UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999,2001, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-10587
FULTON FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2195389
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Penn Square, P. O .BoxO. Box 4887, Lancaster, Pennsylvania 17604
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(Address of principal executive offices) (Zip Code)
(717) 291-2411
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(Registrant's telephone number, including area code)
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
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Common Stock, $2.50 Par Value None
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 [ ].]
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-K10-K. [ ]
The aggregate market value of 62,280,451 shares of common stock held by non-affiliates,
calculated based on the average of the bid and asked prices on March 15, 2000,19, 2002,
was approximately $1.0$1.9 billion.
As of March 15, 2000December 31, 2001 there were 67,959,78382,612,000 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
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Definitive Proxy Statement of Part III
Fulton Financial Corporation
dated March 9, 20004, 2002
PART I
Item 1. Description of Business
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General
Fulton Financial Corporation (the Corporation) is awas incorporated under the
laws of 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. In 2000, the Corporation became a financial holding company as defined
in the Gramm-Leach-Bliley Act (GLB Act), which allowed the Corporation to expand
its financial services activities under its holding company structure (See
"Competition" and "Regulation and Supervision"). At December 31, 2001, the
Corporation owned 100% of the stock of eleven community banks, three financial
services companies and five non-bank entities.
The common stock of Fulton Financial Corporation providesis listed for quotation on
the National Market System of the National Association of Securities Dealers
Automated Quotation System under the symbol FULT.
Bank and Financial Services Subsidiaries
The Corporation's eleven subsidiary banks are located primarily in suburban
or semi-rural geographical markets throughout a four state region (Pennsylvania,
Maryland, New Jersey and Delaware). Pursuant to its "super-community" banking
strategy, the Corporation operates the banks independently to maximize the
advantage of community banking and service to its customers. Where appropriate,
operations are centralized through common platforms and back-office functions;
however, decision making remains with the local bank management.
The subsidiary banks are located in areas which are home to a wide range of
manufacturing, distribution, health care and other service companies. The
Corporation and its banks are not dependent upon one or a few customers or any
one industry and the loss of any single customer or a few customers would not
have a material adverse impact on any of the subsidiary banks.
Although the banks vary in terms of size, each offers a consistent variety
of commercial and retail banking services to its customers. Included in the
array of products are demand, savings and time deposits; commercial, consumer
and mortgage loans; vehicle and equipment leasing and financing; VISA and
MasterCard credit cards; VISA debit cards; cash management; international
services such as letters of credit and currency exchange; and PC and telephone
banking.
The Corporation's subsidiary banks deliver their products and services
through traditional branch banking, with a network of full service branch
offices. Electronic delivery channels include a network of automated teller
machines, telephone banking and PC banking through the Internet. These
alternative delivery channels allow customers to access their account
information and perform certain transactions such as transferring funds and
paying bills at virtually any hour of the day.
The Corporation continued to supplement its internal growth with strategic
acquisitions during 2001. On July 1, 2001, the Corporation completed its merger
with Drovers Bancshares Corporation (Drovers), an $820 million bank holding
company located in York, Pennsylvania. Drovers was merged with and into Fulton
Financial Corporation, and its wholly owned bank subsidiary, The Drovers &
Mechanics Bank (Drovers Bank) was merged into Fulton Bank, the Corporation's
largest subsidiary bank. This merger allowed the Corporation to increase its
presence in the desirable York County, Pennsylvania market, which is adjacent to
its Lancaster County base.
In June 2001, the Corporation assumed $315 million of deposits and
purchased $53 million of loans in an acquisition of 18 branches located in New
Jersey, Delaware and Pennsylvania. These branches were allocated among four of
the Corporation's existing affiliate banks and strengthened its presence in
current regions while allowing for expansion into new geographical markets.
In January 2001, the Corporation completed its acquisition of investment
management and advisory company Dearden, Maguire, Weaver and Barrett, LLC
(Dearden Maguire). This acquisition complemented the Corporation's existing
investment management and trust services to customers
located primarily in central and eastern Pennsylvania, southern New Jersey,
northern Maryland and southern Delawarebusiness which is offered through its eleven wholly-owned banking
subsidiaries: Fulton Bank, Lebanon Valley Farmers Bank, Swineford National Bank,
Lafayette Ambassador Bank, FNB Bank, N.A., Great Valley Bank, Hagerstown Trust
Company, Delaware National Bank, The Bank of Gloucester County, The Woodstown
National Bank & Trust Company, and The Peoples Bank of Elkton.
In addition,
Fulton Financial Advisors,
N.A. Dearden Maguire, which is also a registered investment advisory firm,
increased the Corporation's assets under management by approximately $1.3
billion on the acquisition date.
The following table provides geographical and statistical information for
the Corporation's banking and financial services subsidiaries.
Full-Time
Main Office Total Total Equivalent
Subsidiary Location Assets Deposits Employees Branches*
- ---------------------------------------- --------------------- ------ -------- ---------- ---------
(millions)
Fulton Bank Lancaster, PA $3,489 $2,499 746 70
Lebanon Valley Farmers Bank Lebanon, PA 682 542 167 17
Swineford National Bank Hummels Wharf, PA 277 221 93 7
Lafayette Ambassador Bank Easton, PA 892 717 319 22
FNB Bank, N.A. Danville, PA 310 240 86 8
Hagerstown Trust Company Hagerstown, MD 422 337 154 15
Delaware National Bank Georgetown, DE 238 202 110 11
The Bank Woodbury, NJ 401 337 199 12
Woodstown National Bank Woodstown, NJ 423 358 154 17
Peoples Bank of Elkton Elkton, MD 102 86 33 2
Skylands Community Bank Hackettstown, NJ 288 248 77 8
Fulton Financial Advisors, N.A. and
Fulton Insurance Services Group, Inc. Lancaster, PA -- -- 172 --
Dearden, Maguire, Weaver &Barrett West Conshohocken, PA -- -- 15 --
Fulton Financial (Parent Company) Lancaster, PA -- -- 493 --
------ ---
2,818 189
====== ===
*See additional information in "Item 2. Properties"
Non-Bank Subsidiaries
The Corporation also owns all100% of the outstanding stock of four nonbankfive non-bank subsidiaries:
(i) Fulton Financial Realty Company, which holds
title to or leases certain properties upon which Fulton Bank and Lebanon Valley
Farmers Bank branch offices and other Fulton Bank facilities are located; (ii) Fulton Life Insurance Company, which engages in the business of reinsuring
credit life and accident and health insurance directly related to extensions of
credit by the banking subsidiaries of the Corporation; (ii) Fulton Financial
Realty Company, which holds title to or leases certain properties upon which
Corporation branch offices and other facilities are located; (iii) Central
Pennsylvania Financial CorporationCorp., which owns certain limited partnership interests
in partnerships invested in low and moderate income housing projects and two
nonbanknon-bank companies in various stages of liquidation; and (iv) FFC Management, Inc.,
which owns certain investment securities and other passive investments.
Fulton Financialinvestments; and (v)
Drovers Capital Trust I (the "Trust"), a Delaware business trust whose sole
asset is $7,735,000 of junior subordinated deferrable interest debentures to the
Trust from the Corporation. In addition, the Corporation is registeredowns a 1/8th interest
in Pennbanks Insurance Company, a joint venture with seven other Pennsylvania
banks, which formed an offshore reinsurance company. Each bank in the venture
owns a segregated cell through which it's respective premiums and losses from
credit life and accident and health insurance are funded and for which each bank
has sole responsibility.
Competition
The banking and financial services industries are highly competitive.
Within its geographical region, the Corporation's subsidiary banks face direct
competition from other commercial banks, varying in size from local community
banks to larger regional and national banks, and credit unions. With the growth
in electronic commerce and distribution channels, the banks also face
competition from banks not physically located in the Corporation's geographical
markets.
The competition in the industry has also increased as a result of the
passage of the GLB Act. Under the GLB Act, banks, insurance companies or
securities firms may affiliate under a financial holding company structure,
allowing expansion into non-banking financial services activities that were
previously restricted. These include a full range of banking, securities and
insurance activities, including securities and insurance underwriting, issuing
and selling annuities and merchant banking activities. While the Corporation
does not currently engage in all of these activities, the ability to do so
without separate approval from the Federal Reserve Board in accordance withenhances the requirementsability of
the Federal Bank Holding Company Act of
1956, as amended. The Corporation - and its subsidiaries are subjectfinancial holding companies in general - to regulation
and periodic review by the Federal Reserve Board, the Office of the Comptroller
of the Currency, the Pennsylvania Department of Banking, the State of Maryland
and the New Jersey Department of Banking.
The common stock of Fulton Financial Corporation is listed for quotation on
the National Market System of the National Association of Securities Dealers
Automated Quotation System under the symbol FULT.
All of the banking subsidiaries face significant competition from
commercial banks, savings banks, credit unions and various nonbank providerscompete more
effectively in all areas of financial services.
NoneA bank holding company wishing to become a financial holding company - such
as the Corporation, which did so in 2000 - must first satisfy several
conditions, including requirements that all of its Federal Deposit Insurance
Company (FDIC)-insured depository subsidiaries are well-capitalized,
well-managed and have at least as "satisfactory" rating under the Community
Reinvestment Act (CRA).
As a result of the Corporation'sGLB Act, there is more competition for customers that
were traditionally served by the banking subsidiaries is dependent
upon any single customer,industry. While the GLB Act increased
competition, it also provided opportunities for the Corporation to expand its
financial services offerings, such as insurance products through Fulton
Insurance Services Group, Inc. The Corporation also competes through the variety
of products that it offers and the lossquality of any single customer or a few customers
would not have a material adverse impact on any of the banking subsidiaries. The
table below summarizes selected information aboutservice that it provides to its
customers. However, there is no guarantee that these efforts will insulate the
Corporation from competitive pressure which could impact its pricing decisions
for loans, deposits and its
banking subsidiaries.
No. of Employees
--------------------
Main Office Total Total Full- Part-
Banking Subsidiary Location Assets Deposits time time
--------------------------------------------- ---------------------- ---------- ---------- --------- ---------
(in
millions)
Fulton Bank Lancaster, PA $2,303 $1,601 823 264
Lebanon Valley Farmers Bank Lebanon, PA 686 550 173 39
Swineford National Bank Hummels Wharf, PA 271 208 79 47
Lafayette Ambassador Bank Easton, PA 825 667 287 60
FNB Bank, N.A. Danville, PA 311 240 80 21
Great Valley Bank Reading, PA 341 227 79 20
Hagerstown Trust Company Hagerstown, MD 399 325 161 22
Delaware National Bank Georgetown, DE 153 126 60 19
Bank of Gloucester County Woodbury, NJ 330 279 118 49
Woodstown National Bank & Trust Co. Woodstown, NJ 297 253 81 57
Peoples Bank of Elkton Elkton, MD 118 88 36 4
Fulton Financial (Parent Company) Lancaster, PA N/A N/A 106 7
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2,083 609
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Fulton Financial Corporation maintainsother services and ultimately impact financial results.
Market Share
Although there are many ways to assess the size and strength of banks,
deposit market share continues to be an important industry statistic. This
information is compiled annually by the FDIC and is available to the public. The
Corporation's banks maintain branch offices in 2230 counties across four
mid-Atlantic states. In eleventen of these counties, the Corporation ranks in the top
three in deposit market share (based on deposits as of June 30, 1999)2001). The
following table summarizes information about the counties in which the
Corporation has branch offices and its market position in each county.
No. of Financial Deposit Market
Institutions Share (6/Share(6/30/99)01)
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Population --------------------- ------------------
(1999 Banking Banks/ Credit
County State Estimate)(2001 Est) Subsidiary Thrifts Unions Rank %
- --------------------------------- ------ ----------- --------------------------- ------- ----------- ------------------------------- --------- ---------- -------- -------------- ---- ----
Lancaster PA 459,000474,259 Fulton Bank 1819 12 1 22.4%21.9
Dauphin PA 245,000252,873 Fulton Bank 20 1314 6 5.2
Cumberland PA 209,000215,061 Fulton Bank 15 11 13 1.916 8 12 1.8
York PA 376,000384,922 Fulton Bank 21 22 18 0.820 3 12.5
Chester PA 426,000437,817 Fulton Bank 39 11 21 0.8
Lebanon36 8 24 0.9
Montgomery PA 118,000756,627 Fulton Bank 50 33 46 0.1
Berks PA 376,429 Fulton Bank 20 18 9 3.6
Lebanon Valley Farmers Bank 8 2 1 36.1
Schuylkill-- -- 22 0.4
Lebanon PA 147,000120,824 Lebanon Valley Farmers Bank 20 8 7 3.5
Berks9 2 1 32.4
Schuylkill PA 357,000150,198 Lebanon Valley Farmers Bank 21 20 23 0.5
Great Valley Bank 9 4.0
Montgomery PA 723,000 Great Valley Bank 43 35 44 0.118 8 7 3.4
Snyder PA 38,00037,611 Swineford National Bank 7 0 1 35.22 32.5
Union PA 41,00042,033 Swineford National Bank 87 1 6 5.77.4
Northumberland PA 93,00094,410 Swineford National Bank 1817 3 12 2.511 2.7
FNB Bank, N.A. 3 7.5-- -- 5 6.6
Montour PA 18,00018,274 FNB Bank, N.A. 5 3 1 38.9
Lycoming37.7
Columbia PA 117,00064,226 FNB Bank, N.A. 11 13 13 0.9
Columbia9 0 6 5.4
Lycoming PA 64,000120,151 FNB Bank, N.A. 10 0 8 5.112 12 15 0.9
Northampton PA 259,000268,832 Lafayette Ambassador Bank 18 18 3 11.916 16 1 14.1
Lehigh PA 300,000313,671 Lafayette Ambassador Bank 23 16 3 4.622 14 5 4.1
Washington MD 128,000132,742 Hagerstown Trust Company 109 3 1 22.622.3
Frederick MD 198,662 Hagerstown Trust Company 14 5 17 0.1
Cecil MD 84,00087,047 Peoples Bank of Elkton 76 3 2 15.03 13.4
Sussex DE 139,000159,894 Delaware National Bank 12 4 5 1.0
New Castle DE 504,678 Delaware National Bank 33 31 24 0.2
Camden NJ 509,594 The Bank 20 13 5 6 1.120 0.1
Gloucester NJ 249,000256,538 The Bank of Gloucester County 2622 5 3 11.42 12.2
Woodstown National Bank 10 3.1-- -- 9 3.0
Salem NJ 65,00064,226 Woodstown National Bank 8 4 1 20.135.6
Cape May NJ 102,878 Woodstown National Bank 14 1 13 0.6
Atlantic NJ 254,698 Woodstown National Bank 17 6 15 0.5
Warren NJ 103,138 Skylands Community Bank 14 3 6 7.5
Sussex NJ 145,156 Skylands Community Bank 11 1 11 0.8
Morris NJ 474,074 Skylands Community Bank 34 9 15 1.3
Fulton Bank
-----------
Fulton Bank (Fulton)Supervision and Regulation
The Corporation is a full-service commercial bank which was originally
chartered as a national banking association on February 8, 1882,registered financial holding company and converted
to a Pennsylvania bank and trust company on July 1, 1974. As a state-chartered
bankits
subsidiary banks are depository institutions whose deposits are insured by the
Federal Deposit InsuranceFDIC. The Corporation (FDIC) and which is not a memberits subsidiaries are subject to various regulations
and examinations by regulatory authorities. The following table summarizes the
charter types and primary regulators for each of the Federal Reserve System,Corporation's subsidiary
banks.
State
(Name)
or National Primary
Subsidiary Charter Regulator(s)
- --------------------------------- ----------- ------------
Fulton is
subject to regulation and periodic examination by the Bank PA PA/FDIC and the Pennsylvania
Department of Banking.
Fulton offers a full range of retail and commercial banking products and
services, including: demand, savings and time deposits; commercial, consumer and
mortgage loans; vehicle and equipment leasing and financing; VISA and MasterCard
credit cards; VISA debit cards; and a wide range of international services such
as letters of credit and currency exchange. Fulton maintains a network of
automated teller machines, which is integrated with the MAC(TM) regional and
CIRRUS(TM) national automated teller systems, as well as telephone banking
services through the Bank-By-Phone system and PC banking through the internet.
Fulton has trust powers and maintains a staff of investment management and
trust services professionals. Services provided include trust and estate
planning, investment management, estate settlement, private banking, investment
and brokerage services, a mutual fund asset allocation program, and IRA
rollovers. Institutional services available include full service retirement plan
management and 401(k) programs, cash reserve investment management accounts,
administrative and investment services for foundations and endowments and
comprehensive corporate trust services.
Advancements in technology such as telephone and PC banking have removed
many of the geographical constraints to traditional banking. While Fulton offers
such banking alternatives and will continue to promote these and other services
in the future, its success has traditionally been the result of its community
banking philosophy. Fulton's branch network is its main distribution channel and
its primary "market area" as defined by these physical locations is the
south-central region of Pennsylvania. Approximately 70 percent of the business
of Fulton is derived from Lancaster County, where its administrative
headquarters and 31 branch offices are located. The remaining 30% of Fulton's
business is derived from Dauphin, Cumberland, York and Chester Counties, where
it maintains 19 branch office locations.
Fulton's market area has experienced stable economic conditions and
relatively low unemployment rates in recent years. Lancaster, Chester and York
Counties have a diverse economic base with a wide range of manufacturing,
distribution and service companies. Dauphin and Cumberland Counties are also
home to a variety of industries, however, their local economies are anchored by
the thousands of employees of the state government in the capitol city of
Harrisburg. Fulton's market is also one of the top agricultural production areas
in the country.
Lebanon Valley Farmers Bank ---------------------------
Lebanon Valley Farmers Bank (LVFB), was formed through the merger of
Lebanon Valley National Bank (acquired by the Corporation on March 27, 1998)
with Farmers Trust Bank, an existing affiliate bank of the Corporation, which
was chartered under the laws of the Commonwealth of Pennsylvania in 1892. LVFB
is a member of the Federal Reserve System and its deposits are insured by the
FDIC. LVFB 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,
LVFB maintains 17 branch offices in Lebanon (15 branches), Berks (1) and
Schuylkill (1) Counties.
LVFB offers a full range of general retail and commercial banking services,
including demand, savings and time deposits, and commercial, consumer, and
mortgage loans. LVFB maintains automated teller machines which are integrated
with the MAC(TM) regional and CIRRUS(TM) national automated teller systems.
LVFB has trust powers and offers a variety of services through its
investment management and trust services group, including estate planning,
executorships, estate administration, living trusts, life insurance trusts,
testamentary trusts, custodianships, guardianships, investment management
accounts, escrow accounts and mutual fund asset allocation accounts.PA PA/FRB
Swineford National Bank -----------------------
SwinefordNational OCC (1)
Lafayette Ambassador Bank PA PA/FRB
FNB Bank, N.A. National OCC
Hagerstown Trust Company MD MD/FDIC
Delaware National Bank (Swineford) is a national banking association which
was chartered in 1903. Swineford is a memberNational OCC
The Bank NJ NJ/FDIC
Woodstown National Bank National OCC
Peoples Bank of the Federal Reserve System and
its deposits are insured by the FDIC. As a national banking association,
Swineford is subject to regulation and periodic examination by theElkton MD MD/FDIC
Skylands Community Bank NJ NJ/FDIC
Fulton Financial Advisors, N.A. National OCC (2)
Fulton Financial (Parent Company) N/A FRB
(1) Office of the Comptroller of the Currency.
(2) Fulton Financial Advisors, N.A. is chartered as an uninsured national trust
bank.
Federal statutes that apply to the Corporation and its subsidiaries include
the GLB Act, the Bank Holding Company Act (BHCA), the Federal Reserve Act and
the Federal Deposit Insurance Act. In general, these statutes define the
eligible business activities of the Corporation, certain acquisition and merger
restrictions, limitations on
intercompany transactions such as loans and dividends, and capital adequacy
requirements, among other regulations.
The Corporation is subject to regulation and examination by the Federal
Reserve Board (FRB), and is required to file periodic reports and to provide
additional information that the FRB may require. The Bank Holding Company Act
imposes certain restrictions upon the Corporation regarding the acquisition of
substantially all of the assets of or direct or indirect ownership or control of
any bank of which it is not already the majority owner. In addition, the FRB
must approve certain proposed changes in organizational structure or other
business activities before they occur.
There are a number of restrictions on bank holding companies and
FDIC-insured depository subsidiaries that are designed to minimize potential
loss to depositors and the FDIC insurance funds. If an FDIC-insured depository
subsidiary is "undercapitalized", the bank holding company is required to
guarantee (subject to certain limits) the subsidiary's compliance with the terms
of any capital restoration plan filed with its appropriate banking agency. Also,
a bank holding company is required to serve as a source of financial strength to
its depository institution subsidiaries and to commit resources to support such
institutions in circumstances where it might not do so absent such policy. Under
the BHCA, the FRB has the authority to require a bank holding company to
terminate any activity or to relinquish control of a nonbank subsidiary upon the
FRB's determination that such activity or control constitutes a serious risk to
the financial soundness and stability of a depository institution subsidiary of
the bank holding company.
Bank holding companies are required to comply with the FRB's risk-based
capital guidelines which require a minimum ratio of total capital to
risk-weighted assets of 8%. At least half of the total capital is required to be
Tier 1 capital. In addition to the risk-based capital guidelines, the FRB has
adopted a minimum leverage capital ratio under which a bank holding company must
maintain a level of Tier 1 capital to average total consolidated assets of at
least 3% in the case of a bank holding company which has the highest regulatory
examination rating and is not contemplating significant growth or expansion. All
other bank holding companies are expected to maintain a leverage capital ratio
of at least 1% to 2% above the stated minimum.
There are also various restrictions on the extent to which the Corporation
and its administrative headquarters located in Hummels Wharf,
Pennsylvania, Swineford maintains seven branch offices. Swineford's market area
is located entirely in Pennsylvanianonbank subsidiaries can receive loans from its banking subsidiaries. In
general, these restrictions require that such loans be secured by designated
amounts of specified collateral and includes Snyder, Northumberland and
Union Counties.
Swineford offers a full range of general retail and commercial banking
services, including demand, savings and time deposits and commercial, consumer
and mortgage loans. Swineford maintains automated teller machines which are integrated with the MAC(TM) regional and CIRRUS(TM) national automated teller
systems.
Lafayette Ambassador Bank
-------------------------
Lafayette Ambassador Bank (Lafayette) is a full-service commercial bank
which was originally chartered under the lawslimited, as to any one of the
Commonwealth of
Pennsylvania in 1922 as Lafayette Trust Bank. During 1988, Lafayette Trust Bank
and Pen Argyl National Bank, both wholly-ownedCorporation or its nonbank 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. During 1998, Ambassador Bank10% of the Commonwealth merged with Lafayette Banklending bank's capital
stock and surplus (20% in the aggregate to form Lafayette Ambassador
Bank.
Lafayetteall such entities).
The Corporation is a state-chartered bank whose deposits are insured byalso limited in the FDICamount of dividends that it may
receive from its subsidiary banks. Dividend limitations vary, depending on the
subsidiary bank's charter and whether or not it is a member of the Federal
Reserve System. Lafayette is subjectGenerally, subsidiaries are prohibited from paying dividends
when doing so would cause them to regulationfall below the regulatory minimum capital
levels. Additionally, limits exist on paying dividends in excess of net income
for specified periods.
Monetary and periodic examinationFiscal Policy
The Corporation and its subsidiary banks are affected by fiscal and
monetary policies of the FDICfederal government, including those of the FRB, which
regulates the national money supply in order to manage recessionary and
byinflationary pressures. Among the Pennsylvania
Department of Banking. In additiontechniques available to its administrative headquarters located in
the City of Easton, Lafayette currently maintains 21 branch offices, all of
which are located in Northampton County and Lehigh County, Pennsylvania.
Lafayette offers a full range of general retail and commercial banking
services, including demand, savings and time deposits, and commercial, consumer
and mortgage loans. Lafayette maintains automated teller machines which are
integrated with the MAC(TM) regional and CIRRUS(TM) national automated teller
systems.
Lafayette 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.
FNB Bank, N.A.
--------------
FNB Bank, N.A. (FNB) is a national banking association which was chartered
in 1864. FNB is a member of the Federal Reserve
SystemBoard are engaging in open market transactions of U.S. Government securities,
changing the discount rate and its depositschanging reserve requirements against bank
deposits. These techniques are insured byused in varying combinations to influence the
FDIC. As a national banking association, FNB is subject to
regulationoverall growth of bank loans, investments and periodic examination bydeposits. Their use may also
affect interest rates charged on loans and paid on deposits. The effect of
monetary policies on the Officeearnings of the Comptroller of the
Currency.
In addition to its administrative headquarters located in Danville,
Pennsylvania, FNB currently maintains eight branch offices. The market area of
FNB is located entirely in Pennsylvania and includes Montour, Lycoming,
Northumberland and Columbia Counties.
FNB offers a full range of general retail and commercial banking services,
including demand, savings and time deposits and commercial, consumer and
mortgage loans. FNB maintains automated teller machines which are integrated
with the MAC(TM) regional automated teller system.
FNB 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.
Great Valley Bank
-----------------
Great Valley Bank (Great Valley) was organized as a Pennsylvania chartered
mutual savings association in 1974. During 1991, Great Valley 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 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 maintains nine branch offices and one remote service
facility. The market area of Great Valley includes Berks County, Pennsylvania
and a portion of Montgomery County, Pennsylvania.
Great Valley offers retail banking services, principally in the form of
demand, savings and time deposits, as well as commercial, mortgage and consumer
loans.
Hagerstown Trust Company
------------------------
Hagerstown Trust Company (Hagerstown) 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 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 maintains fourteen branch offices, all of which are located
in Washington County, Maryland.
Hagerstown offers a full range of general retail and commercial banking
services, including demand, savings and time deposits and commercial, consumer
and mortgage loans. Hagerstown maintains automated teller machines which are
integrated with MAC(TM) and HONOR(TM) regional and STAR(TM) national automated
teller systems.
Hagerstown 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 (Delaware) is a national banking association
chartered in 1979. Delaware is a member of the Federal Reserve System and its
deposits are insured by the FDIC. Delaware is subject to regulation and periodic
examination by the Office of the Comptroller of the Currency.
Delaware maintains five branch offices in addition to an operations and
administrative facility, all of which are located within Sussex County,
Delaware.
Delaware offers a full range of banking services including retail and
commercial checking, savings and time deposits, and consumer, mortgage, and
commercial loans. Delaware also offers investment and brokerage services.
Delaware currently maintains automated teller machines on the MAC(TM) regional
automated teller system.
The Bank of Gloucester County
-----------------------------
The Bank of Gloucester County (Gloucester) is a state bank chartered by the
State of New Jersey in 1989. The deposits of Gloucester are insured by the FDIC
and the bank is subject to regulation and periodic examinations by both the
State of New Jersey and the FDIC.
Gloucester maintains nine branch offices in addition to an operations
facility and operates solely within Gloucester County, New Jersey.
Gloucester offers a full range of banking services including retail and
commercial checking, savings and time deposits, and consumer, mortgage and
commercial loans. Gloucester offers investment and discount brokerage services
and recently acquired trust powers. Gloucester has automated teller machines on
the MAC(TM) regional automated teller system.
The Woodstown National Bank & Trust Company
-------------------------------------------
The Woodstown National Bank & Trust Company (Woodstown) is a national
banking association which was chartered in 1920. Woodstown is a member of the
Federal Reserve System and its deposits are insured by the FDIC. As a national
banking association, Woodstown is subject to regulation and periodic examination
by the Office of the Comptroller of the Currency.
Woodstown maintains eight full service branch offices located in Salem and
Gloucester Counties, New Jersey.
Woodstown offers a full range of banking services, including retail and
commercial checking, savings and time deposits, and consumer, mortgage and
commercial loans. Woodstown offers investment and discount brokerage services
and, through its trust operations, provides investment management, estate
settlement and planning and trust management services. Woodstown maintains
automated teller machines on the MAC(TM) regional automated teller system.
The Peoples Bank of Elkton
--------------------------
The Peoples Bank of Elkton (Elkton) is a state bank chartered by the State
of Maryland in 1924. The deposits of Elkton are insured by the FDIC and the Bank
is subject to regulation and periodic examinations by both the FDIC and the
State of Maryland. Elkton maintains two branch offices and one remote service
facility within Cecil County, Maryland.
Elkton offers a full range of banking services, including retail and
commercial checking, savings and time deposits, and consumer, mortgage and
commercial loans. Elkton maintains automated teller machines on the MAC(TM)
regional automated teller system. At this time, Elkton does not have trust
powers and does not offer investment or discount brokerage services.Corporation cannot be predicted.
Statistical Information
Certain additional statistical information relating to the business of
Fulton Financial Corporation is set forth in the following tables.
FULTON FINANCIAL CORPORATION
COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
Year Ended December 31
----------------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 19982001 2000
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
ASSETS Balance Interest Rate Balance Interest Rate
- ------------------------------------------- ------------- ------------- --------- ------------- ------------- -------------------------------------------------- ---------- -------- ----- ---------- -------- ------
Interest-earning assets:
Loans and leases (1)................... $ 4,181,654 $ 343,906 8.22% $ 3,968,971 $ 338,667 8.53%$5,341,497 $424,025 7.94% $5,131,651 $433,686 8.45%
Taxable investment securities (2)...... 1,041,274 62,2291,300,169 77,701 5.98 985,026 60,744 6.171,101,946 68,629 6.23
Tax-exempt investment securities (2)... 189,657 8,388 4.42 96,885 4,749 4.90216,783 9,465 4.37 231,375 10,187 4.40
Equity securities (2).................. 82,087 4,124 5.02 70,916 3,505 4.94103,286 5,097 4.93 109,002 6,087 5.58
Short-term investments................. 5,558 267 4.80 30,013 1,700 5.66
------------- ------------- --------- ------------- ------------- ---------44,405 1,890 4.26 14,456 1,038 7.18
---------- -------- ---- ---------- -------- ----
Total interest-earning assets............ 5,500,230 418,914 7.62 5,151,811 409,365 7.957,006,140 518,178 7.40 6,588,430 519,627 7.89
Noninterest-earning assets:
Cash and due from banks................ 217,605 210,105241,660 246,694
Premises and equipment................. 77,348 74,589124,003 106,020
Other assets(2)........................ 154,419 157,801assets (2)....................... 217,717 142,412
Less: Allowance for loan losses........ (58,983) (58,859)
------------- -------------(69,449) (64,033)
---------- ----------
Total Assets................... $ 5,890,619 $ 5,535,447
============= =============$7,520,071 $7,019,523
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand deposits........................ $ 575,822744,831 $ 7,656 1.33%8,795 1.18% $ 531,210653,063 $ 8,433 1.59%9,878 1.51%
Savings deposits....................... 1,033,679 22,964 2.22 1,018,340 25,745 2.531,313,880 25,381 1.93 1,186,721 32,895 2.77
Time deposits.......................... 2,196,397 112,545 5.12 2,263,060 125,506 5.552,786,513 152,793 5.48 2,568,238 144,828 5.64
Short-term borrowings.................. 349,505 16,019 4.58 209,292 9,124 4.36355,953 13,150 3.69 521,608 30,447 5.84
Long-term debt......................... 302,158 15,643 5.18 162,525 8,886 5.47
------------- ------------- --------- ------------- ------------- ---------500,162 27,843 5.57 476,590 25,826 5.42
---------- -------- ---- ---------- -------- ----
Total interest-bearing liabilities....... 4,457,561 174,827 3.92 4,184,427 177,694 4.255,701,339 227,962 4.00 5,406,220 243,874 4.51
Noninterest-bearing liabilities:
Demand deposits........................ 723,142 666,101925,865 836,997
Other.................................. 93,988 97,367
------------- -------------113,853 102,335
---------- ----------
Total Liabilities.............. 5,274,691 4,947,8956,741,057 6,345,552
Shareholders' equity..................... 615,928 587,552
------------- -------------779,014 673,971
---------- ----------
Total Liabilities and
Shareholders' Equity......... $ 5,890,619 $ 5,535,447
============= =============$7,520,071 $7,019,523
========== ==========
Net interest income...................... 244,087 231,671290,216 275,753
Net yield on interest-earning assets..... 4.44% 4.50%4.14 4.19
Tax equivalent adjustment (3)............ 6,899 4,436
------------- --------- ------------- ---------8,286 8,506
-------- ---- -------- ----
Net interest margin...................... $ 250,986 4.56% $ 236,107 4.58%
============= ========= ============= =========
$298,502 4.26% $284,259 4.31%
======== ==== ======== ====
Year Ended December 31
-------------------------------------------------------------------------
(Dollars in thousands) 19971999
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
Average Yield/
ASSETS Balance Interest Rate
- --------------------------------------------- ------------- ------------- ---------
Interest-earning assets:----------------------------------------- ---------- -------- -----
Interest-earning assets:
Loans and leases (1)................... $ 3,765,384 $ 324,815 8.63%$4,601,801 $378,705 8.23%
Taxable investment securities (2)...... 855,670 53,005 6.191,177,455 71,028 6.03
Tax-exempt investment securities (2)... 76,501 4,301 5.62218,482 9,903 4.53
Equity securities (2).................. 57,544 2,823 4.91102,163 5,365 5.25
Short-term investments................. 40,161 2,304 5.74
----------- ------------ -------6,035 297 4.92
---------- -------- ----
Total interest-earning assets............ 4,795,260 387,248 8.086,105,936 465,298 7.62
Noninterest-earning assets:
Cash and due from banks................ 190,345233,898
Premises and equipment................. 70,48093,419
Other assets(2)........................ 138,509assets (2)....................... 163,556
Less: Allowance for loan losses........ (56,144)
------------(63,179)
----------
Total Assets................... $ 5,138,450
============$6,533,630
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand deposits........................ $ 494,788628,351 $ 9,111 1.84%8,162 1.30%
Savings deposits....................... 1,001,277 25,658 2.561,166,781 27,616 2.37
Time deposits.......................... 2,131,177 118,560 5.562,441,926 125,681 5.15
Short-term borrowings.................. 227,805 10,828 4.75380,343 17,619 4.63
Long-term debt......................... 66,139 3,996 6.04
------------ ------------ -------381,219 20,050 5.26
---------- -------- ----
Total interest-bearing liabilities....... 3,921,186 168,153 4.294,998,620 199,128 3.98
Noninterest-bearing liabilities:
Demand deposits........................ 607,306769,693
Other.................................. 86,736
------------101,476
----------
Total Liabilities.............. 4,615,2285,869,789
Shareholders' equity..................... 523,222
------------663,841
----------
Total Liabilities and
Shareholders' Equity......... $ 5,138,450
============$6,533,630
==========
Net interest income...................... 219,095266,170
Net yield on interest-earning assets..... 4.57%4.36
Tax equivalent adjustment (3)............ 5,850
------------ ------8,104
-------- ----
Net interest margin...................... $ 224,945 4.69%
============ ======$274,274 4.49%
======== ====
- -------------------------------------------------------------------------
(1) Includes nonperforming loans.
(2) Balances include amortized historical cost for available for sale
securities. The related unrealized holding gains (losses) on securities are
included in other assets.
(3) Based on marginal Federal income tax rate and statutory interest expense
disallowances.
FULTON FINANCIAL CORPORATION
RATE/VOLUME TABLE
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:
19992001 vs. 1998 19982000 2000 vs. 19971999
Increase (decrease) due Increase (decrease) due
toTo change in to change in
------------------------------------- ------------------------------------------------------------------ ---------------------------
Volume Rate Net Volume Rate Net
--------- ---------- ------------ ----------------- -------- ------------------- ------- ------- -------
(in thousands)
Interest income on:
Interest income on:
Loans and leases....................leases ................... $17,735 $(27,396) $ 18,148 $ (12,909) $ 5,239 $ 17,562 $ (3,710) $ 13,852(9,661) $43,604 $11,377 $54,981
Taxable investment securities....... 3,469 (1,984) 1,485 8,013 (274) 7,739securities ...... 12,345 (3,273) 9,072 (4,555) 2,156 (2,399)
Tax-exempt investment securities.... 4,547 (908) 3,639 1,146 (698) 448securities ... (642) (80) (722) 584 (300) 284
Equity securities................... 552 67 619 656 26 682securities .................. (319) (671) (990) 359 363 722
Short-term investments.............. (1,385) (48) (1,433) (582) (22) (604)
--------- --------- --------- ----------investments ............. 2,150 (1,298) 852 414 327 741
------- -------- ----------------- ------- ------- -------
Total interest-earning assets.....assets .... $31,269 $(32,718) $ 25,331 $ (15,782) $ 9,549 $ 26,795 $ (4,678) $ 22,117
========= ========= ========= ==========(1,449) $40,406 $13,923 $54,329
======= ======== ================= ======= ======= =======
Interest expense on:
Demand deposits.....................deposits .................... $ 7081,388 $ (1,485)(2,471) $ (777)(1,083) $ 671321 $ (1,3491,395 $ (678)1,716
Savings deposits.................... 388 (3,169) (2,781) 437 (350) 87deposits ................... 3,525 (11,039) (7,514) 472 4,807 5,279
Time deposits....................... (3,697) (9,264) (12,961) 7,337 (391) 6,946deposits ...................... 12,309 (4,344) 7,965 6,501 12,646 19,147
Short-term borrowings............... 6,113 782 6,895 (880) (824) (1,704)borrowings .............. (9,670) (7,627) (17,297) 6,544 6,284 12,828
Long-term debt...................... 7,634 (877) 6,757 5,823 (933) 4,890
--------- --------- --------- ----------debt ..................... 1,277 740 2,017 5,016 760 5,776
------- -------- ----------------- ------- ------- -------
Total interest-bearing liabilities $ 11,146 $ (14,013) $ (2,867) $ 13,388 $ (3,847) $ 9,541
========= ========= ========= ==========8,829 $(24,741) $(15,912) $18,854 $25,892 $44,746
======= ======== ================= ======= ======= =======
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.
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 the dates shown:
December 31
------------------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------------------------------------------------------------------------------------
2001 2000
--------------------------------- ---------------------------------
HTM AFS Total HTM AFS Total
------------ ------------ ------------ ----------- ------------ -------------------- ---------- ---------- ------- ---------- ----------
(in thousands)
United States Treasury and U.S.
Government agencies and
Corporations....................... $ 10,3888,170 $ 201,16099,682 $ 211,548107,852 $ 24,2878,992 $ 287,850212,109 $ 312,137221,101
State and municipal..................... 20,622 183,483 204,105 34,457 124,926 159,3839,840 218,181 228,021 12,971 211,734 224,705
Other securities........................ 525 4,575 5,100 449 6,978 7,427165 300 465 720 18,322 19,042
Equity securities....................... - 112,583 112,583 - 110,866 110,866-- 151,333 151,333 -- 133,938 133,938
Mortgage-backed securities.............. 53,939 636,045 689,984 117,430 675,501 792,931
------------ ----------- -----------31,382 1,218,291 1,249,673 62,079 794,030 856,109
------- ---------- ----------- --------------------- ------- ---------- ----------
Totals............................ $ 85,474 $ 1,137,846 $ 1,223,320 $ 176,623 $ 1,206,121 $ 1,382,744
============ =========== =========== ========== =========== ===========
$49,557 $1,687,787 $1,737,344 $84,762 $1,370,133 $1,454,895
December 31
-----------------------------------------
1997
---------------------------------------------------------------------------
1999
----------------------------------
HTM AFS Total
------------ ------------------ ---------- -----------
(in thousands)
United States Treasury and U.S.
Government agencies and
Corporations....................... $ 67,39111,879 $ 265,677216,862 $ 333,068228,741
State and municipal..................... 52,815 21,507 74,32235,189 205,358 240,547
Other securities........................ 483 - 483525 20,793 21,318
Equity securities....................... - 104,324 104,324-- 135,957 135,957
Mortgage-backed securities.............. 222,365 332,686 555,051
------------ ------------ ------------59,237 748,418 807,655
-------- ---------- ----------
Totals............................ $ 343,054 $ 724,194 $ 1,067,248
============ ============ ============$106,830 $1,327,388 $1,434,218
======== ========== ==========
FULTON FINANCIAL CORPORATION
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
The following tables set forth the maturities of investment securities at
December 31, 19992001 and the weighted average yields of such securities (calculated
based upon historical cost).
HELD TO MATURITY (at amortized cost)
- ----------------
MATURING
----------------------------------------------------------------------------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years ---------------------------- --------------------------- -------------------------After Ten Years
------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield ------------Amount Yield
------- ----- ----------- ----- ------------ ----------- -------- ------ ------- ------ ------
(dollars in thousands)
United States Treasury and
U.S. Government
agenciesAgencies and corporations......corporations........ $ 4,491 6.45%4,374 4.27% $2,707 5.45% $ 4,602 6.13% $ 965 6.01%749 6.30% $340 7.55%
State and municipal (1)............. 5,304 6.43 9,714 7.07 2,041 7.384,174 6.14 4,606 7.60 1,060 8.21 -- --
Other securities.................... 305 - 155 6.74 50 6.95
------------ ----- ----------- ----- ------------ ------- -- 165 6.64 -- -- -- --
------- ---- ------ ---- ------ ---- ---- ----
Totals........................... $ 10,100 6.24% $ 14,471 6.77% $ 3,056 6.94%
============ ===== =========== ===== ============ =====8,548 5.18% $7,478 6.80% $1,809 7.42% $340 7.55%
======= ==== ====== ==== ====== ==== ==== ====
Mortgage-backed securities (2)...... $ 53,939 6.14%
============ =====
MATURING
---------------------------
After Ten Years
---------------------------
Amount Yield
------------ -----
(dollars in thousands)
United States Treasury and
U.S. Government
agencies and corporations...... $ 330 7.61%
State and municipal (1)............. 3,563 9.45
Other securities.................... 15 6.53
------------ -----
Totals........................... $ 3,908 9.28%
============ =====$31,382 6.55%
======= ====
AVAILABLE FOR SALE (at estimated fair value)
- ------------------
MATURING
-------------------------------------------------------------------------------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years ---------------------------- --------------------------- -------------------------After Ten Years
---------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield ------------Amount Yield
---------- ----- ----------- ----- -------------------- ------ ------- ------ ------- -----
(dollars in thousands)
United States Treasury and
U.S. Government
Agencies and corporations..corporations........ $ 42,159 6.22%34,986 5.37% $ 159,001 6.13%64,946 5.69% $ - -%-- --% $ -- --%
State and municipal (1)............. 10 11.18 34,584 6.08 130,745 6.011,173 6.07 164,604 6.38% 22,734 7.51 29,670 8.28
Other............................... 4,575 6.59 - - - -
------------ ----- ----------- ----- ------------ ------- -- 50 -- -- -- -- --
---------- ---- -------- ---- ------- ---- ------- ----
Totals........................... $ 46,744 6.25% $ 193,585 6.12% $ 130,745 6.01%
============ ===== ============ ====== ============ =====36,159 5.39% $229,600 6.18% $22,734 7.51% $29,670 8.28%
========== ==== ======== ==== ======= ==== ======= ====
Mortgage-backed securities (2)...... $ 636,045 6.00%
============ =====
MATURING
----------------------------
After Ten Years
----------------------------
Amount Yield
------------ -----
(dollars in thousands)
United States Treasury and
U.S. Government
Agencies and corporations.. $ - -%
State and municipal (1)............. 18,144 8.23
Other............................... - -
------------ -----
Totals........................... $ 18,144 8.23%
============ =====$1,218,291 5.79%
========== ====
(1) Weighted average yields on tax-exempt securities have been computed on a
fully tax-equivalent basis assuming a tax rate of 35 percent.
(2) Maturities for mortgage-backed securities are dependent upon the interest
rate environment and prepayments on the underlying loans. (3) For the purpose
of this table, the entire balance and weighted average rate is shown in one
period.
FULTON FINANCIAL CORPORATION
LOAN PORTFOLIO BY TYPE
The following table sets forth the amount of loans outstanding (including(net of
unearned income) as of the dates shown (1):shown:
December 31
--------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
1996 1995
------------ ------------ ----------- ----------- ---------------------- ---------- ---------- ---------- ----------
(in thousands)
Commercial, financial and agricultural......agricultural... $1,495,380 $1,386,172 $1,212,807 $1,038,418 $ 668,069 $ 557,784 $ 535,842 $ 496,746 $ 477,967939,689
Real-estate - construction.................. 166,291 129,648 150,470 128,196 114,620construction .............. 267,627 247,382 171,351 138,798 166,056
Real-estate - mortgage...................... 2,819,261 2,588,324 2,519,511 2,285,047 2,053,275
Consumer.................................... 700,049 696,161 709,405 643,932 535,070mortgage .................. 2,896,865 2,929,351 2,633,270 2,410,025 2,332,583
Consumer ................................ 626,985 738,797 793,776 771,221 785,966
Leasing and other........................... 78,360 68,538 57,425 43,255 38,586
------------ ------------ ----------- ----------- ------------
$ 4,432,030 $ 4,040,455 $ 3,972,653 $ 3,597,176 $ 3,219,518
============ ============ ============ ============ ============other ....................... 86,163 72,957 71,402 62,019 51,023
--------------------------------------------------------------
$5,373,020 $5,374,659 $4,882,606 $4,420,481 $4,275,317
==============================================================
(1) At December 31, 1999, Fulton Financial Corporation did not have any loan
concentrations to borrowers engaged in the same or similar industries that
exceeded 10% of total loans.
MATURITY & SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The following table summarizes the maturity and sensitivity of loanscertain loan
types to changes in interest rates as of December 31, 1999:2001:
One
One Year Through More Than
or Less Five Years Five Years Total
------------- ------------- ------------- --------------------- ---------- ---------- ----------
(in thousands)
Commercial, financial and agricultural:
Floating rate................rate .................... $303,109 $225,820 $380,655 $ 324,757909,584
Fixed rate ....................... 173,247 330,224 82,325 585,796
-------- -------- -------- ----------
Total $476,356 $556,044 $462,980 $1,495,380
======== ======== ======== ==========
Real-estate - construction:
Floating rate .................... $ 282,33854,660 $ 341,85747,033 $ 948,95245,823 $ 147,516
Fixed rate................... 796,780 1,756,710 929,588 3,483,078
------------- ------------- ------------- -------------
Totals..................rate ....................... 50,443 40,913 28,755 120,111
-------- -------- -------- ----------
Total $105,103 $ 1,121,53787,946 $ 2,039,04874,578 $ 1,271,445 $ 4,432,030
============= ============= ============= =============267,627
======== ======== ======== ==========
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 (4):
December 31
----------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
1996 1995
---------- ---------- ---------- ---------- ----------------- ------- ------- ------- -------
(in thousands)
Nonaccrual loans (1) (2) (3)................ $ 18,653 $ 19,281 $ 20,819 $ 16,548 $ 16,350 ............. $22,794 $21,790 $23,989 $20,716 $21,559
Accruing loans past due 90 days or more..... 8,516 11,109 10,529 8,162 9,676more... 9,368 7,135 8,549 11,116 10,562
Other real estate........................... 917 1,420 1,537 2,829 3,019
---------- ---------- ---------- ---------- ----------
Totals................................. $ 28,086 $ 31,810 $ 32,885 $ 27,539 $ 29,045
========== ========== ========== ========== ==========estate ........................ 1,817 1,035 1,002 1,568 1,691
------- ------- ------- ------- -------
Totals .............................. $33,979 $29,960 $33,540 $33,400 $33,812
======= ======= ======= ======= =======
(1) Includes impaired loans as defined by Statement of Financial Accounting
Standards No. 114 of approximately $11.4$8.7 million at December 31, 1999.2001.
(2) As of December 31, 1999,2001, the gross interest income that would have been
recorded during 19992001 if nonaccrual loans had been current in accordance
with their original terms was approximately $1.8$1.9 million. The amount of
interest income on those nonaccrual loans that was included in 19992001 net
income was approximately $2.8$1.2 million. At December 31, 1999, $16.5 million
of nonaccrual loans are considered to be adequately secured.
(3) Accrual of interest 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 is reversed. Nonaccrual loans are
restored to accrual status when all delinquent principal and interest
becomes current or the loan is considered secured and in the process of
collection. Certain loans, primarily residential mortgages, that are
determined to be sufficiently collateralized may continue to accrue
interest after reaching 90 days past due.
(4) Excluded from the amounts presented above at December 31, 19992001 are $34.7$15.7 million
in domestic commercial loans for which payments were current, butwhere possible credit problems of borrowers have caused management
to have serious doubts as to which the ability of such borrowers were experiencing significant financial
difficulties.to comply with
the present loan repayment terms. These loans are subject to constant
management attention and their classification is reviewed monthly.
FULTON FINANCIAL CORPORATION
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Corporation's loss experience is as follows:
Year Ended December 31
-----------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
1996 1995
------------ ------------ ------------ ------------ ---------------------- ---------- ---------- ---------- ----------
(dollars in thousands)
Loans outstanding at end of year.............. $ 4,422,407 $ 4,030,391 $ 3,961,644 $ 3,597,176 $ 3,219,518
============ ============ ============ ============ ============year ............ $5,373,020 $5,374,659 $4,882,606 $4,420,481 $4,275,317
========== ========== ========== ========== ==========
Daily average balance of loans and leases..... $ 4,181,654 $ 3,968,971 $ 3,765,384 $ 3,381,599 $ 3,078,455
============ ============ ============ ============ ============leases ... $5,341,497 $5,131,651 $4,601,801 $4,323,585 $4,058,391
========== ========== ========== ========== ==========
Balance of allowance for loan losses
at beginning of year.....................year ................... $ 57,41565,640 $ 57,55761,538 $ 53,89361,327 $ 50,20160,861 $ 49,39657,023
Loans charged-off:
Commercial, financial and agricultural.... 3,260 2,412agricultural 6,296 9,242 4,797 2,934 2,682 2,152 2,282
Real estate - construction................ - - - 34 -construction .............. -- -- -- -- --
Real estate - mortgage.................... 1,590mortgage .................. 767 1,922 1,604 1,403 1,636
1,270 2,366
Consumer.................................. 7,836 5,191Consumer ................................ 6,683 6,911 8,147 5,426 4,854 2,947 2,168
Leasing and other......................... 126other ....................... 529 282 124 134 70 50 59
------------ ------------ ------------ ------------ ------------397
---------- ---------- ---------- ---------- ----------
Total loans charged-off................... 12,812 9,140 9,242 6,453 6,875
------------ ------------ ------------ ------------ ------------charged-off ................. 14,275 18,357 14,672 9,897 9,569
---------- ---------- ---------- ---------- ----------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural.... 1,979agricultural 703 1,518 2,027 1,223 2,150 1,576 1,8462,182
Real estate - construction................ - - - 182 44construction .............. -- -- -- -- --
Real estate - mortgage....................mortgage .................. 364 541 710 926 709 1,378 530
Consumer.................................. 2,122 1,265 1,289 1,036 883724
Consumer ................................ 2,683 2,724 2,202 1,364 1,357
Leasing and other.........................other ....................... 87 19 1 2 15
22 20
------------ ------------ ------------ ------------ ---------------------- ---------- ---------- ---------- ----------
Total recoveries.......................... 4,812 3,416 4,163 4,194 3,323
------------ ------------ ------------ ------------ ------------recoveries ........................ 3,837 4,802 4,940 3,515 4,278
---------- ---------- ---------- ---------- ----------
Net loans charged-off......................... 8,000 5,724 5,079 2,259 3,552charged-off ....................... 10,438 13,555 9,732 6,382 5,291
Provision for loan losses..................... 8,216 5,582 8,417 5,951 4,357losses ................... 14,585 15,024 9,943 6,848 8,803
Allowance purchased........................... - -purchased ......................... 2,085 2,633 -- -- 326
- -
------------ ------------ ------------ ------------ ---------------------- ---------- ---------- ---------- ----------
Balance at end of year........................year ...................... $ 57,63171,872 $ 57,41565,640 $ 57,55761,538 $ 53,89361,327 $ 50,201
============ ============ ============ ============ ============60,861
========== ========== ========== ========== ==========
Ratio of net charge-offs during period to
average loans............................ 0.19% 0.14%loans .......................... 0.20% 0.26% 0.21% 0.15% 0.13% 0.07% 0.12%
============ ============ ============ ============ ============
Ratio of allowance for loan losses to loans Outstanding========== ========== ========== ========== ==========
outstanding at end of year............... 1.30%year ............. 1.34% 1.22% 1.26% 1.39% 1.42%
1.45% 1.50% 1.56%
============ ============ ============ ============ ====================== ========== ========== ========== ==========
FULTON FINANCIAL CORPORATION
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses has been allocated as follows to provide for
the possibility of losses being incurred within the following categories of
loans at the dates indicated:
December 31
-------------------------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
1998 1997
------------------------ ------------------------ ------------------------------------------- -------------------- --------------------
(dollars in thousands)
% of % of % of
Loans in Loans in Loans in
each Each Each
Allowance Category Allowance Category Allowance Category
----------- --------- ------------------- --------- ------------------- --------- --------
Commercial, financial
& agriculture......... $ 13,268 15.1% $ 13,433 13.8% $ 10,993 13.5%agriculture ....... $22,531 27.8% $21,193 25.8% $15,516 24.8%
Real estate - construction
& mortgages........... 16,817 67.4 19,895 67.3 12,086 67.2mortgages ......... 19,018 58.9 14,940 59.1 17,425 57.4
Consumer, leasing
& other............... 9,281 17.5 6,740 18.9 7,262 19.3
Unallocated................ 18,265 - 17,347 - 27,216 -
----------- --------- ----------- --------- ----------- --------
Totals................ $ 57,631other ............. 10,855 13.3 10,772 15.1 9,435 17.8
Unallocated .............. 19,468 -- 18,735 -- 19,162 --
------- ----- ------- ----- ------- -----
Totals .............. $71,872 100.0% $ 57,415$65,640 100.0% $ 57,557$61,538 100.0%
============ ========= ============ ========= =========== ========
======= ===== ======= ===== ======= =====
December 31
----------------------------------------------------
1996 1995
----------------------- ------------------------------------------------------------------
1998 1997
-------------------- --------------------
(dollars in thousands)
% of % of
loans in loans in
each each
Allowance category Allowance category
--------------------- -------- --------------------- --------
Commercial, financial
& agriculture......... $ 11,299 13.8% $ 12,615 14.8%agriculture ....... $16,077 23.5% $11,970 22.0%
Real estate - construction
& mortgages........... 14,756 67.1 14,311 67.4mortgages ......... 20,296 57.7 12,468 58.4
Consumer, leasing
& other............... 3,863 19.1 3,708 17.8
Unallocated................ 23,975 - 19,567 -
------------ -------- ------------ --------
Totals................ $ 53,893other ............. 6,868 18.8 7,393 19.6
Unallocated .............. 18,086 -- 29,030 --
------- ----- ------- -----
Totals .............. $61,327 100.0% $ 50,201$60,861 100.0%
============= ======== ============ =============== ===== ======= =====
(1) Refer to the "Provision and Allowance for Loan Losses" section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations for Management'smanagement's methodology for assessing the adequacy of the
allowance for loan losses.
(2) Charge-offs for 2000 are not anticipated to exceed $8.0 million: commercial
- $1.3 million; consumer - $5.8 million; and mortgage - $900,000. The
overall risk factors in the portfolio are best evidenced by a 30 day and
over delinquency rate in the 1.25% to 1.75% range and overall credit risk
ratings of satisfactory and above for 80% of the commercial and real estate
portfolios.
FULTON FINANCIAL CORPORATION
DEPOSITS
The average daily balances of deposits and rates paid on such deposits are
summarized for the periods indicated in the following table:
Year Ended December 31
------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
1998 1997
-------------------- -------------------- -------------------------------------- ------------------ -----------------
Amount Rate Amount Rate Amount Rate
------------ ---- ------------ ---- ---------------------- ----- ---------- ----- ---------- ----
(dollars in thousands)
Noninterest-bearing demand deposits......deposits .. $ 723,142 -%925,865 --% $ 666,101 -%836,997 --% $ 607,306 -%769,693 --%
Interest-bearing demand deposits......... 575,822 1.33 531,210 1.59 494,788 1.84deposits ..... 744,831 1.18 653,063 1.51 628,351 1.30
Savings deposits......................... 1,033,679 2.22 1,018,340 2.53 1,001,277 2.56deposits ..................... 1,313,880 1.93 1,186,721 2.77 1,166,781 2.37
Time deposits............................ 2,196,397 5.12 2,263,060 5.55 2,131,177 5.56
------------deposits ........................ 2,786,513 5.48 2,568,238 5.64 2,441,926 5.15
---------- ---- ---------------------- ---- ---------------------- ----
Totals................................... $ 4,529,040 3.16% $ 4,478,711 3.57% $ 4,234,548 3.62%
============Totals ............................... $5,771,089 3.24% $5,245,019 3.58% $5,006,751 3.22%
========== ==== ====================== ==== ====================== ====
Maturities of time deposits of $100,000 or more outstanding at December 31,
19992001 are summarized as follows:
Time Deposits
$100,000
or more
-----------------
(in thousands)
Three months or less................... $ 131,039
Over three through six months.......... 48,362
Over six through twelve months......... 64,255
Over twelve months..................... 74,604
-----------------
Totals................................ $ 318,260
=================
Time Deposits
$100,000
or more
-----------------
(in thousands)
Three months or less ....................... $139,339
Over three through six months .............. 95,860
Over six through twelve months ............. 84,384
Over twelve months ......................... 91,879
--------
Totals .................................... $411,462
========
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, 1999.2001.
December 31
-------------------------------------------------------------------------
2001 2000 1999
1998 1997
------------ ------------ --------------------- -------- --------
(dollars in thousands)
Amount outstanding at December 31.................... $ 482,040 $ 231,746 $ 242,64031 ............... $394,659 $441,638 $507,278
Weighted average interest rate at year end........... 5.06% 4.31% 4.66%end ...... 1.75% 5.94% 5.03%
Maximum amount outstanding at any month end.......... $ 483,204 $ 263,319 $ 259,952end ..... $529,763 $573,094 $541,618
Average amount outstanding during the year........... $ 349,505 $ 210,933 $ 227,805year ...... $352,757 $517,306 $376,029
Weighted average interest rate during the year....... 4.58% 4.36% 4.75%year... 3.68% 5.83% 4.63%
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
--------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
1996 1995
-------- -------- -------- -------- -------------- ----- ----- ----- -----
Percentage of net income to:
Average shareholders' equity................. 15.79% 15.06% 14.60% 13.87% 13.85%equity ............ 14.58% 15.85% 15.76% 15.01% 14.54%
Average total assets......................... 1.65assets .................... 1.51 1.52 1.60 1.49 1.39 1.361.56 1.46
Percentage of dividends declared per common
share to basic net income per share.......... 41.6 41.3 40.8 41.5 38.4share ..... 48.0 44.9 41.9 41.4 41.1
Percentage of average shareholders' equity
to average total assets...................... 10.5 10.6 10.2 10.1 9.8assets ................. 10.36 9.60 10.16 10.39 10.05
Item 2. Properties
- ------------------
The following table summarizes the Corporation's branch network, by
affiliatesubsidiary bank. Remote service facilities (mainly stand-alone ATM's) are
excluded.
Owned Total
---------------------------
Bank Bank (1) FFRC (2) Leased Term (3) Branches
- ---- -------- -------- ------ -------- --------
Fulton Bank 15 2 33 2015 50
Lebanon Valley Farmers Bank 13 3 1 2004 17
Swineford National Bank 5 - 2 2002 7
Lafayette Ambassador Bank 6 - 15 2024 21
FNB Bank, N.A. 6 - 2 2014 8
Great Valley Bank 3 - 6 2013 9
Hagerstown Trust Company 12 - 2 2014 14
Delaware National Bank 4 - 1 2001 5
Bank of Gloucester County 6 - 3 2012 9
Woodstown National Bank 7 - 1 2002 8
Peoples Bank of Elkton 1 - 1 2000 2
-------- -------- ------ --------
Total 78 5 67 150
===== ======== ========= ====== ========
Owned
------------------- Total
Bank Bank (1) FFRC (2) Leased Term (3) Branches
- ---- -------- -------- ------ -------- --------
Fulton Bank 24 2 44 2018 70
Lebanon Valley Farmers Bank 11 2 4 2018 17
Swineford National Bank 5 -- 2 2004 7
Lafayette Ambassador Bank 7 -- 15 2010 22
FNB Bank, N.A. 6 -- 2 2014 8
Hagerstown Trust Company 12 -- 3 2014 15
Delaware National Bank 8 -- 3 2006 11
The Bank 7 -- 5 2012 12
Woodstown National Bank 14 -- 3 2012 17
Peoples Bank of Elkton 1 -- 1 2016 2
Skylands Community Bank 3 -- 5 2013 8
-- -- -- ---
Total 98 4 87 189
== == == ===
(1) Properties are owned by the bank, free and clear of encumbrances.
(2) Properties are owned by Fulton Financial Realty Company and are leased to
the bank.banks.
(3) Latest lease term expiration date.
The following table summarizes the Corporation's other significant properties:
Owned/
Bank Property Location Leased
- ---- -------- -------- ------------------------- ------------------- ---------
Fulton Bank/Fulton Financial Corp. Admin. Headquarters Lancaster, PA (1)
Fulton Bank/Fulton Financial Corp. Operations Center Mantua, NJ Owned
Fulton BankBank/Fulton Financial Corp. Operations Center East Petersburg, PA Owned
Lebanon Valley Farmers Bank Admin. Headquarters Lebanon, PA Owned
Swineford National Bank Admin. Headquarters Hummels Wharf, PA Owned
Lafayette Ambassador Bank Admin. Headquarters Easton, PA Owned
FNB Bank, N.A. Admin. Headquarters Danville, PA Owned
Great Valley Bank Admin. Headquarters Reading, PA Owned
Hagerstown Trust Company Admin. Headquarters Hagerstown, MD Owned
Delaware National Bank Admin. Headquarters Georgetown, DE Leased (1)Leased(2)
Bank of Gloucester County Admin. Headquarters Woodbury, NJ Owned
Woodstown National Bank Admin. Headquarters Woodstown, NJ Owned
Peoples Bank of Elkton Admin. Headquarters Elkton, MD Owned
Skylands Community Bank Admin. Headquarters Woodstown,Hackettstown, NJ Owned
Peoples Bank of Elkton Admin. Headquarters Elkton, MD OwnedLeased(3)
(1) Lease expires in 2001.
In 1999, the Corporation began the construction of a $20 million,Includes approximately 100,000 square foot office building adjacent to its main office in downtown Lancaster,
PA. The propertyfeet which is owned by an independent
third party who is financingfinanced the construction through a loan from Fulton Bank.
Fulton Financial Realty Company
will lease the propertyThe Corporation is leasing this space from the third party in an
arrangement accounted for as a capital leasing transaction.lease. The lease term expires in
2027. The remainder of the Administrative Headquarters location is owned by
the Corporation.
(2) Lease expires in 2006.
(3) Lease expires in 2004.
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 1999.2001.
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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" is incorporated herein by reference.
Item 6. Selected Financial Data
- ---------------------------------------------------------------
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
5-YEAR CONSOLIDATED SUMMARY OF OPERATIONS
For the Year
----------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
1996 1995
------------ ------------ ------------ ------------ ---------------------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per-share data)
SUMMARY OF INCOME
- -----------------
Interest income.............................income ............. $ 418,914518,178 $ 409,365519,627 $ 387,248465,298 $ 353,636450,252 $ 330,070423,515
Interest expense............................ 174,827 177,694 168,153 151,437 143,616
------------ ------------ ------------ ------------ ------------expense ............ 227,962 243,874 199,128 199,430 187,407
---------- ---------- ---------- ---------- ----------
Net interest income......................... 244,087 231,671 219,095 202,199 186,454income ......... 290,216 275,753 266,170 250,822 236,108
Provision for loan losses................... 8,216 5,582 8,417 5,951 4,357losses.... 14,585 15,024 9,943 6,848 8,803
Other income................................ 62,822 59,948 48,713 41,653 37,673income ................ 100,994 74,998 66,668 63,534 52,666
Other expenses.............................. 160,988 157,694 149,538 144,174 135,674
------------ ------------ ------------ ------------ ------------expenses .............. 216,669 184,456 175,769 170,866 162,814
---------- ---------- ---------- ---------- ----------
Income before income taxes.................. 137,705 128,343 109,853 93,727 84,096taxes... 159,956 151,271 147,126 136,642 117,157
Income taxes................................ 40,479 39,832 33,448 27,815 23,998
------------ ------------ ------------ ------------ ------------taxes ................ 46,367 44,437 42,499 41,635 35,163
---------- ---------- ---------- ---------- ----------
Net income..................................income .................. $ 97,226113,589 $ 88,511106,834 $ 76,405104,627 $ 65,91295,007 $ 60,098
============ ============ ============ ============ ============81,994
========== ========== ========== ========== ==========
PER-SHARE DATA (1)
- ------------------
Net income (basic).......................... .......... $ 1.411.38 $ 1.281.32 $ 1.111.27 $ 0.961.16 $ 0.881.00
Net income (diluted)........................ 1.40 1.27 1.10 0.95 0.87 ........ 1.37 1.31 1.26 1.15 0.99
Cash dividends.............................. 0.586 0.529 0.453 0.400 0.338dividends .............. 0.662 0.593 0.532 0.480 0.411
PERIOD-END BALANCES
- -------------------
Total assets................................ $ 6,070,019 $ 5,838,663 $ 5,377,654 $ 4,936,072 $ 4,595,925assets ................ $7,770,711 $7,364,804 $6,787,424 $6,433,612 $5,902,546
Net loans................................... 4,364,776 3,972,976 3,904,087 3,535,202 3,160,369
Deposits.................................... 4,546,813 4,592,969 4,418,543 4,072,400 3,845,567loans ................... 5,301,148 5,309,019 4,821,066 4,359,153 4,214,456
Deposits .................... 5,986,804 5,502,703 5,051,512 5,048,924 4,820,629
Long-term debt.............................. 328,250 296,018 53,045 67,498 56,698debt .............. 456,802 559,503 460,573 358,696 96,603
Shareholders' equity........................ 614,294 608,334 564,491 500,294 462,636equity ........ 811,454 731,171 662,749 654,070 607,961
AVERAGE BALANCES
- ----------------
Average shareholders' equity................Shareholders' equity ........ $ 615,928779,014 $ 587,552673,971 $ 523,222663,841 $ 475,243633,056 $ 434,057
Average total assets........................ 5,890,619 5,535,447 5,138,450 4,725,999 4,408,258563,808
Total assets ................ 7,520,071 7,019,523 6,533,630 6,093,496 5,608,602
(1) Adjusted for stock dividends and stock splits.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
This discussion concerns Fulton Financial Corporation (the Corporation), a
bankfinancial holding company registered under the Bank Holding Company Act and
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.
The Corporation has made, and may continue to make, certain forward-looking
statements with respect to acquisition and growth strategies, market risk,
expenses, the effect of competition on net interest margin and net interest
income, investment strategy and income growth, investment securities gains,
deposit and loan growth, Year 2000 issues, asset quality, changes in organizational structure,
balances of risk-sensitive assets to risk-sensitive liabilities, amortization of
goodwill and intangible assets and other financial and business matters for
future periods. The Corporation cautions that these forward-looking statements
are subject to various assumptions, risks and uncertainties. Because of the
possibility that the underlying assumptions may change, actual results could
differ materially from these forward-looking statements.
In addition to the factors identified herein, the following could cause
actual results to differ materially from such forward-looking statements:
pricing pressures on loan and deposit products, actions of bank and nonbank
competitors, changes in local and national economic conditions, changes in
regulatory requirements, actions of the Federal Reserve Board, creditworthiness
of current borrowers and customers' acceptance of the Corporation's products and
services.
The Corporation's forward-looking statements are relevant only as of the
date on which such statements are made. By making any forward-looking
statements, the Corporation assumes no duty to update them to reflect new,
changing or unanticipated events or circumstances.
MERGER AND ACQUISITION ACTIVITY
- -------------------------------
The Corporation'sCorporation has historically supplemented its internal growth overwith the
past two decades has resulted from both
expansionstrategic acquisition of its existing business and strategic acquisitions ofcommunity banks with similar operating philosophies.
Through external growth,More recently, the Corporation has extended into four Mid-Atlantic states and has strengthenedalso looked to non-bank entities to support
its presence within
existing markets. Whilenoninterest income growth initiatives. In 2001, the Corporation did not acquire any banks during 1999,
it anticipatescontinued
its external growth by acquiring a bank holding company, a non-bank financial
services company and additional branches.
The accounting requirements for mergers and acquisitions were changed by
the June 2001 issuance of Statement of Financial Accounting Standards Nos. 141,
"Business Combinations" (Statement 141) and 142 "Goodwill and Other Intangible
Assets" (Statement 142). Statement 141 requires that acquisitions will continuethe purchase method of
accounting be used for all business combinations and eliminated the use of
pooling of interests for transactions initiated subsequent to June 30, 2001.
Statement 142 eliminates the amortization to expense of goodwill recorded as a
result of such combinations, but requires periodic evaluation of the goodwill
for impairment. Write-downs of the balance, if necessary, are to be an important strategy incharged to
results of operations. Goodwill existing prior to the future. In 1998, the Corporation completed two separate acquisitions.
Ambassador Bankissuance of the Commonwealth.statement
was required to be amortized through December 31, 2001.
Drovers Bancshares Corporation - On September 11, 1998,July 1, 2001, the Corporation completed
its acquisition of Ambassador Bank of the Commonwealth
(Ambassador)merger with Drovers Bancshares Corporation (Drovers), a $275an $820 million bank
holding company located in Allentown,York, Pennsylvania. As
provided underUnder the terms of the merger
agreement, each of the 1.95.2 million shares of Ambassador'sDrovers common stock was exchanged
for 1.54 shares of the Corporation's
common stock. In addition, the 417,000 options and warrants to acquire
Ambassador stock were exchanged for approximately 450,000 shares of the
Corporation's common stock. The Corporation issued 3.4 million shares of its
common stock in connection with the merger. As a result of the acquisition,
Ambassador was merged with and into Lafayette Bank, one of the Corporation's
existing affiliate banks, which changed its name to "Lafayette Ambassador Bank."
Keystone Heritage Group, Inc. - On March 27, 1998, the Corporation
completed its acquisition of Keystone Heritage Group, Inc. (Keystone), a $650
million bank holding company located in Lebanon, Pennsylvania. As provided under
the terms of the merger agreement, each of the approximately 4.0 million shares
of Keystone's common stock was exchanged for 2.5171.302 shares of the Corporation's common stock. In addition, each of the
70,000 options to acquire KeystoneDrovers stock was converted toexchanged for options to acquirepurchase the
Corporation's common stock.
The Corporation
issued 10.0 million shares of its common stock in connection with the merger.
In order to effect the acquisition, KeystoneDrovers was merged with and into the
Corporation. Its sole bankingFulton Financial Corporation, and its
wholly owned bank subsidiary, Lebanon Valley NationalThe Drovers & Mechanics Bank (Lebanon
Valley),(Drovers Bank) was
merged into Fulton Bank, the Corporation's largest subsidiary bank. This
business combination was accounted for as a pooling of interests and, as such,
all financial information presented in this report has been restated to reflect
the impact of Drovers for all periods presented.
In connection with and into Farmers Trust Bank, onethis transaction, the Corporation recorded
merger-related expenses of approximately $9.8 million ($6.4 million, net of
tax). These charges consisted of an additional provision for loan losses
resulting from the consistent application of the Corporation's existing affiliate banks, which changed its nameallowance
evaluation procedures ($2.7 million) and one-time expenses related to "Lebanon Valley Farmers
Bank." Lebanon Valley'semployee
severance, systems conversions, real estate closures and sales, and professional
fees ($7.1 million).
Branch Acquisition - On June 8, 2001, the Corporation assumed $315 million
of deposits and purchased $53 million of loans andin an acquisition of 18 branches
located in LancasterNew Jersey, Delaware and Dauphin Counties were transferred by Lebanon Valley Farmers Bank to Fulton Bank
immediately after the mergerPennsylvania. This transaction was completed.
The acquisitions of Ambassador and Keystone were accounted
for as poolingsa purchase and the Corporation recorded a core deposit intangible asset
of interests$9.9 million and all financial statementsan unidentifiable intangible asset of $21.7 million. The
core deposit intangible asset is being amortized on a straight-line basis over
10 years. Since this was a branch acquisition, the unidentifiable intangible
asset does not qualify for the non-amortization provisions of Statement 142 and
financial information contained
herein have been restatedwill continue to includebe amortized to expense on a straight-line basis over 25 years.
Dearden, Maguire, Weaver and Barrett, LLC - On January 2, 2001, the
Corporation completed its acquisition of investment management and advisory
company Dearden, Maguire, Weaver and Barrett, LLC (Dearden Maguire). The
acquisition was accounted for as a purchase and the accounts and results of
operations of these companiesDearden Maguire are included in the financial statements of the
Corporation prospectively from the January 2, 2001 acquisition date.
In connection with the acquisition, goodwill of approximately $16.0 million
was recorded as the initial purchase price paid in excess of the fair value of
net assets acquired. Additional payments of up to $5.0 million may become
payable upon Dearden Maguire achieving certain revenue goals through December
31, 2005. The goals and the dates of such payments are specified in the purchase
agreement. Upon payment of any such amounts, goodwill will be increased. The
goodwill was being amortized to expense on a straight-line basis over 20 years
through December 31, 2001. Effective January 1, 2002, the goodwill is no longer
being amortized to expense as required by Statement 142, but will be evaluated
periodically for all periods presented.
impairment.
Skylands Financial Corporation - On August 1, 2000, the Corporation
completed its acquisition of Skylands Financial Corporation (SFC) of
Hackettstown, New Jersey. SFC, with approximately $240 million in total assets
on the acquisition date, was a bank holding company whose sole banking
subsidiary, Skylands Community Bank (Skylands), operates eight community banking
offices in Morris, Warren and Sussex counties.
Under the terms of the merger agreement, each of the 2.5 million
outstanding shares of SFC's common stock was exchanged for 0.86 shares of the
Corporation's common stock. In addition, options to acquire shares of SFC stock
were also exchanged for options to purchase the Corporation's common stock. As a
result of the acquisition, SFC was merged with and into the Corporation and
Skylands became the Corporation's third banking subsidiary located in New
Jersey.
The acquisition was accounted for as a purchase and the accounts and
results of operations of Skylands are included in the financial statements of
the Corporation prospectively from the August 1, 2000 acquisition date. In
connection with the acquisition, goodwill of approximately $17.5 million was
recorded as the purchase price paid in excess of the net assets acquired. The
goodwill was being amortized to expense on a straight line basis over 15 years
through December 31, 2001. Effective January 1, 2002, the goodwill is no longer
being amortized to expense as required by Statement 142, but will be evaluated
periodically for impairment.
In the discussion that follows, the acquisitions of Skylands, Dearden
Maguire and the Branch Acquisition are collectively referred to as the "Purchase
Acquisitions".
RESULTS OF OPERATIONS
- ---------------------
Overview
The Corporation continuedCorporation's net income for 2001 was $113.6 million, or 1.37 per share
(diluted), as compared to generate steady earnings growth$106.8 million, or $1.31 per share (diluted) in 1999. Net2000.
The increase in net income for the year was $97.2$6.8 million, or $1.406.3%, and the
increase in net income per diluted share. Thisshare was $0.06, or 4.6%. Excluding non-recurring
merger-related expenses
associated with the acquisition of Drovers, the Corporation earned $120.0
million, or $1.44 per share, increases of 12.3% and 9.9%, respectively over
2000. The percentage increase in net income exceeded the percentage increase in
net income per share as there were more shares outstanding in 2001 as a result
of issuing stock to effect the Skylands acquisition in August, 2000.
The growth in 2001 resulted from net interest income increases driven by
the impact of the Purchase Acquisitions, augmenting minimal internal net
interest income growth due to the effect of changes in short term interest rates
enacted by the Federal Reserve Board (Federal Reserve). Growth was also evident
in non-interest income sources, particularly investment securities gains,
investment management and trust services income - due, in part, to the
acquisition of Dearden Maguire - and mortgage sales gains - due to significant
refinance activity resulting from lower mortgage interest rates. These increases
were offset by non-interest expense increases.
Net income for 2000 of $106.8 million increased $2.2 million, or 2.1% over
1999. Net income per share of $1.31 was an increase of $8.7 million,$0.05, or 9.8%, over 1998 net income4.0%. The
restatement of $88.5 million.
Diluted net income per share increased 10.2% over the $1.27 realized in 1998.
Net income for 1998 was $12.1 million, or 15.8%, greater than 1997, while
diluted net income per share represented an increase of 15.5% over $1.10 in
1997.
The recent earnings trend has been consistent over the past three years and
is largely attributablefinancial information to growth in core banking business,reflect Drovers had a strong net
interest margin, expansion of new products and services, expense controls and
good asset quality. However, certain items that could be considered
non-recurring in each of the periods are notable. The tablesignificant impact
on the following
page summarizes net income and adjustsearnings growth from 1999 to 2000. In 2000, Drovers experienced certain
loan credit issues which resulted in a $4.7 million increase to the provision
for certain of these items to arrive at
"core" or adjusted net income.loan losses.
The adjustments shown reflect the after-tax
impact on net income.
1999 1998 1997
-------------- -------------- -------------
(Dollars in thousands, except per-share amounts)
Net income (reported)........................... $ 97,226 $ 88,511 $ 76,405
Investment securities gains..................... (5,308) (7,384) (4,131)
Merger/conversion expenses...................... - 1,373 846
-------------- ------------- -------------
Adjusted net income............................. $ 91,918 $ 82,500 $ 73,120
============== ============= =============
% increase over prior year...................... 11.4% 12.8% 10.5%
============== ============= =============
Adjusted net income per share (diluted)......... $ 1.33 $ 1.18 $ 1.05
============== ============= =============
% increase over prior year...................... 12.7% 12.4% 9.5%
============== ============= =============
Investment securities gains and merger expenses are shown as adjustments
since many in the industry consider them to be non-recurring items. However, the
Corporation does have a history of both.
Security gains are derived mainly from the Corporation's investments in
equities of other financial institutions. Gains are realized when, in the
opinion of management, the investments have reached full valuation. Given the
size of this portfolio ($66.3 million in market value with $14.3 million in
unrealized gains at December 31, 1999), it is probable that the Corporation will
continue to realize gains in the future. Merger expenses represent professional
fees paid to complete mergers.
After adjusting for these items, the Corporation's net income still
reflects strong growth over the past three years, with net income per share
increases of 12.7% in 1999, 12.4% in 1998 and 9.5% in 1997. In 1999, 1998 and
1997, the Corporation achieved returnsreturn on average assets of 1.65%(ROA), excluding merger-related
charges, was 1.60% in 2001 as compared to 1.52% in 2000 and 1.49%, respectively, and returns1.60% in 1999.
Return on average shareholders' equity of 15.79%(ROE), 15.06%excluding merger-related charges,
was 15.40% in 2001 as compared to 15.85% in 2000 and 14.60%.15.76% in 1999. Including
merger-related charges, the Corporation's ROA and ROE were 1.51% and 14.58%,
respectively, in 2001.
Net Interest Income
Net interest income is the most significant component of the Corporation's
net income.income, accounting for 77% of total revenues in 2001. The ability to manage
net interest income over a variety of interest rate and economic environments is
criticalimportant to the success of a banking entity. Net interest income growth is
generally dependent upon the growth of the Corporation's balance sheet whilegrowth and maintaining or growing the net
interest margin. See also the discussion of "Interest Rate Risk" later in this
section.
Net interest income for 19992001 was $244.1$290.2 million, a $12.4$14.5 million, or 5.4%5.2%,
increase over 1998. This compares to a 1998 increase of $12.6 million, or 5.7%,
to $231.7 million. In terms of fully taxable equivalent (FTE)2000. Excluding the estimated contribution from the Purchase
Acquisitions, internal net interest income which includes the net tax benefit of investments in tax-exempt assets,
the 1999 increasegrowth was $14.2$3.6 million, or 6.0%, as compared to1.3%. Net
interest income in 2000 was $275.8 million, a 1998 increase of
$11.9$9.6 million, or 5.3%3.6% increase
over 1999. The impact of Skylands was also evident in 2000 as internal growth
was only $4.4 million, or 1.6%. The "Comparative Average Balance Sheets and Net
Interest Income Analysis" on page 1913 and the "Rate/Volume Table" on page 2014
summarize the components of net interest income and illustrate variances as a
result of changes in interest rates versus growth in assets and liabilities.
The interest rate environment, as evidenced by the actions of the Federal
Reserve, had an obvious impact on the Corporation's ability to grow net interest
income over the past two years. In general, the 1999 increase was a resultterms of growth in the loan portfolio,
funded largely through borrowings as deposit growth was flat. Despite the
increase in borrowings,net interest margin, however, the
Corporation was able to maintain a fairly
stablesuccessful in minimizing the effect during 2001. The net
interest margin 4.56%for 2001 was 4.26%, a five basis point decrease from 4.31% in
2000. In 1999, the Corporation's net interest margin was 4.49%. Management
believes that its asset/liability management practices will continue to minimize
the effects of interest rate fluctuations.
2001 v. 2000
Interest income decreased $1.4 million, or 0.3%, to $518.2 million in 2001
from $519.6 million in 2000. Excluding the estimated impact of the Purchase
Acquisitions, the decrease was $13.7 million, or 2.7%. Interest income increased
$31.3 million as a result of a $417.7 million increase in average
interest-earning assets. However, this was more than offset by the $32.7 million
reduction in interest income resulting from declining rates. The average yield
on earning assets for the year dropped 49 basis points to 7.40% in 2001 from
7.89% in 2000.
Average loans increased $209.8 million, or 4.1%, to $5.3 billion. Excluding
the impact of the Purchase Acquisitions, the increase was $72.4 million, or
1.4%. This modest increase resulted from offsetting factors - strong
commercial loan and commercial mortgage growth ($201.4 million, or 7.5%) was
offset by a $78.7 million, or 8.0% decrease in residential mortgages and a $58.7
million, or 4.4% decrease in consumer loans. Residential mortgages decreased as
a result of a relatively low interest rate environment generating healthy
refinance activity and sales of the resulting fixed rate loans. Consumer loans
decreased mainly in indirect auto loans.
The average yield on loans during 2001 was 7.94%, a 51 basis point decline
from 2000 which mirrored the decline in average rates on total interest earning
assets. The interest rate reductions enacted by the Federal Reserve had a direct
impact on the Corporation's prime lending rate, which declined to an average of
6.89% during 2001 as compared to 4.58%9.25% in 1998. The
increase2000. This index is used for pricing a
portion of the Corporation's adjustable rate loan portfolio, resulting in 1998 netlower
overall yields as compared to 2000. In addition, new loans were originated at
lower rates than prior years as a result of the general interest incomerate
environment.
Average investment securities increased $177.9 million, or 12.3%, during
2001. This growth, which was generated by increasesrealized mainly in long-term
borrowings, which weretaxable investment securities,
resulted from the Branch Acquisition, as the excess of deposits assumed over
loans acquired was approximately $250 million. A portion of these excess funds
was used to purchase investment securities sinceas the Corporation realized only
modest loan growth. The average yield on investment securities also declined
during 2001, although the reduction was not as pronounced as that realized on
the loan portfolio - 5.69% average yield in 2001 as compared to 5.89% in 2000.
Interest expense decreased $15.9 million, or 6.5%, to $228.0 million in
2001 from $243.9 million in 2000. Excluding the Purchase Acquisitions, the
decrease was $19.9 million, or 8.3%. Unlike interest income, which was equally
impacted by rates and volumes, the decrease in interest expense was mainly a
result of decreases in rates ($24.7 million), somewhat offset by increases in
balances ($8.8 million). This contrast resulted from short term borrowings and
demand and savings deposits repricing to lower rates more quickly than assets.
However, the Corporation's time deposits were more influenced by volume
increases as these are generally longer term and have not yet completely
repriced to lower rates.
Average interest-bearing deposits increased $437.2 million, or 9.9%, to
$4.8 billion in 2001. This increase was largely driven by the Purchase
Acquisitions; excluding these acquisitions, the increase was $176.2 million, or
4.1%. All categories of deposits realized growth during 2001, despite the
industry trend in recent years toward minimal deposit growth for banks. While
uncertainty in the equity markets contributed to inflows of funds to FDIC
insured organizations, the Corporation also benefited from aggressive marketing,
particularly free checking accounts. Average demand deposits, excluding the
impact of the Purchase Acquisitions, increased $84.0 million, or 5.8%, and
average savings deposits increased $57.1 million, or 4.9%. Time deposits
increased $81.5 million, or 3.2%.
Average short-term borrowings decreased $165.7 million, or 31.8%, as excess
funds from the Branch Acquisition were used to reduce short-term borrowings as
well as to purchase investment securities. Long-term debt increased $23.6
million, or 4.9%, as the Corporation retained positions in longer maturities for
balance sheet management purposes. Borrowings and debt were not significantly
impacted by Skylands.
Average interest rates paid on interest-bearing liabilities decreased 51
basis points to 4.00% in 2001 as compared to 4.51% in 2000. This change was
slower. As with 1999,comparable to the usechange in interest earning assets, thus minimizing the impact
of borrowings for funding purposes had only a
moderate impactrates on the Corporation's net interest margin for the year, which decreased
only five basis points to 4.58%4.26% in 19982001 from 4.69%4.31% in 1997.2000.
2000 v. 1999 v. 1998
Interest income increased $9.5$54.3 million, or 2.3%11.7%, to $418.9$519.6 million in
19992000 from $409.4$465.3 million in 1998. This1999. Excluding Skylands, the increase was $45.6
million, or 9.8%. This growth was mainly volume driven, with $40.4 million of
the increase attributable to volume asthe growth in interest-earning assets ($482.5
million, or 7.9%) and the remaining $13.9 million the result of interest rate
increases. On average, interestthe yield on earning assets increased $348.4 million, or 6.8%, resulting27 basis points to
7.89% in $25.3 million of additional interest income. This was offset by a $15.8 million
reduction2000 from 7.62% in interest income as a result of a 33 basis point drop in average
yields on earning assets.1999.
The growth in average interest earninginterest-earning assets occurred mostly in loans,
which increased $212.7$529.9 million, or 5.4%.11.5% ($457.9 million, or 10.0%, excluding
the impact of Skylands) to $5.1 billion. Commercial loans ($84.9169.9
million, or 9.7%15.2% increase) and commercial mortgagesmortgage loans ($90.0,228.9 million, or
8.6%18.8% increase) accounted for muchthe majority of thisthe growth. In addition, home equityConsumer loans,
($79.1 million, or 32.0%
increase) contributed to an increase in consumer loansprimarily as a result of several
promotions duringan increase in home equity lines of credit and second
mortgage loans, grew $81.6 million, or 6.5%. Residential mortgage loans
increased only $38.2 million, or 4.0%, as the year.
AverageCorporation continued to sell
newly originated fixed rate mortgage loans.
Offsetting the increase in average loans was a decline in investment
securities increased $160.2balances, which decreased $55.8 million, or 13.9%3.7%, mainlyto $1.4 billion in
mortgage-backed securities ($114.6 million, or 17.8% increase) and tax-free
municipal investments ($92.8 million, or 95.8% increase).2000. In recent years,
mortgage-backed securities and municipal investments have become the
Corporation's preferred investmentgeneral, proceeds from maturities were used to support loan growth
rather than being reinvested in securities.
Mortgage-backed securities are
attractive because of the flexibility in matching cash flows with corporate
needs while providing a higher rate of return than traditional government
securities. Municipal investments have recently carried taxable equivalent
interest rates that are favorable in comparison to taxable alternatives.
The 3327 basis point declineincrease in average yields on earning assets reflectsreflected
the changes in the interest rate environment in general. TheIn contrast to 2001,
which saw interest rates declining throughout the year, 2000 was marked by
several rate increases enacted by the Federal Reserve. As market rates rose in
response, the Corporation's earning assets also gradually readjusted to higher
rates. However, the average loan yield on loans
decreased 31increased only 22 basis points from 8.53% in 1998 to 8.22% in 1999. This decrease
corresponds to the decrease8.45%
despite a 125 basis point increase in the average prime lending rate which was 8.35%to 9.25% in
1998 and2000 from 8.00% in 1999, a 35 basis point drop. In recent years,1999. This reflects competition from other lenders and the
primeloan portfolio mix, which included longer-term fixed rate has become a lesser used index for pricing loans than otheroriginated when
rates however,
it remains an effective gauge of the overall interest rate environment.were lower.
Interest expense decreased $2.9increased $44.7 million, or 1.6%22.5%, to $174.8$243.9 million in
2000 from $199.1 million in 1999 from $177.7($41.3 million, in 1998. This decreaseor 20.7%, increase, excluding
Skylands). Unlike interest income, which was mainly volume driven, interest
expense was affected to a function of rates as the
average cost of funds decreased 33 basis points, resulting in a $14.0 million
decrease inlarger degree by interest expense. This was offset by a $273.1 million, or 6.5%,
increaserates. Increases in average
interest-bearing liabilities which generated an $11.1balances accounted for $18.9 million of the increase, in interest expense.while rate increases
accounted for $25.9 million of the increase.
Average interest-bearing deposits were essentially flat in 1999,
registering a slight $6.7increased $171.0 million, or 0.1%4.0%, decrease. The decreaseto
$4.4 billion in 2000. This modest increase, however, was impacted by the
Skylands acquisition, which added $76.7 million to the annual average balances of timebalance.
Growing deposits ($66.7 million, or 2.9%),during 2000 was offset by increasesa challenge for the Corporation - and banks in
savings deposits ($15.3 million, or 1.5% increase) and interest-bearing demand
deposits ($44.6 million, or 8.4% increase). Total deposit growthgeneral - as non-bank alternatives continued to be difficultattractive to consumers.
While most of the deposit increase, $85.1 million (excluding the impact of
Skylands), was in the face of competition from other financial institutions as well
as non-bank financial services providers. Rather than simply raising rates to
attractmore costly time deposit money,deposits, the Corporation looked to other funding sources.
To supportdid have some
success in raising noninterest-bearing demand deposits, which grew $48.7
million, or 6.3%.
As deposit growth lagged the significant growthincrease in earning assets, the Corporation
increased itsturned to alternative funding sources. Average short-term borrowings, both short-termconsisting
of overnight repurchase agreements and long-term. Short-term borrowings
grew $140.2 million, or 67.0%, mainly in Federal funds purchased, ($90.5 million)increased $141.3
million, or 37.1%, and customer repurchase agreements ($37.6 million). To take advantage of
favorable long-term rates in late 1998 and to better match the repricing of its
assets, the Corporation also increased its long-term debt. Average long-term debt, which consistsconsisting of advances from the Federal
Home Loan Bank (FHLB), increased $139.6$95.4 million, or 85.9%25.0%. The increases in
borrowings were not impacted by Skylands.
Average interest rates paid on interest-bearing liabilities decreasedincreased 53
basis points to 4.51% as compared to 3.98% in line
with1999. This increase far outpaced
the decreases realizedincrease in yields on earning assets. This was reflective ofassets and reflected the general interest rate environment. Because ofchange in the consistent decline,funding
mix from lower cost deposits to higher cost borrowings. As a result, the
Corporation's net
interest margin remained fairly stable, decreasing only two
basis pointsdeclined to 4.31% in 2000 from 4.58%4.49% in 1998 to 4.56% in 1999.
1998 v. 1997
Interest income increased $22.1 million, or 5.7%, from $387.2 million in
1997 to $409.4 million in 1998. Of this increase, $26.8 million was a result of
a $356.6 million, or 7.4%, increase in average earning assets, offset by a $4.7
million decrease due to a drop in the average yield from 8.08% in 1997 to 7.95%
in 1998. Average loans increased $203.6 million, or 5.4%, in 1998. Additional
increases were realized in investment securities, which increased $163.1
million, or 16.5%, from $989.7 million in 1997 to $1.2 billion in 1998.
The 13 basis point decline in the average yield was driven by two primary
factors. First, the average yield on loans decreased 10 basis points to 8.53% in
1998 from 8.63% in 1997. Secondly, the mix of interest earning assets changed
from 78.5% loans and 21.5% investments in 1997 to 77.0% loans and 23.0%
investments in 1998. Lower yields on investments (overall, 5.98% in 1998 and
6.06% in 1997) relative to loans and a higher percentage of investments in 1998
caused a further reduction in the overall yield.
The 10 basis point reduction in loan yields was closely correlated with the
nine basis point decrease in the Corporation's average prime lending rate from
1997 (8.44%) to 1998 (8.35%).
Interest expense increased $9.5 million or 5.7% to $177.7 million in 1998
from $168.2 million in 1997. As with interest income, this increase was mainly
volume driven ($13.4 million) as average interest bearing liabilities increased
$263.2 million, offset by a $3.8 million decrease due to a slight decline in
rates from 4.29% in 1997 to 4.25% in 1998. Average interest-bearing deposits
showed the largest increase, $185.4 million or 5.1%. Most of this increase was
in time deposits, which increased $131.9 million or 6.2%. Long-term debt, which
consists mainly of advances from the FHLB, increased $96.4 million or 145.7%.
The overall cost of interest-bearing liabilities decreased only four basis
points, despite the general fall in rates throughout the industry. This was
mainly due to the fact that many of the Corporation's deposits (54% in 1998)
were in certificates of deposit which had not yet realized the impact of rate
reductions. This is shown by the average cost of CD's remaining fairly constant
at 5.55% in comparison to 5.56% in 1997.
With interest rates relatively low, the Corporation also turned to
borrowings as an alternative funding source. In an effort to reduce rate
sensitivity, the Corporation locked in longer-term borrowings with the FHLB. The
average cost of such borrowings in 1998 was approximately 5.47% as compared to
6.04% in 1997. In general, the cost of these funds was less than comparable-term
certificates of deposit.
Provision and Allowance for Loan Losses
Additions to the Corporation's allowance for loan losses are charged to
income through the provision for loan losses when, in the judgement of
management and based on continuing analyses of the loan portfolio, it is
believed that the allowance is not adequate. Management considers various
factors in assessing the adequacy of the allowance for loan losses and
determining the provision for the period. Among these are charge-off history and
trends, risk classification of significant credits, adequacy of collateral, the
mix and risk characteristics of loan types in the portfolio, and the balance of
the allowance relative to total and non-performing loans. Additional
consideration is given to regional and national economic conditions. The
Corporation's policies for evaluating the adequacy of the allowance for loan
losses conform to the provisions of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 102, "Selected Loan Loss Allowance Methodology and
Documentation Issues."
The tables below summarize non-performing assets (including accruing loans
greater than 90 days past due) and net charge-offs by major loan category as of
or for the years ended December 31, 1999, 19982001, 2000 and 19971999 (dollars in thousands).
Nonperforming Assets
----------------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
1998 1997
---------------------------------------------------------------------------------------------------- ------------------ ------------------
Amount % Change Amount % Change Amount % Change
------------ ----------- ------------ ----------- ------------ ------------------ -------- ------- -------- ------- --------
Real estate loans............ $ 18,758 7.5% $ 17,449 (16.7)loans ......... $19,101 2.4% $18,646 (4.8)% $ 20,955 38.0%$19,580 7.4%
Commercial &
Industrial loans........ 4,316 (39.5) 7,130 37.9 5,169 (11.2)industrial loans...... 9,255 48.6 6,229 (29.0) 8,779 14.4
Consumer loans............... 4,095 (29.5) 5,811 11.2 5,224 41.0loans ............ 3,806 (6.0) 4,050 (3.1) 4,179 (29.6)
Other real estate owned...... 917 (35.4) 1,420 (7.6) 1,537 (45.7)
------------ ----------- ------------ ---------- ------------ ----------
Total........................ $ 28,086 (11.7)owned.... 1,817 75.6 1,035 3.3 1,002 (36.1)
------- ---- ------- ----- ------- -----
Total...................... $33,979 13.4% $29,960 (10.7)% $ 31,810 (3.3)% $ 32,885 19.4%
============ =========== ============ ========== ============ ==========$33,540 0.4%
======= ==== ======= ===== ======= =====
Non-performing
assets/Total assets..... 0.46% 0.54% 0.61%
============ ============ ============assets... 0.44% 0.41% 0.49%
======= ======= =======
Non-performing
loans/Total loans....... 0.61% 0.75% 0.79%
============ ============ ============loans..... 0.60% 0.54% 0.67%
======= ======= =======
Net Charge-Offs
----------------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
1998 1997
---------------------------------------------------------------------------------------------------- ------------------ ------------------
Amount % Change Amount % Change Amount % Change
------------ ----------- ------------- ---------- --------------- ------------------ -------- ------- -------- ------ ---------
Real estate loans............loans ......... $ 880 84.5% $ 477 (48.5)403 (70.8)% $ 927 NA%1,381 54.5% $ 894 87.4%
Commercial &
Industrial loans........ 1,281 7.7 1,189 123.4 532 (7.6)industrial loans...... 5,593 (27.6) 7,724 178.9 2,769 61.8
Consumer loans............... 5,839 43.9 4,058 12.1 3,620 86.7
------------ ----------- ------------- ---------- --------------- -----------
Total........................ $ 8,000 39.8% $ 5,724 12.7% $ 5,079 124.8%
============ =========== ============= ========== =============== ===========loans ............ 4,442 (0.2) 4,450 (26.7) 6,069 44.7
------- ----- ------- ----- ------ ----
Total ..................... $10,438 (23.0)% $13,555 39.3% $9,732 52.5%
======= ===== ======= ==== ====== ====
Net charge-offs/
Average loans........... 0.19% 0.14% 0.13%
============ ============= ===============loans......... 0.20% 0.26% 0.21%
======= ======= ======
The provision for loan losses for 1999 increased $2.62001 totaled $14.6 million. Of this
amount, $2.7 million or 47.2%,was related to $8.2 million, as comparedthe Drovers merger. Applying the
Corporation's consistent allowance evaluation procedures to $5.6 million in 1998. The 1998 provision was $2.8
million, or 33.7% lower than the 1997 provision of $8.4 million. In both 1999
and 1998, the provision was consistent with the net charge-offs recognized
during the years ($8.0 million in 1999 and $5.7 million in 1998).
To understand the increase in the provision in 1999, it is necessary to
understand the higher net charge-off levels. In 1999, net charge-offs were 0.19%
of average loans outstanding as compared to 0.14% in 1998. The increase resulted
from the continued trend toward higher levels of losses on consumer loans.
Consumer loan charge-offs continued to increase as a result of further aging of
the indirectacquired Drovers
loan portfolio which grew dramaticallyresulted in the mid to late 1990's.
In the past year, indirect lending has experienced lower growth rates as the
Corporation has faced increased rate competition. Despite the recent decrease,
the existing loan portfolio continued to experience losses, resulting in higher
consumer charge-offs in 1997, 1998 and 1999, further increasing the need for provisionsan additional provision for loan losses.
DespiteExcluding this additional amount, the provision for loan losses decreased $3.1
million, or 20.9%. In 2000, Drovers experienced significant charge-offs related
to specific credits which have since been worked out, resulting in an increase
to the provision. No comparable situations existed in charge-offs2001, thus resulting in a
lower provision. The 2000 provision of $15.0 million was $5.1 million, or 51.1%,
higher than the 1999 the qualityprovision of the overall
consumer portfolio continued to show signs of improvement. Total non-performing
consumer loans ($4.1 million in 1999 vs. $5.8 million in 1998); non-performing
consumer loans$9.9 million.
Net charge-offs as a percentage of average loans were 0.20%, a six basis
point improvement from 2000. In addition, total net charge-offs decreased 23.0%
compared to 2000. Total non-performing loans (14.6% in 1999 vs.
18.3% in 1998); and non-performing consumer loansassets to total consumer loans (0.58%
in 1999 vs. 0.83% in 1998) all improved over the past year. Improvements in
overall asset quality measures also occurred in 1999. Overall, total
non-performing assets improvedincreased three
basis points to 0.46% of total assets0.44% at December 31, 19992001 as compared to 0.54%0.41% at the end of
1998.2000. This modest increase reflects the change in general economic conditions at
the end of 2001 as compared to the prior year. As a result of economic
uncertainty and the change in the mix of the portfolio to proportionately more
commercial loans, the Corporation provided for loan losses in an amount
exceeding its realized net charge-offs for the year ($11.9 million provision,
excluding $2.7 million related to Drovers, as compared to $10.4 million in net
charge-offs).
The Corporation's periodic loan portfolio review and allowance calculations
resulted in 68%73% of the total balance being allocated to specific loans and loan
types at December 31, 19992001 as compared to 70%71% at December 31, 1998.
2000. The
allowance for loan losses as a percentage of total loans declined from 1.42%increased to 1.34% at
December 31, 1998 to 1.30%2001 from 1.22% at December 31, 1999.2000. This increase reflects the
impact of the additional provision recorded for the Drovers portfolio.
Management believes that the allowance balance of $57.6$71.9 million at December 31,
19992001 is sufficient to cover losses incurred in the loan portfolio and is
appropriate based on applicable accounting standards.
Other Income
NoninterestOther income was $62.8 million in 1999, a $2.9 million, or 4.8%,
increase over 1998. Excluding- excluding investment securities gains of $8.2- increased $22.0
million, or 33.3%, to $88.4 million in 1999 and $11.4 million in 1998, the increase in other income was $6.1 million,
or 12.5%. Excluding the impact of securities gains, other income increased $6.2
million, or 14.7%, in 19982001 as compared to 1997.
In recent years, the Corporation has focused on increasing its non-margin
related sources of income. As a result of increased emphasis on fee income,$66.4 million in
2000. This growth resulted mainly from investment management and trust services
(IMTS) income grew $3.5and mortgage sale gains. Skylands did not contribute significantly
to the growth from 2000 to 2001.
IMTS income increased $6.5 million, or 27.3%31.7%, to $27.1 million for 2001.
This increase resulted mainly from the January, 2001 acquisition of Dearden
Maguire, which accounted for $3.7 million of the increase. Internal growth of
$2.8 million, or 13.5% was also strong as Fulton Financial Advisors, N.A.
(Advisors) continued to grow its business throughout the Corporation's affiliate
network. IMTS income was negatively impacted by the performance of the equity
markets as many fees are based on the current values of accounts. IMTS income of
$20.6 million in 1999 to $16.1 million, following2000 was an increase of $2.3$3.1 million, or 21.7%, in 1998.
The growth17.7% over the past two years was fueled1999,
driven mainly by the rolloutformation of investment and
brokerage services to all eleven of the Corporation's affiliate banks as well as
additional emphasis on traditional trust products.
In 2000, the Corporation will consolidate all of the investment management
and trust services units at each of its affiliate banks into a newly formed
trust company. This company, which will be a non-bank subsidiary of the parent,
will continue offering its existing services and will add, through an affiliate,
life insurance to its menu of products. Coordinating efforts under a centralized
structure is expected to further the Corporation's fee-based income goals.Advisors in May, 2000.
Service charges on depositsdeposit accounts increased $2.3$6.2 million, or 12.1%23.5%, to
$21.2$32.4 million in 1999. Cash management fees ($953,000, or 34.3% increase) grew as2001 primarily due to the numberincrease in savings and demand
deposit accounts, which generate the majority of cash managementthese fees. The average balance
of these accounts continuedincreased 11.5% from 2000 to increase. The Corporation has
emphasized this business2001. Also contributing to newer affiliates who may not have offered it in the
past. Overdraft fees ($662,000, or 9.5% increase) and other service charges on
deposits ($673,000, or 7.3% increase) also increased as a result ofincrease were changes in fee structures and an increase in demand and savings accounts,the Purchase Acquisitions, which
accountaccounted for $1.8 million of the majority of these fee types. In 1998, service charges on deposits grew $1.1
million, or 6.2%, mainly due to deposit growth.increase.
Other service charges and fees increased $943,000,$1.4 million, or 7.8%8.9%, to $13.1$17.1
million in 1999,2001, following an increase of $1.6$3.0 million, or 15.5%23.2%, in 1998. In
1998, the2000. The
Corporation realized ancontinued to realize steady increases in merchant fees ($654,000, or
22.0%, increase of $1.0 million in ATM convenience
fees as a result of their introduction2001 and $760,000, or 34.3%, increase in late 1997. As a result of a full year
of such fees in both 19992000), and 1998, the increase was only $178,000, or 8.7%, in
1999. The remainder of the 1999 increase was mainly in debit
card revenues,
which increased $835,000,income ($630,000, or 47.5%18.4%, dueincrease in 2001 and $678,000, or 24.7%,
increase in 2000) over the past two years. Income from ATM fees has leveled off
in recent years as consumer habits have changed in response to the continued emphasis of this
product at the Corporation's newer affiliate banks.such fees.
Mortgage banking income decreased $613,000, or 12.8%, in 1999 after
increasing $1.2increased $8.0 million, or 34.5%211.5%, to $11.8 million
in 1998.2001. This fluctuationincrease was mainly a resultentirely due to mortgage sales gains as servicing
income remained unchanged. The relatively low interest rate environment
generated significant levels of interest rates. As mortgage rates continued to drop throughout 1998, refinance activity increased andas borrowers sought lower
fixed rate loans. To minimize interest rate risk, the Corporation was able to recognize $3.4
millionsells all
eligible fixed rate mortgage loans in gains onthe secondary market. Servicing income
remained flat as a portion of the refinance activity came from the Corporation's
existing serviced loan portfolio. In 2000, mortgage loan sales, a $1.1banking income decreased
$1.3 million, or 48.9%24.9%, increase over
1997. In 1999, as rates began rising, mortgage loan sale gains decreased
$828,000, or 24.5%,were relatively higher compared to $2.6 million. This decrease was somewhat offset by a
$214,000, or 15.0%, increase in mortgage loan servicing income which grew as a
result of retaining the servicing on many of the sold loans.1999 and
refinance activity, therefore, decreased.
Investment securities gains decreased $3.2increased $3.9 million, or 28.1%45.3%, to $8.2$12.6
million in 19992001 following an increase of $5.0,$298,000, or 78.8%3.6%, to $11.4 million in 1998.2000. The
Corporation maintains an equity investment portfolio consistsconsisting of common stocks
of financial institutions, many of which are located in and around the
Corporation's general geographicalgeographic market area. This portfolio has traditionally
been the source of investment securities gains. In 1998,
bank stock values were generally higher than2001, gains from this
portfolio totaled $9.5 million, a $674,000, or 7.6% increase over 2000.
Additional investment security gains in 1999, resulting in higher gains
realized in 1998 relative2001 resulted from the restructuring of
Drovers' investment portfolio to 1999. As previously discussed, management monitorsbe consistent with the Corporation's equity portfolio and makes periodic sale and investment
decisions based on its assessment of the investments' values.philosophy.
Other Expenses
Noninterest expenses for 19992001 increased $3.3$32.2 million, or 2.1%17.5%, to $161.0$216.7
million. This followed a 19982000 increase of $8.2$8.7 million, or 5.5%4.9%, to $157.7
million. Total noninterest expenses in 1997 were $149.5$184.5
million. Excluding the impact of mergerthe Purchase Acquisitions and merger-related
expenses, in 1998 and 1997, total noninterest expenses increased
$4.7the 2001 increase was $14.5 million, or 3.0%, in 1999 and $7.6 million, or 5.1%, in 1998.
8.0%. The Corporation's
efficiency ratio, which is the ratio of noninterest expenses (excluding
intangible amortization) to fully taxable equivalent revenues (excluding
securities gains),
improved increased slightly to 52.7%52.9% in 1999,2001, as compared to 55.4%52.1% in
1998 (54.9%, excluding merger
expenses)2000 and 55.9%52.5% in 1997(55.6%, excluding merger expenses).
The largest component of noninterest expenses, salaries1999.
Salaries and employee benefits increased $4.5$13.7 million, or 5.4%13.3%, in 19992001
to $88.7$116.9 million, as compared to a $4.8$5.5 million, or 6.1%5.6%, increase to $84.1$103.2
million in 1998.2000. Excluding the impact of the Purchase Acquisitions, the 2001
increase was $8.9 million, or 8.7%. The salary portion of the 1999 expense was $72.9 million, which was a $2.8component increased $5.9
million, or 4.0%7.1% due to normal merit increases and additions to staff to build
infrastructure in key lines of business. Total average full-time
equivalent employees were 2,761 in 2001 as compared to 2,649 in 2000 and 2,579
in 1999. Excluding the Purchase Acquisitions, employee benefits increased $2.7
million, or 18.1%, driven mainly by continued increases in health insurance
costs, which grew by $2.1 million, or 34.4%.
The smaller rate of increase over 1998. Thisin salaries and benefits expenses in 2000
resulted from a small increase in average
full-time equivalent (FTE) employees to 2,354 in 1999 from 2,333 in 1998, as
well as normal merit increases. The salary portionincreases of the expense in 1998 was
$70.1 million, a $3.2$5.8 million, or 5.3%6.9%, increase over 1997.being offset by
decreases in employee benefits expenses. This resulted from
an increase in average FTE employees from 2,296 in 1997 to 2,333 in 1998, as
well as normal merit increases.
Employee benefits expense increased $1.7 million, or 12.1%, to $15.8
million in 1999, following a 1998 increase of $985,000, or 5.3%. The sharper
increase in 1999 reflected a $480,000, or 8.6%, increase in health care expenses
and a net increase of $863,000was realized primarily in
retirement plan costsexpenses, which decreased $93,000, or 1.4%, as certain affiliate
banks provided this benefit to their employees for the first time and certain
employees were transitioned from the defined
benefit plan towas grandfathered and new employees were being enrolled in the
profit sharing plan. This transition resultedplan (see "Note J - Employee Benefit Plans" in some overlap of expenses from the two plans
and the cost is expectedNotes to
decrease in future periods.Consolidated Financial Statements).
Net occupancy expense increased $953,000,$1.6 million, or 7.7%10.6% to $17.1 million,
following a 2000 increase of only $644,000, or 4.4%. Equipment expense increased
$891,000, or 7.8%, in 1999 after decreasing
$727,000,2001 following an increase of $509,000, or 5.5%4.7%, in 1998. The 1998 decrease was due to consolidation of
branches and operations facilities following the 1998 acquisition of Lebanon
Valley. The 1999 increase reflects growth in the branch network and the
completion of a major renovation at the Corporation's operations center.2000.
In 1999,2001, the Corporation began thecompleted construction of its new office space in
Lancaster, Pennsylvania as well as a $20 million, 100,000
square foot office buildingnew operations center in downtown Lancaster, PA. This building, which will
be adjacentNew Jersey. These
items contributed to the Corporation's existing main office, will be used to
accommodate current and futureincrease in occupancy needs of the Corporation. In the first
several years, however, a portion of the facility will be leased to third
parties. Construction is expected to be completed by the end ofexpense in 2001. Equipment
expense increased $473,000,as the Corporation continued strategic investments in
technology to improve efficiency and customer service.
Data processing expense increased $550,000, or 5.2%4.9%, in 1999 following2001, compared to a
decrease of $554,000,$190,000, or 5.8%1.7%, in 1998.2000. In 2000, the Corporation's contract with
its third party loan and deposit processor was renegotiated, resulting in
savings to the Corporation. As with occupancy expense, the variancesCorporation grew during 2001 through the
addition of new affiliates and branches, the resulting processing volume
increases have generated moderate increases in
equipment expense were a result of contracting operations in overlapping markets
in 1998, followed by strategic expansion in 1999. Equipment expense also
increased as a result of Year 2000 related needs.
Special services expense, which is the cost of data processing costs.
Intangible amortization consists primarily of the amortization of purchase
accounting goodwill and unidentifiable intangible assets related to branch
acquisitions. In 2001, intangible amortization increased $446,000,$2.9 million, or 160.3%
due to the Purchase Acquisitions. It is expected that amortization expense will
decrease by approximately $3.1 million in 2002 as the goodwill related to
certain business combinations accounted for as purchases will no longer be
amortized (see "Note A - Summary of Significant Accounting Policies" in the
Notes to Consolidated Financial Statements).
Other noninterest expenses increased $5.4 million, or 13.1%, in 2001, to
$46.7 million, following an increase of $1.7 million, or 4.2% in 1999, compared to a $2.82000. Excluding
the impact of Purchase Acquisitions, the 2001 increase was $4.6 million, or
34.9%,11.8%. The most significant increase was realized in 1998.state taxes ($1.7 million,
or 55.3% increase) -- which consist mainly of Pennsylvania bank shares tax
expense -- due to fewer tax credits on qualified contributions. The Corporation has a contract with a third party to performremaining
increases of 7.2% in 2001 and 4.2% in 2000 supported the main data
processing functions for allcontinued growth of the
Corporation's affiliate banks. The increase
in 1998 was mainly the result of converting the newly acquired Lebanon Valley
from its in-house data processing function to the Corporation's third party
systems. In addition, a new mortgage processing system and a new trust system
were installed in 1998, which resulted in increased costs.
Other noninterest expenses decreased $3.1 million, or 7.5%, to $38.4
million in 1999 as compared to $41.5 million in 1998. This was mainly due to
certain nonrecurring expenses in 1998. The Corporation incurred approximately
$1.4 million in professional fees related to the acquisitions of Keystone and
Ambassador in 1998, whereas in 1999 there were no merger-related expenses. In
1998, the Corporation also made approximately $700,000 in net non-equity
contributions related to low income housing projects. Also, net expenses related
to the corporate-owned life insurance program were reduced from $500,000 in 1998
to zero in 1999 as the program was modified to a non-leveraged structure.
Finally, many categories of expenses which indirectly increased in 1998 as a
result of merger-related costs decreased to normal levels in 1999. Among these
were advertising ($401,000, or 8.3%, decrease in 1999), legal fees ($278,000, or
26.6% decrease) and supplies ($373,000, or 7.9% decrease).
Corporation.
Income Taxes
Income taxes increased only $647,000,$1.9 million, or 1.6%4.3%, in 1999 as compared2001 to a
$6.4$46.4 million,
following an increase of $1.9 million, or 19.1%4.6%, increase in 1998.2000. The effective tax rates
were 29.4%29.0%, 31.0%29.4% and 30.4%28.9% in 1999, 19982001, 2000 and 1997,1999, respectively. In general,
the variances from the 35% federalFederal statutory rate consisted of tax-exempt
interest income and investments in low and moderate income housing partnerships,
(whichwhich qualify for Federal tax credits),credits. Net credits of $3.6 million, $3.0 million
and certain merger-related expenses which are not
deductible. The decrease$2.9 million were recognized in the effective tax rate reflects no merger expenses
in2001, 2000 and 1999, an increase in tax-free municipal investments and an increase in tax
credits to $5.9 million in 1999 from $5.0 in 1998.respectively. See also
"Note HI - Income Taxes" in the Notes to Consolidated Financial Statements.
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
AVERAGE CONSOLIDATED BALANCE SHEETS
December Monthly Averages
----------------------------------------------------------------------------------------
2001 2000 1999
1998 1997
------------- ----------------- ----------------
ASSETS---------- ---------- ----------
(in thousands)
- ------
ASSETS
- ------
Cash and due from banks..................................banks .............................. $ 258,676263,627 $ 225,172248,393 $ 194,136276,285
Other interest-earning assets............................ 3,015 1,885 43,895assets ........................ 15,682 23,288 3,663
Investment securities.................................... 1,243,490 1,382,729 1,058,170securities ................................ 1,788,840 1,434,058 1,454,412
Loans, including loans held for sale..................... 4,391,067 4,031,292 3,936,260sale ................. 5,360,152 5,381,137 4,841,792
Less: Allowance for loan losses.......................... (58,859) (58,197) (57,646)
------------- ----------------- ----------------losses ...................... (72,207) (65,846) (63,297)
---------- ---------- ----------
Net Loans....................................... 4,332,208 3,973,095 3,878,614
------------- ----------------- ----------------Loans ................................... 5,288,945 5,315,291 4,778,495
---------- ---------- ----------
Premises and equipment................................... 79,156 75,926 72,907equipment ............................... 126,491 115,921 95,762
Other assets............................................. 148,777 134,644 119,286
------------- ----------------- ----------------assets ......................................... 204,097 183,793 161,242
---------- ---------- ----------
Total Assets.................................... $ 6,065,322 $ 5,793,451 $ 5,367,008
============= ================= ================Assets ................................ $7,686,682 $7,320,744 $6,769,859
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest-bearing....................................Noninterest-bearing ................................ $1,016,111 $ 738,377881,370 $ 709,158 $ 627,929
Interest-bearing....................................... 3,800,163 3,808,427 3,766,976
------------- ----------------- ----------------786,036
Interest-bearing ................................... 4,884,846 4,560,280 4,250,468
---------- ---------- ----------
Total Deposits.................................. 4,538,540 4,517,585 4,394,905
------------- ----------------- ----------------Deposits .............................. 5,900,957 5,441,650 5,036,504
---------- ---------- ----------
Short-term borrowings.................................... 476,475 271,631 271,165borrowings ................................ 395,818 483,410 527,770
Long-term debt........................................... 330,959 296,035 51,016debt ....................................... 467,593 561,573 429,036
Other liabilities........................................ 98,508 99,123 94,565
------------- ----------------- ----------------liabilities .................................... 109,491 119,998 105,063
---------- ---------- ----------
Total Liabilities............................... 5,444,482 5,184,374 4,811,651
------------- ----------------- ----------------Liabilities ........................... 6,873,859 6,606,631 6,098,373
---------- ---------- ----------
Total Shareholders' Equity...................... 620,840 609,077 555,357
------------- ----------------- ----------------Equity .................. 812,823 714,113 671,486
---------- ---------- ----------
Total Liabilities and Shareholders' Equity...... $ 6,065,322 $ 5,793,451 $ 5,367,008
============= ================= ================Equity... $7,686,682 $7,320,744 $6,769,859
========== ========== ==========
FINANCIAL CONDITION
- -------------------
The Corporation functions as a financial intermediary and its financial
condition is analyzed in terms of its sources and uses of funds. The table above
highlights the trends in the balance sheet over the past two years. Because
annual averages tend tomay conceal trends and ending balances can be distorted by
one-day fluctuations, the average balances for the month of December monthly averages for each of the last three
yearsin 2001,
2000 and 1999 are provided to give a better indication of trends in the balance
sheet. All references within the discussion that follows are to these December
average balances unless specifically noted otherwise.
The Corporation's balance sheet continued to grow in 1999,2001, as assets
increased $272$365.9 million, or 4.7%5.0%, to $6.1$7.7 billion, as compared to $5.8$7.3 billion
atin 2000. The growth during 2001 was influenced by the endBranch Acquisition, which
added approximately $300 million of 1998. Asset growth in 1998 was $426deposits to the Corporation. However, these
funds were used to pay down borrowings as well as to purchase new investments,
so the entire $300 million did not contribute to asset growth. Total assets
increased $550.9 million, or 7.9%. In 1999, the
balance sheet growth was asset driven, mostly through increases8.1%, in loans. In
1998, the balance sheet grew mainly as a result of funding strategies that
increased the Corporation's long-term borrowings.2000.
Loans
Loans outstanding (net of unearned income) increased $359.8decreased $21.0 million, or
8.9%0.4%, in 19992001. As noted in the "Net Interest Income" discussion, increases in
commercial loans ($66.7 million, or 4.8%) and commercial mortgages ($92.1
million, or 5.9%) were offset by decreases in residential mortgage loans ($150.4
million, or 14.7%) and
consumer loans ($38.4 million, or 2.8%). Residential mortgages decreased due to
heavy refinance activity and consumer loans decreased due to less emphasis on
indirect auto lending.
In 2000, loans increased $539.3 million, or 11.1%, to reach a level of $4.4$5.4
billion. In 1998, the growth rate was
much slower at $95.0Excluding Skylands, loans increased $364.8 million, or 2.4%.
In 1999, the growth was most evident in commercial loans ($151.4 million,
or 17.2%, increase), commercial mortgages ($117.2 million, or 10.7%, increase)
and home equity loans ($57.7 million, or 19.5%, increase)7.5%. Commercial
loans and mortgages accounted for most of the growth. In 2000, commercial loans
increased $193.5 million, or 16.3%, while commercial mortgage loans increased
$240.8 million, or 18.4%. Residential mortgages also showed moderate growth of
$54.4 million, or 5.6%, as interest rates were impactedhigher and refinance volumes were
lower.
Investment Securities
Total investment securities increased $354.8 million, or 24.7%, to reach a
balance of $1.8 billion in 2001. The funds for this growth were provided by favorable economic conditions in the
Corporation's
marketsdeposits from the Branch Acquisition as well as competitive pricing decisions. Home equity loans benefited
from several promotions during 1999. Furthermore, the overallinternal deposit growth. Since
net loan growth rate
was aided by a slowing of residential mortgage refinancings as interest
rates rose during the year. Although residential mortgages remained flat in
1999, the run-off from refinancing activity that had been seen in prior years
slowed.
In 1998, the Corporation was able to increase commercial mortgages $151.2
million, or 17.8%, but almost all other major loan categories remained flat or
saw decreases. Consumer loans, consisting of automobile financing, student
loans, credit cards and home equity loans, increased only $40.2 million, or
3.4%. Commercial loans decreased $31.4 million, or 3.5%, and residential
mortgages decreased $67.0 million, or 7.7%, due to heavy refinance volume.
Investment Securities
In 1999, investment securities decreased $139.2 million, or 10.1%, to $1.2
billion. This followed a 1998 increase of $324.6 million, or 30.7%. In 1999,
maturities and payoffs of securitiesbalances were used as one source of funds for the
growing loan portfolio. Conversely, in 1998,essentially unchanged, excess funds provided by borrowings
and deposit growth were used to purchase
investment securities, asparticularly mortgage-backed securities, which increased
$456.6 million, or 55.2%.
In 2000, investment securities decreased $20.4 million, or 1.4% ($77.9
million, or 5.4%, excluding the impact of Skylands), to $1.4 billion. In 2000,
the Corporation experienced stronger net loan growth was slower.
The decrease inwhich limited the amount of
funds available for investment securities during 1999 occurred in all
categories of investments, except for tax-exempt municipal securities which
continued to have favorable taxable equivalent rates as compared to other
investment alternatives. Tax-exempt municipal securities increased $62.9
million, or 44.4%, to $204.4 million and now account for approximately 16% of
the Corporation's investment portfolio. Mortgage-backed securities, which
decreased $66.4 million, or 8.5%, during 1999, continue to account for the
majority of the investment portfolio, at 58%.securities.
The Corporation classified approximately 93% ofvirtually its entire investment securities
($1.1portfolio (97%,
or $1.7 billion) as available for sale at December 31, 2001 and, as such, these
investments arewere recorded at their estimated fair values. The increasedecrease in
interest rates during 19992001 resulted in a $39.7 million decrease intotal net unrealized gains of $15.0
million on non-equity investments at December 31, 2001, a shift of $20.1 million
from $5.1 million in the portfolio. The Corporation prefers the available for sale
classification as it provides flexibility in managing liquidity needs.net unrealized losses at December 31, 2000.
The Corporation also maintains an equity investment portfolio, consisting
of FHLB and other government agency stock ($31.844.3 million), as well as stocks of
other financial institutions ($52.061.3 million). This portfolio has historically
been a source of capital appreciation and realized gains ($8.29.5 million in 1999,
$11.42001,
$8.6 million in 19982000 and $6.4$8.3 million in 1997)1999). Management periodically sells
bank stocks when valuations and market conditions warrant such sales.
Premises and Equipment
Premises and equipment increased $3.2$10.6 million, or 4.3%9.1%, in 19992001 to $79.2$126.5
million, following a $3.0$20.2 million, or 4.1%21.1%, increase in 1998. Increases2000. The increases in
both years were mainly a resultdue to the construction of capitalnew office and operations facilities
and continued investments in technology, the renovation of the
Corporation's operations facility and the commencement of construction of a new
office building adjacent to the Corporation's current main office in Lancaster.technology.
Cash and Due from Banks
Cash and due from banks increased $33.5$15.2 million, or 14.9%6.1%, to $258.7$263.6 million
in December, 1999. Furthermore, vault cash increased $41.62001, following a $27.9 million, or 78.5%10.1%, to $94.1 million. In anticipation of customer demand for funds as a
result ofdecrease in 2000. The 2001
increase resulted from growth in the Corporation's branch network. The 2000
decrease resulted from the Year 2000 concerns,contingency planning precautions whereby
the Corporation maintained higher than normal balances of cash near the end of
the year. Demand for cash was not significant
and these reserves were reinvested in early January, 2000. See also "Year 2000"
for additional disclosures about the Year 2000 issues.1999.
Other Assets
Other assets increased $14.1$20.3 million, or 10.5%11.0%, in 19992001 to $148.8 million.
This compares to$204.1 million,
following a $15.4$22.6 million, or 12.9%14.0%, increase in 1998.2000. The net increase in 1999 was mainly2001
resulted from goodwill and intangible assets recorded for Dearden Maguire ($16.0
million) and the Branch Acquisition ($31.6 million). These increases were offset
by a result of$12.0 million decrease in the net deferred tax asset which grew $17.7
million. This was caused by the $46.7due to an increase in
unrealized gains on investment securities and an $8.0 million decrease in the unrealized gain on
available for sale investment securities, and the resulting decline in the
related deferred tax liability. The increase in 1998 resulted from the payoff of
the $15.5 million loan on the corporate-owned life insurance (COLI) program.
This loan was recorded as a reduction to the
accumulated cash surrender value on
the life insurance policies.
During 1999,as the Corporation reduced its position in
certain insurance investments. The 2000 increase resulted from $17.5 million of
goodwill recorded in connection with the Skylands acquisition.
The Corporation continued to increase its participation in affordable
housing and community development projects through investments in partnerships.
Equity commitments totaling $4.3An equity commitment of $2.8 million werewas made to twoone new projects.project in 2001. The
Corporation made its initial investment of this type during 1989 and is now
involved in 3445 projects, all located in the communities served by its subsidiary
banks. The carrying value of these investments was approximately $25.4$33.3 million
at December 31, 1999.2001. With these investments, the Corporation not only improves
the quantity and quality of available housing for low income individuals in
support of its banks' Community Reinvestment Act compliance effort, but also
becomes eligible for tax credits under federalFederal and, in some cases, state
programs.
Deposits and Borrowings
Deposits increased $21.0$459.3 million, or 0.5%8.4%, to $5.9 billion in 1999 to a total2001 ($179.4
million, or 3.3%, increase, excluding the impact of $4.5
billion.the Branch Acquisition).
This compares to an increase of $122.7$405.1 million, or 2.8%8.0%, in 1998.
Competition for2000 ($172.3
million, or 3.4%, excluding Skylands). The trend over the past two years has
been moderate internal growth in deposit funding, supplemented by acquisitions.
The difference between the two years has been the mix of the growth.
With respect to internal growth, during 2001, as interest rates continued
to trend downward, time deposits which is mainly focused on interest rates,
resulted in a decrease of $29.4decreased $141.3 million, or 1.3%, in 1999 and $16.7 million, or
0.7%, in 1998. Most notably,5.3%. Funds from
maturing certificates of deposit were moved to lower rate savings and demand
deposits. Although customers were earning less with original maturities of
less than one year decreased $104.3these deposit types, they
were reluctant to lock into longer-term time deposits. Demand deposits increased
$177.1 million, or 14.6%11.3%, particularly in 1999 and $106.7non-interest bearing types which grew
by $105.7 million, or 13.2%, in 1998.12.0%. Savings deposits increased $143.6 million, or
11.9%.
In 2000, the increases were more evenly spread among the various deposit
types. Demand anddeposits increased $63.1 million, or 4.4%, savings deposits
however, did see
increases in both 1999 ($51.6increased $56.9 million, or 2.3%)2.2% and 1998 ($139.4time deposits grew $115.4 million, or 6.5%)4.7%.
With reasonable funding alternatives available, the Corporation has
avoided simply paying the highest ratesDuring 2000, time deposits were still attractive to attract new time deposits.customers due to relatively
higher interest rates.
Short-term borrowings, consistingwhich consist mainly of Federal funds purchased and
customer and broker repurchase agreements, increased $204.8decreased $87.6 million, or 75.4%18.1%, in 19992001 to
$476.5$395.8 million after remaining flatdecreasing $44.4 million, or 8.4%, in 1998. Federal2000. The decrease in
2001 resulted from the Branch Acquisition funds, purchased
increased $95.6 million, customer repurchase agreements increased $36.0 millionwhich were used to reduce
short-term borrowings and broker repurchase agreements increased $70.7 million.to purchase investment securities since net loans were
unchanged. The 2000 decrease resulted from a change in borrowing mix from
short-term borrowings to long-term debt as the Corporation managed its interest
rate risk. Long-term debt, which consists of advances from the FHLB, increased $34.9$132.5 million, or 11.8%30.9% during 2000,
followed by a $94.0, or 16.7% decrease in 1999, following a $245.0 million, or 480.3%, increase in
1998. The dramatic increase in 1998 resulted from favorable long-term rates and
a need to better match maturities in conjunction with the Corporation's
asset/liability management strategies. In 1999, short-term borrowing was
relatively more attractive than longer-term.
The increases in both short and long-term borrowings over the past two
years underscores the difficulty that the Corporation and financial institutions
in general have had in generating deposit growth. Although these borrowings have
had little impact in the short term on the net interest margin, the Corporation
will continue to target deposits2001 as its primary funding source in the future.
Deposits, especially demand and savings, are generally less costly and provide
an opportunity to expand the existing customer base.maturing FHLB advances were
not replaced.
Shareholders' Equity
Total shareholders' equity increased $6.0$80.3 million, or 1.0%11.0%, to $614.3$811.5
million at December 31, 1999.2001. This compares to an increase of $43.8a $68.4 million, or 7.8%10.3%, in 1998. The slower rate of
increase in 1999 reflects two main changes.
First,2000. The growth in 2001 was the reductionresult of net income of $113.6
million, $16.9 million of stock issuances and an $11.8 million improvement in
the fair value of the Corporation's non-equity
investments resulted in a shift from $23.6net unrealized gains on investment securities. These increases were offset by
$54.0 million in cash dividends paid to shareholders. The growth in 2000
resulted from net income of $106.8 million and a $16.7 million increase in net
unrealized gains in 1998
to $11.8on investment securities. These increases were offset by $46.9
million in unrealized losses at December 31, 1999. Second,cash dividends to shareholders. Although shareholders' equity also
increased $31.9 million as a result of three separatethe Skylands acquisition in 2000, this
was offset by $45.2 million in repurchases of stock repurchase plans in 1999,during the period, the
majority of which was reissued to consummate the merger.
The Corporation accounted for the acquisition of Drovers under the pooling
of interests method of accounting, which would normally preclude it from
repurchasing its own stock for a period following the acquisition. In an effort
to stabilize equity markets following the terrorist attacks on September 11,
2001, the U.S. Securities and Exchange Commission temporarily suspended the
restrictions on treasury stock increased $13.5
million.
Excluding treasury stockpurchases. During the third and accumulated other comprehensive (loss) gain,
shareholders' equity increased $54.9 million, or 9.3%. This resulted from strong
net income growth as well as a prudent dividend policy. Despite increasing
dividends each year ($0.586 per share in 1999 and $0.529 per share in 1998),fourth quarters
of 2001, the Corporation maintained a dividend payout ratio inacquired 366,000 shares of its stock.
During 2000, the rangeCorporation repurchased shares of 40-45% (41.7% in
1999).its stock under two
separate plans approved by its Board of Directors. The first stockwas an open market
repurchase plan expired March 31, 1999 andprogram for up to 1.1 million shares through the end of 2000. The
second was for 275,000
shares,an open market repurchase program of which 47,300 were purchased during 1999.up to 2.2 million shares. The
second plan was approvedadopted to
minimize the increase in April, 1999 for 770,000the number of outstanding shares and was to expire March 31, 2000, however, all
770,000of the Corporation as
a result of its acquisition of Skylands.
Under the second plan, 2.1 million shares were purchased byrepurchased during 2000 and
all were reissued in connection with the end of 1999. The thirdSkylands acquisition. This plan was
cancelled as of the August 1, 2000 acquisition date. Under the first plan,
450,000 shares were repurchased through the plan's termination date on December
27, 2000.
On January 15, 2002, the Board of Directors approved in
December, 1999 and calls for thea plan to repurchase of
up to 12.5 million shares of the Corporation's common stock through June 30,
2000. In 1999, a2002. This amount equates to approximately 3% of the Corporation's total of 62,700 shares
had beenoutstanding. Shares repurchased under this third plan.plan will be added to the corporate
treasury and will be used for general corporate purposes.
The Corporation and its subsidiary banks are subject to various regulatory
capital requirements administered by banking regulators. Failure to meet minimum
capital requirements can initiate certain actions by regulators that could have
a material effect on the Corporation's financial statements. The regulations
require that banks maintain minimum amounts and ratios of total and Tier I
capital (as defined in the regulations) to risk weighted assets (as defined),
and Tier I capital to average assets (as defined). As of December 31, 1999,2001, the
Corporation and each of its bank subsidiaries met the minimum capital
requirements. In addition, the Corporation and each of its bank subsidiaries'
capital ratios exceeded the amounts required to be considered "well-capitalized"
as defined in the regulations.
YEAR 2000
- ---------
The Corporation and its significant third-party data processing service
providers successfully transitioned into calendar year 2000. Computer and other
electronic information processing systems all properly recognized dates after
1999, confirming the successful completion of the Corporation's five-step
comprehensive plan (Year 2000 Plan) for awareness, assessment, renovation,
validation, and implementation. Both information technology and non-information
technology systems, such as embedded technology in security and other systems,
continue to function properly. The Corporation has not activated its established
and tested contingency plans since no significant Year 2000 problems have
occurred.
The Corporation incurred approximately $2.3 million in expenses ($1.5
million in 1999) in completing its Year 2000 Plan. The majority of these
expenses were internal resources allocated to the Year 2000 Plan and not
incremental costs. In the future, these resources will be used for additional
technology initiatives. The Corporation also incurred capital expenditures of
approximately $5.5 million ($2.5 million in 1999) to replace non-compliant
hardware, software and other equipment. These expenditures, which were necessary
for Year 2000, also significantly improved the overall technology infrastructure
of the Corporation.
Other issues not related to the Corporation's computer systems include the
Year 2000 compliance of vendors and borrowers. The ability of vendors to
continue to provide uninterrupted service and for borrowers to continue to
perform on their loans could have a material impact on the Corporation's
financial statements. There are no known Year 2000 problems arising since the
beginning of the year 2000 related to significant vendors or borrowers.
While the initial results of the Corporation's Year 2000 preparedness have
been positive, there remains the possibility that Year 2000 problems not yet
identified could arise. While management believes the likelihood of a problem
relating to remaining Year 2000 issues resulting in a material impact on the
financial statements is remote, only the passage of time will confirm this.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
MARKET RISK
- -----------
Market risk is the exposure to economic loss that arises from changes in
the values of certain financial instruments. The types of market risk exposures
generally faced by banking entities include interest rate risk, equity market
price risk, foreign currency risk and commodity price risk. Due to the nature of
its operations, only equity market price risk and interest rate risk are
significant to the Corporation.
Equity Market Price Risk:Risk
Equity market price risk is the risk that changes in the values of equity
investments could have a material impact on the financial position or results of
operations of the Corporation. The Corporation's equity investments consist of
common stocks of publicly traded financial institutions (cost basis of
approximately $52.0 million) and$61.3 million at December 31, 2001), U.S. Government and agency
stock (cost basis of approximately $31.8$44.3 million) and money market mutual funds
(cost basis of approximately $40.7 million). The Corporation's equity
investments had a total estimated fair value of $98.2$151.3 million at December 31,
1999.2001. The $14.3$5.0 million net unrealized gain iswas primarily attributable to the
financial institutions stock.
Although the cost basiscarrying value of equity investments accounted for only 1.6%1.9%
of the Corporation's total assets, the unrealized gains on the portfolio
represent a potential source of revenue. The Corporation has a history of
periodically realizing gains from this portfolio and, if values were to decline
significantly, this revenue source could be lost.
The Corporation manages its equity market price risk by investing onlyprimarily
in regional financial institutions. Management continuously monitors the fair
value of its equity investments and evaluates current market conditions and
operating results of the companies. Periodic sale and purchase decisions are
made based on this monitoring process. None of the Corporation's equity
securities are classified as trading. Future cash flows from these investments
are not provided here since none of them have maturity dates.
In addition to its equity portfolio, the Corporation's investment
management and trust services revenue could be impacted by fluctuations in the
securities markets. A portion of the Corporation's revenue is based on the value
of the underlying investment portfolios. If securities markets contract, the
Corporation's revenue could be negatively impacted. In addition, the ability of
the Corporation to sell its brokerage services is dependent upon the consumers'
level of confidence in the outlook for rising securities prices.
Interest Rate Risk:Risk
Interest rate risk creates exposure in two primary areas. First, of all, changes in
rates have an impact on the Corporation's liquidity position and could affect
its ability to meet obligations and continue to grow. Secondly,Second, movements in
interest rates can create fluctuations in the Corporation's net income and
changes in the economic value of its equity.
The Corporation employs various management techniques to minimize its
exposure to interest rate risk. An Asset/Liability Management Committee (ALCO),
consisting of key financial and senior management personnel, meets on a weekly
basis. The ALCO is responsible for reviewing the interest rate sensitivity
position of the Corporation, approving asset and liability management policies,
and overseeing the formulation and implementation of strategies regarding
balance sheet positions and earnings. The primary goal of asset/liability
management is to address the liquidity and net income risks noted above.
From a liquidity standpoint, the Corporation must maintain a sufficient
level of liquid assets to meet the ongoing cash flow requirements of customers,
who, as depositors, may want to withdraw funds or who, as borrowers, need credit
availability. 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 interest payments on outstanding loans and investments.
Liquidity is also provided through the availability of deposits and borrowings.
At December 31, 1999,2001, liquid assets (defined as cash and due from banks,
short-term investments, securities available for sale, and non-mortgage-backed
securities held to maturity due in one year or less) totaled $1.4$2.1 billion, or
23.0%26.5%, of total assets. This compares to $1.4$1.7 billion, or 25.5%22.6%, of total assets
at December 31, 1998. Liquidity is also provided by non-mortgage-backed
securities held to maturity due from one to five years, which totaled $14.5
million and $24.8 million at December 31, 1999 and 1998, respectively. Principal
payments received on the held to maturity mortgage-backed securities portfolio
also provide liquidity. The Corporation had $53.9 million of such
mortgage-backed securities at December 31, 1999 and $117.4 million at December
31, 1998.2000.
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 $184.5$420.2 million and $219.7$152.7
million in 19992001 and 1998,2000, 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 this base to provide needed liquidity.
The Corporation also has access to 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 membersis a member of the FHLB which
provides themand has
access to FHLB overnight and term credit facilities. At December 31, 1999,2001, the
Corporation had $327.6$452.3 million in term advances from the FHLB with an additional
$713$845 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.
The following table provides information about the Corporation's interest
rate sensitive financial instruments. The table provides expected cash flows and
weighted average rates for each significant interest rate sensitive financial
instrument, by expected maturity period. None of the Corporation's financial
instruments are classified as trading.
FULTON FINANCIAL CORPORATION
INTEREST RATE SENSITIVITY
(dollars in thousands) Expected Maturity Period
-------------------------------------------------------------------------------------------
2000 2001--------------------------------------------------------------------- Estimated
2002 2003 2004 2005 2006 Beyond ------------- ------------- ------------- ------------- --------------Total Fair Value
---------- ---------- -------- -------- -------- ---------- ---------- ----------
Fixed rate loans (1) $ 736,588983,779 $ 550,655680,302 $517,738 $327,690 $247,186 $ 451,723 $ 335,032 $ 245,507 $ 779,601677,316 $3,434,011 $3,572,995
Average rate (1) 7.79%7.21% 7.84% 7.81% 7.74% 7.75% 7.72% 7.66%7.87% 7.71% 7.21% 7.52%
Floating rate loans (2) 385,712 146,146 120,483 108,962 79,084 482,914614,415 241,346 178,465 151,118 125,758 627,907 1,939,009 1,902,943
Average rate 9.23% 9.30% 9.52% 9.35% 8.54% 8.05%6.09% 6.51% 6.69% 6.76% 6.01% 5.49% 6.05%
Fixed rate investments (3) 233,420 197,726 167,730 190,277 97,776 237,300489,362 441,004 219,592 121,336 73,773 205,285 1,550,352 1,565,955
Average rate 6.06%5.98% 5.97% 5.95% 5.87% 6.04% 6.08% 6.05% 6.16% 6.29%4.98% 5.78%
Floating rate investments (3) 750 50 923-- 1,000 - 16,280-- -- -- 19,706 20,706 20,991
Average rate 7.19% 7.50% 6.19% 6.42% - 6.14%-- 3.61% -- -- -- 5.18% 5.10%
Other interest-earning assets 2,814 - - - - -25,342 -- -- -- -- -- 25,342 25,342
Average rate 5.55% - - - - -
--------------------------------------------------------------------------------------------5.36% -- -- -- -- -- 5.36%
-----------------------------------------------------------------------------------------------
Total $ 1,359,284 $ 894,577 $ 740,859 $ 635,271 $ 422,367 $ 1,516,095$2,112,898 $1,363,652 $915,795 $600,144 $446,717 $1,530,214 $6,969,420 $7,088,226
Average rate 7.90% 7.66% 7.65% 7.51% 7.51% 7.55%
--------------------------------------------------------------------------------------------6.58% 7.00% 7.15% 7.19% 6.96% 6.18% 6.70%
-----------------------------------------------------------------------------------------------
Fixed rate deposits (4) $1,821,366 $ 1,411,026453,325 $167,770 $ 464,57873,955 $ 173,77053,109 $ 59,505 $ 30,372 $ 20,59321,565 $2,591,090 $2,635,783
Average rate 4.98% 5.40% 5.69% 5.56% 5.54% 5.69%4.66% 4.77% 4.71% 5.77% 5.01% 5.22% 4.73%
Floating rate deposits (5) 553,718 80,642 77,215 77,215 77,215 796,186804,739 166,784 166,784 166,784 166,784 1,923,839 3,395,714 3,395,714
Average rate 3.27% 1.56% 1.52% 1.52% 1.52% 1.39%1.81% 0.63% 0.63% 0.63% 0.63% 0.42% 0.79%
Fixed rate borrowings (6) 88,934 70,780 280 152,780 280 15,19611,273 39,003 1,018 84,103 253 306,155 441,805 448,836
Average rate 5.27% 4.60% 5.76% 5.26% 5.76% 5.04%6.31% 5.37% 5.88% 6.29% 5.59% 5.38% 5.58%
Floating rate borrowings (7) 487,546 - - - - -410,332 -- 5,000 -- -- -- 415,332 415,332
Average rate 5.02% - - - - -
--------------------------------------------------------------------------------------------1.83% -- 2.23% -- -- -- 1.83%
-----------------------------------------------------------------------------------------------
Total $3,047,710 $ 2,541,224 $ 616,000 $ 251,265 $ 289,500 $ 107,867 $ 831,975659,112 $340,572 $324,842 $220,146 $2,251,559 $6,843,941 $6,895,665
Average rate 4.63% 4.81% 4.41% 4.32% 2.66% 1.56%
(dollars in thousands) Estimated
Total Fair Value
---------------- --------------
Fixed rate loans (1) $ 3,099,106 $ 3,020,936
Average rate (1) 7.74%
Floating rate loans (2) 1,323,301 1,318,403
Average rate 8.80%
Fixed rate investments (3) 1,124,229 1,091,189
Average rate 6.12%
Floating rate investments (3) 19,003 18,851
Average rate 6.20%
Other interest-earning assets 2,814 2,814
Average rate 5.55%
- -------------------------------------------------------------------------
Total $ 5,568,453 $ 5,452,193
Average rate 7.66%
- -------------------------------------------------------------------------
Fixed rate deposits (4) $ 2,159,844 $ 2,147,978
Average rate 5.16%
Floating rate deposits (5) 1,662,191 1,661,918
Average rate 2.04%
Fixed rate borrowings (6) 328,250 315,334
Average rate 5.11%
Floating rate borrowings (7) 487,546 487,546
Average rate 5.02%
- -------------------------------------------------------------------------
Total $ 4,637,831 $ 4,612,776
Average rate 4.02%
- -------------------------------------------------------------------------3.53% 3.76% 2.68% 3.27% 1.69% 1.14% 2.65%
-----------------------------------------------------------------------------------------------
Assumptions:
1) Amounts are based on contractual maturities, adjusted for expected
prepayments.
2) Average rates are shown on a fully taxable equivalent basis using an
effective tax rate of 35%.
3) Amounts are based on contractual maturities, adjusted for expected
prepayments on mortgage-backed securities.
4) Amounts are based on contractual maturities of time deposits.
5) Money market and Super NOW deposits are shown in first year. NOW and
savings accounts are spread based on history of deposit flows.
6) Amounts are based on contractual maturitiesexpected payoffs and calls of Federal Home Loan Bank
advances.
7) Amounts are Federal Fundsfunds purchased and securities sold under agreements to
repurchase, which mature in less than 90 days.
The preceding table and discussion addressed the liquidity implications of
interest rate risk and focused on expected contractual cash flows from financial
instruments. Expected contractual maturities, however, do not necessarily
estimate the net income impact of interest rate changes. Certain financial
instruments, such as adjustable rate loans, have repricing periods that differ
from contractual cash flows.
The Corporation uses three complementary methods to measure and manage
interest rate risk. They are static gap analysis, simulation of earnings, and
estimates of economic value of equity. Using these measurements in tandem
provides a reasonably comprehensive summary of the magnitude of interest rate
risk in the Corporation, level of risk as time evolves, and exposure to changes
in interest rate relationships.
Static gap provides a measurement of repricing risk in the Corporation's
balance sheet as of a point in time. This measurement is accomplished through
stratification of the Corporation's assets and liabilities into predetermined
repricing periods. The assets and liabilities in each of these periods are
summed and compared for mismatches within that maturity segment. Core deposits
having noncontractual maturities are placed into repricing periods based upon
historical balance performance. Repricing for mortgage loans held and for
mortgage-backed securities includes the effect of expected cash flows. Estimated
prepayment effects are applied to these balances based upon industry projections
for prepayment speeds. The Corporation's policy limits the cumulative 6-month
gap to plus or minus 15% of total earning assets. The cumulative 6-month gap as
of December 31, 19992001 was 0.88.1.05. The following is a summary of the interest
sensitivity gaps for fourthree different time intervals as of December 31, 1999:
Daily2001:
0-90 91-180 181-365
Adjustable Days Days Days
---------- ---- ------ -------
GAP........................ 1.23 0.62 0.57 0.79GAP ............................... 1.16 0.70 1.07
CUMULATIVE GAP............. 1.23 0.98 0.88 0.85GAP .................... 1.16 1.05 1.05
Simulation of net interest income and of net income is performed for the
next twelve-month period. A variety of interest rate scenarios is used to
measure the effects of sudden and gradual movements upward and downward in the
yield curve. These results are compared to the results obtained in a flat or
unchanged interest rate scenario. Simulation of earnings is used primarily to
measure the Corporation's short-term earnings exposure to rate movements. The
Corporation's policy limits the potential exposure of net interest income to 10%
of the base case net interest income for every 100 basis point "shock" in
interest rates. A "shock'"shock" is an immediate upward or downward movement of
interest rates across the yield curve based upon changes in the prime rate. At
December 31, 19992001, the Corporation had a larger exposure to upwarddownward rate
shocks, with net interest income at risk of loss over the next twelve months of
2%, 5% and 8%9% where interest rates are shocked upwarddownward by 100, 200 and 300
basis points, respectively.
Economic value of equity estimates the discounted present value of asset
cash flows and liability cash flows. Discount rates are based upon market prices
for like assets and liabilities. Upward and downward shocks of interest rates
are used to determine the comparative effect of such interest rate movements
relative to the unchanged environment. This measurement tool is used primarily
to evaluate the longer term repricing risks and options in the Corporation's
balance sheet. A policy limit of 10% of economic equity may be at risk for every
100 basis point "shock" movement in interest rates. As of December 31, 1999,
upward2001,
downward shocks of 100, 200 and 300 basis points were estimated to have negative
effects upon economic value of equity of 2%, 1%4% and 1%7%, respectively.
Common Stock
- ------------
As of December 31, 1999,2001, the Corporation had 68,499,47382.6 million shares of $2.50
par value common stock outstanding held by 15,69617,145 shareholders of record. 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 and per-share cash dividends declared for each of the
quarterly periods in 19992001 and 1998.2000. Per-share amounts have been retroactively
adjusted to reflect the effect of stock dividends declared.dividends.
Price Range
-------------------------------------- Per-Share
High Low Dividend
-------- ------------- ------ ---------
19992001
- ----
First Quarter....... 20 29/32 18 3/16Quarter................. $21.96 $19.34 $0.152
Second Quarter................ 22.44 18.27 0.170
Third Quarter................. 23.00 20.80 0.170
Fourth Quarter................ 22.40 20.86 0.170
2000
- ----
First Quarter................. $19.10 $14.46 $0.136
Second Quarter...... 21 5/8 19 3/8 0.150Quarter................ 21.66 16.19 0.152
Third Quarter....... 21 1/16 18 3/4 0.150Quarter................. 20.89 18.10 0.152
Fourth Quarter...... 20 5/16 17 9/16 0.150
1998
----
First Quarter....... 24 3/32 21 41/64 0.125
Second Quarter...... 27 21/64 21 41/64 0.131
Third Quarter....... 23 63/64 17 27/32 0.136
Fourth Quarter...... 20 29/32 16 23/64 0.136Quarter................ 22.74 18.51 0.152
Item 8. Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
December 31
----------------------------------
1999 1998
--------------- --------------------------------------
2001 2000
---------- ----------
Assets
- ---------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Cash and due from banks .......................................................................................................................... $ 245,572356,539 $ 247,558282,586
Interest-bearing deposits with other banks ........................................ 1,798 2,975............................................ 6,968 8,417
Mortgage loans held for sale ...................................................... 1,016 7,987.......................................................... 18,374 5,241
Investment securities:
Held to maturity (estimated fair value- $84,777$50,492 in 19992001 and $177,939$83,836 in 1998) 85,474 176,6232000) ..... 49,557 84,762
Available for sale ........................................................... 1,137,846 1,206,121............................................................... 1,687,787 1,370,133
Loans, ............................................................................. 4,432,030 4,040,455net of unearned income ......................................................... 5,373,020 5,374,659
Less: Allowance for loan losses ............................................. (57,631) (57,415)
Unearned income ....................................................... (9,623) (10,064)
--------------- ---------------................................................. (71,872) (65,640)
---------- ----------
Net Loans ................................................ 4,364,776 3,972,976
--------------- ---------------.................................................... 5,301,148 5,309,019
---------- ----------
Premises and equipment ............................................................ 79,217 75,715................................................................ 125,617 116,407
Accrued interest receivable ....................................................... 31,496 34,942........................................................... 43,388 44,747
Intangible assets...................................................................... 73,286 26,643
Other assets ...................................................................... 122,824 113,766
--------------- ---------------.......................................................................... 108,047 116,849
---------- ----------
Total Assets ............................................. $ 6,070,019 $ 5,838,663
=============== ===============................................................. $7,770,711 $7,364,804
========== ==========
Liabilities
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing ........................................................................................................................ $1,094,158 $ 724,778 $ 759,585915,308
Interest-bearing ............................................................. 3,822,035 3,833,384
--------------- ---------------................................................................. 4,892,646 4,587,395
---------- ----------
Total Deposits ........................................... 4,546,813 4,592,969
--------------- ---------------............................................... 5,986,804 5,502,703
---------- ----------
Short-term borrowings:
Securities sold under agreements to repurchase................................ 309,790 212,225repurchase.................................... 289,659 281,538
Federal funds purchased....................................................... 172,250 19,521purchased........................................................... 105,000 160,100
Demand notes of U.S. Treasury ................................................ 5,506 3,839
--------------- ---------------.................................................... 5,676 4,791
---------- ----------
Total Short-Term Borrowings .............................. 487,546 235,585
--------------- ---------------.................................. 400,335 446,429
---------- ----------
Accrued interest payable .......................................................... 32,313 34,255.............................................................. 35,926 47,713
Other liabilities ................................................................. 60,803 71,502
Long-term..................................................................... 71,890 69,785
Federal Home Loan Bank advances and long-term debt .................................................................... 328,250 296,018
--------------- ---------------.................................... 456,802 559,503
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust.... 7,500 7,500
---------- ----------
Total Liabilities ........................................ 5,455,725 5,230,329
--------------- ---------------............................................ 6,959,257 6,633,633
---------- ----------
Shareholders' Equity
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Common stock ($2.50 par)
Shares: Authorized 400,000,000400 million
Issued 69,356,609;83.2 million; Outstanding 68,499,473 (69,185,20482.6 million in 1998)....... 173,392 157,6382001 and 82.0
million in 2000..................................................... 207,962 198,612
Capital surplus ................................................................... 394,234 293,897....................................................................... 536,235 472,829
Retained earnings ................................................................. 75,482 136,668..................................................................... 65,649 76,615
Accumulated other comprehensive (loss) income...................................... (11,846) 23,619income................................................. 12,970 1,148
Less: Treasury stock (857,136(572,000 shares in 19992001 and 171,4051.1 million shares in 1998)2000)........... (16,968) (3,488)
-------------- ---------------(11,362) (18,033)
---------- ----------
Total Shareholders' Equity ............................... 614,294 608,334
-------------- ---------------................................... 811,454 731,171
---------- ----------
Total Liabilities and Shareholders' Equity ............... $ 6,070,019 $ 5,838,663
============== ===============
- ---------------------------------------------------------------------------------------------------------------------------................... $7,770,711 $7,364,804
========== ==========
- --------------------------------------------------------------------------------
See notes to consolidated financial statements
- ----------------------------------------------
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Year Ended December 31
-----------------------------------------------------------------------------------
2001 2000 1999
1998 1997
Interest
Income
- ----------------------------------------------------------------------------------------------------------------------------- -------- --------
Interest Income
- -------------------------------------------------------------------------------------------------
Loans, including fees ..................................... $ 343,906 $ 338,667 $ 324,815.......................................... $424,025 $433,686 $378,705
Investment securities:
Taxable .............................................. 62,229 60,744 53,005................................................... 77,701 68,629 71,028
Tax-exempt ........................................... 8,388 4,749 4,301................................................ 9,465 10,187 9,903
Dividends ............................................ 4,124 3,505 2,823
Federal funds sold ........................................ 161 1,486 1,994
Interest-bearing deposits with other banks................................................. 5,097 6,087 5,365
Other interest income .......................................... 1,890 1,038 297
-------- -------- --------
Total Interest Income ................ 106 214 310
- -------------- -------------- --------------
18,914 409,365 387,248518,178 519,627 465,298
Interest Expense
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Deposits .................................................. 143,165 159,684 153,329....................................................... 186,969 187,601 161,459
Short-term borrowings ..................................... 16,019 9,124 10,828.......................................... 13,150 30,447 17,619
Long-term debt ............................................ 15,643 8,886 3,996................................................. 27,843 25,826 20,050
-------- -------- --------
Total Interest Expense ........... -------------- -------------- --------------
174,827 177,694 168,153
-------------- -------------- --------------................ 227,962 243,874 199,128
-------- -------- --------
Net Interest Income .............. 244,087 231,671 219,095................... 290,216 275,753 266,170
Provision for Loan Losses ................................. 8,216 5,582 8,417...................................... 14,585 15,024 9,943
-------- -------- --------
Net Interest Income After
-------------- -------------- --------------
Provision for Loan Losses . 235,871 226,089 210,678...... 275,631 260,729 256,227
-------- -------- --------
Other Income
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Investment management &and trust services..................... 16,109 12,659 10,398services ....................... 27,138 20,609 17,508
Service charges on deposit accounts ....................... 21,242 18,954 17,849............................ 32,388 26,233 23,013
Other service charges and fees ............................ 13,110 12,167 10,537................................. 17,125 15,728 12,764
Mortgage banking income.................................... 4,195 4,808 3,574income ........................................ 11,782 3,782 5,035
Investment securities gains ............................... 8,166 11,360 6,355
-------------- -------------- --------------
62,822 59,948 48,713.................................... 12,561 8,646 8,348
-------- -------- --------
100,994 74,998 66,668
Other Expenses
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits ............................ 88,657 84,112 79,301................................. 116,907 103,209 97,702
Net occupancy expense ..................................... 13,352 12,399 13,126.......................................... 17,074 15,440 14,796
Equipment expense ......................................... 9,507 9,034 9,588
Special services .......................................... 11,069 10,623 7,872.............................................. 12,345 11,454 10,945
Data processing ................................................ 11,782 11,232 11,422
Merger-related expenses ........................................ 7,105 -- --
Intangible amortization ........................................ 4,786 1,839 1,297
Other ..................................................... 38,403 41,526 39,651
-------------- -------------- --------------
160,988 157,694 149,538
-------------- -------------- --------------.......................................................... 46,670 41,282 39,607
-------- -------- --------
216,669 184,456 175,769
-------- -------- --------
Income Before Income Taxes ....... 137,705 128,343 109,853............ 159,956 151,271 147,126
Income Taxes .............................................. 40,479 39,832 33,448
-------------- -------------- --------------................................................... 46,367 44,437 42,499
-------- -------- --------
Net Income ....................... $ 97,226 $ 88,511 $ 76,405
============== ============== ==============............................ $113,589 $106,834 $104,627
======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Per-Share Data:
Net Income (Basic)......................................... ............................................. $ 1.411.38 $ 1.281.32 $ 1.111.27
Net Income (Diluted)....................................... 1.40 1.27 1.10 ........................................... 1.37 1.31 1.26
Cash Dividends ............................................ 0.586 0.529 0.453................................................. 0.662 0.593 0.532
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
- ----------------------------------------------
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated
Other
Comprehen-
Common Capital Retained sive Income
(Dollars in thousands, except per-share data) Stock Surplus Earnings (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1997...........................................1999........................................... $172,182 $313,125 $ 117,035149,038 $ 251,159 $ 122,38524,151
Comprehensive Income:
Net income................................................. 76,405104,627
Other - unrealized loss on securities (net of $21.4 million
tax benefit).......................................... (39,681)
Total comprehensive income............................
Stock dividend issued - 10% (7.3 million shares)................ 16,515 106,336 (122,925)
Stock issued (371,000 shares, including 214,000 shares of
treasury stock)............................................ 338 (18)
Acquisition of treasury stock (970,000 shares)..................
Cash dividends - $0.532 per share............................... (42,783)
--------------------------------------------
Balance at December 31, 1999......................................... 189,035 419,443 87,957 (15,530)
Comprehensive Income:
Net income................................................. 106,834
Other - unrealized gain on securities (net of $ 9.9$9.0 million
tax expense) 16,678
Total comprehensive income............................
Stock dividend issued - 10% (4,944,0255% (4.0 million shares).................. 8,989 73,962 (83,045)................. 9,442 61,767 (71,287)
Stock issued (279,906 shares)................................... 473 1,281(380,000 shares, including 326,000 shares of
treasury stock)............................................ 135 (960)
Stock issued for acquisition of Skylands
Financial Corporation (2.2 million shares of treasury stock) (7,421)
Acquisition of treasury stock (57,750(2.5 million shares).................................
Cash dividends - $0.453$0.593 per share............................... (31,111)
-----------------------------------------------------(46,889)
--------------------------------------------
Balance at December 31, 1997......................................... 126,497 326,402 84,6342000......................................... 198,612 472,829 76,615 1,148
Comprehensive Income:
Net income................................................. 88,511113,589
Other - unrealized gain on securities (net of $6.4 million
tax expense).......................................... 11,822
Total comprehensive income............................
Stock dividend issued - 5% (3.6 million shares)................. 9,103 61,377 (70,554)
Stock issued (1.0 million shares, including 906,000
shares of treasury stock).................................. 247 2,029
Acquisition of treasury stock (366,000 shares)..................
Cash dividends - $0.662 per share............................... (54,001)
--------------------------------------------
Balance at December 31, 2001......................................... $207,962 $536,235 $ 65,649 $ 12,970
============================================
Treasury
(Dollars in thousands, except per-share data) Stock Total
- -------------------------------------------------------------------------------------------
Balance at January 1, 1999........................................... $ (4,426) $654,070
Comprehensive Income:
Net income................................................. 104,627
Other - unrealized loss on securities (net of $2.5$21.4 million
tax benefit).......................................... (39,681)
--------
Total comprehensive income............................ Stock split paid in the form of a 25% stock dividend (13,183,897
shares) 29,963 (30,088)
Stock issued (677,598 shares, including 173,494 shares of
treasury stock) 1,178 (2,417)
Acquisition of treasury stock (275,743 shares)..................
Cash dividends - $0.529 per share............................... (36,477)
-----------------------------------------------------
Balance at December 31, 1998......................................... 157,638 293,897 136,668
Comprehensive Income:
Net income................................................. 97,226
Other - unrealized loss on securities (net of $19.1 million
tax benefit)
Total comprehensive income............................64,946
--------
Stock dividend issued - 10% (6,302,309(7.3 million shares).................. 15,754 102,099 (117,917)................ (74)
Stock issued 194,369 (Shares(371,000 shares, including 214,000 shares of
treasury stock)................. (1,762)............................................ 4,054 4,374
Acquisition of treasury stock (880,100(970,000 shares).................. (17,784) (17,784)
Cash dividends - $0.586$0.532 per share............................... (40,495)
-----------------------------------------------------(42,783)
-------------------
Balance at December 31, 1999......................................... $ 173,392 $ 394,234 $ 75,482
=====================================================
Accumulated
Other
Comprehen-
sive Income Treasury
(Dollars in thousands, except per-share data) (Loss) Stock Total
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1997........................................... $ 9,818 $ (103) $ 500,294(18,156) 662,749
Comprehensive Income:
Net income................................................. 76,405106,834
Other - unrealized gain on securities (net of $ 9.9$9.0 million
tax expense) 18,439 18,439
----------------16,678
--------
Total comprehensive income............................ 94,844
----------------123,512
--------
Stock dividend issued - 10% (4,944,0255% (4.0 million shares).................. (94)................. (78)
Stock issued (279,906 shares)................................... 1,754(380,000 shares, including 326,000 shares of
treasury stock)............................................ 6,003 5,178
Stock issued for acquisition of Skylands
Financial Corporation (2.2 million shares of treasury stock) 39,282 31,861
Acquisition of treasury stock (57,750(2.5 million shares)................... (1,196) (1,196).............. (45,162) (45,162)
Cash dividends - $0.453$0.593 per share............................... (31,111)
---------------------------------------------------(46,889)
-------------------
Balance at December 31, 1997......................................... 28,257 (1,299) 564,4912000......................................... (18,033) 731,171
Comprehensive Income:
Net income................................................. 88,511113,589
Other - unrealized lossgain on securities (net of $2.5$6.4 million
tax benefit) (4,638) (4,638)
----------------expense).......................................... 11,822
--------
Total comprehensive income............................ 83,873
----------------125,411
--------
Stock split paid in the form of a 25% stock dividend (13,183,897issued - 5% (3.6 million shares) (125)................. (74)
Stock issued (677,598(1.0 million shares, including 173,494906,000
shares of treasury stock) 3,489 2,250.................................. 14,593 16,869
Acquisition of treasury stock (275,743(366,000 shares).................. (5,678) (5,678)(7,922) (7,922)
Cash dividends - $0.529$0.662 per share............................... (36,477)
---------------------------------------------------(54,001)
-------------------
Balance at December 31, 1998......................................... 23,619 (3,488) 608,334
Comprehensive Income:
Net income................................................. 97,226
Other2001......................................... $(11,362) $811,454
===================
- unrealized loss on securities (net of $19.1 million
tax benefit) (35,465) (35,465)
----------------
Total comprehensive income............................ 61,761
Stock dividend issued - 10% (6,302,309 shares).................. (64)
Stock issued 194,369 (Shares of treasury stock)................. 4,054 2,292
Acquisition of treasury stock (880,100 shares).................. (17,534) (17,534)
Cash dividends - $0.586 per share............................... (40,495)
---------------------------------------------------
Balance at December 31, 1999......................................... $ (11,846) $ (16,968) $ 614,294
===================================================-------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See notes to consolidated financial statements
- ----------------------------------------------
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(In Thousands)
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Year Ended December 31
--------------------------------------------------------------------------------------
2001 2000 1999
1998 1997
------------- ------------- ---------------------- --------- ---------
Cash Flows from Operating Activities:
Net income .......................................................................................................... $ 97,226113,589 $ 88,511106,834 $ 76,405104,627
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Provision for loan losses .................................... 8,216 5,582 8,417...................................... 14,585 15,024 9,943
Depreciation and amortization of premises and equipment ...... 9,911 8,965 9,690........ 12,990 11,574 11,178
Net amortization of investment security premiums ............. 1,204 359 315............... 147 462 1,435
Deferred income tax expense (benefit)......................... 1,377 (329) 841 .......................... 1,520 (2,638) 1,237
Gain on sale of investment securities ........................ (8,166) (11,360) (6,355).......................... (12,561) (8,646) (8,348)
Gain on sale of mortgage loans................................ (2,554) (3,384) (2,271)loans ................................. (10,260) (9,299) (3,295)
Proceeds from sale of mortgage loans.......................... 184,535 219,745 128,929loans ........................... 420,220 152,745 239,681
Originations of mortgage loans held for sale.................. (175,010) (222,402) (122,460)sale ................... (423,093) (147,671) (228,533)
Amortization of intangible assets .......................................................... 4,786 1,839 1,297 1,399 1,493
Decrease (increase) in accrued interest receivable ........... 3,446 (2,606) (213)
Decrease (increase)............. 1,359 (8,300) 5,466
(Increase) decrease in other assets .......................... 7,303 (24,080) (10,151)............................ (5,448) (4,238) 4,364
(Decrease) increase in accrued interest payable .............. (1,942) 1,028 5,804
Increase (decrease)................ (11,787) 10,446 (926)
(Decrease) increase in other liabilities...................... 792 (3,494) 14,649
------------- ------------- -------------liabilities ....................... (1,640) 3,558 (837)
--------- --------- ---------
Total adjustments....................................... 30,409 (30,577) 28,688
------------- ------------- -------------adjustments ........................................ (9,182) 14,856 32,662
--------- --------- ---------
Net cash provided by operating activities ........... 127,635 57,934 105,093
------------- ------------- -------------............. 104,407 121,690 137,289
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale ......... 18,765 25,872 133,723........... 206,688 85,256 52,653
Proceeds from maturities of securities held to maturity ...... 92,635 173,056 216,859........ 42,342 46,542 105,538
Proceeds from maturities of securities available for sale .... 297,846 251,311 103,430...... 478,310 163,842 297,949
Purchase of securities held to maturity .............................................. (7,200) (3,001) (1,500) (6,606) (27,738)
Purchase of securities available for sale .................... (308,271) (743,044) (470,603)...................... (970,779) (222,071) (413,169)
Decrease (increase) in short-term investments ................ 1,177 (341) 3,506.................. 1,449 (5,544) 876
Net increase in loans ........................................ (400,016) (74,471) (377,302).......................................... (6,714) (335,854) (472,737)
Cash acquired from Skylands Financial Corporation .............. -- 11,632 --
Net cash paid for Dearden Maguire .............................. (16,224) -- --
Net cash paid for Branch Acquisition ........................... (28,820) -- --
Purchase of premises and equipment, net....................... (13,413) (11,633) (13,958)
------------- ------------- -------------net ........................ (22,200) (28,198) (15,568)
--------- --------- ---------
Net cash used in investing activities ............... (312,777) (385,856) (432,083)
------------- ------------- -------------................. (323,148) (287,396) (445,958)
--------- --------- ---------
Cash Flows from Financing Activities:
Net increase (decrease) increase in demand and savings deposits ....... (44,292) 202,648 62,481......... 516,439 129,061 (31,325)
Net (decrease) increase in time deposits ..................... (1,864) (28,222) 283,662....................... (32,337) 106,191 33,913
Addition to long-term debt.................................... 43,092 263,612 13,747debt ..................................... -- 242,000 90,238
Repayment of long-term debt...................................debt .................................... (102,701) (135,571) (10,860)
(20,639) (28,200)
Increase (decrease)(Decrease) increase in short-term borrowings ................. 251,961 (12,716) 21,911................... (46,094) (73,755) 276,415
Dividends paid ............................................... (39,575) (33,939) (29,810)................................................. (51,486) (45,741) (41,856)
Net proceeds from issuance of common stock ................... 2,228 2,125 1,660..................... 16,795 5,100 4,300
Acquisition of treasury stock ................................ (17,534) (5,678) (1,196)
------------- ------------- -------------.................................. (7,922) (45,162) (17,784)
--------- --------- ---------
Net cash provided by financing activities............ 183,156 367,191 324,255
------------- ------------- -------------activities ............. 292,694 182,123 303,041
--------- --------- ---------
Net Increase (Decrease) Increase in Cash and Due From Banks .......... (1,986) 39,269 (2,735)............. 73,953 16,417 (5,628)
Cash and Due From Banks at Beginning of Year ................. 247,558 208,289 211,024
------------- ------------- -------------................... 282,586 266,169 271,797
--------- --------- ---------
Cash and Due From Banks at End of Year ................................................ $ 245,572356,539 $ 247,558282,586 $ 208,289
============= ============= =============
Supplemental Disclosures of Cash Flow Information266,169
========= ========= =========
Cash paid during the year for:
Interest .............................................................................................. $ 176,769239,749 $ 176,666233,427 $ 162,349200,054
Income taxes ........................................ 31,066 36,040 29,138.............................................. 46,633 40,624 32,916
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
- ----------------------------------------------
FULTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Business: Fulton Financial Corporation (Parent Company) is a multi-bank
financial holding company which provides a full range of banking and financial
services to businesses and consumers through its wholly-owned banking
subsidiaries: Fulton Bank, Lebanon Valley Farmers Bank, Swineford National Bank,
Lafayette Ambassador Bank, FNB Bank, N.A., Great Valley
Bank, Hagerstown Trust, Delaware National
Bank, The Bank (formerly The Bank of Gloucester County,
TheCounty), Woodstown National
Bank, & Trust Company and The Peoples Bank of Elkton.Elkton and Skylands Community Bank; as well as its
financial services subsidiaries: Fulton Financial Advisors, N.A., Dearden,
Maguire, Weaver and Barrett, LLC and Fulton Insurance Services Group, Inc. In
addition, the Parent Company owns foursix other non-banking subsidiaries: Fulton
Financial Realty Company, Fulton Life Insurance Company, Pennbanks Insurance
Company, Central Pennsylvania Financial Corporation andCorp., FFC Management, Inc. and Drovers
Capital Trust I. Collectively, the Parent Company and its subsidiaries are
referred to as the Corporation.
The Corporation's primary source of revenue is interest income on loans and
investment securities and fee income on its products and services. Its expenses
consist of interest expense on deposits and borrowed funds, provision for loan
losses and other operating expenses. The Corporation's primary competition is
other financial services providers operating in its region. With the growth in
electronic and other alternative delivery channels in recent years, competition
has expanded toCompetitors also
include other bank and non-bank entities not physicallyfinancial services providers located inoutside the Corporation's
geographical market.market as electronic delivery systems have become more prominent.
The Corporation is subject to the regulations of certain federal and state
agencies and undergoes periodic examinations by such regulatory authorities.
The Corporation offers, through its eleven banking subsidiaries, a full range of
retail and wholesalecommercial banking services throughout sixteen central and eastern
Pennsylvania, counties, twowestern and northern Maryland, counties, one Delaware county and twowestern New Jersey counties.Jersey.
Approximately 55%half of the Corporation's business is conducted in the south
central Pennsylvania region. Industry diversity is the key to the economic
well-being of this region and the Corporation is not dependent upon any single
customer or industry.
Basis of Financial Statement Presentation: The consolidated financial
statements have been prepared in conformity with accounting principles generally
accepted accounting
principles (GAAP)in the United States 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 in
accordance with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent 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 acquired are classified as held to maturity at the time
of purchase when the Corporation has both the intent and ability to hold these
investments until they mature. Such debt securities 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, most
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 in shareholders' equity
as a separate component of shareholders' equity,other comprehensive income, net of tax. Realized security
gains and losses are computed using the specific identification method and are
recorded on a trade date basis.
Revenue Recognition: Loan and lease financing receivables are stated at
their principal amount outstanding, except for mortgagesmortgage loans 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 effective yield 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, unpaid interest credited to income is reversed. Nonaccrual loans
are restored to accrual status when all delinquent principal and interest become
current or the loan is considered secured and in the process of collection.
Loan Origination Fees and Costs: Loan origination fees and the related
direct origination costs are offset and the net amount is deferred and amortized
over the life of the loan as an adjustment to interest income. For mortgage
loans sold, the net amount is included in gain (or loss)or loss upon the sale of the
related mortgage loan.
Mortgage Servicing Rights: The estimated fair value of mortgage servicing
rights (MSR's) related to loans sold is recorded as an asset upon the sale of
such loans. MSR's are amortized as a reduction to servicing income over the
estimated lives of the underlying loans. In addition, MSR's are periodically
tested for impairment and, if necessary, additional write-offs are recorded.
During 2001, the Corporation recorded MSR's of approximately $3.6 million. At
December 31, 2001, the Corporation had $3.2 million of unamortized MSR's.
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
any of these factors.
Impaired loans, as defined by Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan,"Loan" (Statement 114), are
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 will be unable to collect all amounts due
according to the contractual terms of the loan agreement.
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 3950 years
for buildings and improvements and eight years for furniture and equipment.
Interest costs incurred during the construction of major bank premises are
capitalized. During 2001 and 2000, the Corporation capitalized approximately
$390,000 and $780,000, respectively, in interest expense related to the
construction of new office space at its headquarters location.
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 less
estimated selling costs or the carrying amount of the loan. Costs to maintain
the assets and subsequent gains and losses on sales are included in other income
and other expense.
Income Taxes: The provision for income taxes is based upon the results of
operations, adjusted primarily for the effect of tax-exempt income and net
credits received as a result of investments in low and moderate income housing
partnerships. Certain items of income and expense are reported in different
periods for financial reporting and tax return purposes. The tax effects of
these temporary differences are recognized currently in the deferred income tax
provision or benefit. 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.
Net Income Per Share: The Corporation's basic net income per share is
calculated as net income divided by the weighted average number of shares
outstanding. For diluted net income per share, net income is divided by the
weighted average number of shares outstanding plus the incremental number of
shares added as a result of converting common stock equivalents, calculated
using the treasury stock method. The Corporation's common stock equivalents
consist solely of outstanding stock options (See Note J).options. Option grants which would not have
a dilutive impact on average shares are not included in the calculation.
A reconciliation of the weighted average shares outstanding used to
calculate basic net income per share and diluted net income per share followsfollows.
There is no adjustment to net income to arrive at diluted net income per share.
2001 2000 1999
------ ------ ------
(in thousands):
1999 1998 1997
---- ---- ----
Weighted average shares outstanding (basic)........ 68,973 68,967 68,730 ...... 82,597 81,213 82,296
Impact of common stock equivalents................. 388 719 964equivalents ............... 554 485 497
------ ------ ------
Weighted average shares outstanding (diluted)...... 69,361 69,686 69,694 .... 83,151 81,698 82,793
====== ====== ======
Comprehensive Income: The following table summarizes the reclassification
adjustment for realized security gains (net of taxes) for each of the indicated
periods(in thousands):periods:
1998 1998 1997
---- ---- ----2001 2000 1999
------- ------- --------
(in thousands)
Unrealized holding gains (losses) gains arising during period..... $ (30,157) $ 2,746 $ 22,570
Less: reclassificationperiod ........ $19,987 $22,298 $(34,255)
Reclassification adjustment for gains included in net income....................................... 5,308 7,384 4,131
---------- ----------- -----------income ... 8,165 5,620 5,426
------- ------- --------
Net unrealized gains (losses) gains on securities................. $ (35,465) $ (4,638) $ 18,439
========== =========== ===========securities .................... $11,822 $16,678 $(39,681)
======= ======= ========
Disclosures about Segments of an Enterprise and Related Information: Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (Statement 131) became effective in
1998. This statement requires that public business enterprises report financial
and descriptive information about its reportable operating segments. Based on
the guidance provided by the statement, theThe
Corporation does not have any operating segments which require suchdisclosure of
additional information. While the Corporation owns eleven separate banks, each
engages in similar activities, provides similar products and services, and
operates in the same general geographical area. The Corporation's non-banking
activities are insignificantimmaterial and, dotherefore, separate information has not require separate information.been
disclosed.
Business Combinations and Intangible Assets - In June 2001, the Financial
Accounting Standards Board (FASB) issued Statements of Financial Accounting
Standards Nos. 141, "Business Combinations" (Statement 141) and 142 "Goodwill
and Other Intangible Assets" (Statement 142). Statement 141 requires that the
purchase method of accounting be used for all business combinations and
eliminated the use of pooling of interests for transactions initiated subsequent
to June 30, 2001. Statement 142 eliminated the amortization to expense of
goodwill recorded as a result of such combinations, but requires periodic
evaluation of the goodwill for impairment. Write-downs of the balance, if
necessary, are to be charged to results of operations. Goodwill existing prior
to the issuance of the statement was required to be amortized through December
31, 2001.
The descriptive informationCorporation evaluated its recorded goodwill under Statement 142 as of
January 1, 2002 and concluded that there was no impairment at that date. As a
result, no additional write-off during 2002 is expected. In addition, as a
result of eliminating amortization of goodwill in 2002, the Corporation expects
to realize a pre-tax benefit of $3.1 million. The Corporation will also
recognize income of $848,000 from the reversal of negative goodwill balances as
of January 1, 2002. During 2001, the Corporation recognized $3.1 million in
amortization expense related to competition, concentrationgoodwill which will no longer be amortized in
2002.
Accounting for the Impairment or Disposal of credit risksLong-Lived Assets - In August,
2001, the FASB issued Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" (Statement
144). Statement 144 supersedes Statement 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and certain other
operating factors is
applicablerelated accounting standards. In general, Statement 144 established a single
accounting model for a segment of a business to the consolidated Corporation.be accounted for as a
discontinued operation and resolved significant implementation issues related to
Statement 121. Statement 144 was effective for years beginning after December
15, 2001. The Corporation adopted Statement 144 on January 1, 2002 and there was
no material impact on its balance sheet, comprehensive income or net income.
Accounting for Derivative Instruments and Hedging Activities: In June,
1998, the FASB issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (Statement 133).
This statement expanded the previous definition of derivatives to include
certain additional transactions. Entities are required to record derivatives at
their fair values and recognize any changes in fair value in current period
earnings, unless specific hedge criteria are met. Statement 133, as amended by
Statement 137, is138, was effective for years beginning after June 15, 2000. The
Corporation does not expect the adoption ofadopted Statement 133 to have aon January 1, 2001 and there was no material
effectimpact on its balance sheet, comprehensive income or net income.
Reclassifications and Restatements: Certain amounts in the 19982000 and 19971999
consolidated financial statements and notes have been reclassified to conform to
the 19992001 presentation. All information has been restated for the July, 2001
merger with Drovers Bancshares Corporation, which was accounted for as a pooling
of interests. All share and per-share data have been restated to reflect the
impact of the 10%5% stock dividend paid on June 1, 1999.May 25, 2001.
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 19992001 and 19982000
was approximately $51.3$56.0 million and $51.6$58.4 million, respectively.
NOTE C - INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
The following tables summarize the amortized cost and estimated fair values
of investment securities as of December 31 (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
19992001 Held to Maturity Cost Gains Losses Value
- --------------------------------------- ------------- ------------- ------------ ------------------------------------------------ ---------- ---------- ---------- ----------
U.S. Government and
agency securities.................securities ............ $ 10,3888,170 $ 32147 $ (192)-- $ 10,2288,317
State and municipal securities......... 20,622 109 (110) 20,621securities .... 9,840 163 -- 10,003
Debt securities issued
Byby foreign governments............ 455 1 (3) 453governments ....... 150 -- -- 150
Corporate debt securities.............. 70 - - 70securities ......... 15 -- -- 15
Mortgage-backed securities............. 53,939 87 (621) 53,405
------------- ------------- ------------ -------------securities ........ 31,382 628 (3) 32,007
---------- ------- ------- ----------
$ 85,47449,557 $ 229938 $ (926)(3) $ 84,777
============= ============= ============ =============
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
199950,492
========== ======= ======= ==========
2001 Available for Sale
Cost Gains Losses Value
- --------------------------------------- ------------- ------------- ------------ ------------------------------------------------
Equity securities ................. $ 146,349 $ 8,751 $(3,767) $ 151,333
U.S. Government and
agency securities ............ 97,285 2,397 -- 99,682
State and municipal securities .... 214,843 3,511 (173) 218,181
Debt securities issued
by foreign governments ....... 50 -- -- 50
Corporate debt securities ......... 250 -- -- 250
Mortgage-backed securities ........ 1,209,073 11,564 (2,346) 1,218,291
---------- ------- ------- ----------
$1,667,850 $26,223 $(6,286) $1,687,787
========== ======= ======= ==========
2000 Held to Maturity
- -----------------------------------
U.S. Government and
agency securities ............ $ 8,992 $ 88 $(1,219) $ 7,861
State and municipal securities .... 12,971 152 (28) 13,095
Debt securities issued
by foreign governments ....... 205 4 -- 209
Corporate debt securities ......... 515 4 -- 519
Mortgage-backed securities ........ 62,079 289 (216) 62,152
---------- ------- ------- ----------
$ 84,762 $ 537 $(1,463) $ 83,836
========== ======= ======= ==========
2000 Available for Sale
- -----------------------------------
Equity securities......................securities.................. $ 98,311124,559 $10,759 $ 17,946(3,923) $ (3,674) $ 112,583131,395
U.S. Government and
agency securities................. 204,407 76 (3,323) 201,160securities............. 212,142 622 (216) 212,548
State and municipal securities......... 190,560 211 (7,288) 183,483
Corporate debt securities.............. 4,571 4 - 4,575
Mortgage-backed securities............. 658,220 57 (22,232) 636,045
------------- ------------- ------------ -------------
$ 1,156,069 $ 18,294 $ (36,517) $ 1,137,846
============= ============= ============ =============
1998 Held to Maturity
- ---------------------------------------
U.S. Government and
agency securities................. $ 24,287 $ 250 $ - $ 24,537
State and municipal securities......... 34,457 649 (20) 35,086securities 212,480 1,196 (1,503) 212,173
Debt securities issued
By foreign governments............ 405 1 (3) 403governments........ 250 -- -- 250
Corporate debt securities.............. 44 - (3) 41securities.......... 19,028 -- (918) 18,110
Mortgage-backed securities............. 117,430 541 (99) 117,872
------------- ------------- ------------ -------------
$ 176,623 $ 1,441 $ (125) $ 177,939
============= ============= ============ =============
1998 Available for Sale
- ---------------------------------------
Equity securities...................... $ 81,719 $ 29,695 $ (548) $ 110,866
U.S. Government and
agency securities................. 285,168 2,787 (105) 287,850
State and municipal securities......... 123,451 1,891 (416) 124,926
Corporate debt securities.............. 6,892 86 - 6,978
Mortgage-backed securities............. 672,519 4,273 (1,291) 675,501
------------- ------------- ------------ -------------
$ 1,169,749 $ 38,732 $ (2,360) $ 1,206,121
============= ============= ============ =============799,923 3,232 (7,498) 795,657
---------- ------- -------- ----------
$1,368,382 $15,809 $(14,058) $1,370,133
========== ======= ======== ==========
The amortized cost and estimated fair value of debt securities at December
31, 19992001 by contractual maturity are shown in the following table. 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.
Held to Maturity Available for Sale
---------------------------- -------------------------------------------------- -----------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
------------- ------------- ------------- ---------------------- ---------- ---------- ----------
(in thousands)
Due in one year or less.................less........... $ 10,1008,548 $ 10,0988,604 $ 46,70735,541 $ 46,74436,159
Due from one year to five years......... 14,471 14,411 197,771 193,585years... 7,478 7,605 225,324 229,600
Due from five years to ten years........ 3,056 2,991 136,699 130,745years.. 1,809 1,880 22,571 22,734
Due after ten years..................... 3,908 3,872 18,361 18,144
------------- ------------- ------------- -------------
31,535 31,372 399,538 389,218years............... 340 396 28,992 29,670
------- ------- ---------- ----------
18,175 18,485 312,428 318,163
Mortgage-backed securities.............. 53,939 53,405 658,220 636,045
------------- ------------- ------------- -------------
$ 85,474 $ 84,777 $ 1,057,758 $ 1,025,263
============= ============= ============= =============securities........ 31,382 32,007 1,209,073 1,218,291
------- ------- ---------- ----------
$49,557 $50,492 $1,521,501 $1,536,454
======= ======= ========== ==========
GainsPre-tax gains totaling $8.2$9.6 million, $11.3$8.8 million and $6.2$7.9 million were
realized on the sale of equity securities during 2001, 2000 and 1999,
1998respectively. Pre-tax gains totaling $3.0 million and 1997, respectively. Gains
totaling $66,000 and $176,000$393,000 were realized on
the sale of available for sale debt securities during 19982001 and 1997,1999,
respectively. Pre-tax losses of $220,000 were realized on the sale of available
for sale debt securities during 2000.
Securities carried at $715.3$956.5 million and $590.9$828.0 million at December 31,
19992001 and 1998,2000, 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:
1999 1998
------------- -------------2001 2000
---------- ----------
(in thousands)
Commercial, financial and agricultural............ $ 668,069 $ 557,784agricultural ......... $1,495,380 $1,386,172
Real estate-construction.......................... 166,291 129,648estate-construction ....................... 267,627 247,382
Real estate-mortgage:
First and second-residential................... 1,398,715 1,325,109
Commercial..................................... 1,420,546 1,263,215
Consumer.......................................... 700,049 696,161second-residential ................ 1,468,799 1,569,637
Commercial .................................. 1,428,066 1,359,714
Consumer ....................................... 626,985 738,797
Leasing and other................................ 78,360 68,538
------------- -------------
$ 4,432,030 $ 4,040,455
============= =============other .............................. 86,163 72,957
---------- ----------
$5,373,020 $5,374,659
========== ==========
Changes in the allowance for loan losses were as follows for the years ended
December 31:
1999 1998 1997
------------- ------------- -------------
(in thousands)
Balance at January 1............................. $ 57,415 $ 57,557 $ 53,893
------------- ------------- -------------
Loans charged off................................ (12,812) (9,140) (9,242)
Recoveries of loans previously charged off....... 4,812 3,416 4,163
------------- ------------- -------------
Net loans charged off............................ (8,000) (5,724) (5,079)
------------- ------------- -------------
Provision for loan losses........................ 8,216 5,582 8,417
Allowance purchased.............................. - - 326
------------- ------------- -------------
Balance at December 31........................... $ 57,631 $ 57,415 $ 57,557
============= ============= =============
2001 2000 1999
-------- -------- --------
(in thousands)
Balance at January 1........................ $ 65,640 $ 61,538 $ 61,327
Loans charged off........................... (14,275) (18,357) (14,672)
Recoveries of loans previously charged off.. 3,837 4,802 4,940
-------- -------- --------
Net loans charged off.................. (10,438) (13,555) (9,732)
-------- -------- --------
Provision for loan losses................... 11,885 15,024 9,943
Provision for loan losses, merger-related 2,700 -- --
-------- -------- --------
Total provision for loan losses........ 14,585 15,024 9,943
-------- -------- --------
Allowance purchased......................... 2,085 2,633 --
-------- -------- --------
Balance at December 31...................... $ 71,872 $ 65,640 $ 61,538
======== ======== ========
Nonaccrual loans aggregated approximately $18.7$22.8 million at December 31,
1999, $19.32001, $21.8 million at December 31, 19982000 and $20.8$24.0 million at December 31, 1997.1999.
Interest of approximately $1.9 million, $1.8 million $1.9 million and $1.4$1.9 million was not
recognized as interest income due to the nonaccrual status of loans during 1999,
19982001,
2000 and 1997,1999, respectively.
The recorded investment in loans that were considered to be impaired as
defined by Statement 114 was $11.4$24.4 million and $14.0$25.6 million at December 31,
19992001 and 1998,2000, respectively. AllAt December 31, 2001, $8.7 million of impaired
loans were included in nonaccrual loans and at December 31, 1999 and $12.82000, $15.0 million
of impaired loans were included in nonaccrual loans at December 31, 1998.loans. At December 31, 1999,2001 and
2000, impaired loans had a related allowanceallowances for loan losses of $1.8 million. At December 31, 1998, $13.0
million of impaired loans had a related allowance for loan losses of $2.0
million.and
$4.0 million, respectively. The average recorded investment in impaired loans
during the years ended December 31, 1999, 19982001, 2000 and 19971999 was approximately $10.7$21.1
million, $13.2$21.0 million, and $13.8$13.7 million, respectively.
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. The Corporation recognized interest
income of approximately $1.5$980,000, $934,000 and $1.7 million $100,000 and $171,000 on impaired loans in
1999, 19982001, 2000, and 1997,1999, respectively.
The Corporation has granted loansextended credit 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, including unadvanced commitments, was $89.5$136.3 million and
$83.5$149.7 million at December 31, 19992001 and 1998,2000, respectively. During 1999, $27.92001, $36.0
million of new loansadvances were made and repayments totaled $21.9$49.4 million.
The total portfolio of mortgage loans serviced by the Corporation for
unrelated third parties at December 31, 19992001 and 19982000 was $609.8$871.6 million and
$598.2$699.6 million, respectively.
NOTE E - PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
The following is a summary of premises and equipment as of December 31:
1999 1998
----------- -----------2001 2000
--------- ---------
(in thousands)
Premises and leasehold improvements.................improvements .............. $ 91,438146,916 $ 84,822116,801
Furniture and equipment............................. 62,573 57,390equipment .......................... 83,781 77,731
Construction in progress............................ 6,780 5,974
----------- -----------
160,791 148,186progress ......................... 4,313 26,450
--------- ---------
235,010 220,982
Less: Accumulated depreciation and amortization..... (81,574) (72,471)
----------- -----------amortization (109,393) (104,575)
--------- ---------
$ 79,217125,617 $ 75,715
=========== ===========116,407
========= =========
NOTE F - FEDERAL HOME LOAN BANK ADVANCES AND LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-termFederal Home Loan Bank Advances and long-term debt included the following
as of December 31:
1999 1998
---------- ----------2001 2000
-------- --------
(in thousands)
Federal Home Loan Bank advances..................... $ 327,638 $ 295,350
Other............................................... 612 668
---------- ----------
$ 328,250 $ 296,018
========== ==========
As of December 31, 1999, theAdvances .................. $452,316 $554,573
Other long-term debt ............................. 4,486 4,931
-------- --------
$456,802 $559,504
======== ========
The Corporation had a series of collateralized Federal Home Loan Bank
advances totaling $327.6 million.$452.3 million at December 31, 2001 and $554.6 million at
December 31, 2000. These advances mature through January, 2025,2027, and carry a
weighted average interest rate of 5.11%5.47%. As of December 31, 19992001 the Corporation
had an additional borrowing capacity of approximately $713$845 million with the
Federal Home Loan Bank. BorrowingsAdvances from the Federal Home Loan bankBank are secured by
qualifying residential mortgages, investments and other assets. The following
table summarizes the scheduled maturity periods of Federal Home Loan Bank
advances as of December 31, 1999:
2001:
Amount
Year Maturing
----------------- ------------ ------------------------------ --------
(in thousands)
2000.............2002 ......................... $ 20,042
2001............. 26,500
2002.............83,000
2003 ......................... 167,900
2004 ......................... 25,000
2005 ......................... 29,116
2006 ......................... --
Thereafter ................... 147,300
--------
$452,316
========
NOTE G - 2003............. 27,500
2004.............CAPITAL SECURITIES OF SUBSIDIARY TRUST
- Thereafter....... 253,596
-----------
$ 327,638
===========--------------------------------------------------------------------------------
The Parent Company owns all of the common stock of Drovers Capital Trust I
(Trust), a Delaware business trust. The Trust has issued $7.5 million of 9.25%
preferred securities to investors in conjunction with the Parent Company issuing
$7.7 million of junior subordinated deferrable interest debentures to the Trust.
The debentures are the sole asset of the Trust. The terms of the junior
subordinated deferrable interest debentures are the same as the terms on the
preferred securities. The Parent Company's obligations under the debentures and
related documents, taken together, constitute a full and unconditional guarantee
by the Parent Company of the Trust's obligations under the preferred securities.
The preferred securities are redeemable on or after September 30, 2004, or
earlier if the deduction of related interest for Federal income taxes is
prohibited, treatment as Tier 1 capital is no longer permitted, or certain other
contingencies arise. The preferred securities must be redeemed upon maturity of
the debentures on September 30, 2027.
NOTE GH - REGULATORY MATTERS
- --------------------------------------------------------------------------------
Dividend and Loan Limitations
The dividends that may be paid by subsidiary banks to the Parent Company
are subject to certain legal and regulatory limitations. Under such limitations,
the total amount available for payment of dividends by subsidiary banks was
approximately $164$142 million at December 31, 1999.2001.
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, 1999,2001, the maximum amount available for transfer from the
subsidiary banks to the Parent Company in the form of loans and dividends was
approximately $201$197 million.
Regulatory Capital Requirements
The Corporation's subsidiary banks are subject to various regulatory
capital requirements administered by banking regulators. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the subsidiary banks must meet specific capital guidelines that involve
quantitative measures of the subsidiary banks' assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
subsidiary banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the subsidiary banks to maintain minimum amounts and ratios of total and
Tier I capital to risk-weighted assets, and of Tier I capital to average assets
(as defined in the regulations). Management believes, as of December 31, 1999,2001,
that all of its bank subsidiaries meet the capital adequacy requirements to
which they are subject.
As of December 31, 1999,2001 and 2000, the Corporation's three significant
subsidiaries
- -- Fulton Bank, Lebanon Valley Farmers Bank and Lafayette
Ambassador Bank -- were well capitalized under the regulatory framework for
prompt corrective action based on their capital ratio calculations. To be
categorized as well capitalized, these banks must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
following table. There are no conditions or events since December 31, 19992001 that
management believes have changed the institutions' categories
categories.
The following tables present the total risk-based, Tier I risk-based and
Tier I leverage requirements for the Corporation and its significant
subsidiaries.
As of December 31, 1999
-----------------------------------------------------------------------2001
---------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ---------------------- --------------------------------------- ------------------ -------- -----
Amount Ratio Amount Ratio Amount Ratio
------------- ------- ----------- -------- ---------- -------------- -------- ----- -------- -----
(Dollars in thousands)
Total Capital (to Risk Weighted Assets):
Corporation................................. $ 666,247 15.0% $ 355,376Corporation ........................ $800,952 13.5% $475,707 8.0% $ 444,221$594,634 10.0%
Fulton Bank................................. 219,470 11.1 157,837Bank ........................ 321,911 11.2 229,420 8.0 197,297286,775 10.0
Lebanon Valley Farmers Bank................. 69,299 14.2 38,924Bank ........ 67,806 14.0 38,714 8.0 48,65548,392 10.0
Lafayette Ambassador Bank................... 75,014 12.4 48,322Bank .......... 80,208 11.9 54,137 8.0 60,40267,671 10.0
Tier I Capital (to Risk Weighted Assets):
Corporation................................. $ 610,693 13.7% $ 177,688Corporation ........................ $729,064 12.3% $237,854 4.0% $ 266,532$356,781 6.0%
Fulton Bank................................. 199,077Bank ........................ 288,758 10.1 78,919114,710 4.0 118,378172,065 6.0
Lebanon Valley Farmers Bank................. 63,191 13.0 19,462Bank ........ 62,335 12.9 19,357 4.0 29,19329,035 6.0
Lafayette Ambassador Bank................... 68,467 11.3 24,161Bank .......... 72,269 10.7 27,068 4.0 36,24140,603 6.0
Tier I Capital (to Average Assets):
Corporation................................. $ 610,693 10.1% $ 180,565Corporation ........................ $729,064 9.6% $227,938 3.0% $ 300,941$379,897 5.0%
Fulton Bank................................. 199,077Bank ........................ 288,758 8.5 70,397101,659 3.0 117,329169,432 5.0
Lebanon Valley Farmers Bank................. 63,191 9.5 19,911Bank ........ 62,335 9.0 20,698 3.0 33,18534,497 5.0
Lafayette Ambassador Bank................... 68,467 8.3 24,754Bank .......... 72,269 7.7 28,163 3.0 41,25746,938 5.0
As of December 31, 1998
----------------------------------------------------------------------2000
---------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ---------------------- --------------------------------------- ------------------ -------- -----
Amount Ratio Amount Ratio Amount Ratio
------------- ------- ----------- -------- ---------- -------------- -------- ----- -------- -----
(Dollars in thousands)
Total Capital (to Risk Weighted Assets):
Corporation.................................. $ 621,124 15.1% $ 328,191Total Capital (to Risk Weighted Assets):
Corporation ........................ $773,583 14.0% $440,634 8.0% $ 410,238$550,793 10.0%
Fulton Bank.................................. 209,004 11.8 141,514Bank ........................ 334,416 11.3 237,626 8.0 176,892297,032 10.0
Lebanon Valley Farmers Bank.................. 66,377Bank ........ 73,401 14.0 37,98741,855 8.0 47,48452,319 10.0
Lafayette Ambassador Bank.................... 74,765 13.7 43,708Bank .......... 79,404 12.3 51,836 8.0 54,63564,796 10.0
Tier I Capital (to Risk Weighted Assets):
Corporation.................................. $ 569,768 13.9% $ 164,095Corporation ........................ $713,314 13.0% $220,317 4.0% $ 246,143$330,476 6.0%
Fulton Bank.................................. 188,403 10.7 70,757Bank ........................ 310,677 10.5 118,813 4.0 106,135178,219 6.0
Lebanon Valley Farmers Bank.................. 60,425 12.7 18,993Bank ........ 67,312 12.9 20,928 4.0 28,49031,392 6.0
Lafayette Ambassador Bank.................... 68,354 12.5 21,854Bank .......... 71,996 11.1 25,918 4.0 32,78138,877 6.0
Tier I Capital (to Average Assets):
Corporation.................................. $ 569,768 9.9% $ 172,182Corporation ........................ $713,314 9.8% $218,146 3.0% $ 286,969$363,576 5.0%
Fulton Bank.................................. 188,403 9.2 61,787Bank ..................... 310,677 8.6 108,302 3.0 102,978180,503 5.0
Lebanon Valley Farmers Bank.................. 60,425 10.6 17,063Bank ........ 67,312 9.7 20,843 3.0 28,43934,739 5.0
Lafayette Ambassador Bank.................... 68,354 12.5 16,466Bank .......... 71,996 8.3 25,899 3.0 27,44443,166 5.0
NOTE HI - INCOME TAXES
- --------------------------------------------------------------------------------
The components of the provision for income taxes are as follows:
Year ended December 31
------------------------------------------
1999 1998 1997
------------ ------------ ------------
Current tax expense -
Federal....................................... $ 38,972 $ 40,031 $ 32,582
State......................................... 130 130 25
------------ ------------ ------------
39,102 40,161 32,607
Deferred tax expense............................... 1,377 (329) 841
------------ ------------ ------------
$ 40,479 $ 39,832 $ 33,448
============ ============ ============
Year ended December 31
----------------------------
2001 2000 1999
------- -------- -------
Current tax expense:
Federal ............................ $44,625 $ 46,765 $41,132
State .............................. 222 310 130
------- -------- -------
44,847 47,075 41,262
Deferred tax expense (benefit)........... 1,520 (2,638) 1,237
------- -------- -------
$46,367 $ 44,437 $42,499
======= ======== =======
The differences between the effective income tax rate and the federalFederal
statutory income tax rate are as follows:
Year ended December 31
------------------------------------------
1999 1998 1997
------------ ------------ ------------
Statutory tax rate................................ 35.0% 35.0% 35.0%
Effect of tax-exempt income....................... (3.2) (2.6) (2.9)
Effect of low income housing investments.......... (2.5) (2.1) (2.1)
Other, net........................................ 0.1 0.7 0.4
------------ ------------ ------------
Effective income tax rate......................... 29.4% 31.0% 30.4%
============ ============ ============
Year ended December 31
----------------------
2001 2000 1999
---- ---- ----
Statutory tax rate .......................... 35.0% 35.0% 35.0%
Effect of tax-exempt income ................. (3.4) (3.6) (3.5)
Effect of low income housing investments..... (2.6) (2.5) (2.7)
Other, net .................................. -- 0.5 0.1
---- ---- ----
Effective income tax rate ................... 29.0% 29.4% 28.9%
==== ==== ====
The net deferred tax asset recorded by the Corporation consistedis included in other
assets and consists of the following tax effects of temporary differences at
December 31:
1999 1998
------------ ------------2001 2000
------- -------
(in thousands)
Deferred tax assets:
Allowance for loan losses.............................................. $ 19,992 $ 19,794losses .................................. $25,156 $22,859
Deferred loan fees..................................................... 144 335compensation ...................................... 3,853 2,449
Investments in low income housing .......................... 3,425 1,868
Post-retirement benefits ................................... 3,220 3,224
Other accrued expenses ..................................... 1,573 894
Alternative minimum tax credit carryforward ................ 675 765
Other ...................................................... 1,953 2,729
------- -------
Total gross deferred tax assets ....................... 39,855 34,788
Deferred tax liabilities:
Direct leasing......................................................... (7,302) (5,840)
Deferred compensation.................................................. 2,361 2,340
Postretirement benefits................................................ 3,203 3,184
Fixed asset depreciation............................................... (699) (565)
Other.................................................................. 2,671 2,499
------------ ------------
20,370 21,747leasing ............................................. 8,962 8,440
Unrealized holding losses (gains)gains on securities available for sale..... 6,378 (12,730)
------------ ------------
$ 26,748 $ 9,017
============ ============sale... 6,981 1,192
Mortgage servicing rights .................................. 1,145 34
Fixed asset depreciation ................................... 414 673
Other ...................................................... 426 446
------- -------
Total gross deferred tax liabilities .................. 17,928 10,785
Net deferred tax asset ................................ $21,927 $24,003
======= =======
As of December 31, 19992001 and 1998,2000, the Corporation hashad 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 IJ - EMPLOYEE BENEFIT PLANS
- --------------------------------------------------------------------------------
Substantially all eligible employees of the Corporation are covered by one
of the following plans or combination of plans:
Profit Sharing Plan - A noncontributory defined contribution plan where
employer contributions are based on a formula providing for an amount not to
exceed 15% of each eligible employee's annual salary (10% for employees hired
subsequent to January 1, 1996). Participants are 100% vested in balances after
five years of eligible service. In addition, the profit sharing plan includes a
401(k) feature which allows employees to defer a portion of their pre-tax salary
on an annual basis, with no employer match. Contributions under this feature are
100% vested.
Defined Benefit Pension Plan and 401(k) Plan - The Corporation maintains
two defined benefit plans, the Fulton Financial Affiliates' Defined Benefit
Pension Plan (Fulton Pension Plan) and the Drovers & Mechanics Pension Plan.
Contributions to the defined benefit planplans are actuarially determined and funded
annually. Plan assets are invested in certificates of deposit, guaranteed investment contracts,corporate bonds,
U.S. Treasury Securities,securities, money market funds, common stocks and common stock
investmentmutual funds. The Fulton Pension Plan was closed to new participants effective
January 1, 1999. Employees participating in the plans as of that date continue
to accrue benefits according to the terms of the plan.
Employees covered under the defined benefit planplans are also eligible to
participate in athe Fulton Financial Affiliates 401(k) Plan. ThisSavings Plan (Fulton Plan)
or the Drovers Salary Deferral Plan (Drovers Plan). The Fulton Plan allows
employees to defer up to 15% of their pre-tax salary on an annual basis. At its
discretion, the Corporation may also make a matching contribution up to 3%. Employees who become eligible for a retirement plan after January 1, 1999
will participate in the Profit SharingThe
Drovers Plan and no new participants will be
added to the Defined Benefit Plan and 401(k) Plan. The terms of the Profit
Sharing Plan have been modified to add a 401(k) feature which allows participantsemployees to defer up to 5%20% of their pre-tax salary on an
annual basis, with
no employer match.basis. The Corporation makes a matching contribution up to 3%.
The following summarizes the Corporation's expense under the above plans
for the years ended December 31:
1999 1998 1997
------------- ------------- -------------
(in thousands)
Profit-sharing plan................................ $ 4,920 $ 3,962 $ 3,322
Defined benefit plan............................... 1,393 1,330 1,492
401(k) plan........................................ 553 711 804
------------- ------------- -------------
$ 6,866 $ 6,003 $ 5,618
============= ============= =============
2001 2000 1999
------ ------ ------
(in thousands)
Profit-sharing plan ............................. $5,050 $5,203 $4,920
Defined benefit plan ............................ 989 1,287 1,585
401(k) plan ..................................... 597 682 676
------ ------ ------
$6,636 $7,172 $7,181
====== ====== ======
Defined Benefit Pension Plan
The net periodic pension cost for the Corporation's defined benefit plan,plans,
as determined by consulting actuaries, consisted of the following components for
the years ended December 31:
1999 1998 1997
------------- ------------- -------------
(in thousands)
Service cost - benefits earned during period....... $ 1,631 $ 1,507 $ 1,387
Interest cost on projected benefit obligation...... 1,747 1,639 1,500
Actual return on assets............................ (3,530) (1,366) (3,874)
Net amortization and deferral...................... 1,545 (450) 2,479
------------- ------------- -------------
Net periodic pension cost.......................... $ 1,393 $ 1,330 $ 1,492
============= ============= =============
2001 2000 1999
------- ------- -------
(in thousands)
Service cost - benefits earned during period .. $ 1,873 $ 1,845 $ 1,923
Interest cost on projected benefit obligation.. 2,472 2,282 1,992
Actual return on assets ....................... 3,103 (4,655) (3,863)
Net amortization and deferral ................. (6,459) 1,815 1,533
------- ------- -------
Net periodic pension cost ..................... $ 989 $ 1,287 $ 1,585
======= ======= =======
The valuation date of the defined benefit planplans is September 30. The
following table summarizes the changes in the projected benefit obligation (PBO)
and fair value of plan assets for the indicated periods:
Oct. 1, 19982000 Oct. 1, 19971999
Through Through
Sept. 30, 19992001 Sept. 30, 1998
----------------- ----------------2000
-------------------------------
(in thousands)
Projected benefit obligation, beginning............. $ 27,157 $ 23,967
Merge affiliate plan PBO............................ 857 -beginning .......... $33,671 $31,067
Service cost........................................ 1,631 1,507cost ..................................... 1,873 1,845
Interest cost....................................... 1,747 1,639
Distributions....................................... (965) (831)cost .................................... 2,472 2,282
Distributions .................................... (1,861) (1,237)
Change due to change in assumptions................. (3,239) 944assumptions .............. 1,378 --
Experience loss at 9/30............................. 185 (69)
--------------- ---------------September 30 .................. (326) (286)
------- -------
Projected benefit obligation, ending................ $ 27,373 $ 27,157
=============== ===============ending ............. $37,207 $33,671
======= =======
Fair value of plan assets, beginning................ $ 26,106 $ 23,592
Merge affiliate plan assets......................... 916 -beginning ............. $39,624 $35,062
Employer contributions.............................. 1,498 1,979contributions ........................... 773 1,144
Actual return on assets............................. 3,530 1,366
Distributions....................................... (965) (831)
--------------- ---------------assets .......................... (3,103) 4,655
Distributions .................................... (1,861) (1,237)
------- -------
Fair value of plan assets, ending................... $ 31,085 $ 26,106
=============== ===============ending ................ $35,433 $39,624
======= =======
The funded status of the planplans and the amounts included in other
liabilities as of December 31 follows:
2001 2000
-------- --------
(in thousands)
Projected benefit obligation ........................... $(37,207) $(33,671)
Fair value of plan assets .............................. 35,433 39,624
-------- --------
Funded status ..................................... (1,774) 5,953
Unrecognized net transition asset ...................... (81) (6)
Unrecognized prior service cost ........................ 25 32
Unrecognized net loss (gain) ........................... 1,379 (6,214)
-------- --------
Pension liability recognized in the
consolidated balance sheets as of December 31, 1999 and 1998 follows:
1999 1998
---------- -----------
(in thousands)
Projected benefit obligation........................ $ (27,373) $ (27,157)
Fair value of plan assets........................... 31,085 26,106
---------- -----------
Funded status.................................. 3,712 (1,051)
Employer contributions, 10/1 through 12/31.......... - 148
Unrecognized net transition asset................... 184 272
Unrecognized prior service cost..................... 33 39
Unrecognized net loss (gain)........................ (4,298) 265
---------- -----------
Pension (liability) recognized in the
consolidated balance sheets.................... $ (369) $ (327)
========== ===========
....................... $ (451) $ (235)
======== ========
The following rates were used to calculate net periodic pension cost and
present value of benefit obligations:
1999 1998 1997
--------- -------------- ---------------
Discount rate-projected benefit obligation.......... 7.50% 6.50% 7.00%
Rate of increase in compensation level.............. 5.00 4.00 4.50
Expected long-term rate of return on plan assets....2001 2000 1999
---- ---- ----
Discount rate-projected benefit obligation ............. 7.25% 7.50% 7.50%
Rate of increase in compensation level ................. 5.00 5.00 5.00
Expected long-term rate of return on plan assets ....... 8.00 8.00 8.00
PostretirementPost-retirement Benefits
The Corporation currently provides medical and life insurance benefits to
retired full-time employees who were employees of the Corporation prior to
January 1, 1998. Substantially all of the Corporation's full-timeFull-time employees may become eligible for these discretionary
benefits if they reach normal retirement age while working for the Corporation.
Benefits are based on a graduated scale for years of service after attaining the
age of 40. The components of the expense for postretirementpost-retirement benefits other than
pensions are as follows:
1999 1998 1997
------------- ------------- -------------
(in thousands)
Service cost-benefits earned during the period...... $ 250 $ 251 $ 217
Interest cost on accumulated benefit obligation..... 364 377 369
Actual return on plan assets........................ (9) (10) (10)
Net amortization and deferral....................... (289) (296) (309)
------------- ------------- -------------
Net nonpension postretirement benefit cost.......... $ 316 $ 322 $ 267
============= ============= =============
2001 2000 1999
----- ----- -----
(in thousands)
Service cost-benefits earned during the period ...... $ 240 $ 268 $ 250
Interest cost on accumulated benefit obligation ..... 393 422 364
Actual return on plan assets ........................ (7) (12) (9)
Net amortization and deferral ....................... (375) (304) (289)
----- ----- -----
Net nonpension post-retirement benefit cost ......... $ 251 $ 374 $ 316
===== ===== =====
The following table summarizes the changes in the projected benefit
obligation and fair value of plan assets for the years ended December 31, 1999
and 1998:
1999 1998
----------------------------------
(in thousands)
Projected benefit obligation, beginning............. $ 5,790 $ 5,662
Service cost........................................ 250 251
Interest cost....................................... 364 377
Benefit payments.................................... (298) (386)
Change due to change in experience.................. (24) (124)
Change due to change in assumptions................. (19) 10
--------------- ---------------
Projected benefit obligation, ending................ $ 6,063 $ 5,790
=============== ===============
Fair value of plan assets, beginning................ $ 199 $ 196
Employer contributions.............................. 293 379
Actual return on assets............................. 9 10
Benefit payments.................................... (298) (386)
--------------- ---------------
Fair value of plan assets, ending................... $ 203 $ 199
=============== ===============
31:
2001 2000
------ ------
(in thousands)
Projected benefit obligation, beginning .................... $5,540 $6,063
Service cost ............................................... 240 268
Interest cost .............................................. 393 422
Benefit payments ........................................... (411) (315)
Change due to change in experience ......................... (122) (257)
Change due to change in assumptions ........................ 158 (641)
------ ------
Projected benefit obligation, ending ....................... $5,798 $5,540
====== ======
Fair value of plan assets, beginning ....................... $ 192 $ 203
Employer contributions ..................................... 397 292
Actual return on assets .................................... 7 12
Benefit payments ........................................... (411) (315)
------ ------
Fair value of plan assets, ending .......................... $ 185 $ 192
====== ======
The funded status of the plan and the amounts included in other liabilities
as of December 31 follows:
2001 2000
------- -------
(in thousands)
Projected benefit obligation ............................. $(5,798) $(5,540)
Fair value of plan assets ................................ 185 192
------- -------
Funded status ....................................... (5,613) (5,348)
Unrecognized prior service cost .......................... (1,358) (1,584)
Unrecognized net gain .................................... (1,892) (2,076)
------- -------
Post-retirement benefits liability recognized
in the consolidated balance sheets as of December 31, 1999 and 1998 follows:
1999 1998
----------------------------
(in thousands)
Projected benefit obligation........................ $ (6,063) $ (5,790)
Fair value of plan assets........................... 203 199
---------- -----------
Funded status.................................. (5,860) (5,591)
Unrecognized prior service cost..................... (1,810) (2,037)
Unrecognized net loss............................... (1,257) (1,276)
---------- -----------
Post-retirement benefits (liability) recognized
in the consolidated balance sheets............. $ (8,927) $ (8,904)
========== ===========
.................. $(8,863) $(9,008)
======= =======
For measuring the postretirementpost-retirement benefit obligation, a 6.5%5.5% annual
increase in the per capita cost of health care benefits was assumed. This health
care cost trend rate has a significant impact on the amounts reported. Assuming
a 1% increase in the health care cost trend rate above the assumed annual
increase, the accumulated postretirementpost-retirement benefit obligation would increase by
approximately $756,000$685,000 and the current period expense would increase by
approximately $96,000.$87,000. Conversely, a 1% decrease in the health care cost trend
rate would decrease the accumulated postretirementpost-retirement benefit obligation by
approximately $628,000$573,000 and the current period expense by approximately $77,000.$71,000.
The discount rate used in determining the accumulated postretirementpost-retirement benefit
obligation was 7.50% and 6.50%7.25% at December 31, 19992001 and 1998, respectively.7.50% at December 31, 2000.
NOTE JK - STOCK-BASED COMPENSATION PLANS AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------------------
Incentive Stock Option Plan and Employee Stock Purchase Plan
The Corporation has an Incentive Stock Option Plan (Option Plan) and an
employee stock purchase planEmployee Stock Purchase Plan (ESPP). Under the Option Plan, options are granted
to key personnel for terms of up to 10 years at option prices equal to the fair
market value of the Corporation's stock on the date of grant. Options are 100%
vested immediately upon grant. Options assumed from Skylands retained their
original vesting schedules. The Plan has reserved 1.41.0 million additional shares
for future grant through 2006. The number of options granted in any year is
dependent upon the Corporation's performance relative to that of a self-defined
peer group. A summary of stock option activity under the current and prior plan
follows:
Option Price Per Share
------------------------------------
Stock Weighted
Options Range Average
--------- ----------------- -------------
Balance at January 1, 1997............. 1,435,183 $3.48 - $12.65 $8.89
Granted.............................. 268,945 10.58 - 19.73 17.05
Exercised............................ (329,717) 3.48 - 12.65 8.22
---------
Balance at December 31, 1997........... 1,374,411 3.48 - 19.73 10.63
Granted.............................. 275,220 22.55 22.55
Exercised............................ (249,630) 3.48 - 19.73 9.45
---------
Balance at December 31, 1998........... 1,400,001 3.48 - 22.55 13.17
Granted.............................. 234,250 20.84 20.84
Exercised............................ (146,030) 3.48 - 19.73 8.19
Canceled............................. (10,307) 19.73 - 22.56 21.18
---------
Balance at December 31, 1999........... 1,477,914 $3.48 - $22.56 $14.82Option Price Per Share
--------------------------
Stock Weighted
Options Range Average
--------- --------------- --------
Balance at January 1, 1999............ 1,732,291 $ 3.15 - $20.47 $11.73
Granted............................. 316,851 18.48 18.48
Exercised........................... (172,717) 3.15 - 17.90 7.54
Canceled............................ (13,966) 17.90 - 20.47 18.88
---------
Balance at December 31, 1999.......... 1,862,459 3.15 - 20.47 13.21
Granted............................. 386,327 16.88 16.88
Exercised........................... (231,292) 3.15 - 18.90 8.38
Assumed from Skylands............... 262,452 3.89 - 15.01 10.37
Canceled............................ (3,907) 12.10 12.10
---------
Balance at December 31, 2000.......... 2,276,039 3.15 - 20.47 13.98
Granted............................. 346,900 20.47 20.47
Exercised........................... (375,542) 3.15 - 20.47 10.65
Canceled............................ (20,018) 13.30 - 20.47 19.58
---------
Balance at December 31, 2001.......... 2,227,379 $ 3.15 - $20.47 $15.49
=========
Exercisable at December 31, 2001...... 2,164,656 $ 3.15 - $20.47 $15.63
=========
The following table summarizes information concerning options outstanding at
December 31, 1999:
Weighted Weighted
Range of Unexercised Average Average
Exercise Stock Remaining Exercise
Prices Options Life (Years) Price
------------------ ------------ ------------ ----------
$0.00 - $5.00 81,572 4.13 $3.60
$5.00 - $10.00 367,299 3.78 8.43
$10.00 - $15.00 363,895 5.64 11.83
$15.00 - $20.00 160,699 7.58 19.73
$20.00 - $25.00 504,449 9.12 21.76
------------ ------------ ----------
1,477,914 6.51 $14.82
============ ============ ==========
2001:
Total Weighted Weighted
Range of Unexercised Average Average Exercisable
Exercise Stock Remaining Exercise Stock
Prices Options Life (Years) Price Options
- --------------- ----------- ------------ -------- -----------
$ 0.00 - $ 5.00 52,428 2.22 $ 3.34 52,428
$ 5.00 - $10.00 497,021 3.40 8.97 445,766
$10.00 - $15.00 336,585 5.02 11.83 336,585
$15.00 - $20.00 731,995 7.39 18.33 720,527
$20.00 - $25.00 609,350 8.29 20.47 609,350
--------- ---- ------ ---------
2,227,379 6.27 $15.49 2,164,656
========= ==== ====== =========
The ESPP allowsallow eligible employees to purchase stock in the Corporation at
85% of the fair market value of the stock on the date of exercise. Under the
terms of the ESPP, 79,45171,000 shares, 70,63278,000 shares and 60,96588,000 shares were issued in
1999, 19982001, 2000 and 1997,1999, respectively. A total of 766,545994,000 shares have been issued
since the inception of the ESPP in 1986. As of December 31, 1999, 520,3132001, 425,000 shares
have been reserved for future issuances under the ESPP.
The Corporation accounts for both the Option Plan and the ESPP under
Accounting Principles Board Opinion No. 25, and, accordingly, no compensation
expense has been recognized in the financial statements of the
Corporation. Had compensation cost for these plans been recorded in the
financial statements of the Corporation consistent with the fair value
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" (Statement 123), the Corporation's net income and
net income per share would have been reduced to the following pro-forma amounts
(in thousands, except per-share data):
2001 2000 1999
1998 1997
------------- ------------ --------------------- -------- --------
Net income: As reported............. $ 97,226 $ 88,511 $ 76,405
Proforma................ 96,054 87,391 75,306reported.... $113,589 $106,834 $104,627
Pro-forma...... 111,959 105,274 103,290
Net income per share (basic): As reported.............reported.... $ 1.411.38 $ 1.281.32 $ 1.11
Proforma................ 1.39 1.27
1.10Pro-forma...... 1.36 1.30 1.26
Net income per share (diluted): As reported.............reported.... $ 1.401.37 $ 1.271.31 $ 1.10
Proforma................ 1.381.26
Pro-forma...... 1.35 1.29 1.25 1.08
Weighted average fair value of options granted..............granted... $ 5.245.25 $ 5.095.07 $ 4.864.75
Because the Statement 123 method has not been applied to options granted
prior to January 1, 1995, the resulting pro-forma compensation cost may not be
representative of that to be expected in future years. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants:
2001 2000 1999
1998 1997
---------- --------- ---------------- ------- -------
Risk-free interest rate.....................rate ....................... 5.32% 6.43% 5.84% 5.50% 6.44%
Volatility of Corporation's stock...........stock ............. 23.80 22.71 19.71 18.63 18.80
Expected dividend yield.....................yield ....................... 3.13 3.25 2.88 2.42 2.50
Expected life of options....................options ...................... 8 Years 68 Years 68 Years
Shareholder Rights
On June 20, 1989, the Board of Directors of the Corporation declared a
dividend of one common share purchase right (Original Rights) for each
outstanding share of common stock, par value $2.50 per share of the Corporation.
The dividend was paid to the shareholders of record as of the close of business
on July 6, 1989. On April 27, 1999, the Board of Directors approved an amendment
to the Original Rights and the agreement. The significant terms of the amendment
included extending the expiration date from June 20, 1999 to April 27, 2009 and
resetting the purchase price to $90.00 per share. As of December 31, 2001, the
purchase price had adjusted to $74.21 per share as a result of stock dividends.
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.
NOTE KL - LEASES
- --------------------------------------------------------------------------------
Certain branch offices and equipment are leased under agreements which
expire at varying dates through 2025.2018. Most leases contain renewal provisions at
the Corporation's option. Total rental expense was approximately $3.8$5.1 million in
1999, $3.42001, $4.3 million in 19982000 and $3.2$4.2 million in 1997.1999. Future minimum payments as
of December 31, 19992001 under noncancelable operating leases are as follows:
Minimum
Year Rent
----------------- ------------ --------------------------------------- -------
(in thousands)
2000.............2002................................... $ 2,957
2001............. 2,453
2002............. 2,295
2003............. 2,225
2004............. 2,016
Thereafter....... 13,865
-----------
$ 25,811
===========5,216
2003................................... 4,818
2004................................... 4,122
2005................................... 3,494
2006................................... 3,062
Thereafter............................. 13,984
-------
$34,696
=======
NOTE LM - COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
The Corporation is 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 outstanding commitments to fund loans of $1.5$2.1
billion and $1.1$1.8 billion as of December 31, 19992001 and 1998,2000, respectively.
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 $146.8$317.4
million at December 31, 19992001 and $ 119.9$261.3 million at December 31, 1998.2000.
From time to time, the Corporation and its subsidiary banks may be
defendants in legal proceedings relating to the conduct of their 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 MN - FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The following are the estimated fair values of the Corporation's financial
instruments as of December 31, 2001 and 2000 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.
1999 1998
--------------------------- ----------------------------2001 2000
----------------------- -----------------------
Estimated Estimated
FINANCIAL ASSETS Book Value Fair Value Book Value Fair Value
- -------------------------------------- -------------- ------------ ------------- ------------------------------------------------ ---------- ---------- ---------- ----------
(in thousands)
Cash and due from banks...............banks ........... $ 245,572356,539 $ 245,572356,539 $ 247,558282,586 $ 247,558282,586
Interest-bearing deposits
with other banks................. 1,798 1,798 2,975 2,975banks ............. 6,968 6,968 8,417 8,417
Mortgage loans held for sale.......... 1,016 1,016 7,987 7,987sale ...... 18,374 18,374 5,241 5,241
Securities held to maturity........... 85,474 84,777 176,623 177,939maturity ....... 49,557 50,492 84,762 83,836
Securities available for sale......... 1,137,846 1,137,846 1,206,121 1,206,121sale ..... 1,687,787 1,687,787 1,370,133 1,370,133
Net loans............................. 4,364,776 4,281,708 3,972,976 3,995,654loans ......................... 5,301,148 5,404,066 5,309,019 5,340,861
Accrued interest receivable........... 31,496 31,496 34,942 34,942receivable ....... 43,388 43,388 44,747 44,747
1999 1998
---------------------------- ----------------------------2001 2000
----------------------- -----------------------
Estimated Estimated
FINANCIAL LIABILITIES Book Value Fair Value Book Value Fair Value
------------- ------------- ------------- -------------- ----------------------------------- ---------- ---------- ---------- ----------
(in thousands)
Demand and savings deposits........... $ 2,336,314 $ 2,336,314 $ 2,380,606 $ 2,380,606deposits ....... $3,341,641 $3,341,641 $2,825,201 $2,825,201
Time deposits......................... 2,210,499 2,198,360 2,212,363 2,229,485deposits ..................... 2,645,163 2,689,856 2,677,502 2,697,497
Short-term borrowings................. 487,546 487,546 235,585 235,585borrowings ............. 400,335 400,335 446,429 446,429
Accrued interest payable.............. 32,313 32,313 34,255 34,255payable .......... 35,926 35,926 47,713 47,713
Other financial liabilities........... 25,843 25,843 31,180 31,180
Long-term debt........................ 328,250 315,334 296,018 296,063liabilities ....... 33,714 33,714 28,839 28,839
Federal Home Loan Bank advances
and long-term debt ............. 456,802 463,833 559,503 557,413
Corporation-obligated mandatorily
redeemable capital securites of
subsidiary trust ............... 7,500 7,238 7,500 7,443
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 Short-term borrowings
Accrued interest receivable Accrued interest payable
Mortgage loans held for sale Other financial liabilities
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 of December 31, 19992001 and 19982000 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.counter-parties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed 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.
NOTE NO - MERGERS AND ACQUISITIONS
- --------------------------------------------------------------------------------
Ambassador Bank of the Commonwealth.Drovers Bancshares Corporation - On September 11, 1998,July 1, 2001, the Corporation completed
its acquisition of Ambassador Bank of the Commonwealth
(Ambassador)merger with Drovers Bancshares Corporation (Drovers), a $275$820 million bank
holding company located in Allentown,York, Pennsylvania. As
provided underUnder the terms of the merger
agreement, each of the 1.95.2 million shares of Ambassador'sDrovers common stock was exchanged
for 1.54 shares of the Corporation's
common stock. In addition, the 417,000 options and warrants to acquire
Ambassador stock were exchanged for approximately 450,000 shares of the
Corporation's common stock. The Corporation issued 3.4 million shares of its
common stock in connection with the merger, which was accounted for as a pooling
of interests. As a result of the acquisition, Ambassador was merged with and
into Lafayette Bank, one of the Corporation's existing affiliate banks, which
changed its name to "Lafayette Ambassador Bank."
Keystone Heritage Group, Inc. - On March 27, 1998, the Corporation
completed its acquisition of Keystone Heritage Group, Inc. (Keystone Heritage),
a $650 million bank holding company located in Lebanon, Pennsylvania. As
provided under the terms of the merger agreement, each of the approximately 4.0
million shares of Keystone Heritage's common stock was exchanged for 2.5171.302 shares of the Corporation's common stock. In addition, each of the
70,000
options to acquire Keystone HeritageDrovers stock was converted toexchanged for options to acquirepurchase the
Corporation's common stock.
Drovers was merged with and into Fulton Financial Corporation, and its
wholly owned bank subsidiary, The Corporation issued 10.0 million shares of its
common stock in connection withDrovers & Mechanics Bank (Drovers Bank) was
merged into Fulton Bank, the merger, whichCorporation's largest subsidiary bank. This
business combination was accounted for as a pooling of interests.
In order to effect the acquisition, Keystone Heritage was merged withinterests and, into the Corporation. Its sole banking subsidiary, Lebanon Valley National Bank
(Lebanon Valley), was merged with and into Farmers Trust Bank, one of the
Corporation's existing affiliate banks, which changed its name to "Lebanon
Valley Farmers Bank." Lebanon Valley's deposits, loans and branches located in
Lancaster and Dauphin Counties were transferred by Lebanon Valley Farmers Bank
to Fulton Bank immediately after the merger was completed.
The following table sets forth selected unauditedas such,
all financial data for the
Corporation and Keystone Heritage for the period January 1, 1998 through March
27, 1998. Amounts for Fulton Financial Corporation have notinformation has been restated to include Ambassador.
Fulton
Financial Keystone
Corporation Heritage
----------------- -----------------
(in thousands)
Net interest income......................... $ 47,466 $ 6,555
Other income................................ 13,032 1,308
--------------- ---------------
Total income................................ $ 60,498 $ 7,863
=============== ===============
Net income.................................. $ 19,066 $ 1,534
=============== ===============
reflect the impact of Drovers for
all periods presented. The effect of the Keystone Heritage and Ambassador mergersmerger on the Corporation's previously
reported revenues, net income and net income per share for the yearyears ended
December 31, 19972000 and 1999 follows. Per-shareThe Fulton Financial per-share amounts have
been restated to reflect the impact of the 5% stock dividends (dollars individend paid on May 25,
2001.
Fulton Drovers
Year Ended December 31, 2000 Financial Bancshares Adjustments Restated
- ---------------------------- --------- ---------- ----------- --------
(in thousands, except per-share data)
Net interest income $252,100 $23,325 $ 328 $275,753
Other income 69,611 5,707 (320) 74,998
-------- ------- ----- --------
Total income $321,711 $29,032 $ 8 $350,751
-------- ------- ----- --------
Net income $103,804 $ 3,108 $ (78) $106,834
-------- ------- ----- --------
Net income per share (basic) $ 1.39 $ 0.61 -- $ 1.32
Net income per share (diluted) 1.38 0.61 -- 1.31
Year Ended December 31, 1999
- ----------------------------
Net interest income $243,903 $22,276 $ (9) $266,170
Other income 61,358 5,349 (39) 66,668
-------- ------- ----- --------
Total income $305,261 $27,625 $ (48) $332,838
-------- ------- ----- --------
Net income $ 97,226 $ 7,601 $(200) $104,627
-------- ------- ----- --------
Net income per share (basic) $ 1.28 $ 1.54 -- $ 1.27
Net income per share (diluted) 1.27 1.52 -- 1.26
Adjustments to effect the restatement include certain reclassifications to
conform Drovers' presentation to the Corporation's. The reduction in net income
reflects a prior period adjustment to conform the accounting for investments in
low income housing partnerships.
In connection with this transaction, the Corporation recorded
merger-related expenses of approximately $9.8 million ($6.4 million, net of
tax). These charges consisted of an additional provision for loan losses
resulting from the consistent application of the Corporation's allowance
evaluation procedures ($2.7 million) and one-time expenses related to employee
severance costs, systems conversions, real estate closures and sales, and
professional fees ($7.1 million).
Branch Acquisition - On June 8, 2001, the Corporation assumed $315 million
of deposits and purchased $53 million in loans in an acquisition of 18 branches
located in New Jersey, Delaware and Pennsylvania. This transaction was accounted
for as a purchase and the Corporation recorded a core deposit intangible asset
of $9.9 million and an unidentifiable intangible asset of $21.7 million. The
core deposit intangible is being amortized on a straight-line basis over 10
years. Since this was a branch acquisition, the unidentifiable intangible asset
does not qualify for the non-amortization provisions of Statement 142 and will
be amortized to expense on a straight-line basis over 25 years.
Dearden, Maguire, Weaver and Barrett, LLC - On January 2, 2001, the
Corporation completed its acquisition of investment management and advisory
company Dearden, Maguire, Weaver and Barrett, LLC (Dearden Maguire). The
acquisition was accounted for as a purchase and the accounts and results of
operations of Dearden Maguire are included in the financial statements of the
Corporation prospectively from the January 2, 2001 acquisition date.
In connection with the acquisition, goodwill of approximately $16.0 million
was recorded as the initial purchase price paid in excess of the fair value of
net assets acquired. Additional payments of up to $5.0 million may become
payable upon Dearden Maguire achieving certain revenue goals through December
31, 2005. The goals and the dates of such payments are specified in the purchase
agreement. Upon payment of any such amounts, goodwill will be increased. The
goodwill was being amortized to expense on a straight-line basis over 20 years
through December 31, 2001. Effective January 1, 2002, the goodwill is no longer
being amortized to expense as required by Statement 142, but will be evaluated
periodically for impairment.
Skylands Financial Corporation - On August 1, 2000, the Corporation
completed its acquisition of Skylands Financial Corporation (SFC) of
Hackettstown, New Jersey. SFC, with approximately $240 million in total assets
on the acquisition date, was a bank holding company whose sole banking
subsidiary, Skylands Community Bank (Skylands), operates eight community banking
offices in Morris, Warren and Sussex counties.
Under the terms of the merger agreement, each of the 2.5 million
outstanding shares of SFC's common stock was exchanged for 0.86 shares of the
Corporation's common stock. In addition, the 308,000 options to acquire shares
of SFC stock were also exchanged for options to purchase the Corporation's
common stock. As a result of the acquisition, SFC was merged with and into the
Corporation and Skylands became the Corporation's third banking subsidiary
located in New Jersey.
The acquisition was accounted for as a purchase and the accounts and
results of operations of Skylands are included in the financial statements of
the Corporation prospectively from the August 1, 2000 acquisition date. In
connection with the acquisition, goodwill of approximately $17.5 million was
recorded as the purchase price paid in excess of the net assets acquired. The
goodwill was being amortized to expense on a straight line basis over 15 years
through December 31, 2001. Effective January 1, 2002, the goodwill is no longer
being amortized to expense as required by Statement 142, but will be evaluated
periodically for impairment.
Fulton
Financial Keystone
1997 Corporation Heritage Ambassador Restated
----------------- ----------------- ------------------ -----------------
(in thousands, except per-share data)
Net interest income................. $ 182,610 $ 27,133 $ 9,352 $ 219,095
Other income........................ 41,055 7,159 499 48,713
--------------- --------------- --------------- ---------------
Total income........................ $ 223,665 $ 34,292 $ 9,851 $ 267,808
=============== =============== =============== ===============
Net income.......................... $ 65,199 $ 9,270 $ 1,936 $ 76,405
=============== =============== =============== ===============
Net income per share (basic)........ $ 1.17 $ 2.34 $ 1.21 $ 1.11
=============== =============== =============== ===============
Net income per share (diluted)...... $ 1.16 $ 2.31 $ 1.08 $ 1.10
=============== =============== =============== ===============
NOTE OP - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
- --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
- ------------------------
(in thousands)
December 31 December 31
---------------------- ----------------------
1999 1998 1999 1998
---------- ----------- ---------- -----------
ASSETS LIABILITIES
- ------ -----------
AND EQUITY
----------
Cash, securities, $ 465 $ 425 Short - term
and other assets........ Borrowings........... $ - $ 6,617
Receivable from
bank subsidiaries....... 745 - Other Liabilities......... 23,430 17,846
------------ ------------
Investment in: Total Liabilities.... 23,430 24,463
Bank subsidiaries....... 511,924 511,863 Shareholders' equity...... 614,294 608,334
------------ ------------
Nonbank subsidiaries.... 124,590 120,509
------------ ------------ Total Liabilities and
Total Assets............ $ 637,724 $ 632,797 Shareholders' Equity. $ 637,724 $ 632,797
============ ============ ============ ============
December 31
---------------------
2001 2000
-------- --------
ASSETS
- ------
Cash, securities,
and other assets ................................ $ 2,171 $ 3,053
Receivable from
bank subsidiaries ............................... 9 8
Investment in:
Bank subsidiaries ............................... 696,416 649,038
Nonbank subsidiaries ............................ 157,531 135,107
-------- --------
Total Assets .................................... $856,127 $787,206
======== ========
December 31
---------------------
2001 2000
-------- --------
LIABILITIES AND EQUITY
- ----------------------
Short - term
borrowings ...................................... $ 10,500 $ 11,425
Long-term debt ....................................... 7,735 7,735
Payable to
nonbank subsidiaries ............................ 3,998 16,177
Other liabilities .................................... 22,440 20,698
-------- --------
Total Liabilities ............................... 44,673 56,035
Shareholders' equity ................................. 811,454 731,171
-------- --------
Total Liabilities and
Shareholders' Equity ............................ $856,127 $787,206
======== ========
CONDENSED STATEMENTS OF INCOME
- ------------------------------
Year ended December 31
--------------------------------------------------------------------------
2001 2000 1999
1998 1997
------------ ------------ ------------------ -------- --------
(in thousands)
Income:
Dividends from bank subsidiaries................................subsidiaries ............ $126,897 $ 66,29273,982 $ 69,592 $ 46,388
Other........................................................... 9,900 8,129 12,869
------------ ------------ ----------
76,192 77,721 59,257
Expenses............................................................. 15,760 17,146 13,513
------------ ------------ ----------68,580
Other ....................................... 24,417 9,636 10,098
-------- -------- --------
151,314 83,618 78,678
Expenses ......................................... 38,772 18,760 16,214
-------- -------- --------
Income before income taxes and equity in
undistributed net income (loss) of subsidiaries................. 60,432 60,575 45,744subsidiaries .... 112,542 64,858 62,464
Income tax benefit................................................... (2,338) (2,680) (2,192)
------------ ------------ ----------
62,770 63,255 47,936benefit ............................... (6,329) (3,020) (2,437)
-------- -------- --------
118,871 67,878 64,901
Equity in undistributed net income (loss) of:
Bank subsidiaries............................................... 25,738 15,642 29,399subsidiaries ........................... (14,367) 28,908 31,041
Nonbank subsidiaries............................................ 8,718 9,614 (930)
------------ ------------ ----------subsidiaries ........................ 9,085 10,048 8,685
-------- -------- --------
Net Income................................................. $ 97,226 $ 88,511 $ 76,405
============ ============ ==========Income ............................. $113,589 $106,834 $104,627
======== ======== ========
CONDENSED STATEMENTS OF CASH FLOWS
- ----------------------------------
Year Endedended December 31
--------------------------------------------------------------------------
2001 2000 1999
1998 1997
------------ ------------ ------------------ -------- --------
(in thousands)
Cash Flows From Operating Activities:
Net Income..................................................... $ 97,226 $ 88,511 $ 76,405Income .................................................. $113,589 $106,834 $104,627
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Decrease (increase) in other assets ...................... 706 1,571 (783)
Decrease (increase) in investment in subsidiaries ........ 5,282 (39,034) (39,926)
(Decrease) increase in other liabilities and
payable to non-bank subsidiaries .................... (12,951) 10,726 4,664
Gain on sale of investment securities....................... - - (5,191)
(Increase) decrease in other assets......................... (799) 3,745 2,932
Increase in investment in subsidiaries...................... (34,456) (25,256) (28,469)
Increase in other liabilities............................... 4,664 911 2,496
------------ ------------ ----------securities .................... -- -- (140)
-------- -------- --------
Total adjustments....................................... (30,591) (20,600) (28,232)
------------ ------------ ----------adjustments .................................... (6,963) (26,737) (36,185)
-------- -------- --------
Net cash provided by operating activities............... 66,635 67,911 48,173
------------ ------------ ----------activities ............ 106,626 80,097 68,442
-------- -------- --------
Cash Flows From Investing Activities:
Investment in subsidiaries.................................. (5,151) (21,275) (20,283)
Investment in real estate partnerships...................... - - (266)subsidiaries ............................... (47,039) (5,759) (14,529)
Net cash paid for Dearden Maguire ........................ (16,224) -- --
Purchase of securities available for sale ................ -- (227) (459)
Proceeds from sales of investment securities................ - - 8,571
Purchase of investment securities........................... - - (7,488)
------------ ------------ ----------securities available for sale ..... -- 14 309
-------- -------- --------
Net cash used in investing activities................... (5,151) (21,275) (19,466)
------------ ------------ ----------activities ................ (63,263) (5,972) (14,679)
Cash Flows From Financing Activities:
Net (decrease) increase in short-term borrowings............ (6,617) (9,383) 889borrowings ......... (925) 11,857 1,564
Dividends paid.............................................. (39,575) (33,939) (29,810)paid ........................................... (51,486) (45,740) (41,856)
Net proceeds from issuance of common stock.................. 2,228 2,227 1,660stock ............... 16,795 5,099 4,300
Acquisition of treasury stock............................... (17,534) (5,780) (1,196)
------------ ------------ ----------stock ............................ (7,922) (45,162) (17,784)
-------- -------- --------
Net cash used in financing activities........................ (61,498) (46,875) (28,457)
------------ ------------ ----------activities ................ (43,538) (73,946) (53,776)
-------- -------- --------
Net (Decrease) Increase in Cash and Cash Equivalents............... (14) (239) 250Equivalents ............ (175) 179 (13)
Cash and Cash Equivalents at Beginning of Year..................... 19 258 8
------------ ------------ ----------Year .................. 286 107 120
-------- -------- --------
Cash and Cash Equivalents at End of Year...........................Year ........................ $ 5111 $ 19286 $ 258
============ ============ ==========
Supplemental Disclosures of Cash Flow Information107
======== ======== ========
Cash paid during the year for:
Interest.....................................................Interest .................................................. $ 3,319 $ 3,210 $ 1,556
$ 2,257 $ 3,416
Income taxes................................................. 31,066 36,040 29,138taxes .............................................. 46,633 40,624 32,916
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Fulton Financial Corporation:Corporation
We have audited the accompanying consolidated balance sheets of Fulton Financial
Corporation (a Pennsylvania corporation) and subsidiaries as of December 31,
19992001 and 1998,2000, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999.2001. 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
Keystone Heritage Group, Inc. and Ambassador Bank of the
Commonwealth, companiesDrovers Bancshares Corporation, a company acquired during 19982001 in transactionsa transaction
accounted for as poolingsa pooling of interests, as discussed in Note N.O. Such statements
are included in the consolidated financial statements of Fulton Financial
Corporation and reflect total assets of 10 percent in 2000 and interest income
of 1711 percent and 10 percent in 2000 and 1999, respectively, of the related consolidated
totals
in 1997.totals. These statements were audited by other auditors whose reports havereport has been
furnished to us and our opinion, insofar as it relates to amounts included for
Keystone Heritage Group, Inc. and Ambassador Bank of the Commonwealth,Drovers Bancshares Corporation, is based solely upon the report of the other
auditors.
We conducted our audits in accordance with auditing standards 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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Lancaster, Pennsylvania
January 21, 2000
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Board of Directors
Keystone Heritage Group, Inc.
We have audited the accompanying consolidated balance sheets of Keystone
Heritage Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related statements of income, stockholders' equity and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards.United States. 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 audits and the consolidatedreport of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Keystone
Heritage Group, Inc.Fulton Financial Corporation and subsidiaries as of
December 31, 19972001 and 19962000, and the results of their operations and their cash
flows for each of the three years thenin the period ended December 31, 2001 in
conformity with accounting principles generally accepted accounting principles.
January 30, 1998
Harrisburg, Pennsylvania
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Ambassador Bank of the Commonwealth
Allentown, Pennsylvania
We have audited the statements of income, stockholders' equity and cash
flows of Ambassador Bank of the Commonwealth for the year ended December 31,
1997. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Ambassador
Bank of the Commonwealth for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
BEARD & COMPANY, INC.
Allentown,United States.
Lancaster, Pennsylvania
January 16, 199822, 2002
FULTON FINANCIAL CORPORATION
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per-share data)
Three Months Ended
------------------------------------------------------------
For the Year 1999 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------ -------------- ------------- -------------- -------------
Interest income............... $ 101,350 $ 103,475 $ 105,457 $ 108,632
Interest expense.............. 42,682 42,429 43,707 46,009
------------- ------------- ------------- -------------
Net interest income........... 58,668 61,046 61,750 62,623
Provision for loan losses..... 1,967 2,085 1,997 2,167
Other income.................. 15,596 15,381 16,454 15,391
Other expenses................ 39,023 40,227 41,495 40,243
------------- ------------- ------------- -------------
Income before income taxes.... 33,274 34,115 34,712 35,604
Income taxes.................. 9,747 10,072 10,303 10,357
------------- ------------- ------------- -------------
Net income.................... $ 23,527 $ 24,043 $ 24,409 $ 25,247
============= ============= ============= =============
Per-share data:
Net income (basic)....... $ 0.34 $ 0.35 $ 0.35 $ 0.37
Net income (diluted)..... 0.34 0.35 0.35 0.37
Cash dividends........... 0.136 0.150 0.150 0.150
Three Months Ended
------------------------------------------------------------
For the Year 1998 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------ ---------------- -------------- ------------ -------------
Interest income............... $ 99,984 $ 101,582 $ 103,569 $ 104,230
Interest expense.............. 43,273 44,100 44,931 45,390
------------- ------------- ------------- -------------
Net interest income........... 56,711 57,482 58,638 58,840
Provision for loan losses..... 1,611 1,621 1,067 1,283
Other income.................. 14,636 16,518 14,174 14,620
Other expenses................ 38,999 40,713 38,877 39,105
------------- ------------- ------------- -------------
Income before income taxes.... 30,737 31,666 32,868 33,072
Income taxes.................. 9,564 10,085 10,520 9,663
------------- ------------- ------------- -------------
Net income.................... $ 21,173 $ 21,581 $ 22,348 $ 23,409
============= ============= ============= =============
Per-share data:
Net income (basic)....... $ 0.31 $ 0.31 $ 0.32 $ 0.34
Net income (diluted)..... 0.30 0.31 0.32 0.34
Cash dividends........... 0.125 0.131 0.136FULTON FINANCIAL CORPORATION
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per-share data)
Three Months Ended
-----------------------------------------
For the Year 2001 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------ -------- -------- -------- --------
Interest income .............. $133,253 $130,472 $130,009 $124,444
Interest expense ............. 63,395 59,135 56,625 48,807
-------- -------- -------- --------
Net interest income .......... 69,858 71,337 73,384 75,637
Provision for loan losses .... 3,179 3,199 5,533 2,674
Other income ................. 22,363 25,992 27,043 25,596
Other expenses ............... 49,020 51,402 61,499 54,748
-------- -------- -------- --------
Income before income taxes ... 40,022 42,728 33,395 43,811
Income taxes ................. 11,771 12,401 9,233 12,962
-------- -------- -------- --------
Net income ................... $ 28,251 $ 30,327 $ 24,162 $ 30,849
======== ======== ======== ========
Per-share data:
Net income (basic) ...... $ 0.34 $ 0.37 $ 0.29 $ 0.37
Net income (diluted) .... 0.34 0.36 0.29 0.37
Cash dividends .......... 0.152 0.170 0.170 0.170
Three Months Ended
-----------------------------------------
For the Year 2001 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------ -------- -------- -------- --------
Interest income .............. $122,483 $126,472 $133,437 $137,235
Interest expense ............. 55,507 58,762 63,182 66,423
-------- -------- -------- --------
Net interest income .......... 66,976 67,710 70,255 70,812
Provision for loan losses .... 3,026 5,226 2,746 4,026
Other income ................. 17,732 18,413 18,326 20,527
Other expenses ............... 44,108 44,291 46,186 49,871
-------- -------- -------- --------
Income before income taxes ... 37,574 36,606 39,649 37,442
Income taxes ................. 10,872 10,616 11,532 11,417
-------- -------- -------- --------
Net income ................... $ 26,702 $ 25,990 $ 28,117 $ 26,025
======== ======== ======== ========
Per-share data:
Net income (basic) ...... $ 0.33 $ 0.32 $ 0.35 $ 0.32
Net income (diluted) .... 0.33 0.32 0.34 0.32
Cash dividends .......... 0.136
0.152 0.152 0.152
Item 9. Changes in and Disagreements with Accountants on - ---------------------------------------------------------
Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
-------------------------------------------------------
None.
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 5 through
1011 of the 20002002 Proxy Statement and under the heading "Executive Officers"Officers and
Stock Ownership" on page 11 of the 20002002 Proxy Statement.
Item 11. Executive Compensation
- ---------------------------------------------------------------
Incorporated by reference herein is the information appearing under the
heading "Executive Compensation" on pages 1112 through 13 of the 20002002 Proxy
Statement and under the heading "Compensation of Directors" on page 1117 of the
20002002 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 20002002
Proxy Statement and under the heading "Information about Nominees and Continuing
Directors" on pages 5 through 1011 of the 20002002 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
- ---------------------------------------------------------------------------------------------------------------
Incorporated by reference herein is the information appearing under the
heading "Transactions with Directors and Executive Officers" on page 1617 of the
20002002 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".
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, 19992001 and 1998.2000.
(ii) Consolidated Statements of Income - Years ended December 31,
1999, 19982001, 2000 and 1997.1999.
(iii) Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1999, 19982001, 2000 and 1997.1999.
(iv) Consolidated Statements of Cash Flows - Years ended December 31,
1999, 19982001, 2000 and 1997.1999.
(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 and restated, and Bylaws of
Fulton Financial Corporation, as amended - Incorporated by
reference from Exhibit 3 of the Fulton Financial Corporation
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
(ii) Rights Amendment dated June 20, 1989, as amended and restated on
April 27, 1999, 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 April 27,
1999.
(iii) Material Contracts - Executive Compensation Agreements and
Plans:
(a) Severance Agreements entered into between Fulton Financial
and: Rufus A. Fulton, Jr., as of April 17, 1984; R. Scott
Smith, Jr., as of May 17, 1988; Richard J. Ashby, Jr., as of
May 17, 1988; and Charles J. Nugent, as of November 19, 1992-1992
- Incorporated by reference from Exhibit 10(a) of the Fulton
Financial Corporation Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
(b) Incentive Stock Option Plan adopted September 19, 1995 -
Incorporated by reference from Exhibit A of Fulton Financial
Corporation's 1996 Proxy Statement.
(iv) Subsidiaries of the Registrant.
(v) Consents of Independent Public AccountantsAccountants.
(vi) Financial Data ScheduleRepresentations of Independent Public Accountants.
(b) Reports on Form 8-K -- None
- None.
(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.
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, 2002 By: /s/ Rufus A. Fulton, Jr.
---------------------------
Rufus A. Fulton, Jr.,
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 Capacity Date
- --------- -------- ----
/s/ Jeffrey G. Albertson Director March 19, 2002
- ---------------------------------
Jeffrey G. Albertson, Esq.
Director
- ---------------------------------
James P. Argires, M.D.
/s/ Donald M. Bowman, Jr. Director March 19, 2002
- ---------------------------------
Donald M. Bowman, Jr.
/s/ Beth Ann L. Chivinski Senior Vice President March 19, 2002
- --------------------------------- and Controller
Beth Ann L. Chivinski (Principal Accounting Officer)
/s/ Harold D. Chubb Director March 19, 2002
- ---------------------------------
Harold D. Chubb
/s/ William H. Clark, Jr. Director March 19, 2002
- ---------------------------------
William H. Clark, Jr., C.P.A.
Signature Capacity Date
- --------- -------- ----
/s/ Craig A. Dally Director March 19, 2002
- --------------------------------
Craig A. Dally, Esq.
/s/ Frederick B. Fichthorn Director March 19, 2002
- --------------------------------
Frederick B. Fichthorn
/s/ Patrick J. Freer Director March 19, 2002
- --------------------------------
Patrick J. Freer
/s/ Rufus A. Fulton, Jr. Chairman, Chief Executive March 19, 2002
- -------------------------------- Officer and Director
Rufus A. Fulton, Jr. (Principal Executive Officer)
/s/ Eugene H. Gardner Director March 19, 2002
- --------------------------------
Eugene H. Gardner
/s/ Robert D. Garner Director March 19, 2002
- --------------------------------
Robert D. Garner
/s/ Charles V. Henry III, Esq. Director March 19, 2002
- --------------------------------
Charles V. Henry III, Esq.
Director
- --------------------------------
J. Robert Hess
/s/ George W. Hodges Director March 19, 2002
- --------------------------------
George W. Hodges
/s/ Carolyn R. Holleran Director March 19, 2002
- --------------------------------
Carolyn R. Holleran
/s/ Clyde W. Horst Director March 19, 2002
- --------------------------------
Clyde W. Horst
Director
- --------------------------------
Samuel H. Jones, Jr.
Signature Capacity Date
- --------- -------- ----
Director
- --------------------------------
Donald W. Lesher, Jr.
/s/ Charles J. Nugent Senior Executive Vice President March 19, 2002
- -------------------------------- and Chief Financial Officer
Charles J. Nugent (Principal Financial Officer)
Director
- --------------------------------
Joseph J. Mowad, M.D.
/s/ Stuart H. Raub, Jr. Director March 19, 2002
- --------------------------------
Stuart H. Raub, Jr.
/s/ Mary Ann Russell Director March 19, 2002
- --------------------------------
Mary Ann Russell
/s/ John O. Shirk Director March 19, 2002
- --------------------------------
John O. Shirk, Esq.
/s/ R. Scott Smith, Jr. President and Chief Operating March 19, 2002
- -------------------------------- Officer and Director
R. Scott Smith, Jr.
Director
- --------------------------------
James K. Sperry
Director
- --------------------------------
Gary A. Stewart
Director
- --------------------------------
Kenneth G. Stoudt
EXHIBIT INDEX
-------------
Exhibits Required Pursuant
to Item 601 of Regulation S-K
- -----------------------------
3. Articles of Incorporation, as amended and restated, and Bylaws of Fulton
Financial Corporation, as amended - Incorporated by reference from Exhibit
3 of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
4. Rights Amendment dated June 20, 1989, as amended and restated on April 27,
1999, 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 April 27, 1999.
10. Material Contracts - Executive Compensation Agreements and Plans:
(a) Severance Agreements entered into between Fulton Financial and: Rufus
A. Fulton, Jr., as of April 17, 1984; R. Scott Smith, Jr., as of May
17, 1988; Richard J. Ashby, Jr., as of May 17, 1988; and Charles J.
Nugent, as of November 19, 1992 - Incorporated by reference from
Exhibit 10(a) of the Fulton Financial Corporation Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999.
(b) Incentive Stock Option Plan adopted September 19, 1995 - Incorporated
by reference from Exhibit A of Fulton Financial Corporation's 1996
Proxy Statement.
21. Subsidiaries of the Registrant.
23. Consents of Independent Public Accountants.
27. Financial Data Schedule.
SIGNATURES
----------
Pursuant to the requirements99. Representations 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 21, 2000 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 Capacity Date
- --------- -------- ----
/s/ Jeffrey G. Albertson Director March 21, 2000
- --------------------------------------
Jeffrey G. Albertson
/s/ James P. Argires, M.D Director March 21, 2000
- --------------------------------------
James P. Argires, M.D
Director March 21, 2000
- --------------------------------------
Donald M. Bowman, Jr.
/s/ Beth Ann L. Chivinski Senior Vice President March 21, 2000
- -------------------------------------- and Controller
Beth Ann L. Chivinski (Principal Accounting Officer)
/s/ Harold D. Chubb Director March 21, 2000
- --------------------------------------
Harold D. Chubb
/s/ William H. Clark, Jr Director March 21, 2000
- --------------------------------------
William H. Clark, Jr.
Signature Capacity Date
- --------- -------- ----
Director March 21, 2000
- --------------------------------------
Martin D. Cohen, Esq.
/s/ Frederick B. Fichthorn Director March 21, 2000
- --------------------------------------
Frederick B. Fichthorn
/s/ Patrick J. Freer Director March 21, 2000
- --------------------------------------
Patrick J. Freer
/s/ Rufus A. Fulton, Jr Chairman, President, Chief March 21, 2000
- -------------------------------------- Executive Officer and Director
Rufus A. Fulton, Jr (Principal Executive Officer)
/s/ Eugene H. Gardner Director March 21, 2000
- --------------------------------------
Eugene H. Gardner
/s/ Robert D. Garner Director March 21, 2000
- --------------------------------------
Robert D. Garner
/s/ Daniel M. Heisey Director March 21, 2000
- --------------------------------------
Daniel M. Heisey
/s/ Charles V. Henry III, Esq.. Director March 21, 2000
- --------------------------------------
Charles V. Henry III, Esq.
Director March 21, 2000
- --------------------------------------
J. Robert Hess
/s/ Carolyn R. Holleran Director March 21, 2000
- --------------------------------------
Carolyn R. Holleran
/s/ Clyde W. Horst Director March 21, 2000
- --------------------------------------
Clyde W. Horst
/s/ Samuel H. Jones, Jr. Director March 21, 2000
- --------------------------------------
Samuel H. Jones, Jr.
Signature Capacity Date
- --------- -------- ----
/s/ Donald W. Lesher, Jr. Director March 21, 2000
- --------------------------------------
Donald W. Lesher, Jr.
/s/ Charles J. Nugent Executive Vice President and March 21, 2000
- -------------------------------------- Chief Financial Officer
Charles J. Nugent (Principal Financial Officer)
/s/ Joseph J. Mowad, MD Director March 21, 2000
- --------------------------------------
Joseph J. Mowad, MD
Director March 21, 2000
- --------------------------------------
Stuart H. Raub, Jr.
/s/ William E. Rusling Director March 21, 2000
- --------------------------------------
William E. Rusling
/s/ Mary Ann Russell Director March 21, 2000
- --------------------------------------
Mary Ann Russell
Director March 21, 2000
- --------------------------------------
John O. Shirk, Esq.
/s/ James K. Sperry Director March 21, 2000
- --------------------------------------
James K. Sperry
/s/ Kenneth G. Stoudt Director March 21, 2000
- --------------------------------------
Kenneth G. Stoudt
Independent Public Accountants.