-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mj3emqf0f75GIHxFPD98JH5YdsCU8BkQowEAzOV0zkPnUwJ+yQVeeMJ2bwcXddx5 mcwgm6c1FTznpmADuE+Z4g== 0000950109-96-001768.txt : 19960328 0000950109-96-001768.hdr.sgml : 19960328 ACCESSION NUMBER: 0000950109-96-001768 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FULTON FINANCIAL CORP CENTRAL INDEX KEY: 0000700564 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 232195389 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10587 FILM NUMBER: 96539101 BUSINESS ADDRESS: STREET 1: ONE PENN SQ STREET 2: PO BOX 4887 CITY: LANCASTER STATE: PA ZIP: 17604 BUSINESS PHONE: 7172912411 MAIL ADDRESS: STREET 1: ONE PENN SQ STREET 2: PO BOX 4887 CITY: LANCASTER STATE: PA ZIP: 17604 10-K 1 FORM 10-K 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 EX-21 2 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 Subsidiaries of the Registrant The following are the subsidiaries of Fulton Financial Corporation:
State of Name Under Incorporation Which Business Subsidiary or Organization is Conducted - ---------- --------------- -------------- Fulton Bank Pennsylvania Fulton One Penn Square Bank P.O. Box 4887 Lancaster, Pennsylvania 17604 Farmers Trust Bank Pennsylvania Farmers 817 Cumberland Street Trust Lebanon, Pennsylvania 17042 Bank Swineford National Bank Pennsylvania Swineford 227 East Main Street National Middleburg, Pennsylvania 17842 Bank (National Banking Organization) Lafayette Bank Pennsylvania Lafayette 360 Northampton Street Bank Easton, Pennsylvania 18042 Fulton Financial Realty Company Pennsylvania Fulton One Penn Square Financial P.O. Box 4887 Realty Lancaster, Pennsylvania 17604 Company Fulton Life Insurance Company Arizona Fulton Life One Penn Square Insurance P.O. Box 4887 Company Lancaster, Pennsylvania 17604 FNB Bank, N.A. Pennsylvania FNB Bank, 354 Mill Street N.A. P.O. Box 279 Danville, Pennsylvania 17821 Great Valley Savings Bank Pennsylvania Great Valley 210 North 5th Street Savings Bank P. O. Box 1342 Reading, Pennsylvania 19603
104 Hagerstown Trust Company Maryland Hagerstown 83 West Washington Street Trust Hagerstown, Maryland 21740 Company Central Pennsylvania Pennsylvania Central Financial Corporation Pennsylvania 100 West Independence Street Financial Shamokin, PA 17872 Corporation Delaware National Bank Delaware Delaware Route 113 North National P. O. Box 520 Bank Georgetown, DE 19947
105 EX-23 3 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated January 26, 1996, included in this Form 10-K, into the Company's previously filed Registration Statements File No. 33-5877, File No. 33-5965 and File No. 33-37835. /s/ Arthur Andersen L.L.P. Lancaster, PA March 27, 1996 106 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent accountants, we hereby consent to the incorporation of our report dated January 16, 1994, included in this Form 10-K, into the company's previously filed Registration Statements File No. 33-5877, File No. 33-5965 and File No. 33-45801. /s/ Coyne & McClean Chartered Baltimore, Maryland February 27, 1996 EX-27 4 ARTICLE 9 FINANCIAL DATA SHEET
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FULTON FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND THE RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 AND OTHER FINANCIAL DATA INCLUDED WITHIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 140,106 4,425 0 0 222,345 501,681 504,038 2,364,768 35,293 3,334,729 2,730,370 140,930 69,742 34,689 0 0 71,075 268,839 3,334,729 197,433 36,983 1,484 235,900 93,807 102,110 133,790 2,033 3,205 100,039 60,679 45,580 0 0 45,580 1.61 1.61 4.68 11,764 7,321 0 0 35,775 5,115 2,600 35,293 35,293 0 0
-----END PRIVACY-ENHANCED MESSAGE-----