $ 1.501.36
============= =============== ==========
CPFC
Fulton Year
Financial Ended Proforma Proforma
1993 Corporation 3/31/94 Adjustments Combined
- -----------------------------------------------------------------
Net interest income $115,083 $14,620 $(2,764) $126,939
Non-interest income 28,432 1,679 (881) 29,230
-------- ------- --------
Total income $143,515 $16,299 $(3,645) $156,169
Net income $ 32,065 $ 2,348 $ 2,253 $ 36,666
Net income per share $ 1.18 $ 1.20 $ 1.35
The Woodstown National Bank & Trust Company
On February 29, 1996,28, 1997, the Corporation completed the previously announced
acquisition of Gloucester County Bankshares, Inc. (Gloucester County)The Woodstown National Bank & Trust Company (Woodstown). As
provided under the terms of the merger agreement, Gloucester County was merged
with and intoMerger Agreement, Woodstown became a subsidiary
of the Corporation and each of the outstanding shares of the common stock of
Gloucester CountyWoodstown was converted into 1.581.6 shares of the common stock of the Corporation.
The Corporation issued approximately 1.62.9 million shares of its common stock
in connection with the Gloucester CountyWoodstown merger. The transaction was accounted for as a
pooling of interests. Since consummation of the merger occurred subsequent to
December 31, 1995,1996, the consolidated financial statements do not include the
accounts of Gloucester County. Gloucester
89
County,Woodstown.
Woodstown, with approximately $200$270 million in assets, is headquartered in
Woodbury,
New Jersey,Woodstown, NJ and operates six branch officesfour branches in Salem County and two branches in
Gloucester County, New Jersey
through its wholly-owned banking subsidiary, The Bank of Gloucester County. Gloucester County'sWoodstown's net interest income and net income for the year
ended December 31, 19951996 were approximately $9.4$10.9 million and $2.2$2.8 million,
respectively
(unaudited).respectively.
NOTE O - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
- --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
------------------------
NOTE 0 - FULTON FINANCIAL CORPORATION (PARENT COMPANY ONLY)
- --------------------------------------------------------------------------
FINANCIAL INFORMATION
---------------------
CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------
December 31
------------------------
1996 1995
1994
- ------------------------------------------------------------------------------------ ----------
(in thousands)
ASSETS
- --------------------------------------------------------------------------------
Cash, securities, and other assetsassets........................ $ 38,46540,938 $ 43,08938,550
Receivable from:
Bank subsidiariessubsidiaries....................................... 822 7,227
-
Nonbank subsidiariessubsidiaries.................................... 753 672 2,811
Investment in:
Bank subsidiaries 311,273 290,596subsidiaries....................................... 346,701 325,679
Nonbank subsidiariessubsidiaries.................................... 21,497 17,633
7,920
-------- ------------------- -----------
Total Assets $375,270 $344,416
======== ========Assets............................................ $ 410,711 $ 389,761
=========== ===========
LIABILITIES
- -------------------------------------------------------------------------------------
Short-term borrowingsborrowings..................................... $ 15,111 $ 20,500
$ 23,000
Other liabilities 14,856 13,084
SHAREHOLDERS' EQUITY 339,914 308,332
- --------------------------------------------------------------------------liabilities......................................... 9,922 15,247
----------- -----------
Total Liabilities....................................... 25,033 35,747
Shareholders' equity...................................... 385,678 354,014
----------- -----------
Total Liabilities and Shareholders' Equity $375,270 $344,416
======== ========
- --------------------------------------------------------------------------Equity.............. $ 410,711 $ 389,761
=========== ===========
90
CONDENSED STATEMENTS OF INCOME
------------------------------
CONDENSED STATEMENTS OF INCOME
- ------------------------------------------------------------
Year Endedended December 31
----------------------------------------
1996 1995 1994
1993
- ---------------------------------------------------------------------- ---------- ----------
(in thousands)
Income:
Dividends from bank subsidiaries $35,653 $24,747subsidiaries................. $ 9,984
Other30,936 $ 35,653 $ 24,747
Other............................................ 8,432 8,764 7,259
4,741
------- ------- ------------------ ----------- -----------
39,368 44,417 32,006
14,725
Expenses 12,405 10,860 9,079
------- ------- -------Expenses............................................ 11,984 12,824 10,873
----------- ----------- -----------
Income before income taxes and equity in
undistributed net income (loss) of subsidiaries
and cumulative effect of
changes in accounting
principles 32,012 21,146 5,64627,384 31,593 21,133
subsidiaries........................................
Income tax benefitbenefit.................................. (3,483) (3,249) (3,016)
(4,175)
------- ------- -------
35,261 24,162 9,821----------- ----------- -----------
30,867 34,842 24,149
Equity in undistributed net income (loss) of:
Bank subsidiaries 9,922 16,079 23,650subsidiaries................................. 21,965 12,073 18,129
Nonbank subsidiariessubsidiaries.............................. (814) 397 239
(201)
------- ------- -------
Income before cumulative
effect of changes in
accounting principles 45,580 40,480 33,270
Cumulative effect of changes
in accounting principles - - (205)
------- ------- ------------------ ----------- -----------
Net Income $45,580 $40,480 $33,065
======= ======= =======
- ------------------------------------------------------------Income...................................... $ 52,018 $ 47,312 $ 42,517
=========== =========== ===========
91
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
Year Ended December 31
------------------------------------
1996 1995 1994
1993
- --------------------------------------------------------------------------------------------- ---------- ---------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:Cash Flows From Operating Activities:
Net Income.............................................................. $ 52,018 $ 47,312 $ 42,517
Adjustments to Reconcile Net Income $ 45,580 $40,480 $33,065
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Cumulative effect of accounting changes - - 205to
Net Cash Provided by Operating Activities:
Deferred income tax benefit (expense) benefit.................................. (211) 172 (254) 94
Gain on sale of investment securitiessecurities.................................. (2,801) (3,151) (2,242) (1,250)
Decrease (increase) in other assets (2,165)assets.................................... 2,708 (2,223) (532) 4,875
Increase in investment in subsidiaries (10,319) (16,318) (20,483)subsidiaries................................. (21,151) (12,470) (18,368)
Increase (decrease) in other liabilities 2,107 12,176 (3)
-------- ------- -------liabilities.......................................... 191 2,486 12,387
----------- ----------- -----------
Total adjustments (13,356) (7,170) (16,562)
-------- ------- -------adjustments.................................................... (21,264) (15,186) (9,009)
----------- ----------- -----------
Net cash provided by operating activities 32,224 33,310 16,503
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:activities............................ 30,754 32,126 33,508
----------- ----------- -----------
Cash Flows From Investing Activities:
Investment in subsidiariessubsidiaries............................................. (4,025) (12,851) (24,133) (103)
Investment in real estate partnershipspartnerships................................. (296) (770) (782) (1,700)
Proceeds from sales of investment securitiessecurities........................... 5,827 6,333 4,212 4,511
Purchase of investment securitiessecurities...................................... (6,331) (5,767) (5,917) (2,866)
Proceeds from sales of fixed assetsassets.................................... - 1,090 - -
Payment for purchase of CPFC, net of
contributions from subsidiariessubsidiaries....................................... - - (6,869)
-
-------- ------- ------------------ ----------- -----------
Net cash used in investing activitiesactivities................................ (4,825) (11,965) (33,489)
(158)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:----------- ----------- -----------
Cash Flows From Financing Activities:
Net (decrease) increase in short-term borrowingsborrowings....................... (5,389) (2,500) 20,500 2,500
Decrease in long-term debtdebt............................................. - - (200)
(5,324)
Dividends paidpaid......................................................... (21,126) (18,215) (15,773) (13,925)
Net proceeds from issuance of common stockstock............................. 2,171 3,714 1,029 1,0611,700
Acquisition of treasury stockstock.......................................... (1,482) (5,979) (3,109) (396)
-------- ------- -------(3,978)
----------- ----------- -----------
Net cash (used in) provided by financing activitiesactivities................. (25,826) (22,980) 2,447 (16,084)
-------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,721)2,249
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents...................... 103 (2,819) 2,268
261
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEARCash and Cash Equivalents at Beginning of Year............................ (98) 2,721 453
192
-------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR----------- ----------- -----------
Cash and Cash Equivalents at End of Year.................................. $ -5 $ (98) $ 2,721
$ 453
======== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
InterestInterest............................................................... $ 3,508 $ 4,289 $ 2,604
Income taxes........................................................... $ 796
Income taxes 12,532 13,210 12,273
- -----------------------------------------------------------------------------------16,861 $ 14,444 $ 15,280
92
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Fulton Financial CorporationCorporation:
We have audited the accompanying consolidated balance sheets of Fulton Financial
Corporation (a Pennsylvania corporation) and subsidiaries as of December 31,
19951996 and 19941995 and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We
did not audit the financial statements of Mid-Atlantic Bankcorp, which was
acquired in 1994, in a transaction accounted for as a pooling of interests.
Such statements are included in the consolidated financial statements of
Fulton Financial Corporation and reflect total interest income of 12.6
percent of the related consolidated total in 1993. These statements were
audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to amounts included for Mid-Atlantic
Bankcorp, is based solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Fulton Financial Corporation
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As explained in Note A to the financial statements, effective
January 1, 1993, the Corporation changed its method of accounting for
income taxes and postretirement benefits other than pensions. Effective
December 31, 1993, the Corporation changed its method of accounting for
investments in debt and equity securities.
/s/ Arthur Andersen L.L.P.
Lancaster, Pennsylvania
January 26, 1996
(Except for Note N for which the date is February 29, 1996)
93
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Mid-Atlantic Bankcorp
Hagerstown, Maryland
We have audited the accompanying consolidated statements of condition
of Mid-Atlantic Bankcorp and Subsidiary as of December 31, 1993 and 1992,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1993.1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of Mid-Atlantic BankcorpFulton Financial Corporation
and Subsidiarysubsidiaries as of December 31, 19931996 and 1992,1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 19931996 in conformity with generally accepted accounting principles.
/s/ Coyne and McClean CharteredArthur Andersen LLP
Lancaster, Pennsylvania
January 16, 1994
Baltimore, Maryland
9424, 1997
(Except Note N for which the date is February 28, 1997)
FULTON FINANCIAL CORPORATION
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS
(In thousands, except per-share data)
Three Months Ended
-------------------------------------------------------------------------
For the Year 1996 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------- ----------- ---------- ----------- ----------
Interest income.................... $ 64,834 $ 66,151 $ 68,165 $ 69,507
Interest expense................... 27,813 27,878 28,600 29,511
----------- ---------- ----------- ----------
Net interest income................ 37,021 38,273 39,565 39,996
Provision for loan losses.......... 676 965 1,153 1,398
Other income....................... 7,871 7,511 8,220 9,201
Other expenses..................... 26,242 26,412 29,113 28,384
----------- ---------- ----------- ----------
Income before income taxes......... 17,974 18,407 17,519 19,415
Income taxes....................... 5,253 5,372 4,930 5,742
----------- ---------- ----------- ----------
Net income......................... $ 12,721 $ 13,035 $ 12,589 $ 13,673
=========== ========== =========== ==========
Per-share data:
Net income.................... $ .39 $ .40 $ .38 $ .41
Cash dividends................ $ .155 $ .170 $ .170 $ .170
Three Months Ended
-------------------------------------------------------------------------
For the Year 1995 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------- ----------- ---------- ------------ ----------
Interest income.................... $ 60,499 $ 62,218 $ 63,863 $ 65,089
Interest expense................... 25,250 26,587 27,663 28,395
----------- ---------- ----------- ----------
Net interest income................ 35,249 35,631 36,200 36,694
Provision for loan losses.......... 680 653 688 1,812
Other income....................... 6,725 7,354 7,192 8,618
Other expenses..................... 25,420 26,195 25,599 27,382
----------- ---------- ----------- ----------
Income before income taxes......... 15,874 16,137 17,105 16,118
Income taxes....................... 4,220 4,440 4,786 4,476
----------- ---------- ----------- ----------
Net income......................... $ 11,654 $ 11,697 $ 12,319 $ 11,642
=========== ========== =========== ==========
Per-share data:
Net income.................... $ .35 $ .36 $ .37 $ .35
Cash dividends................ $ .132 $ .142 $ .146 $ .146
Item 9. Changes in and Disagreements with Accountants on
---------------------------------------------------------- --------------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
None
95None.
PART III
Item 10. Directors and Executive Officers of the Registrant
------------------------------------------------------------- -----------------------------------------------------------
Incorporated by reference herein is the information appearing under the
heading "Information about Nominees and Continuing Directors" on pages 45
through 1011 of the 19961997 Proxy Statement and under the heading "Executive
Officers" on page 1112 of the 19961997 Proxy Statement.
Item 11. Executive Compensation
--------------------------------- -------------------------------
Incorporated by reference herein is the information appearing under the
heading "Executive Compensation" on pages 1112 through 1415 of the 19961997 Proxy
Statement and under the heading "Compensation of Directors" on page 1112 of the
19961997 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and -------------------------------------------------------------
Management
----------- -----------------------------------------------------------------------
Incorporated by reference herein is the information appearing under the
heading "Voting of Shares and Principal Holders Thereof" on page 3 of the 19961997
Proxy Statement and under the heading "Information about Nominees and Continuing
Directors" on pages 45 through 1011 of the 19961997 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
--------------------------------------------------------- -------------------------------------------------------
Incorporated by reference herein is the information appearing under the
heading "Transactions with Directors and Executive Officers" on page 1617 of the
19961997 Proxy Statement, and the information appearing in Note D - Loans and
Allowance for Loan Losses, of the Notes to Consolidated Financial Statements in
Item 8, "Financial Statements and supplementary data".
96
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
--------------------------------------------------------------------------- -------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements -- The following consolidated financial statements
of Fulton Financial Corporation and subsidiaries are incorporated herein
by reference in response to Item 8 above:
(i) Consolidated Balance Sheets - December 31, 19951996 and 1994.1995.
(ii) Consolidated Statements of Income - Years ended December 31,
1996, 1995 1994 and 1993.1994.
(iii) Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1996, 1995 1994 and 1993.1994.
(iv) Consolidated Statements of Cash Flows - Years ended December 31,
1996, 1995 1994 and 1993.1994.
(v) Notes to Consolidated Financial Statements
(vi) Report of Independent Public Accountants.
2. Financial Statement Schedules -- All financial statement schedules for
which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable and have therefore been omitted.
3. Exhibits -- The following is a list of the Exhibits required by Item 601
of Regulation S-K and filed as part of this report:
(i) Articles of Incorporation as amended on April 13, 1990 and
Bylaws of Fulton Financial Corporation, as amended on April 17,
1990-Incorporated1990 - Incorporated by reference from Exhibits 19(a) and 19(b)
of the Fulton Financial Corporation Quarterly Report on
Form 10-Q for the quarter ended March 31, 1990.
97
(ii) Rights Amendment dated June 20, 1989 between Fulton Financial
Corporation and Fulton Bank - Incorporated by reference from
Exhibit 1 of the Fulton Financial Corporation Current Report on
Form 8-K dated June 21, 1989.
(iii) Material Contracts - Executive Compensation Agreements and
Plans:
(a) Severance Agreements entered into as of April 17, 1984 and
as of May 17, 1988 between Fulton Financial Corporation and
the following executive officers: Robert D. Garner, Rufus A.
Fulton, Jr., James K. Sperry and R. Scott Smith, Jr. -
Incorporated by reference from Exhibit 28 (a) of the Fulton
Financial Corporation Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
(b) Incentive Stock Option Plan and Amendment No. 1 to
that Plan adopted February 17, 1987September 19, 1995 -
Incorporated by reference from Exhibit (a) (i)A of the Fulton Financial
Corporation Quarterly Report on Form 10-Q
for the quarter ended March 31, 1987.Corporation's 1996 Proxy Statement.
(c) Severance Agreement entered into as of November 19, 1992
between Fulton Financial Corporation and Charles J. Nugent,
Executive Vice President and Chief Financial Officer -
Incorporated by reference from Exhibit 10 (c) of the Fulton
Financial Corporation Annual Report on Form 10-K for the
year ended December 31, 1992.
(iv) Subsidiaries of the Registrant.
(v) Consents of Independent Public Accountants
(vi) Financial Data Schedule
98
(b) Reports on Form 8-K --
(1) Report on1. Form 8-K dated October 17, 1995, filed pursuant to Item
5 (Other Events) reflectingFebruary 29, 1996 reporting consummation of the
results of operations of Fulton
Financial Corporation for the 30 day period following the
acquisition of Delaware National Bankshares, Inc. The report
includes Fulton Financial Corporation's consolidated statement of
income for the month ended September 30, 1995.
(2) Report on Form 8-K dated November 3, 1995, filed pursuant to Item
5 (Other Events) relating to the announcement of a plan of merger with Gloucester County Bankshares, Inc.
(3) Report on2. Form 8-K dated December 22, 1995, filed pursuant to
Item 5 (Other Events) relating to the announcementApril 16, 1996 reporting results of stock
repurchase plan.combined operations
of Fulton Financial Corporation and Gloucester County Bankshares, Inc.
3. Form 8-K dated October 7, 1996 reporting execution of a Merger Agreement
between Fulton Financial Corporation and The Woodstown National Bank &
Trust Company.
(c) Exhibits -- The exhibits required to be filed as part of this report are
submitted as a separate section of this report.
(d) Financial Statement Schedules -- None required.
99
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
FULTON FINANCIAL CORPORATION
(Registrant)
Dated: March 19, 199618, 1997 By: /s/ Rufus A. Fulton, Jr.
----------------------------
Rufus A. Fulton, Jr.,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been executed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature TitleCapacity Date
- --------- ------------- ----
/s/ Jeffrey G. Albertson Director March 18, 1997
- -----------------------------------
Jeffrey G. Albertson
/s/ James P. Argires, M.D. Director March 18, 1997
- -----------------------------------
James P. Argires, M.D.
Director March 18, 1997
- -----------------------------------
Donald M. Bowman, Jr.
Director March 18, 1997
- -----------------------------------
Thomas D. Caldwell, Jr., Esq.
/s/ Beth Ann L. Chivinski Senior Vice President March 18, 1997
- -----------------------------------
Beth Ann L. Chivinski and Controller
(Principal Accounting Officer)
/s/ Harold D. Chubb Director March 18, 1997
- -----------------------------------
Harold D. Chubb
Director March 18, 1997
- -----------------------------------
William H. Clark, Jr.
/s/ Frederick B. Fichthorn Director March 18, 1997
- -----------------------------------
Frederick B. Fichthorn
/s/ Patrick J. Freer.... Director March 18, 1997
- -----------------------------------
Patrick J. Freer
Signature Capacity Date
- --------- -------- ----
/s/ Rufus A. Fulton, Jr. President, Chief Executive March 18, 1997
- -----------------------------------
Rufus A. Fulton, Jr. Officer, and Director
(Principal Executive Officer)
/s/ Eugene H. Gardner Director March 18, 1997
- -----------------------------------
Eugene H. Gardner
/s/ Robert D. Garner Chairman of the Board;Board and March 19, 199618, 1997
- --------------------------- Director-----------------------------------
Robert D. Garner /s/ Charles J. Nugent Executive Vice President; March 19, 1996
- --------------------------- Chief Financial Officer
Charles J. Nugent
/s/ James P. Argires Director March 19, 1996
- ---------------------------
James P. Argires, M.D.
/s/ Thomas D. Caldwell, Jr. Director March 19, 1996
- ---------------------------
Thomas D. Caldwell, Jr.,
Esq.
Director March 19, 1996
- ---------------------------
Donald M. Bowman, Jr.
/s/ Harold D. Chubb Director March 19, 1996
- ---------------------------
Harold D. Chubb
Director March 19, 1996
- ---------------------------
William H. Clark, Jr.
Director March 19, 1996
- ---------------------------
Richard F. Erdley
/s/ David S. Etter Director March 19, 1996
- ---------------------------
David S. Etter
/s/ Frederick B. Fichthorn Director March 19, 1996
- ---------------------------
Frederick B. Fichthorn
/s/ Rufus A. Fulton, Jr. President and Chief March 19, 1996
- --------------------------- Executive Officer;
Rufus A. Fulton, Jr. Director
/s/ Henry N. Funk Director March 19, 1996
- ---------------------------
Henry N. Funk
/s/ John F. Garber, Jr. Director March 19, 1965
- ---------------------------
John F. Garber, Jr.
100
Signature Title Date
--------- ----- ----
/s/ Eugene H. Gardner Director March 19, 1996
- ---------------------------
Eugene H. Gardner
/s/ Daniel M. Heisey Director March 19, 199618, 1997
- --------------------------------------------------------------
Daniel M. Heisey
/s/ J. Robert Hess Director March 19, 199618, 1997
- --------------------------------------------------------------
J. Robert Hess
/s/ Carolyn R. Holleran Director March 19, 199618, 1997
- --------------------------------------------------------------
Carolyn R. Holleran
/s/ Clyde W. Horst Director March 19, 199618, 1997
- --------------------------------------------------------------
Clyde W. Horst
/s/ Samuel H. Jones, Jr. Director March 18, 1997
- -----------------------------------
Samuel H. Jones, Jr.
/s/ Bernard J. Metz, Sr. Director March 19, 199618, 1997
- --------------------------------------------------------------
Bernard J. Metz, Sr.
/s/ Charles J. Nugent Executive Vice President and March 18, 1997
- -----------------------------------
Charles J. Nugent Chief Financial Officer
(Principal Financial Officer)
/s/ Arthur M. Peters, Jr., Esq. Director March 19, 199618, 1997
- --------------------------------------------------------------
Arthur M. Peters, Jr., Esq.
/s/ Stuart H. Raub, Jr. Director March 19, 199618, 1997
- --------------------------------------------------------------
Stuart H. Raub, Jr.
/s/ Donald E. Ruhl Director March 19, 199618, 1997
- --------------------------------------------------------------
Donald E. Ruhl
/s/ William E. Rusling Director March 19, 199618, 1997
- --------------------------------------------------------------
William E. Rusling
Signature Capacity Date
- --------- -------- ----
/s/ Mary Ann Russell Director March 19, 199618, 1997
- --------------------------------------------------------------
Mary Ann Russell
/s/ John O. Shirk, Esq. Director March 19, 199618, 1997
- --------------------------------------------------------------
John O. Shirk, Esq.
/s/ James K. Sperry Executive Vice President;President and March 19, 199618, 1997
- --------------------------- Director-----------------------------------
James K. Sperry /s/ Kenneth G. StoudtDirector
Director March 19, 199618, 1997
- --------------------------------------------------------------
Kenneth G. Stoudt
101
EXHIBIT INDEX
Page
(in accordance with-------------
Exhibits Required Pursuant sequential numbering
to Item 601 of Regulation S-K
system)
- ----------------------------- --------------------
3. Articles of Incorporation as amended on April 13, 1990, and Bylaws of
Fulton Financial Corporation as amended on April 17, 1990 - Incorporated
by reference from Exhibits 19(a) and 19(b) of the Fulton Financial
Corporation Quarterly Report on Form 10-Q for the quarter ended March 31,
1990.
4. (a) Rights Agreement dated June 20, 1989 between Fulton Financial
Corporation and Fulton Bank - Incorporated by reference from
Exhibit 1 of the Fulton Financial Corporation Current Report on
Form 8-K dated June 21, 1989.
10. Material Contracts - Executive Compensation Agreements and Plans:
(a) Severance Agreements entered into as of April 17, 1984 and as of
May 17, 1988 between Fulton Financial Corporation and the
following executive officers: Robert D. Garner, Rufus A. Fulton,
Jr., James K. Sperry and R. Scott Smith, Jr. - Incorporated by
reference from Exhibit 28(a) of the Fulton Financial Corporation
Quarterly Report on Form 10-Q for the quarter ended March 31,
1990.
(b) Incentive Stock Option Plan and Amendment No. 1 to that Plan
adopted February 17, 1987 - Incorporated by reference from
Exhibit (a)(i) of the Fulton Financial Corporation Quarterly
Report on Form 10-Q for the quarter ended March 31, 1987.
102
EXHIBIT INDEX (Continued)
Page
(in accordance with
Exhibits Required Pursuant sequential numbering
to Item 601 of Regulation S-K system)
- ----------------------------- --------------------
(c) Severance Agreement entered into as of November 19, 1992 between
Fulton Financial Corporation and Charles J. Nugent, Executive
Vice President and Chief Financial Officer-Officer - Incorporated by
reference from Exhibit 10(c) of the Fulton Financial Corporation
Annual Report on Form 10-K for the year ended December 31, 1992.
13. Annual Report to Shareholders for the year ended December 31, 1996.
21. Subsidiaries of the Registrant.
104
23. Consents of Independent Public Accountants 106Accountants.
27. Financial Data Schedule 108
103Schedule.
63