EX-1 3 dex1.txt AUDITED FINANCIAL STATEMENTS INDEPENDENT AUDITOR'S REPORT Retirement Plan Administrative Committee The Drovers and Mechanics Bank Salary Deferral Plan Lancaster, Pennsylvania We have audited the accompanying statement of net assets available for plan benefits of The Drovers and Mechanics Bank Salary Deferral Plan as of December 31, 2001 and the related statement of changes in net assets available for plan benefits for the year then ended. These financial statements are the responsibility of the plan's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of The Drovers and Mechanics Bank Salary Deferral Plan as of December 31, 2000 were audited by other auditors, whose report dated September 20, 2001, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of The Drovers and Mechanics Bank Salary Deferral Plan as of December 31, 2001 and the changes in its net assets available for plan benefits for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of Assets Held for Investment Purposes and Reportable Transactions are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements for the year ended December 31, 2001 and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. SMITH ELLIOTT KEARNS & COMPANY, LLC Hagerstown, Maryland June 27, 2002 THE DROVERS AND MECHANICS BANK SALARY DEFERRAL PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS December 31, 2001 and 2000
2001 2000 ASSETS Cash $ 5,525 $ 332,979 Investments 2,814,110 3,664,960 Receivables: Employer contributions 8,802 -- Employee contributions 3,564 -- Accrued income -- 9,212 ----------- ----------- Total receivables 12,366 9,212 ----------- ----------- Total assets 2,832,001 4,007,151 ----------- ----------- Operating liabilities 536 70 ----------- ----------- Net assets available for plan benefits $ 2,831,465 $ 4,007,081 =========== ===========
The Notes to Financial Statements are an integral part of these statements. -2- THE DROVERS AND MECHANICS BANK SALARY DEFERRAL PLAN STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS Years Ended December 31, 2001 and 2000
2001 2000 Additions: Employer contributions $ 135,304 $ 149,133 Employee contributions 336,330 365,693 Employee rollovers 46,874 33,705 Investment income 84,380 173,977 Net realized and unrealized gains and (losses) on investments (492,606) (423,247) ------------ ------------ Total additions 110,282 299,261 ------------ ------------ Deductions: Administrative expenses 7,024 0 Benefit payments and withdrawals 1,278,874 223,099 ----------- ------------ Total deductions 1,285,898 223,099 ----------- ------------ Net Increase (Decrease) in Net Assets Available for Plan Benefits (1,175,616) 76,162 Net Assets Available for Plan Benefits: Beginning of year 4,007,081 3,930,919 ----------- ------------ End of year $ 2,831,465 $ 4,007,081 =========== ============
The Notes to Financial Statements are an integral part of these statements. -3- NOTES TO FINANCIAL STATEMENTS Note 1. Plan Description The following description of The Drovers and Mechanics Bank Salary Deferral Plan (the Plan) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan's provisions. A. General - The Plan is a defined contribution plan covering all full-time employees who have completed one year of service, worked 1,000 hours and have attained age 21. Effective July 1, 2001, the Drovers and Mechanics Bank became affiliated with the holding company of Fulton Financial Corporation. On August 25, 2001, the Drovers and Mechanics Bank became a division of Fulton Bank. The Drovers and Mechanics Bank Salary Deferral Plan remains in effect for employees hired prior to July 1, 2001. However, the Plan is essentially closed to new participants or new employees of Drovers Bank Division of Fulton as they enter the Fulton Financial Corporation Profit Sharing Plan upon meeting the conditions of that plan's eligibility. This Plan was established in 1986 and provides for retirement, death and disability benefits. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). B. Contributions - Eligible employees may elect to make contributions up to 20% of compensation, as defined, with the Employer contributing an amount equal to 50% of the employees' contribution up to a maximum of 6% of compensation (the Employer Match). C. Participant Accounts - Each participant's account is credited with the participant's contribution, the Employer' Match and an allocation of plan earnings. Allocations are based on participant account balances, as defined. D. Vesting - The Plan provides for 100% vesting immediately upon becoming a participant in the Plan. E. Payment of Benefits - On termination of service, a participant may elect to receive either a lump sum amount of the account balance or if the account balance exceeds $3,500, installment payments or a life annuity. F. Investment Options - As of November 1, 2001, participant directed contributions were directed from existing mutual funds into the 9 investment options described below. Participants may change their investment elections three times a quarter in 5% increments. Goldman Sachs Financial Square Government Fund This fund seeks to maximize current income, preserve capital and maintain liquidity. Investments are made in securities issued or guaranteed as to principal and interest by the U.S. government, its agencies, authorities and instrumentalities and repurchase agreements relating to such securities. -4- NOTES TO FINANCIAL STATEMENTS (continued) Note 1. Plan Description (continued) Retirement Fixed Income Fund This fund seeks to provide high current income consistent with safety of capital for retirement, pension, profit sharing and other similar trust accounts which are administered by the Bank and are exempt from taxation under the Internal Revenue Code. Vanguard 500 Index Fund This fund seeks to track, as closely as possible, the investment performance of the S&P 500 Index by investing in each of the Index's 500 stocks according to each stock's weighting in the Index. Retirement Common Stock Fund This fund seeks to provide long-term growth of capital and current income with emphasis on protection of principal during market declines. Established for retirement, pension, profit sharing and other similar trust accounts which are administered by the Bank and are exempt from taxation under the Internal Revenue Code. JP Morgan Institutional U.S. Equity Fund This equity fund seeks high total return. The Fund invests primarily in large- and medium-capitalization U.S. companies. Industry by industry, the fund's weighting are similar to those of the Standard & Poor's 500 Stock Index (S&P 500). Fidelity Advisor Mid Cap Fund This fund seeks long-term capital appreciation by investing primarily in companies that fall within the range of the S&P MidCap 400 Index. Fidelity Advisor Value Strategies Fund This fund seeks capital appreciation and normally invests the funds assets primarily in common stocks. Fund management focuses on securities of companies that it believes are undervalued. Although the fund focuses on securities issued by medium-sized companies, it may also make substantial investments in securities issued by larger or smaller companies. The fund may invest in securities of foreign issuers in addition to securities of domestic issuers. Goldman Sachs International Equity Fund This fund seeks long-term capital appreciation by investing in equity securities of companies organized outside the U.S. or principally traded outside the U.S. Fulton Financial Corporation Common Stock Fund This fund provides employees with the opportunity to invest in Fulton Financial Corporation's common stock. -5- NOTES TO FINANCIAL STATEMENTS (continued) Note 1. Plan Description (continued) G. Administration - The Plan is administered by Fulton Financial Corporation. Fulton Financial Corporation (the Corporation) may pay all or part of the administrative expenses of the Plan. Any expenses not paid by the Corporation shall be paid out of Plan assets. The Plan's assets are held by Fulton Financial Advisors, as trustee. Fulton Financial Advisors is a wholly owned subsidiary of the Corporation. H. Termination Provisions - In the event of termination of the Plan, the trustee (Fulton Financial Advisors) may continue to administer the trust fund and pay account balances in accordance with the Plan or distribute the net assets remaining in the trust fund to members in proportion to their respective account balances. Note 2. Summary of Significant Accounting Policies Basis of Accounting The accounting records of the Plan are maintained on an accrual basis. Interest and dividend income is recognized when earned, and benefits are recognized when paid. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of net assets and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of contributions, earnings, expenses and benefit payments during the reporting period. Actual results could differ from those estimates. Investment Valuation Investments are stated at aggregate market value. Securities which are traded on a national securities exchange are valued at the last reported sales price on the last business day of the year. The Plan's investments in mutual funds and common trust funds are valued at the aggregate of the quoted market prices of the underlying securities. Purchases and sales of securities are reflected on a trade-date basis. The unrealized difference in market value from one year to the next and realized gains and losses are recognized as net appreciation (depreciation) in fair value of investments in the accompanying statements of changes in net assets available for benefits. -6- NOTES TO FINANCIAL STATEMENTS (continued) Note 3. Investments Investments that represent five percent or more of the Plan's net assets available for plan benefits at the beginning of year are identified below: December 31, 2001 -----------------
Shares Fair Value *Retirement Common Stock Fund 4,578 $ 411,745 *Retirement Fixed Income Fund 26,494 414,631 Fidelity Advisor Mid Cap Fund 12,306 237,268 Fidelity Advisor Value Strategies Fund 10,029 269,187 Vanguard 500 Index Fund 3,949 418,206 Goldman Sachs Financial Square Government Fund 661,815 661,815
*Represents a party-in-interest. December 31, 2000 -----------------
Shares Fair Value Vanguard Index Institutional Fund 11,440 $1,381,090 SEI Core Fixed Income Fund 25,239 261,980 SEI Large Cap Value Fund 20,907 407,068 SEI Large Cap Growth Fund 22,916 608,875 SEI International Equity Fund 18,611 211,983
* Represents a party-in-interest During 2001 and 2000, the Plan's investments appreciated (depreciated), including realized gains and losses on sales of assets, in market value by ($492,606) and ($423,247) as follows:
2001 2000 Mutual Funds $ (512,417) $ (423,247) Common Trust Funds 18,814 -- Fulton Financial Common Stock Fund 997 -- ---------- ---------- Net appreciation (depreciation) in fair value $ (492,606) $ (423,247) ========== ==========
-7- NOTES TO FINANCIAL STATEMENTS (continued) Note 4. Transactions With Parties-in-Interest During 2001, the Plan purchased 8,090 shares of Fulton Financial Corporation common stock at a total cost of $175,616. During 2001, the Plan sold 150 shares of Fulton Financial Corporation common stock with original cost of $3,255 at a price of $3,283. The Plan also has investments in common trust funds that are administered by Fulton Financial Advisors, as trustee. Note 5. Income Tax Status The Internal Revenue Service has determined and informed the Corporation by a letter dated in March 1994, that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). The Plan has been amended since receiving the determination letter. However, the Plan administrator and the Plan's tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC. Therefore, no provision for income taxes has been included in the Plan's financial statements. Note 6. Plan Termination Although it has not expressed any intent to do so, the Corporation has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. Note 7. Obligations due Terminated Participants Separated participants' vested interests as of December 31, 2001 was $736,299. Note 8. Reconciliation of Financial Statement to Form 5500 The following is a reconciliation of investment income categories per the financial statements to the Form 5500 for the year ended December 31, 2001: Financial Statement Presentation Investment income $ 84,380 Net realized and unrealized gains (losses) (492,606) ----------- Total $ (408,226) =========== Form 5500 Interest income $ 14,311 Investment gain from common trusts 18,903 Net loss from registered investment company (441,440) ----------- Total $ (408,226) ===========
-8- THE DROVERS AND MECHANICS BANK SALARY DEFERRAL PLAN SUPPLEMENTAL SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES December 31, 2001 Description of Investment Shares Market Value ------------------------- ------ ------------ Goldman Sachs Financial Square Government Fund 661,815 $ 661,815 *Retirement Fixed Income Fund 26,494 414,631 Vanguard 500 Index 500 Fund 3,949 418,206 *Retirement Common Stock Fund 4,578 411,745 JP Morgan Institutional U.S. Equity Fund 15,813 165,085 Fidelity Advisor Mid Cap Fund 12,306 237,268 Fidelity Advisor Value Strategies Fund 10,029 269,187 Goldman Sachs International Equity Fund 4,089 62,843 *Fulton Financial Corporation Common Stock Fund 7,940 173,330 ----------- Total Investments $ 2,814,110 =========== *Represents a party-in interest -9- THE DROVER AND MECHANICS BANK SALARY DEFERRAL PLAN SUPPLEMENTAL SCHEDULE OF REPORTABLE TRANSACTIONS YEAR ENDED DECEMBER 31, 2001
Purchase Selling Current Net Description of Assets Price Price Cost Value Gain (Loss) Purchased 14,406 shares - Fidelity Advisor Mid Cap Fund $ 247,797 $ $ $ 247,797 $ Purchased 5,108 shares - Vanguard Index 513,517 513,517 Purchased 12,919 shares - Fidelity Advisor Value Strategies Fund 300,512 300,512 Purchased 5,384 shares - Retirement Common Stock Fund 461,031 461,031 Purchased 808,455 shares - Goldman Sachs Financial Square Government Fund 808,455 808,455 Purchased 30,260 shares - Retirement Fixed Income Fund 478,079 478,079 Sold 23,532 shares - Vanguard Admiral Intermediate Term 267,203 253,715 267,203 13,488 Sold 9,616 shares - Federated Stock Trust 304,024 334,009 304,024 (29,985) Sold 33,558 shares - SEI Large Cap Growth 609,173 1,029,774 609,173 (420,601) Sold 12,665 shares - Vanguard Index Institutional 1,279,283 1,567,730 1,279,283 (288,447) Sold 26,086 shares - SEI Large Cap Value 461,647 480,961 461,647 (19,314) Sold 27,581 shares - SEI Core Fixed Income 296,277 272,778 296,277 23,499
-10- THE DROVER AND MECHANICS BANK SALARY DEFERRAL PLAN EIN: 23-2195389 PLAN NO.: 002 Schedule H, Part IV, item j SUPPLEMENTAL SCHEDULE OF REPORTABLE TRANSACTIONS YEAR ENDED DECEMBER 31, 2001
b. c. d. g. h. i. Purchase Selling Current Net Description of Assets Price Price Cost Value Gain (Loss) Purchased 14,406 shares - Fidelity Advisor Mid Cap Fund $ 247,797 $ $ $ 247,797 $ Purchased 5,108 shares - Vanguard Index 513,517 513,517 Purchased 12,919 shares - Fidelity Advisor Value Strategies Fund 300,512 300,512 Purchased 5,384 shares - Retirement Common Stock Fund 461,031 461,031 Purchased 808,455 shares - Goldman Sachs Financial Square Government Fund 808,455 808,455 Purchased 30,260 shares - Retirement Fixed Income Fund 478,079 478,079 Sold 23,532 shares - Vanguard Admiral Intermediate Term 267,203 253,715 267,203 13,488 Sold 9,616 shares - Federated Stock Trust 304,024 334,009 304,024 (29,985) Sold 33,558 shares - SEI Large Cap Growth 609,173 1,029,774 609,173 (420,601) Sold 12,665 shares - Vanguard Index Institutional 1,279,283 1,567,730 1,279,283 (288,447) Sold 26,086 shares - SEI Large Cap Value 461,647 480,961 461,647 (19,314) Sold 27,581 shares - SEI Core Fixed Income 296,277 272,778 296,277 23,499
THE DROVERS AND MECHANICS BANK SALARY DEFERRAL PLAN EIN: 23-2195389 PLAN NO.: 002 Schedule H, Part IV, item i SUPPLEMENTAL SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES December 31, 2001
a. c. e. Description of Investment Shares Market Value ------------------------- ------ ------------ * Goldman Sachs Financial Square Government Fund 661,815 $ 661,815 Retirement Fixed Income Fund 26,494 414,631 Vanguard 500 Index 500 Fund 3,949 418,206 * Retirement Common Stock Fund 4,578 411,745 JP Morgan Institutional U.S. Equity Fund 15,813 165,085 Fidelity Advisor Mid Cap Fund 12,306 237,268 Fidelity Advisor Value Strategies Fund 10,029 269,187 Goldman Sachs International Equity Fund 4,089 62,843 * Fulton Financial Corporation Common Stock Fund 7,940 173,330 ---------- Total Investments $2,814,110 ==========
*Represents a party-in interest