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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the
---
Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1995
OR
___ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from _____________ to _____________
Commission File Number: 0-10587
FULTON FINANCIAL CORPORATION
------------------------------------------------------------
Exact name of registrant as specified in its charter
Pennsylvania 23-2195389
- ------------------------------ ------------------
State or other jurisdiction of I. R. S. Employer
incorporation or organization Identification No.
One Penn Square, P. O. Box 4887
Lancaster, Pennsylvania 17604
- -------------------------------------- ---------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (717)291-2411
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 No .
--- ---
1
The aggregate market value of 25,892,592 shares of common stock held by
non-affiliates, calculated based on the average of the bid and asked prices on
February 28, 1996, 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___.
As of February 28, 1996 there were 28,301,512 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
2
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 through the following
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.
In addition, Fulton Financial Corporation owns all of the outstanding stock
of two nonbanking 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 reinsures credit life and accident and
health insurance on extensions of credit by the Corporation's banking
subsidiaries.
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
Pennsylvania Department of Banking, and the State of Maryland.
3
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 other 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, 1995
Main Total Total
Office Assets Deposits No. of Employees
Location (000's) (000's) Full-time Part-time
-------- ---------- ---------- --------- ---------
Fulton Bank Lancaster, PA $1,616,987 $1,260,059 649 195
Farmers Trust Bank Lebanon, PA 167,004 125,299 56 24
Swineford National Bank Hummels Wharf, PA 205,961 182,505 82 43
Lafayette Bank Easton, PA 406,309 351,578 175 74
FNB Bank, N.A Danville, PA 246,418 209,401 84 22
Great Valley Savings Bank Reading, PA 257,360 214,757 85 13
Hagerstown Trust Company Hagerstown, MD 347,603 297,749 181 9
Delaware National Bank Georgetown, DE 108,622 98,185 58 11
--------- ---------
1,370 391
========= =========
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; 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/
regional and CIRRUS/tm/ and PLUS/tm/ 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 and trust
administrative officers. Personal services
6
available through the Trust Department of Fulton Bank include Personal Trust and
Estate Planning, Investment Management, Estate Settlement, Asset Management
Accounts, a Mutual Fund Asset Allocation program, and IRA Rollovers.
Institutional services available include full service Employee Benefit programs,
including administration and investment management, Cash Reserve Investment
Management accounts, administrative and investment services for Foundations and
Endowments and comprehensive Corporate 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, thirty
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 twelve branch offices. Both regions have stable economies and have
experienced unemployment rates which are
7
consistent with the average state and national levels.
Diversity is the key to the economic well-being of the Lancaster Region.
Twenty-nine of the top employers located in the Lancaster Region have 500 or
more employees. This Region also ranks as one of the top agricultural
production areas in the country.
The economy of the Capital Region is strongly influenced by the state
government headquartered in the capital City of Harrisburg. The state
government provides employment to thousands 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.
Fulton Bank maintains a competitive posture within its market. The trade
area of Fulton Bank is characterized by active competition among state and
national banks. There are 23 full-service commercial banks with offices in the
Lancaster Region and 31 full-service commercial banks with offices in the
Capital Region. Fulton Bank ranked first in market share (based on total
deposits) in Lancaster County, seventh in market share in Dauphin County,
fourteenth in market share in Cumberland County, thirty-second in market share
in York County, and twenty-ninth 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/ regional and CIRRUS/tm/ and
PLUS/tm/ 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 seven full-service commercial banks
with offices in Lebanon County. Farmers Trust Bank ranked fifth 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 Comptroller of the Currency. In addition to its
administrative headquarters located in Hummels Wharf, Pennsylvania, Swineford
National Bank maintains seven 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/ regional and
CIRRUS/tm/ 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 37,699 (1990 Census Update), Northumberland County, with a
population of 95,732 (1990 Census Update) and Union County, with a population of
37,298 (1990 Census Update). There are four full-service commercial banks with
offices in Snyder County, fifteen full-service commercial banks with offices in
Northumberland County and seven full service banks with offices in Union County.
Swineford National Bank ranked 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 thirteen 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/ regional and CIRRUS/tm/ and PLUS/tm/ 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 commercial banks with offices in Northampton County. Lafayette Bank
ranked third in the 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 Comptroller of the
Currency. In addition to its administrative headquarters located in Danville,
FNB Bank, N.A. currently maintains seven 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/ 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 with offices in Montour County, eleven
full-service commercial banks with offices in Lycoming County and thirteen full-
service commercial banks with offices in Northumberland County. FNB Bank, N.A.
ranked first in Montour County, fourteenth in Lycoming County and second in
Northumberland County, based on market share of deposits, according to the most
current available deposit survey.
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 seven branch offices and operates one remote
site.
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
savings banks in Berks County and fifteen in Montgomery County. Great Valley
Savings Bank ranked second among savings banks in Berks County based on market
share of deposits and thirteen in market share in Montgomery County according 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.
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 State of
Maryland. In addition to its administrative headquarters located in Hagerstown,
Maryland, Hagerstown Trust Company maintains thirteen offices and twelve 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 seven full-service commercial banks with
offices in Washington County, Maryland. Hagerstown Trust Company ranked 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/ and MOST/tm/
regional and CIRRUS/tm/ 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 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 institutions with over 51 branch offices in the county.
Delaware National ranked fifth in Sussex County based on market share of
deposits, according to the most recent available deposit summary.
The Bank of Gloucester County
-----------------------------
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 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 this merger.
Upon consummation of the merger, the Corporation assumed ownership of its
ninth banking subsidiary, The Bank of Gloucester
17
County. The Bank of Gloucester County, with approximately $200 million in
assets, is headquartered in Woodbury, New Jersey, and operates six branch
offices in Gloucester County, New Jersey. The acquisition provides the
Corporation with it first banking subsidiary in New Jersey.
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) 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%
Taxable investment securities(2) 548,363 30,167 5.50 618,735 31,016 5.01 563,319 30,462 5.41
Tax-exempt investment securities(2) 73,905 4,722 6.39 85,787 5,589 6.51 97,937 6,562 6.70
Equity securities(2) 37,266 1,939 5.20 28,519 1,398 4.90 23,533 1,299 5.52
Short-term investments 28,415 1,639 5.77 17,564 736 4.19 77,739 2,433 3.13
---------- -------- ---------- -------- ---------- --------
Total interest-earning assets 2,953,819 235,900 7.99 2,714,391 199,482 7.35 2,555,160 190,059 7.44
Noninterest-earning assets:
Cash and due from banks 135,397 144,439 142,470
Premises and equipment 42,491 39,790 38,608
Other assets(2) 103,921 80,696 63,968
Less: Allowance for loan losses (36,231) (31,196) (29,505)
---------- ---------- ----------
Total Assets $3,199,397 $2,948,120 $2,770,701
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand deposits $ 324,888 $ 6,467 1.99% $ 328,955 $ 5,870 1.78% $ 311,678 $ 6,955 2.23%
Savings deposits 731,876 19,302 2.64 793,441 19,148 2.41 798,038 21,559 2.70
Time deposits 1,235,634 68,038 5.51 976,315 43,889 4.50 962,178 43,960 4.57
Short-term borrowings 125,219 6,292 5.02 140,857 5,288 3.75 63,531 1,612 2.54
Long-term debt 30,647 2,011 6.56 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 3.49
Noninterest-bearing liabilities:
Demand deposits 362,511 341,399 311,392
Other 65,974 51,909 44,036
---------- ---------- ----------
Total Liabilities 2,876,749 2,650,626 2,502,398
Shareholders' equity 322,648 297,494 268,303
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $3,199,397 $2,948,120 $2,770,701
========== ========== ==========
Net interest income 133,790 124,171 115,083
Net yield on interest-earning assets 4.53% 4.57% 4.50%
==== ==== ====
Tax equivalent adjustment(3) 4,473 4,557 5,149
-------- -------- --------
Net interest margin $138,263 4.68% $128,728 4.74% $120,232 4.71%
======== ==== ======== ==== ======== ====
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes nonperforming assets.
(2) Balances reflect amortized historical cost for available for sale
securities. The related unrealized holding gain on securities of $6,962 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:
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 thousands)
Interest income on:
Loans and direct lease financing............ $ 24,727 $ 11,963 $ 36,690 $ 14,255 $ (2,815) $ 11,440
Taxable investment securities............... (3,528) 2,679 (849) 2,997 (2,443) 554
Tax-exempt investment securities............ (774) (93) (867) (814) (159) (973)
Equity securities........................... 429 112 541 275 (176) 99
Short-term investments...................... 455 448 903 (1,883) 186 (1,697)
-------- -------- -------- -------- -------- --------
$ 21,309 $ 15,109 $ 36,418 $ 14,830 $ (5,407) $ 9,423
======== ======== ======== ======== ======== ========
Interest expense on:
Demand deposits............................. $ (73) $ 670 $ 597 $ 386 $ (1,471) $ (1,085)
Savings deposits............................ (1,486) 1,640 154 (124) (2,287) (2,411)
Time deposits............................... 11,657 12,492 24,149 646 (717) (71)
Short-term borrowings....................... (587) 1,591 1,004 1,960 1,716 3,676
Long-term debt.............................. 811 84 895 478 (252) 226
-------- -------- -------- -------- -------- --------
$ 10,322 $ 16,477 $ 26,799 $ 3,346 $ (3,011) $ 335
======== ======== ======== ======== ======== ========
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:
1995 1994 1993
---------------------------- ---------------------------- ----------------------------
HTM AFS TOTAL HTM AFS TOTAL HTM AFS TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- --------
(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 $308,312
State and municipal 61,959 -- 61,959 84,884 -- 84,884 91,495 340 91,835
Other securities 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 36,305
Mortgage-backed securities 220,004 47,672 267,676 159,036 51,450 210,486 137,180 94,138 231,318
-------- -------- -------- -------- -------- -------- -------- -------- --------
$501,681 $222,345 $724,026 $507,486 $174,211 $681,697 $518,620 $218,178 $736,798
======== ======== ======== ======== ======== ======== ======== ======== ========
21
FULTON FINANCIAL CORPORATION
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
The following tables set forth the maturities of investment securities at
December 31, 1995 and the weighted average yields of such securities (calculated
based upon amortized cost).
HELD TO MATURITY (at amortized cost) MATURING
- ---------------- -----------------------------------------------------------------------------------------
(Dollars in thousands)
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
-------- ----------------- ----------------- ---------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ----- -------- ----- -------- ----- ------- -----
United States Treasury and other U.S.
Government agencies and corporations $ 90,828 5.80% $112,665 5.80% $ 4,924 6.43% $ 341 11.25
State and municipal 10,340 9.65 37,804 8.69 9,734 9.34 4,081 9.48
Other 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 (1) $ 349 $ 1,150 $ 318 $ 135
======== ======== ======= ======
Mortgage-back securities $220,004 6.31%
======== =====
AVAILABLE FOR SALE (at fair value) MATURING
- ------------------ -----------------------------------------------------------------------------------------
(Dollars in thousands)
Within After One But After Five But
One Year Within Five Years Within Ten Years
-------- ----------------- -----------------
Amount Yield Amount Yield Amount Yield
-------- ----- -------- ----- -------- -----
Unites States Treasury and other U.S.
Government agencies and corporations $20,261 5.40% $101,197 5.93% $2,769 5.42%
======= ===== ======== ===== ====== =====
Mortgage-backed securities $47,672 6.22%
======= =====
(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
FULTON FINANCIAL CORPORATION
LOAN PORTFOLIO BY TYPE
The amounts of gross loans outstanding as of December 31 follows (1):
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(In thousands)
Commercial, financial and agricultural......... $ 337,582 $ 332,165 $ 341,747 $ 350,146 $ 350,413
Real estate - construction..................... 76,665 82,692 56,490 56,305 46,621
Real estate - mortgage......................... 1,512,667 1,446,912 1,154,152 1,093,543 1,036,510
Consumer....................................... 404,083 357,872 282,172 272,779 287,121
Leasing and other.............................. 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
========== ========== ========== ========== ==========
(1) At December 31, 1995, Fulton Financial Corporation did not have any loan
concentrations to borrowers engaged in the same or similar industries that
exceeded 10% of total income.
MATURITY & SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES AS OF DECEMBER 31,
1995
Due after one year
Due one year or less through five years Due after five years Total
-------------------- ------------------ --------------------- ----------
(In thousands)
Floating rate.............. $898,196 $181,311 $ 34,938 $1,114,445
Fixed rate................. 82,880 473,687 693,756 1,250,323
-------- -------- -------- ----------
Total loans.............. $981,076 $654,998 $728,694 $2,364,768
======== ======== ======== ==========
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
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(In thousands)
Nonaccrual loans (1) (2) (3).................. $11,764 $14,875 $14,605 $20,817 $10,520
Accruing loans past due 90 days or more (3)... 7,321 5,463 5,634 6,046 9,632
Other real estate............................. 1,737 2,870 2,282 1,705 1,472
------- ------- ------- ------- -------
$20,822 $23,208 $22,521 $28,568 $21,624
======= ======= ======= ======= =======
(1) Includes impaired loans as defined by Statement of Financial Accounting
Standards No. 114 of approximately $10.3 million at December 31, 1995.
(2) As of December 31, 1995, the gross interest income that would have been
recorded during 1995 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 1995 net income was
approximately $682,000. At December 31, 1995, $9.2 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. 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, 1995 are $8.5
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
----------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Amount of loans and leases outstanding at end of period..$2,356,057 $2,233,894 $1,841,992 $1,773,055 $1,718,165
========== ========== ========== ========== ==========
Daily average amount of loans and leases.................$2,265,870 $1,963,786 $1,792,632 $1,737,712 $1,678,592
========== ========== ========== ========== ==========
Balance of allowance for loan losses at
beginning of period....................................$ 35,775 $ 28,679 $ 29,549 $ 23,895 $ 19,912
Loans charged-off:
Commercial, financial and agricultural................. 1,754 1,719 3,415 6,170 2,507
Real estate - construction............................. -- 144 -- -- 9
Real estate - mortgage................................. 1,748 924 3,856 2,832 204
Consumer............................................... 1,554 1,015 1,419 1,660 1,887
Leasing and other...................................... 59 33 51 56 120
---------- ---------- ---------- ---------- ----------
Total loans charged-off.............................. 5,115 3,835 8,741 10,718 4,727
---------- ---------- ---------- ---------- ----------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural................. 1,446 1,047 2,096 654 449
Real estate - construction............................. -- 58 -- -- --
Real estate - mortgage................................. 466 587 228 242 51
Consumer............................................... 668 485 559 614 506
Leasing and other...................................... 20 29 62 10 8
---------- ---------- ---------- ---------- ----------
Total recoveries..................................... 2,600 2,206 2,945 1,520 1,014
---------- ---------- ---------- ---------- ----------
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 6,091
Allowance purchased from Central Pennsylvania Financial
Corp. (1994) and Great Valley Savings Bank (1991) -- 6,470 -- -- 1,605
---------- ---------- ---------- ---------- ----------
Balance at end of period.................................$ 35,293 $ 35,775 $ 28,679 $ 29,549 $ 23,895
========== ========== ========== ========== ==========
Ratio of net charge-offs during period to average
loans outstanding...................................... .11 .08 .32 .53 .22
Ratio of reserve to loans outstanding at end of period... 1.50 1.60 1.56 1.67 1.39
25
FULTON FINANCIAL CORPORATION
ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for loan losses has been allocated as follows as of
December 31:
1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category 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%
Real estate -
construction &
mortgages..... 11,129 67.2 12,164 68.1 10,712 65.3 8,911 64.3 3,881 62.3
Consumer,
leasing &
other......... 2,014 18.5 2,091 17.1 2,415 16.2 2,718 16.1 3,451 17.6
Unallocated... 12,137 N/A 7,661 N/A 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%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
The Corporation allocates the allowance for possible loan losses in three
components: (1) specific accounts, (2) 15% of substandard and 10% of fair
internally risk rated loans (excluding those subject to specific allocation
under (1)) and (3) based upon historical experience for the remaining balances.
As of December 31, 1995, the Corporation has allocated $7.7 million based on a
four year historical average: $2.7 million commercial, $1.9 million consumer,
$3.0 million mortgage, and $70,000 leasing. The allocation was $385,000 for
specific accounts, $7.8 million for fair rated loans, $6.7 million for
substandard rated loans, $386,000 for doubtful rated loans, and $227,000 for
off-balance sheet risk for standby letters of credit.
Charge-offs for 1996 are not anticipated to exceed $4.8 million, commercial -
$2.2 million, consumer - $1.5 million, mortgage - $1.0 million, and leases -
$100,000. The overall risk factors in the portfolio are best evidenced by a 30
day and over delinquency rate in the 2.00% to 2.50% range and overall credit
risk ratings of satisfactory and above for 75% of the commercial and real estate
portfolios.
26
FULTON FINANCIAL CORPORATION
DEPOSITS
The average daily balances of deposits and rates paid on such deposits
are summarized as follows for the years ended December 31:
1995 1994 1993
---- ---- ----
Amount Rate Amount Rate Amount Rate
---------- ---- ---------- ---- ---------- ----
(Dollars in thousands)
Noninterest-bearing demand deposits...................$ 362,511 --% $ 341,399 --% $ 311,392 --%
Interest-bearing demand deposits...................... 324,888 1.99 328,955 1.78 311,678 2.23
Savings deposits...................................... 731,876 2.64 793,441 2.41 798,038 2.70
Time deposits......................................... 1,235,634 5.51 976,315 4.50 962,178 4.57
---------- ---- ---------- ---- ---------- ----
$2,654,909 3.53% $2,440,110 2.82% $2,383,286 3.04%
========== ==== ========== ==== ========== ====
Maturities of time deposits of $100,000 or more outstanding at December 31, 1995
are summarized as follows:
(In thousands)
Three months or less.................................. $ 59,629
Over three through six months......................... 27,336
Over six through twelve months........................ 19,633
Over twelve months.................................... 33,306
-------
$139,904
=======
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 shareholders equity at December 31, 1995.
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Amount outstanding at December 31.............. $135,872 $191,523 $76,189
Weighted average interest rate at year end..... 4.88% 4.93% 2.28%
Maximum amount outstanding at any month end.... $216,650 $201,187 $81,414
Average amount outstanding during the year..... $125,219 $140,857 $63,531
Weighted average interest rate during the year. 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
--------------------------------------------------------
1995 1994 1993(1) 1992 1991
---- ---- ---- ---- ----
Percentage of net income to:
Average shareholders' equity................. 14.13% 13.61% 12.32% 10.67% 12.91%
Average total assets......................... 1.42 1.37 1.19 1.00 1.18
Percentage of dividends declared per common
share to net income per common share......... 40.9 40.4 44.7 46.0 37.5
Percentage of average shareholders' equity
to average total assets...................... 10.1 10.1 9.7 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% and 1.32%, respectively.
29
FULTON FINANCIAL CORPORATION
INTEREST SENSITIVITY TABLE
December 31, 1995
(In thousands)
Floating Three Three Six - Greater
or Daily Months - Six Twelve Than
Balance Sheet Category Adjustable or Less Months Months One Year Total
- ---------------------- ---------- ------- ------ ------ -------- -----
Assets
- ------
Interest-bearing deposits $ 780 $ 3,645 $ -- $ -- $ -- $ 4,425
Taxable-investments -- 110,451 63,090 99,894 337,883 611,318
Tax exempt investments -- 4,871 2,276 9,065 45,747 61,959
Equity securities -- 600 600 1,201 35,311 37,712
Loans and direct lease financing 636,283 165,715 138,218 295,439 1,121,015 2,356,670
-------- -------- -------- -------- ---------- ----------
Total rate sensitive assets $637,063 $285,282 $204,184 $405,599 $1,539,956 $3,072,084
======== ======== ======== ======== ========== ==========
Liabilities
- -----------
Demand deposits (A) $ 76,372 $ 5,158 $ 5,158 $ 10,317 $ 227,935 $ 324,940
Savings deposits (B) 336,226 18,283 18,283 38,244 304,994 716,030
Time deposits 28,520 266,874 216,078 246,866 531,540 1,289,878
Short-term debt 140,930 -- -- -- -- 140,930
Long-term debt -- 5,966 7,457 499 20,767 34,689
-------- -------- -------- -------- ---------- ----------
Total rate sensitive liabilities $582,048 $296,281 $246,976 $295,926 $1,085,236 $2,506,467
======== ======== ======== ======== ========== ==========
Period gap 1.09 0.96 0.83 1.37 1.42
Cumulative gap 1.09 1.05 1.00 1.08 1.23
(A) NOW accounts - Despite the fact that 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% of the balances
are subject to repricing within one year or approximately $36 million
dollars. This percentage has been based upon recent trends as well as
management's assessment of the effect of current conditions.
(B) 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% to project repricings within one year. Other components of savings
deposits include money 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. These leases expire
at various dates 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-
story building at 817 Cumberland Street in Lebanon, Pennsylvania. This
building, together with two 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 seven other branch offices.
The Hummels Wharf property and four branch offices are owned free and clear of
encumbrances by Swineford National Bank. Three additional properties used for
branch offices are leased by Swineford National Bank from nonaffiliated persons.
These leases expire intermittently over the years through the year 2002 and are
subject to two renewal options.
The administrative headquarters of Lafayette Bank is located in a three-
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 four 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 headquarters and principal offices of Delaware National Bank are
located in a two-story brick office building at Route 113 North and Edwards
Street, Georgetown, Delaware. This building and four of Delaware National Bank's
branches are owned by the bank. The remaining branch is leased through 2009.
Delaware National Bank's Administrative and Operations Center is leased through
2021.
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.
34
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 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
(Dollars in thousands, except per-share data)
FOR THE YEAR 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Interest income $ 235,900 $ 199,482 $ 190,059 $ 203,951 $ 225,483
Interest expense 102,110 75,311 74,976 96,387 124,459
---------- ---------- ---------- ---------- ----------
Net interest income 133,790 124,171 115,083 107,564 101,024
Provision for loan losses 2,033 2,255 4,926 14,852 6,091
Other income 28,961 25,801 28,432 24,743 19,381
Other expenses 100,039 94,004 91,782 84,435 76,862
---------- ---------- ---------- ---------- ----------
Income before income taxes 60,679 53,713 46,807 33,020 37,452
Income taxes 15,099 13,233 10,285 6,077 7,334
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of changes
in accounting principles 45,580 40,480 36,522 26,943 30,118
Cumulative effect of changes in accounting principles -- -- (3,457) -- --
---------- ---------- ---------- ---------- ----------
Net income $ 45,580 $ 40,480 $ 33,065 $ 26,943 $ 30,118
========== ========== ========== ========== ==========
PER-SHARE DATA*
- -----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes
in accounting principles $ 1.61 $ 1.44 $ 1.30 $ .96 $ 1.08
Net income 1.61 1.44 1.18 .96 1.08
Cash dividends .656 .581 .527 .431 .407
AT YEAR END
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $3,334,729 $3,178,696 $2,824,312 $2,791,039 $2,654,209
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 2,325,984
Long-term debt 34,689 27,283 13,051 16,764 15,199
Shareholders' equity 339,914 308,332 288,302 260,926 245,419
Average shareholders' equity 322,648 297,494 268,303 252,395 233,212
Average total assets 3,199,397 2,948,120 2,770,701 2,687,869 2,561,855
- -----------------------------------------------------------------------------------------------------------------------------------
*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, the Corporation continued to expand its markets through
acquisition. On August 31, 1995, the Corporation completed the acquisition of
Delaware National Bankshares Corp. (Delaware National). As provided under the
terms of the acquisition agreement, Delaware National was merged with and into
the Corporation and each of the 763,051 outstanding shares of the common stock
of Delaware National was converted into 1.244 shares of the common stock of the
Corporation.
The Corporation issued a total of 949,235 shares of its common stock in
connection with the Delaware National merger. The transaction was accounted for
as a pooling of interests and therefore, all financial information presented
herein has been restated to include the accounts of Delaware National for all
periods presented.
Delaware National Bank, Delaware National's banking subsidiary, with over
$100 million in assets, provides the Corporation with its first banking
subsidiary in Delaware, long considered an area for strategic expansion of the
Corporation's
37
community bank philosophy. Delaware National Bank operates six banking offices
in Sussex County, Delaware.
On October 1, 1994, the Corporation acquired Central Pennsylvania Financial
Corporation (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 stock 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 million for the year
ended 1995. This represents an increase of $5.1 million or 12.6% over 1994's net
income of $40.5 million, which was an increase of $7.4 million or 22.4% over
1993's net income of $33.1 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 outstanding return on average
assets (ROA), a widely used performance barometer within the financial services
industry. This ratio was 1.42% for 1995 compared to 1.37% for 1994 and 1.32% for
1993. Return on average shareholders' equity (ROE), another measure of
performance, increased in 1995 to 14.13% from the 13.61% level achieved in both
1994 and 1993.
The 12.6% increase in earnings in 1995 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, net interest income is a major contributor to
the Corporation's net income. During 1995, net interest income increased 7.7% to
$133.8 million compared to increases of 7.9% and 7.0% during 1994 and 1993,
respectively. The "Comparative Average Balance Sheets and Net Interest Income
Analysis" on page 19 summarizes the components of the net interest income
growth. The increases in interest income and interest expense were due to both
the growth in interest-earning assets and interest-bearing liabilities and the
increases in interest rates.
Interest income increased $36.4 million or 18.3% during 1995, reflecting
the growth in interest-earning assets as well as the increase in the yield on
these assets.
Interest-earning assets increased $239.4 million or 8.8% during 1995, after
increasing $159.2 million or 6.2% during 1994 and $136.1 million or 5.6% during
1993. A significant portion of the growth during 1995 and 1994 is 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% to 7.99% in 1995 from
7.35% in 1994. The 1994 yield represents a 1.2% decrease from 7.44% in 1993.
41
The changes in the yields reflect both the shift in the composition of the
Corporation's interest-earning assets and the fluctuations of the interest rate
environment. The shift in the composition of the Corporation's interest-earning
assets, with a greater proportion representing loans and a lesser proportion
representing investments, has positively impacted yields, since loans generally
earn interest at higher rates 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.
Interest expense increased at a much greater rate than interest income
during 1995, increasing $26.8 million or 35.6%, reflecting both the growth in
interest-bearing liabilities as well as the increase in the cost of these funds.
Interest-bearing liabilities increased $190.9 million or 8.5% during 1995, after
increasing $110.3 million or 5.1% during 1994 and $85.6 million or 4.2% during
1993. While a significant portion of the growth during 1995 and 1994 is due to
the October 1, 1994 acquisition of CPFC, the Corporation has also been able to
generate deposit growth through its competitive marketing efforts. Total
interest-bearing deposits increased $193.7 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. The cost of interest-bearing liabilities
increased 24.9% from 3.34% for 1994 to 4.17% for 1995, after decreasing 4.3%
during 1994. The changes in the
42
cost of funds primarily reflects fluctuations of the interest rate environment
and the ever increasing competition for customer deposits.
The provision for loan losses for 1995 totaled $2.0 million, compared to
the 1994 and 1993 provisions of $2.3 million and $4.9 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, the allowance for loan losses as a percentage of loans (net of unearned
income) stood at 1.50%, which is consistent with the levels of 1.60% and 1.56%
registered at December 31, 1994 and 1993, respectively.
The Corporation's subsidiary banks continued their excellent net charge-off
record during 1995. For the year, the subsidiary banks recorded net charge-offs
of $2.5 million or 0.11% of average loans outstanding. This represents an
increase from the level recorded during 1994, $1.6 million or 0.08%, and a
decline from the net charge-offs recorded during 1993, $5.8 million or 0.32%. In
management's opinion, the allowance for loan losses of $35.3 million, or 1.50%
of loans and 1.69 times nonperforming assets (1.54 at December 31, 1994) is
adequate to absorb any foreseeable loan losses.
The detail of nonperforming assets as of December 31, and net charge-
offs by category for 1995 and 1994 is as follows:
43
Nonperforming
Assets Net Charge-offs
(in thousands) 1995 1994 1995 1994
- -----------------------------------------------------------------
Real Estate Loans $13,071 $14,669 $ 1,282 $ 423
Commercial & Industrial Loans 4,480 4,695 347 676
Consumer Loans 1,534 974 886 530
Other Real Estate Owned 1,737 2,870 -- --
------- ------- ------- -------
Total $20,822 $23,208 $ 2,515 $ 1,629
======= ======= ======= =======
- -----------------------------------------------------------------
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 great majority of the nonperforming real estate loans above
represents residential real estate loans which, in the opinion of management,
are adequately secured.
Noninterest income was $29.0 million for 1995. This represents an increase
of $3.2 million or 12.2% over the 1994 total of $25.8 million, which, in turn,
was 9.3% lower than the 1993 total of $28.4 million. Almost all noninterest
income categories increased during 1995, 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 million in 1995, an increase of $390,000 or 5.6%, following a 1994 increase
of $132,000 or 1.9%. The growth
44
during 1995 and 1994 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, 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 contribute to trust revenue growth in 1996.
Service charges on deposit accounts increased $443,000 or 4.7% for 1995,
after decreasing $140,000 or 1.5% in 1994. The increase in 1995 is attributable
to growth in the Corporation's fee-based deposits, as a result of both
internally generated growth and the acquisition of CPFC. 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
through a product review and development process in 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. The Corporation recently
introduced revised fee schedules at certain affiliate banks in an effort to
enhance fee income, while remaining competitive in its markets.
Other service charges and fees increased $1.6 million or 26.2%
45
during 1995 after remaining flat 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 $254,000 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 of other service charges and fees also benefitted from certain
nonrecurring items in 1995, including the receipt of life insurance proceeds of
$180,000 and gains on the disposition of other real estate of $371,000.
Investment security gains increased $879,000 or 37.8% to a level of $3.2
million for 1995. As a percentage of noninterest income, investment security
gains represented 11.1%, 9.0% and 6.6% during 1995, 1994 and 1993, respectively.
All of the gains realized during 1995 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 in the Corporation's portfolio had market prices likely
to decline in the near future. The securities were sold, resulting in increased
gains.
46
Noninterest expense for 1995 rose $6.0 million or 6.4% from the 1994 total
of $94.0 million, after increasing only $2.2 million or 2.4% 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 salaries and employee
benefits, which increased $3.8 million or 7.9% during 1995. Increases of $2.5
million, or 5.4%, and $3.3 million, or 7.8%, were registered for 1994 and 1993,
respectively. The 1995 increase reflects the growth in the number of employees,
inflationary increases in salaries, and an additional bonus paid to all
employees. The number of full-time equivalent employees increased from an
average of 1,588 in 1994 to 1,664 in 1995, an increase of 4.8%. While the number
of average full-time equivalents increased, the ratio of employees per million
dollars of average assets decreased to .52 in 1995 as compared to .54 in 1994.
This decrease was due, in part, to 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. The additional bonus, which
was paid to substantially all employees, cost the Corporation approximately
$715,000.
Several 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 benefit 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.
Net occupancy expense increased $986,000 or 13.6% during 1995, compared to
a decrease of $291,000 or 3.9% in 1994 and an increase of $1.6 million or 27.5%
in 1993. 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 $296,000 or 5.8% in 1995, after increasing
$159,000 or 3.2% in 1994 and $396,000 or 8.6% in 1993. The decrease in 1995 is
attributable to tighter expense controls in this area during the year.
FDIC assessment expense decreased significantly during 1995 ($2.1 million
or 38.6%) as the Bank Insurance Fund (BIF) reached maximum funding. The
assessment rate for the majority of the Corporation's deposits decreased from 23
basis points to four basis points effective June 1, 1995. Under 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, each of the
Corporation's banking subsidiaries qualified for the lowest premium rate.
The FDIC has reduced the assessment rate on BIF deposits for the first six
months of 1996 from four basis points to zero, with a minimum annual premium of
$2,000 per covered institution. This will result in a substantial reduction in
the Corporation's FDIC
49
assessment expense in 1996.
In addition to 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 distributed 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). 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 by $750,000 annually.
Special services expense, which represents the cost of data processing,
increased $530,000 or 10.9% during 1995 after remaining relatively flat during
1994 and 1993. 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 1995 increase is 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% or $3.1 million during 1995 after increasing
minimally during 1994. Expenses in this category include stationery and
supplies, postage, audits,
50
telecommunications, Pennsylvania shares tax, advertising, insurance, legal fees
and goodwill amortization. Contributing to the significant increase during 1995
were goodwill amortization (increase of $840,000 or 117.9% related to CPFC
acquisition which was effective October 1, 1994); stationary and supplies
(increase of $408,000 or 18.3% due to increases in both volume and increased
paper costs in general); and postage (increase of $255,000 or 13.8% 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.
Income tax expense continues to increase both in absolute dollars and as a
percentage of pretax income. The effective tax rate was 24.9% 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 from 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.
FINANCIAL CONDITION
- -------------------
The Corporation functions as a financial intermediary and therefore its
financial condition should be analyzed in terms of its sources and uses of
funds. The table on page 53 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, reaching the level
of $3.3 billion for 1995, an increase of $111.2 million or 3.5% as compared to
1994. The rate of growth for 1995 can be attributed to the continuing loan
demand throughout the Corporation's markets that resulted in loan growth of
approximately $113.3 million or 5.1% for the year. This loan growth was funded
primarily through a similar increase in deposits.
52
Loans outstanding (net of unearned income) increased $113.3 million or 5.1%
for 1995, compared to the 1994 increase of $378.4 million or 20.5%. 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, increasing $74.4 million or 12.2%. As in 1994, the dramatic
increase was largely due to high demand for automobiles resulting in an
installment loan increase of $55.2 million or 13.3%. 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 million or 24.0%), credit cards (increase of
$2.8 million or 9.1%), and leasing (increase of $3.4 million or 16.7%).
Commercial loans and commercial mortgages continued to exhibit growth
reflecting the strength of the economy. These loans increased $75.5 million or
8.6% in 1995, compared to an increase of $109.3 million or 14.2% in 1994. The
1995 increase was primarily in fixed rate categories, as customers sought to
lock in the relatively lower rates in effect throughout the period. Residential
mortgage loans outstanding decreased $36.7 million or 5.0% in 1995, following a
$144.4 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 a decrease in fixed rate
residential loans. This portion of the residential loan portfolio was impacted
by maturities and refinancings, as well as the Corporation's general policy of
selling newly originated fixed rate mortgages in the secondary market rather
than holding them
54
in the portfolio. Adjustable rate mortgage balances increased $44.3 million or
19.1% during 1995, after increasing $100.5 million or 76.7% in 1994. After
adjusting for the approximately $83 million of mortgage loans acquired from CPFC
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. During both years, proceeds
from maturities and sales were generally 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
and mortgage-backed securities. These securities have provided superior returns
over similarly rated conventional securities. As of December 31, 1995, the
Corporation had mortgage-backed securities in its portfolio with an amortized
cost of $268.4 million as compared to $215.0 million at December 31, 1994 and
$231.1 million at December 31, 1993.
The Corporation's investment in equity securities was $37.7 million
(amortized cost basis) at year end, of which $12.0 million represents holdings
of stock issued by the Federal Home Loan Bank
55
(FHLB). As of December 31, 1995, 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-
term investment positions in financial institutions which in management's view
represent solid investment value.
The continuing decline in tax-exempt municipal securities 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, 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, $209.3
million or 29.4% (amortized cost basis) of the portfolio was classified as
available for sale. This compares to $171.8 million or 25.3% classified as
available for sale at December 31, 1994.
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, securities available for sale had a fair value of
$222.3 million and an amortized cost of $209.3 million compared to a fair value
of $174.2 million and an amortized cost of $171.8 million at December 31, 1994.
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.
At December 31, 1995, securities held to maturity had an aggregate fair
value of $504.0 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.
Short-term investments, which include Federal funds sold, money market
investments and interest-bearing deposits in other banks, have decreased
significantly over the past several years in order to fund loan growth. Short-
term investments increased $1.8 million during 1995 after decreasing $29.4
million during 1994.
57
Noninterest earning assets decreased $7.0 million or 2.5% in 1995 after
increasing $43.9 million or 18.4% in 1994. 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.
Capital expenditures on premises and equipment totaled $6.7 million during
1995, compared to $5.5 million and $4.4 million during 1994 and 1993,
respectively. 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 in 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 million were made to four new projects. The
Corporation made its initial investment of this type during 1989 and is now
involved in 21 projects located in communities served by its subsidiary banks.
58
The carrying value of such investments was approximately $20.5 million at
December 31, 1995. 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.
Asset growth has been funded primarily by deposit growth. During 1995,
deposits increased $120.0 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). Deposit
activity in the last few years has been impacted by competition for consumer
savings dollars from non-banks and other financial institutions.
Interest-bearing deposits grew $98.4 million or 4.4% compared to growth of
$183.3 million or 9.0% (5.1% excluding the effect of CPFC savings deposits) in
1994. Savings deposits, including money market deposit accounts, decreased $59.7
million or 7.6% following a $21.5 million or 2.7% decrease during 1994. These
decreases reflect the movement of customer funds into time deposit products,
which the affiliate banks have aggressively marketed.
Time deposits increased $168.1 million or 15.1% during 1995 after
increasing $197.3 million or 21.6% in 1994 ($77.3 million or 8.5% excluding the
effect of CPFC time deposits). Negotiated rate jumbo certificates of deposit
increased significantly 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 $25.8 million or 79.1% during
1994. This growth is the result of continuing aggressive pricing by the
Corporation to obtain and maintain funding for loan demand.
Significant growth in noninterest-bearing demand deposit accounts continued
during 1995 and 1994, increasing $21.6 million or 6.0% and $30.6 million or
9.3%, respectively.
Short-term borrowings, consisting of Federal funds purchased; securities
sold under agreements to repurchase (repurchase agreements); and treasury, tax
and loan notes, decreased $57.4 million or 32.2% in 1995 after increasing $96.5
million or 117.7% in 1994. The net increase over the past two years 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. During 1995 and 1994, repurchase agreements
increased $22.0 million or 23.3% and $15.8 million or 20.2%, respectively.
Long-term debt increased $6.8 million or 24.2% during 1995 after increasing
$14.9 million or 114.0% during 1994. During 1995 and 1994, the Corporation took
advantage of 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 continues to be an important funding
60
source, providing a 1995 funding level of $338.1 million, an increase of $28.8
million or 9.3% from the $309.3 million provided in 1994. In spite of increasing
dividends, the Corporation maintained a strong rate of internal capital
generation (8.7% and 8.4% in 1995 and 1994, respectively). This internal capital
generation is dependent upon superior earnings performance in conjunction with a
prudent dividend policy represented by payout ratios of 40.9% for 1995 and 40.4%
for 1994.
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, 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
borrowings.
At December 31, 1995, 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 million or 14.1% of total assets. This represents an increase
from the December 31, 1994 total of $414.5 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 million and $238.3 million at
December 31, 1995 and 1994, respectively. Scheduled and unscheduled principal
payments received on the $220.0 million at December 31, 1995 ($159.0 million at
December 31, 1994) of mortgage-backed securities held to maturity also provide
liquidity. 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 $80.7 million 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 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, the Corporation had $31.7 million in term
advances from the FHLB with an additional $703 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-
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 interestearning 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 shows the interest sensitivity gaps for four different time
intervals as of December 31, 1995:
Daily 0-90 91-180 181-365
Adjustable Days Days Days
- -------------------------------------------------------------------
GAP 1.09 .96 .83 1.37
CUMULATIVE GAP 1.09 1.05 1.00 1.08
- -------------------------------------------------------------------
The Corporation's policy provides for the 6-month gap to be maintained
between .85 and 1.15. The Corporation is was positioned within this range
throughout 1995 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, the Corporation had 28,328,847 shares of $2.50 par
value common stock outstanding held by 10,320 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 1995 and 1994, which have been
retroactively adjusted to reflect the effect of stock dividends declared.
Price Range Per-Share
1995 High Low Dividend
- ------------------------------------------------------------
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 Quarter 20 15/64 18 23/64 .141
Third Quarter 20 11/16 16 7/8 .158
Fourth Quarter 17 61/64 15 15/64 .149
67
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
FULTON FINANCIAL CORPORATION
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31
(Dollars in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------------
Cash and due from banks $ 140,106 $ 148,241
Interest-bearing deposits in other banks 4,425 2,539
Federal funds sold - 6,075
Mortgage loans held for sale 613 650
Investment securities:
Securities held to maturity (fair value - $504,038 in 1995 and
$492,502 in 1994) 501,681 507,486
Securities available for sale 222,345 174,211
Loans
2,364,768 2,244,846
Less: Allowance for loan losses (35,293) (35,775)
Unearned income (8,711) (10,952)
---------- ----------
Net Loans 2,320,764 2,198,119
---------- ----------
Premises and equipment 43,212 42,452
Accrued interest receivable 23,694 20,727
Other assets 77,889 78,196
---------- ----------
Total Assets $3,334,729 $3,178,696
========== ==========
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing $ 399,522 $ 359,895
Interest-bearing 2,330,848 2,231,153
---------- ----------
Total Deposits 2,730,370 2,591,048
---------- ----------
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase 135,872 191,523
Demand notes of U.S. Treasury 5,058 5,000
---------- ----------
Total Short-Term Borrowings 140,930 196,523
---------- ----------
Accrued interest payable 19,084 12,857
Other liabilities 69,742 42,653
Long-term debt 34,689 27,283
---------- ----------
Total Liabilities 2,994,815 2,870,364
---------- ----------
Commitments and contingencies (Note L)
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
Common stock ($2.50 par):
Shares: Authorized 100,000,000;
Issued 28,430,083 (28,678,316 in 1994);
Outstanding 28,328,847 (28,420,648 in 1994) 71,075 65,240
Capital surplus 167,600 132,588
Retained earnings 94,952 113,401
Net unrealized holding gain on securities 8,475 1,577
Less: Treasury stock (101,236 shares in 1995 and 257,668 shares in 1994), at cost (2,188) (4,474)
---------- ----------
Total Shareholders' Equity 339,914 308,332
---------- ----------
Total Liabilities and Shareholders' Equity $3,334,729 $3,178,696
========== ==========
- ------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
68
FULTON FINANCIAL CORPORATION
- ----------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
--------------------------------------
(Dollars in thousands, except per-share data) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
INTEREST INCOME
- ----------------------------------------------------------------------------------------------------------------
Loans, including fees $ 197,433 $ 160,743 $ 149,303
Investment securities:
Taxable 30,322 31,194 30,266
Tax-exempt 4,722 5,588 6,893
Dividends 1,939 1,398 1,304
Federal funds sold and repurchase agreements 1,212 389 1,696
Interest-bearing deposits in other banks 272 170 597
---------- ---------- ----------
Total Interest Income 235,900 199,482 190,059
INTEREST EXPENSE
- ----------------------------------------------------------------------------------------------------------------
Deposits 93,807 68,907 72,474
Short-term borrowings 6,292 5,288 1,612
Long-term debt 2,011 1,116 890
---------- ---------- ----------
Total Interest Expense 102,110 75,311 74,976
---------- ---------- ----------
Net Interest Income 133,790 124,171 115,083
PROVISION FOR LOAN LOSSES 2,033 2,255 4,926
- ----------------------------------------------------------------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 131,757 121,916 110,157
OTHER INCOME
- ----------------------------------------------------------------------------------------------------------------
Trust department 7,334 6,944 6,812
Service charges on deposit accounts 9,811 9,368 9,508
Other service charges and fees 7,537 5,974 5,979
Gain on sale of mortgage loans 1,074 1,189 4,265
Investment securities gains 3,205 2,326 1,868
---------- ---------- ----------
28,961 25,801 28,432
OTHER EXPENSES
- ----------------------------------------------------------------------------------------------------------------
Salaries and employee benefits 52,278 48,464 45,971
Net occupancy expense 8,237 7,251 7,542
Equipment expense 4,847 5,143 4,984
FDIC assessment expense 3,373 5,495 5,482
Special services 5,371 4,841 5,098
Other 25,933 22,810 22,705
---------- ---------- ----------
100,039 94,004 91,782
---------- ---------- ----------
Income Before Income Taxes and Cumulative
Effect of Changes in Accounting Principles 60,679 53,713 46,807
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)
---------- ---------- ----------
Net Income $ 45,580 $ 40,480 $ 33,065
========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------
Per-Share Data:
Income before cumulative effect of changes
in accounting principles $ 1.61 $ 1.44 $ 1.30
Cumulative effect of changes in accounting principles -- -- .12
---------- ---------- ----------
Net Income $ 1.61 $ 1.44 $ 1.18
========== ========== ==========
Cash dividends $ .656 $ .581 $ .527
Weighted average shares outstanding 28,396,989 28,192,160 28,001,613
- ----------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
69
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 $106,555 $ -- (100) 260,926
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 40,480
Stock issued in connection with equity contracts (463,354) 1,053 3,975 5,028
Stock issued for employee plans and
stock options exercises (143,658 shares) 327 1,373 1,700
Acquisition of treasury stock (219,490 shares) (3,978) (3,978)
Net unrealized holding loss on securities (6,834) (6,834)
Cash dividends - $.581 per share (16,366) (16,366)
------- -------- -------- -------- -------- --------
Balance at December 31, 1994 65,240 132,588 113,401 1,577 (4,474) 308,332
Net income 45,580 45,580
Stock dividends issued - 10% (2,519,396 shares
including 283,518 shares of treasury stock) 5,591 34,656 (45,398) 4,934 (217)
Stock issued for employee plans and stock options
exercised (205,553 shares, including 174,268
shares of treasury stock) 244 356 3,331 3,931
Acquisition of treasury stock (301,354 shares) (5,979) (5,979)
Net unrealized holding gain on securities 6,898 6,898
Cash dividends - $.656 per share (18,631) (18,631)
------- -------- -------- -------- -------- --------
Balance at December 31, 1995 $71,075 $167,600 $ 94,952 $ 8,475 $ (2,188) $339,914
======= ======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
70
FULTON FINANCIAL CORPORATION
- ----------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
------------------------------------------------
(Dollars in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
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 - - 3,457
Provision for loan losses 2,033 2,255 4,926
Depreciation and amortization of premises and
equipment 4,750 4,549 4,425
Net amortization of investment security premiums 1,732 1,706 2,272
Deferred income tax expense (benefit) 2,145 (411) (739)
Investment securities gains (3,205) (2,326) (1,868)
Gain on sale of mortgage loans (1,074) (1,189) (4,265)
Proceeds from sales of mortgage loans 80,696 76,038 179,645
Originations of mortgage loans held for sale (79,585) (65,099) (178,164)
Amortization of intangible assets 1,552 712 192
(Increase) decrease in accrued interest receivable (2,967) (2,708) 791
Increase in other assets (7,102) (3,956) (2,907)
Increase (decrease) in accrued interest payable 6,227 1,714 (2,164)
Increase (decrease) in other liabilities 3,051 (207) 4,092
--------- --------- ---------
Total adjustments 8,253 11,078 9,693
--------- --------- ---------
Net cash provided by operating activities 53,833 51,558 42,758
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available
for sale 8,918 19,503 32,180
Proceeds from maturities of securities held to maturity 186,826 256,841 -
Proceeds from maturities of securities available
for sale 56,670 51,596 274,601
Purchase of securities held to maturity (221,807) (237,282) (357,855)
Purchase of securities available for sale (37,231) (38,287) -
Net decrease in short-term investments 4,189 22,424 86,514
Net increase in loans (124,678) (167,694) (74,486)
Purchase of premises and equipment (6,727) (5,532) (4,378)
Payment for purchase of CPFC, net of cash acquired - (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:
Net (decrease) increase in demand and saving deposits (27,877) (81,364) 18,277
Net increase (decrease) in time deposits 167,199 99,593 (83,104)
Addition to long-term debt 8,383 - 2,993
Repayment of long-term debt (977) (10,536) (6,706)
Net (decrease) increase in short-term borrowings (55,593) 115,336 48,368
Dividends paid (18,215) (15,773) (13,925)
Net proceeds from issuance of common stock 3,714 1,029 1,061
Acquisition of treasury stock (5,979) (3,109) (396)
--------- --------- ---------
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 YEAR $ 140,106 $ 148,241 $ 134,570
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 96,135 $ 73,597 $ 77,140
Income taxes 12,532 13,210 12,273
- ---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
71
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 region through its wholly-owned subsidiaries (collectively,
the Corporation): Fulton Bank, Farmers Trust Bank, Swineford National Bank,
Lafayette Bank, FNB Bank, N.A., Great Valley Savings Bank, Hagerstown Trust
Company, Delaware National Bank, Fulton Financial Realty Company, and
Fulton Life Insurance Company.
The Corporation's primary source of revenue is interest income on
loans and investment securities and fee income on its products and
services. The primary expenses are 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.
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 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 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. 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") 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 tax-exempt income. 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, deferred 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 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).
Accounting for Mortgage Servicing Rights: In May, 1995, the FASB
issued Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights". 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. No material financial statement impact is anticipated.
Stock-Based Compensation: In October, 1995, the FASB issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". 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-forma footnote disclosures of net income and earnings per share
as if the fair value approach were used. Statement 123 is effective for the
Corporation in 1996 and will be applicable to all options granted after
January 1, 1995. Management intends to
75
adopt the disclosure requirements of this statement only and, accordingly,
there will be no impact on the consolidated financial statements other than
additional disclosures.
Statement of Cash Flows: Cash and cash equivalents as disclosed in the
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.
Reclassifications: Certain amounts in the 1994 and 1993 consolidated
financial statements and notes have been reclassified to conform to the
1995 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 1995 and 1994
was approximately $43.3 million and $42.6 million, respectively.
NOTE C - INVESTMENT SECURITIES
-----------------------------------------------------------------------------
The following summarizes the amortized cost and estimated fair values of
investment securities as of December 31:
Gross Gross Estimated
1995 Held to Amortized Unrealized Unrealized Fair
Maturity Cost Gains Losses Value
------------------------------------------------------------------------------
U.S. Government
and agency
securities $208,758 $ 1,186 $ (490) $209,454
State and
municipal
securities 61,959 2,070 (70) 63,959
Debt securities
issued by
foreign
governments 407 4 (1) 410
Corporate debt
securities 10,553 3 (26) 10,530
Mortgage-backed
securities 220,004 982 (1,301) 219,685
-------- ------- ------- --------
$501,681 $ 4,245 $(1,888) $504,038
======== ======= ======= ========
- --------------------------------------------------------------------------------
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
1994 Held to Amortized Unrealized Unrealized Fair
Maturity Cost Gains Losses Value
- --------------------------------------------------------------------------------
U.S. Government
and agency
securities $225,927 $ 68 $ (6,756) $219,239
State and
municipal
securities 84,884 1,996 (709) 86,171
Debt securities
issued by
foreign
governments 417 - (28) 389
Corporate debt
securities 37,222 30 (639) 36,613
Mortgage-backed
securities 159,036 15 (8,961) 150,090
-------- ------ -------- --------
$507,486 $2,109 $(17,093) $492,502
======== ====== ======== ========
- --------------------------------------------------------------------------------
Gross Gross Estimated
1994 Available Amortized Unrealized Unrealized Fair
for sale Cost Gains Losses Value
- ------------------------------------------------------------------------------
Equity
securities $ 37,936 $9,654 $ (103) $ 47,487
U.S. Government
and agency
securities 77,863 4 (2,593) 75,274
Mortgage-backed
securities 55,985 2 (4,537) 51,450
-------- ------ -------- --------
$171,784 $9,660 $ (7,233) $174,211
======== ====== ======== ========
- --------------------------------------------------------------------------------
The amortized cost and estimated fair values of debt securities at
December 31, 1995 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 Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
- --------------------------------------------------------------------------------
Due in one year or less $103,316 $103,432 $ 20,259 $ 20,261
Due from one year to
five years 158,727 160,630 99,959 101,197
Due from five years to
ten years 15,212 15,730 3,000 2,769
Due after ten years 4,422 4,561 - -
-------- -------- -------- --------
281,677 284,353 123,218 124,227
Mortgage-backed securities 220,004 219,685 48,378 47,672
-------- -------- -------- --------
$501,681 $504,038 $171,596 $171,899
======== ======== ======== ========
Gains totaling $3.2 million, $2.2 million, and $2.0 million were realized
on the sale of equity securities during 1995, 1994, and 1993, respectively.
Gains totaling $84,000 were realized on the sale of available for sale debt
securities during 1994.
Securities carried at $386.1 million and $350.2 million at December 31,
1995 and 1994, 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:
1995 1994
- -------------------------------------------------------------------------------
Commercial, financial, and
agricultural $ 337,582 $ 332,165
Real estate-construction 76,665 82,692
Real estate-mortgage:
First and second-
residential 950,304 1,018,470
Commercial 562,363 428,442
Consumer 404,083 357,872
Leasing and other 33,771 25,205
---------- ----------
$2,364,768 $2,244,846
========== ==========
- -------------------------------------------------------------------------------
Changes in the allowance for loan losses were as follows:
1995 1994 1993
- --------------------------------------------------------------------------------
Balance at January 1 $35,775 $28,679 $29,549
------- ---------- ----------
Loans charged off (5,115) (3,835) (8,741)
Recoveries of loans
previously charged off 2,600 2,206 2,945
------- ---------- ----------
Net loans charged off (2,515) (1,629) (5,796)
------- ---------- ----------
Provision for loan losses 2,033 2,255 4,926
Allowance for loan losses
purchased from CPFC - 6,470 -
------- ---------- ----------
Balance at December 31 $35,293 $35,775 $28,679
======= ========== ==========
- -------------------------------------------------------------------------------
Nonaccrual loans aggregated approximately $11.8 million at December 31,
1995, $14.9 million at December 31, 1994 and $14.6 million at December 31,
1993. Interest of approximately $1.5 million, $1.0 million and $977,000 was
not recognized as interest income due to the nonaccrual
78
status of loans during 1995, 1994 and 1993, respectively.
At December 31, 1995, the recorded investment in loans that are
considered to be impaired as defined by Statement 114 was $12.4 million (of
which $10.3 million are included in nonaccrual loans). Included in this
amount is $12.3 million of impaired loans for which the related allowance for
credit losses is $2.0 million and $59,000 of impaired loans that as a result
of write-downs do not have an allowance for credit losses. The average
recorded investment in impaired loans during the year ended December 31, 1995
was approximately $15.0 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, the Corporation recognized interest income of approximately
$610,000 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 million and $36.5 million at
December 31, 1995 and 1994, respectively. During 1995, $17.3 million of new
loans were made and repayments totaled $7.9 million.
The total portfolio of mortgage loans serviced by the Corporation for
unrelated third parties at December 31, 1995 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:
1995 1994
- --------------------------------------------------------------------------------
Premises and leasehold improvements $54,122 $52,022
Furniture and equipment 34,447 31,702
Construction in progress 2,008 1,977
------- -------
90,577 85,701
Less accumulated depreciation and amortization (47,365) (43,249)
------- -------
$43,212 $42,452
======= =======
- --------------------------------------------------------------------------------
NOTE F - LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt includes the following as of December 31:
1995 1994
- --------------------------------------------------------------------------------
Federal Home Loan Bank advances $31,668 $23,268
Collateralized mortgage obligations 2,969 3,946
Other 52 69
------- -------
$34,689 $27,283
======= =======
- --------------------------------------------------------------------------------
79
The Corporation has a series of collateralized Federal Home Loan Bank
advances totaling $31.7 million. These advances mature through July, 1998,
and carry a weighted average interest rate of 6.02%. As of December 31, 1995,
the Corporation can borrow an additional amount of approximately $156 million
under its line of credit available from the Federal Home Loan Bank.
In connection with the Central Pennsylvania Financial Corporation
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, 2010
and 7.2%, respectively.
NOTE G - 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 amount available for payment of dividends by all subsidiary
banks is approximately $123 million at December 31, 1995.
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, the maximum amount available for transfer
from the subsidiary banks to the Parent Company in the form of loans and
dividends was approximately $151 million.
NOTE H - INCOME TAXES
------------------------------------------------------------------------------
The components of the provision for income taxes are as follows:
Year ended December 31
----------------------------
1995 1994 1993
- ------------------------------------------------------------------
Current tax expense (benefit) -
Federal $13,034 $13,269 $10,482
State (80) 375 542
------- ------- -------
12,954 13,644 11,024
------- ------- -------
Deferred tax expense (benefit) -
Federal 2,145 (394) (851)
State - (17) 112
------- ------- -------
2,145 (411) (739)
------- ------- -------
$15,099 $13,233 $10,285
======= ======= =======
- ------------------------------------------------------------------
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:
1995 1994 1993
- --------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
Effect of tax-exempt income (4.4) (5.1) (6.1)
Low income housing and historic
rehabilitation credits (4.9) (3.9) (5.6)
Goodwill amortization 0.7 0.3 -
Other (1.5) (1.7) (1.3)
---- ---- ----
Effective income tax rate 24.9% 24.6% 22.0%
==== ==== ====
- --------------------------------------------------------------
The net deferred tax asset recorded by the Corporation consisted of the
following tax effects of temporary differences at December 31:
1995 1994
- ------------------------------------------------------
Allowance for loan losses $11,534 $12,041
Deferred loan fees 1,661 2,397
Direct leasing (2,539) (1,786)
Deferred compensation 1,711 1,707
Postretirement benefits 3,101 3,091
Fixed asset depreciation (660) (546)
Other 1,589 1,638
------- -------
Total operating 16,397 18,542
Unrealized holding gains-
securities available for sale (4,563) (850)
------- -------
$11,834 $17,692
======= =======
- --------------------------------------------------------------------------------
As of December 31, 1995 and 1994, 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
-------------------------------------------------------------------------------
The Corporation has a noncontributory defined contribution profit-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.
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. 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:
1995 1994 1993
- ------------------------------------------------------------------
Profit-sharing plan $4,422 $3,340 $2,432
Defined benefit plan 947 812 898
401(k) plan 317 238 200
------ ------ ------
$5,686 $4,390 $3,530
====== ====== ======
- ------------------------------------------------------------------
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:
1995 1994 1993
- ------------------------------------------------------------------
Service cost-benefits earned
during period $ 657 $ 569 $ 554
Interest cost on projected
benefit obligation 806 748 740
Actual return on assets (1,784) 13 (476)
Net amortization and deferral 1,268 (518) 80
------- ----- -----
Net periodic pension cost $ 947 $ 812 $ 898
======= ===== =====
- ------------------------------------------------------------------
The accumulated plan benefits and funded status of the Corporation's
defined benefit plan are as follows as of December 31:
1995 1994
- --------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 8,971 $ 6,588
======= =======
Accumulated benefit obligation $ 9,158 $ 6,695
======= =======
Projected benefit obligation $12,417 $ 9,641
Plan assets at fair value 9,841 8,106
------- -------
Projected benefit obligation in excess of
plan assets (2,576) (1,535)
Unrecognized net loss (gain) 154 (346)
Service cost not yet recognized in net
periodic pension cost 45 51
Unrecognized net obligation at transition 825 960
------- -------
Pension liability recognized in the
consolidated balance sheets $(1,552) $ (870)
======= =======
- --------------------------------------------------------------------
The following rates were used in calculating net periodic pension cost
and the actuarial present value of benefit obligations:
1995 1994 1993
- ------------------------------------------------------------------------
Discount rate-projected benefit obligation 7.00% 8.00% 7.00%
Rate of increase in compensation level 5.00% 6.00% 5.28%
Expected long-term rate of return on plan 8.00% 8.00% 7.85%
assets
- ------------------------------------------------------------------------
82
The Corporation currently provides medical and life insurance benefits to
retired full-time employees. Substantially all of the Corporation's full-time
employees 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:
1995 1994 1993
- ----------------------------------------------------------------------------
Service cost-benefits earned during the period $189 $221 $ 401
Interest cost on accumulated benefit
obligation 377 302 623
Actual return on plan assets (10) (7) (4)
Net amortization and deferral (279) (225) -
---- ---- ------
Net nonpension postretirement benefit cost $277 $291 $1,020
==== ==== ======
- -----------------------------------------------------------------------------
The following table presents the status of the nonpension postretirement
benefit plan at December 31:
1995 1994
- ---------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Fully eligible active and former members $(1,108) $ (973)
Other active members (1,162) (889)
Retired members (3,273) (2,981)
------- -------
Total (5,543) (4,843)
Plan assets at fair value 186 181
Unrecognized prior service cost (2,716) (2,942)
Unrecognized net gain (845) (1,288)
------- -------
Accrued postretirement benefit obligation $(8,918) $(8,892)
======= =======
- --------------------------------------------------------------------
For measuring the nonpension postretirement benefit obligation, a 10.5%
increase in the per capita cost of health care benefits (6% for administrative
costs) was assumed for 1995. This rate was assumed to gradually decline to 6%
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 and the current period
charge would increase or decrease by approximately $80,000. The discount rate
used in determining the accumulated postretirement benefit obligation was 7.0%
and 8.0% at December 31, 1995 and 1994, respectively.
NOTE J - SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------
The Corporation maintains an Employee Stock Purchase Plan which 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, 285,353
shares have been issued under this plan.
Under the Corporation's Incentive Stock Option Plan, options have been
granted to key personnel for terms up to 10 years at options prices equal to the
fair market value of the shares on the date of grant. In addition, in
83
connection with the acquisition 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 price of the Corporation's stock in the transaction 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
========
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 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 - LEASES
- --------------------------------------------------------------------------------
Certain branch offices and equipment are leased under agreements which
expire at varying dates through 2024. Most leases contain renewal provisions at
the Corporation's option. Total rental expense was approximately $1.8 million
in 1995, $1.5 million in 1994, and $1.6 million in 1993.
84
Future minimum payments as of December 31, 1995 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
=======
- --------------------------------------------------------------------------------
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:
1995 1994
- ---------------------------------------------------------------
Fixed rate
4.00% - 7.99% $ 8,244 $ 13,019
8.00% - 8.99% 3,640 9,015
9.00% - 9.99% 9,246 2,227
10.00% - 10.99% 346 44
11.00% - 18.00% 1,825 1,633
-------- --------
Total fixed rate 23,301 25,938
-------- --------
Floating rate 684,174 588,128
-------- --------
Total $707,475 $614,066
======== ========
- ---------------------------------------------------------------
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
million at December 31, 1995 and $66.4 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.
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 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, 1995 December 31, 1994
---------------------- ---------------------
Estimated Estimated
FINANCIAL ASSETS Book Value Fair Value Book Value Fair Value
- ------------------------------------------------------------------------------
Cash and due from banks $ 140,106 $ 140,106 $ 148,241 $ 148,241
Interest-bearing deposits
in other banks 4,425 4,425 2,539 2,539
Federal funds sold - - 6,075 6,075
Mortgage loans held for sale 613 613 650 650
Securities held to maturity 501,681 504,038 507,486 492,502
Securities available for sale 222,345 222,345 174,211 174,211
Net loans 2,320,764 2,336,366 2,198,119 2,139,498
Accrued interest receivable 23,694 23,694 20,727 20,727
Other financial assets 264 264 634 634
86
December 31, 1995 December 31, 1994
---------------------- ---------------------
Estimated Estimated
FINANCIAL LIABILITIES Book Value Fair Value Book Value Fair Value
- ------------------------------- ---------------------- ----------------------
Demand and savings deposits $1,440,489 $1,440,489 $1,466,334 $1,466,334
Time deposits 1,289,881 1,301,234 1,124,714 1,120,643
Short-term borrowings 140,930 140,930 196,523 196,523
Accrued interest payable 19,084 19,084 12,857 12,857
Other financial liabilities 43,670 43,670 16,355 16,355
Long-term debt 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 in 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 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, 1995 and 1994 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.
NOTE N - MERGERS
- --------------------------------------------------------------------------------
On August 31, 1995, the Corporation completed the previously announced
acquisition of Delaware National Bankshares Corp. (Delaware National). The
acquisition was carried out in accordance with 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
Sussex 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 National was converted into 1.244 shares of the common stock of the
Corporation. A total of 949,235 shares of the Corporation's common stock were
issued in connection with the merger. The merger has been accounted for as a
pooling of interests, and accordingly, the consolidated financial statements
include the accounts of Delaware National for all periods presented.
The following sets forth for the period prior to the merger selected
items for the Corporation and Delaware National:
Eight-Months Ended August 31, 1995
----------------------------------
Fulton
Financial Delaware
Corporation National
- ------------------------------------------------------
Net interest income $ 85,560 $2,959
Non-interest income 18,011 372
-------- ------
Total income $103,571 $3,331
Net income $ 28,760 $ 578
The effect of the merger on the Corporation's previously reported revenues, net
income and net income per share follows:
Fulton
Financial Delaware
1994 Corporation National Restated
- ---------------------------------------------------------------
Net interest income $120,002 $4,169 $124,171
Non-interest income 25,361 440 25,801
------- ----- -------
Total income $145,363 $4,609 $149,972
Net income $ 40,028 $ 452 $ 40,480
Net income per share $ 1.47 $ .58 $ 1.44
Fulton
Financial Delaware
1993 Corporation National Restated
- ---------------------------------------------------------------
Net interest income $110,894 $4,189 $115,083
Non-interest income 27,964 468 28,432
-------- ------ --------
Total income $138,858 $4,657 $143,515
Net income $ 32,008 $1,057 $ 33,065
Net income per share $ 1.18 $ 1.39 $ 1.18
88
On October 1, 1994, the Corporation completed the previously announced
acquisition of Central Pennsylvania Financial Corporation (CPFC). CPFC was
headquartered in Shamokin, Pennsylvania and as of the acquisition date 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 the 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 acquired at the beginning of the years being presented. 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
Financial Months Proforma Proforma
1994 Corporation 9/30/94 Adjustments Combined
- -----------------------------------------------------------------
Net interest income $124,171 $ 8,904 $ (12) $133,063
Non-interest income 25,801 2,548 (2,549) 25,800
-------- ------- --------
Total income $149,972 $11,452 $(2,561) $158,863
Net income $ 40,480 $ 429 $ 1,513 $ 42,422
Net income per share $ 1.44 $ .22 $ 1.50
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
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 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 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 interests. Since consummation of the merger
occurred subsequent to December 31, 1995, the consolidated financial statements
do not include the accounts of Gloucester County. Gloucester
89
County, with approximately $200 million in assets, is headquartered in Woodbury,
New Jersey, and operates six branch offices in Gloucester County, New Jersey
through its wholly-owned banking subsidiary, The Bank of Gloucester County.
Gloucester County's net interest income and net income for the year ended
December 31, 1995 were approximately $9.4 million and $2.2 million, respectively
(unaudited).
NOTE 0 - FULTON FINANCIAL CORPORATION (PARENT COMPANY ONLY)
- --------------------------------------------------------------------------
FINANCIAL INFORMATION
---------------------
CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------
December 31
1995 1994
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Cash, securities, and other assets $ 38,465 $ 43,089
Receivable from:
Bank subsidiaries 7,227 -
Nonbank subsidiaries 672 2,811
Investment in:
Bank subsidiaries 311,273 290,596
Nonbank subsidiaries 17,633 7,920
-------- --------
Total Assets $375,270 $344,416
======== ========
LIABILITIES
- --------------------------------------------------------------------------
Short-term borrowings $ 20,500 $ 23,000
Other liabilities 14,856 13,084
SHAREHOLDERS' EQUITY 339,914 308,332
- --------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $375,270 $344,416
======== ========
- --------------------------------------------------------------------------
90
CONDENSED STATEMENTS OF INCOME
- ------------------------------------------------------------
Year Ended December 31
1995 1994 1993
- ------------------------------------------------------------
Income:
Dividends from bank
subsidiaries $35,653 $24,747 $ 9,984
Other 8,764 7,259 4,741
------- ------- -------
44,417 32,006 14,725
Expenses 12,405 10,860 9,079
------- ------- -------
Income before income taxes,
equity in undistributed
net income of subsidiaries
and cumulative effect of
changes in accounting
principles 32,012 21,146 5,646
Income tax benefit (3,249) (3,016) (4,175)
------- ------- -------
35,261 24,162 9,821
Equity in undistributed net
income of:
Bank subsidiaries 9,922 16,079 23,650
Nonbank subsidiaries 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
======= ======= =======
- ------------------------------------------------------------
91
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31
1995 1994 1993
- -----------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
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 - - 205
Deferred income tax benefit (expense) 172 (254) 94
Gain on sale of investment securities (3,151) (2,242) (1,250)
Decrease (increase) in other assets (2,165) (532) 4,875
Increase in investment in subsidiaries (10,319) (16,318) (20,483)
Increase (decrease) in other liabilities 2,107 12,176 (3)
-------- ------- -------
Total adjustments (13,356) (7,170) (16,562)
-------- ------- -------
Net cash provided by operating activities 32,224 33,310 16,503
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiaries (12,851) (24,133) (103)
Investment in real estate partnerships (770) (782) (1,700)
Proceeds from sales of investment securities 6,333 4,212 4,511
Purchase of investment securities (5,767) (5,917) (2,866)
Proceeds from sales of fixed assets 1,090 - -
Payment for purchase of CPFC, net of
contributions from subsidiaries - (6,869) -
-------- ------- -------
Net cash used in investing activities (11,965) (33,489) (158)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings (2,500) 20,500 2,500
Decrease in long-term debt - (200) (5,324)
Dividends paid (18,215) (15,773) (13,925)
Net proceeds from issuance of common stock 3,714 1,029 1,061
Acquisition of treasury stock (5,979) (3,109) (396)
-------- ------- -------
Net cash (used in) provided by
financing activities (22,980) 2,447 (16,084)
-------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,721) 2,268 261
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,721 453 192
-------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ - $ 2,721 $ 453
======== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,289 $ 2,604 $ 796
Income taxes 12,532 13,210 12,273
- -----------------------------------------------------------------------------------
92
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Fulton Financial Corporation
We have audited the accompanying consolidated balance sheets of
Fulton Financial Corporation (a Pennsylvania corporation) and subsidiaries
as of December 31, 1995 and 1994 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. 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 Bankcorp and Subsidiary as of December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
/s/ Coyne and McClean Chartered
January 16, 1994
Baltimore, Maryland
94
Item 9. Changes in and Disagreements with Accountants on
---------------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
None
95
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 4 through 10 of the 1996 Proxy Statement and under the heading
"Executive Officers" on page 11 of the 1996 Proxy Statement.
Item 11. Executive Compensation
--------------------------------
Incorporated by reference herein is the information appearing
under the heading "Executive Compensation" on pages 11 through 14 of the
1996 Proxy Statement and under the heading "Compensation of Directors" on
page 11 of the 1996 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 1996 Proxy Statement and under the heading "Information about
Nominees and Continuing Directors" on pages 4 through 10 of the 1996 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 16 of the 1996 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, 1995 and 1994.
(ii) Consolidated Statements of Income - Years ended
December 31, 1995, 1994 and 1993.
(iii) Consolidated Statements of Shareholders' Equity - Years
ended December 31, 1995, 1994 and 1993.
(iv) Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994 and 1993.
(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-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, 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.
(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 on Form 8-K dated October 17, 1995, filed pursuant to Item
5 (Other Events) reflecting 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 on Form 8-K dated December 22, 1995, filed pursuant to
Item 5 (Other Events) relating to the announcement of stock
repurchase plan.
(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, 1996 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 Title Date
--------- ----- ----
/s/ Robert D. Garner Chairman of the Board; March 19, 1996
- --------------------------- 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, 1996
- ---------------------------
Daniel M. Heisey
/s/ J. Robert Hess Director March 19, 1996
- ---------------------------
J. Robert Hess
/s/ Carolyn R. Holleran Director March 19, 1996
- ---------------------------
Carolyn R. Holleran
/s/ Clyde W. Horst Director March 19, 1996
- ---------------------------
Clyde W. Horst
/s/ Bernard J. Metz, Sr. Director March 19, 1996
- ---------------------------
Bernard J. Metz, Sr.
/s/ Arthur M. Peters, Jr. Director March 19, 1996
- ---------------------------
Arthur M. Peters, Jr., Esq.
/s/ Stuart H. Raub, Jr. Director March 19, 1996
- ---------------------------
Stuart H. Raub, Jr.
/s/ Donald E. Ruhl Director March 19, 1996
- ---------------------------
Donald E. Ruhl
/s/ William E. Rusling Director March 19, 1996
- ---------------------------
William E. Rusling
/s/ Mary Ann Russell Director March 19, 1996
- ---------------------------
Mary Ann Russell
/s/ John O. Shirk Director March 19, 1996
- ---------------------------
John O. Shirk, Esq.
/s/ James K. Sperry Executive Vice President; March 19, 1996
- --------------------------- Director
James K. Sperry
/s/ Kenneth G. Stoudt Director March 19, 1996
- ---------------------------
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-
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.
21. Subsidiaries of the Registrant. 104
23. Consents of Independent Public Accountants 106
27. Financial Data Schedule 108
103