UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-Q
(Mark One)
X
- - ---------- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
-------------------------------------------------
OR
- - ---------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- -------------------
Commission file number 0-10587
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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. 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)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report.)
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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $2.50 Par
--------------------------
Value -- 28,410,163 shares outstanding as of October 31, 1995.
- - --------------------------------------------------------------
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED September 30, 1995
INDEX
-----
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
(a) Consolidated Balance Sheets - September 3
30, 1995 and December 31, 1994
(b) Consolidated Statements of Income - 4
Three and nine months ended September
30, 1995 and 1994
(c) Consolidated Statements of Cash Flows - 5
Nine months ended September 30, 1995 and
1994
(d) Notes to Consolidated Financial 6
Statements - September 30, 1995
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of
Operations.
PART II. OTHER INFORMATION
Items 1, 2, 3, 4, and 5 have been omitted since they
are not applicable to the registrant.
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
Fulton Financial Corporation
Consolidated Balance Sheets (Unaudited)
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(Dollars in thousands, except per-share data) September 30 December 31
1995 1994
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ASSETS
- - --------------------------------------------------------------------------------------------------------------------------
Cash and due from banks....................................................................... $ 151,279 $ 148,241
Interest-bearing deposits with other banks.................................................... 4,432 2,539
Federal funds sold............................................................................ - 6,075
Mortgage loans held for sale.................................................................. 994 650
Investment securities:
Securities held to maturity................................................................. 546,790 507,486
Securities available for sale............................................................... 165,244 174,211
Loans......................................................................................... 2,297,305 2,244,846
Less: Allowance for loan losses............................................................ (36,162) (35,775)
Unearned income...................................................................... (5,432) (10,952)
---------- ----------
Net Loans.......................................................................... 2,255,711 2,198,119
---------- ----------
Premises and equipment........................................................................ 42,275 42,452
Accrued interest receivable................................................................... 22,676 20,727
Other assets.................................................................................. 77,411 78,196
---------- ----------
Total Assets....................................................................... $3,266,812 $3,178,696
========== ==========
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LIABILITIES
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Deposits:
Noninterest-bearing......................................................................... $ 368,791 $ 359,895
Interest-bearing............................................................................ 2,335,054 2,231,153
---------- ----------
Total Deposits..................................................................... 2,703,845 2,591,048
---------- ----------
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase.................. 110,583 191,523
Demand notes of U.S. Treasury............................................................... 5,000 5,000
---------- ----------
Total Short-Term Borrowings........................................................ 115,583 196,523
---------- ----------
Accrued interest payable...................................................................... 23,332 12,857
Other liabilities............................................................................. 55,201 42,653
Long-term debt................................................................................ 35,912 27,283
---------- ----------
Total Liabilities.................................................................. 2,933,873 2,870,364
---------- ----------
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SHAREHOLDERS' EQUITY
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Common stock ($2.50 par)
Shares: Authorized 100,000,000
Issued 28,423,962 (28,678,316 in 1994)
Outstanding 28,394,380 (28,420,648 in 1994)........................................ 71,060 65,240
Capital surplus............................................................................... 167,628 132,588
Retained earnings............................................................................. 87,977 113,401
Net unrealized holding gain on securities..................................................... 6,837 1,577
Less: Treasury stock (29,582 in 1995 and 257,668 shares in 1994) - at cost.................... (563) (4,474)
---------- ----------
Total Shareholders' Equity......................................................... 332,939 308,332
---------- ----------
Total Liabilities and Shareholders' Equity......................................... $3,266,812 $3,178,696
========== ==========
See notes to consolidated financial statements.
3
Fulton Financial Corporation
Consolidated Statements of Income (Unaudited)
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(Dollars in thousands, except per-share data) Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
-----------------------------------------------------
INTEREST INCOME
Loans, including fees................................................ $ 49,840 $ 39,705 $ 146,725 $ 114,240
Investment securities:
Taxable......................................................... 7,807 7,946 21,930 23,707
Tax-exempt...................................................... 1,128 1,375 3,632 4,238
Dividends....................................................... 490 361 1,466 1,017
Federal funds sold................................................... 423 92 1,124 289
Interest-bearing deposits with other banks........................... 65 32 195 139
----------- ----------- ----------- -----------
Total Interest Income...................................... 59,753 49,511 175,072 143,630
INTEREST EXPENSE
Deposits............................................................. 24,096 17,002 69,076 48,711
Short-term borrowings................................................ 1,464 1,338 4,750 3,233
Long-term debt....................................................... 605 208 1,453 683
----------- ----------- ----------- -----------
Total Interest Expense..................................... 26,165 18,548 75,279 52,627
----------- ----------- ----------- -----------
Net Interest Income........................................ 33,588 30,963 99,793 91,003
- - ---------------------------------------------------------------------
PROVISION FOR LOAN LOSSES............................................ 538 500 1,572 1,570
----------- ----------- ----------- -----------
Net Interest Income After Provision for Loan Losses........ 33,050 30,463 98,221 89,433
- - -----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Trust department..................................................... 1,846 1,733 5,568 5,387
Service charges on deposit accounts.................................. 2,485 2,355 7,231 6,925
Other service charges and fees....................................... 2,087 1,486 5,584 4,441
Gain on sale of mortgage loans....................................... 152 213 811 1,143
Investment securities gains.......................................... 390 206 1,409 1,912
----------- ----------- ----------- -----------
6,960 5,993 20,603 19,808
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OTHER EXPENSES
Salaries and employee benefits....................................... 13,006 12,207 38,402 36,400
Net occupancy expense................................................ 2,540 2,180 7,552 6,604
Equipment expense.................................................... 1,362 1,439 4,264 4,319
FDIC assessment expense.............................................. 101 1,368 2,919 4,039
Special services..................................................... 1,364 1,181 3,967 3,553
Other................................................................ 6,238 4,745 17,237 15,137
----------- ----------- ----------- -----------
24,611 23,120 74,341 70,052
----------- ----------- ----------- -----------
Income Before Income Taxes................................... 15,399 13,336 44,483 39,189
Income taxes 3,876 3,088 10,861 9,462
----------- ----------- ----------- -----------
Net Income.................................................... $ 11,523 $ 10,248 $ 33,622 $ 29,727
=========== =========== =========== ===========
- - -----------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
Net Income........................................................... $ .41 $ .36 $ 1.18 $ 1.06
=========== =========== =========== ===========
Cash dividends....................................................... $ .165 $ .158 $ .486 $ .438
Weighted average shares outstanding.................................. 28,381,047 28,186,515 28,405,454 28,100,151
See notes to consolidated financial statements.
4
Fulton Financial Corporation
Consolidated Statements of Cash Flows (Unaudited)
- - --------------------------------------------------------------------------------
(Dollars in thousands) Nine Months Ended
September 30
1995 1994
- - --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 33,622 $ 29,727
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Provision for loan losses 1,572 1,570
Depreciation and amortization of premises and
equipment 3,886 3,439
Net amortization of investment security premiums 1,482 1,387
Gain on sale of investment securities (1,409) (1,912)
Increase in mortgage loans held for sale (344) 10,294
Amortization of intangible assets 1,180 338
Increase in accrued interest receivable (1,949) (1,618)
(Increase) decrease in other assets (2,023) (7,923)
Increase in accrued interest payable 10,475 4,374
Increase (decrease) in other liabilities 8,553 (51)
--------- ---------
Total adjustments 21,423 9,898
--------- ---------
Net cash provided by operating activities 55,045 39,625
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for
sale 5,003 9,452
Proceeds from maturities of securities held to
maturity 136,646 219,247
Proceeds from maturities of securities available
for sale 50,276 -
Purchase of securities held to maturity (170,905) (233,605)
Purchase of securities available for sale (40,547) -
Decrease in short-term investments 4,182 19,176
Net increase in loans (59,164) (108,930)
Purchase of premises and equipment (3,709) (4,492)
--------- ---------
Net cash used in investing activities (78,218) (99,152)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in total deposits 112,797 31,529
Increase (decrease) in long-term debt 8,629 (184)
(Decrease) increase in short-term borrowings (80,940) 62,147
Dividends paid (13,804) (12,023)
Net proceeds from issuance of common stock 2,108 971
Acquisition of treasury stock (2,579) -
--------- ---------
Net cash provided by financing activities 26,211 82,440
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,038 22,913
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 148,241 134,546
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 151,279 $ 157,459
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 64,804 $ 44,580
Income taxes 10,331 11,096
See notes to consolidated financial statements.
5
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-1 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1995 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1995.
NOTE B - Net Income Per Share
Net income per share is computed on the basis of the weighted average number of
common shares outstanding.
NOTE C - Stock Dividend
The Board of Directors declared a 10% stock dividend on April 17, 1995 payable
September 9, 1995 to shareholders of record as of May 15, 1995. All share and
per-share information has been restated to reflect the effect of this stock
dividend.
NOTE D - Adoption of SFAS No. 114
Allowance for Loan Losses
- - -------------------------
The Corporation adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" effective January 1, 1995.
Under the new standard, the 1995 allowance for credit losses related to loans
that are impaired as defined by Statement 114 is evaluated based on the present
value of expected future cash flows discounted at the loan's effective interest
rate or the fair value of the collateral for certain collateral dependent loans.
Prior to 1995, the allowance for credit losses related to these loans was
evaulated based on undiscounted cash flows or the fair value of the collateral
for collateral dependent loans.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on the risk
characteristics of the portfolio, past loan loss experience, local economic
conditions, and such other relevant factors. The allowance is increased by
provisions
6
for loan losses charged against income and is reduced by net charge-offs. The
allowance is based on management's estimates, and actual losses may vary from
the current estimates. These estimates are reviewed periodically, and, as
adjustments become necessary, they are reported in earnings in the periods in
which they become known.
At September 30, 1995, the recorded investment in loans that are considered to
be impaired as defined by Statement 114 was $14.7 million (of which $11.5
million were on a nonaccrual basis). Included in this amount is $14.5 million
of impaired loans for which the related allowance for credit losses is $2.7
million and $148,000 of impaired loans that as a result of write-downs do not
have an allowance for credit losses. The average recorded investment in
impaired loans during the quarter ended September 30, 1995 was approximately
$15.5 million.
Interest Income Recognition
- - ---------------------------
The Corporation applies all payments received on 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. For the quarter ended
September 30, 1995, the Corporation recognized such interest income using the
cash basis of income recognition of approximately $162,000.
Other Real Estate Owned and In-Substance Foreclosures
- - -----------------------------------------------------
Assets acquired in settlement of mortgage loan indebtedness are recorded as
other real estate owned and are included in other assets initially at the lower
of the estimated fair value of the asset or the carrying amount of the loan.
Loans identified as in-substance foreclosures are also included in other assets
at the lower of their carrying or estimated fair value.
In accordance with Statement 114, a loan is classified as in-substance
foreclosure when the Company has taken possession of the collateral regardless
of whether formal foreclosure proceedings take place. There are no in-substance
foreclosures at September 30, 1995. Loans previously classified as in-substance
foreclosure but for which the Company had not taken possession of the collateral
have been reclassified to loans. This reclassification did not impact the
Company's financial condition or results of operations.
Costs to maintain the assets and subsequent gains and losses attributable to
their disposal are included in other income or other expenses.
7
Note E - Acquisitions
On August 31, 1995, the Corporation completed the previously announced
acquisition of Delaware National Bankshares Corp. (DNB) of Georgetown, Delaware.
The acquisition was carried out in accordance with the terms of the Merger
Agreement, as amended and restated, and has been accounted for as a pooling of
interests. All financial statements and financial information contained herein
have been restated to include the amounts and results of DNB for all periods
presented.
As provided in the Merger Agreement, each of the 766,913 shares outstanding of
the $5.00 par value common stock of DNB has been converted to 1.244 shares of
the $2.50 par value common stock of the Corporation.
On October 25, 1995, the Corporation entered into a merger agreement with
Gloucester County Bankshares, Inc. (Gloucester), under the terms of which the
Corporation would acquire each of the 970,279 outstanding shares of common stock
of Gloucester in exchange for shares of the Corporation's common stock based
upon an exchange ratio, as defined in the merger agreement. The minimum
exchange ratio is 1.53 and the maximum exchange ratio is 1.73.
Gloucester is headquartered in Woodbury, New Jersey and operates 5 branch
offices through its wholly-owned subsidiary, The Bank of Gloucester County,
which has approximately $190 million in total assets.
8
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
- - -------------------
At September 30, 1995, total assets were $3,266,812,000, increasing $88,116,000
or 2.8% since December 31, 1994.
Net loans increased by $57,592 or 2.6% as loans originated exceeded scheduled
maturities and sales of mortgage loans. Investment securities increased
$19,820,000 or 2.9%, as purchases of securities have exceeded maturities and
sales of securities.
Total deposits at September 30, 1995 increased $112,797,000 or 4.3% from year-
end 1994 totals. These funds were used to reduce Federal funds purchased and
securities sold under agreements to repurchase, which decreased $80,940,000 or
42.3%, as well as to fund a portion of the increase in net loans and investment
securities.
The Corporation has used short-term borrowings (Federal funds purchased and
securities sold under agreements to repurchase) as required to fund asset
growth, as deposit growth has lagged loan growth in recent years. Although the
first nine months of 1995 have seen a reversal of this trend, the Corporation
continues to focus on increasing deposit levels and minimizing the use of short-
term volatile funding sources.
Capital Resources
- - -----------------
The capital resources of the Corporation as represented by the two major
components of regulatory capital, shareholders' equity and allowance for loan
losses, continued to grow during 1995, increasing 8.0% and 1.1%, respectively,
during the nine months ended September 30, 1995.
Current capital guidelines attempt to measure the adequacy of a bank holding
company's capital by taking into consideration the differences in risk
associated with holding various types of assets as well as exposure to off-
balance sheet commitments. The guidelines call for a minimum Tier I risk-based
capital percentage of 4.0% and a minimum total risk-based capital of 8.0%.
Tier I
9
capital includes common shareholders' equity, non-cumulative preferred stock, a
percentage of cumulative preferred stock, and minority interests less goodwill
and non-qualified intangible assets. Total capital includes all Tier I capital
components plus total cumulative preferred stock, hybrid debt-capital
securities, qualified subordinated debt and the allowance for loan losses.
The Corporation is also subject to "leverage capital" requirements, which
compares capital (using the definition of Tier I capital) to total balance sheet
assets and is intended to supplement the risk-based capital ratios in measuring
capital adequacy. The minimum acceptable leverage capital ratio is 3% for
institutions which are highly-rated in terms of safety and soundness and which
are not experiencing or anticipating any significant growth. Other institutions
are expected to maintain capital levels at least one or two percent above the
minimum.
As of September 30, 1995, the Corporation's capital ratios exceed all of the
minimum ratios as set forth above.
Liquidity and Interest Rate Sensitivity Management
- - --------------------------------------------------
The goals of the Corporation's asset/liability management function are to ensure
adequate liquidity and to maintain an appropriate balance between the relative
sensitivity of interest-earning assets and interest-bearing liabilities.
The Corporation maintains adequate liquidity. On the asset side, liquidity is
provided primarily by cash, short-term investments, securities available for
sale and scheduled maturities of securities held to maturity. On the liability
side, liquidity is provided primarily by short-term borrowings.
Management monitors the interest sensitivity position of the Corporation
continually to ensure proper adherence to its established policy regarding
interest rate risk. The following table shows the interest sensitivity gaps for
four different time intervals based on scheduled amortization, maturity, and
repricing opportunities as of September 30, 1995.
Daily 0-90 91-180 181-365
Adjustable Days Days Days
----------------------------------
GAP 1.16 1.07 1.01 1.28
CUMULATIVE GAP 1.16 1.13 1.11 1.15
The Corporation's policy provides for the cumulative six month
gap to be maintained between .85 and 1.15.
10
RESULTS OF OPERATIONS
- - ---------------------
Quarter Ended September 30, 1995 versus Quarter Ended September 30, 1995
- - ------------------------------------------------------------------------
Fulton Financial Corporation's net income increased by $1,275,000, or 12.4%, to
$11,523,000 during the third quarter of 1995 compared to the same quarter in
1994. This increase was attributable primarily to increases in net interest
income and other income which were partially offset by increases in other
expenses and income taxes.
Net Interest Income
- - -------------------
Net interest income increased by $2,625,000 or 8.5%. The following table
presents the components of this increase:
Three Months Ended September 30 Change
------------------------------- ------
1995 1994 $ %
---- ---- --- ---
(dollars in thousands)
Interest income $59,753 $49,511 $10,242 20.7
Interest expense 26,165 18,548 7,617 41.1
------- ------- -------
Net interest income $33,588 $30,963 $ 2,625 8.5
======= ======= =======
As summarized in the following table, the 20.7% increase in interest income
reflects the effect of the growth in average interest-earning assets and the
increase in the yield on these assets. The 41.1% increase in interest expense
reflects the effect of the growth in interest-bearing liabilities and the
increase in the cost of these funds.
Three Months Ended September 30
%
1995 1994 Change
-------------------------------
(Dollars in Thousands)
Average interest-earning assets $2,971,088 $2,672,417 11.2%
Yield on earning assets 8.19% 7.58% 8.0%
Average interest-bearing
liabilities $2,463,737 $2,214,772 11.2%
Cost of interest-bearing
liabilities 4.21% 3.32% 26.8%
The increase in both average interest-earning assets and average interest-
bearing liabilities is primarily due to the acquisition of Central Pennsylvania
Financial Corp. (CPFC), which was effective October 1, 1994 and was accounted
for as a purchase of assets and assumption of liabilities. CPFC had
approximately $260 million in assets as of the acquisition date.
11
The increase in yield and cost of funds from 1994 to 1995 reflects the impact of
the increasing interest rates experienced during 1994 and early 1995. The
Corporation's average prime rate increased over 16%, from 7.50% for the third
quarter of 1994 to 8.77% for the third quarter of 1995. The Corporation has
experienced a greater increase in its cost of funds than in its yields,
primarily as a result of continuing competition from both bank and nonbank
providers.
Provision and Allowance for Loan Losses
- - ---------------------------------------
The provision for loan losses for the third quarter of 1995 was $538,000
compared to $500,000 for the similar period of 1994 and is reflective of the
continuing low levels of nonperforming loans and related charge-offs. The 1.58%
ratio representing the loan loss allowance in relation to gross loans less
unearned income as of September 30, 1995 is consistent with that ratio of 1.60%
at December 31, 1994 and is considered prudent by management in light of the
current economic conditions and the quality of the loan portfolio.
The following table summarizes the Corporation's nonperforming assets. Note
that amounts which would have been presented as in-substance foreclosures as of
December 31, 1994 are included in nonaccrual loans as of September 30, 1995.
September 30 Dec. 31
1995 1994
---- ----
(Dollars in Thousands)
Nonaccrual loans $13,107 $13,055
90 days past due loans
& accruing 7,389 5,462
Other real estate owned 1,607 2,767
In-substance foreclosures - 1,818
------- -------
$22,103 $23,102
======= =======
Nonperforming Assets/Total Assets .68% .73%
Nonperforming Assets/Gross Loans .96% 1.03%
Other Income
- - ------------
During the third quarter of 1995, other income increased by $967,000, or 16.1%,
when compared to the same period of 1994. This increase reflects the increases
in trust department income of $113,000 or 6.5%, service charges on deposit
accounts of $130,000 or 5.5%, other service charges and fees of $601,000 or
40.4%, and investment security gains of $184,000, or 89.3%.
12
The increase in other service charges and fees includes a significant increase
in mortgage servicing fees as a result of the servicing portfolio acquired from
CPFC in the fourth quarter of 1994. This category also reflects the fees from a
debit card introduced by one of the Corporation's affiliate banks during 1994.
Other Expenses
- - --------------
For the third quarter of 1995, total other expenses were $24,611,000, an
increase of $1,491,000 or 6.4%, over the similar period in 1994. The categories
contributing to this increase were salaries and employee benefits, increasing
$799,000, or 6.5%, net occupancy expense, increasing $360,000, or 16.5%, and
special services, increasing $183,000, or 15.5% These increases are primarily
due to the operating expenses related to the branches which were acquired from
CPFC on October 1, 1994. Also contributing to the increase in other expenses is
approximately $260,000 of goodwill amortization as a result of this acquisition.
Offsetting the above mentioned increases was the refund of FDIC insurance
premiums received during the third quarter of 1995. The FDIC reduced the
assessment rate for Bank Insurance Fund (BIF) deposits from 23 basis points to 4
basis points, effective June 1, 1995, resulting in a total refund to the
Corporation of $1,327,000, which was credited to FDIC insurance expense.
Legislation has been proposed for a significant one-time FDIC assessment on
Savings Association Insurance Fund (SAIF) insured deposits, of which the
Corporation has approximately $400 million. This assessment will result in a
significant increase of the Corporation's other expenses when and if such
legislation is approved.
Income Taxes
- - ------------
Income tax expense increased $788,000, to $3,876,000, for the quarter ended
September 30, 1995. This increase is directly attributable to the increase in
pretax income and the decreasing levels of tax-exempt interest income. The
effective tax rate was 25.2% in 1995 compared to 23.2% in 1994.
Nine Months Ended September 30, 1995 versus Nine Months Ended September 30, 1994
- - --------------------------------------------------------------------------------
Fulton Financial Corporation's net income increased by $3,895,000, or 13.1%, to
$33,622,000 for the nine months ended September 30, 1995 compared to the nine
months ended September 30, 1994. This increase was attributable primarily to
increases in net interest income and other income which were partially offset by
increases in other expenses and income taxes.
Net Interest Income
- - -------------------
Net interest income increased by $8,790,000 or 9.7%. The following table
presents the components of this increase:
13
Nine Months Ended September 30 Change
------------------------------ ------
1995 1994 $ %
---- ---- --- ---
(Dollars in Thousands)
Interest income $175,072 $143,630 $31,442 21.9
Interest expense 75,279 52,627 22,652 43.0
-------- -------- -------
Net interest income $ 99,793 $ 91,003 $ 8,790 9.7
======== ======== =======
As summarized in the following table, the 21.9% increase in interest income
reflects the effect of the growth in average interest-earning assets and the
increase in the yield on these assets. The 43.0% increase in interest expense
reflects the effect of the growth in interest-bearing liabilities and the
increase in the cost of these funds.
Nine Months Ended September 30
%
1995 1994 Change
-------------------------------
(Dollars in Thousands)
Average interest-earning assets $2,928,402 $2,643,999 10.8%
Yield on earning assets 8.16% 7.44% 9.7%
Average interest-bearing
liabilities $2,434,317 $2,195,339 10.9%
Cost of interest-bearing
liabilities 4.13% 3.20% 29.1%
The increase in both average interest-earning assets and average interest-
bearing liabilities is primarily due to the acquisition of Central Pennsylvania
Financial Corp. (CPFC), which was effective October 1, 1994 and was accounted
for as a purchase of assets and assumption of liabilities. CPFC had
approximately $260 million in assets as of the acquisition date.
The increase in yield and cost of funds from 1994 to 1995 reflects the impact of
the increasing interest rates experienced during 1994 and early 1995. The
Corporation's average prime rate increased over 30%, from 6.80% for the nine
months ended September 30, 1994 to 8.87% for the nine months ended September 30,
1995. The Corporation has experienced a greater increase in its cost of funds
than in its yields, primarily as a result of continuing competition from both
bank and nonbank providers.
Provision for Loan Losses
- - -------------------------
The provision for loan losses for the nine months ended September 30, 1995 was
$1,572,000 compared to $1,570,000 for the similar period of 1994 and is
reflective of the continuing low levels of nonperforming loans and related
charge-offs.
14
Other Income
- - ------------
Other income increased by $795,000, or 4.0%, for the nine months ended September
30, 1995 compared to the same period of 1994. This increase reflects increases
in trust department income of $181,000 or 3.4%, service charges on deposit
accounts of $306,000 or 3.9% and other service charges and fees of $1,143,000 or
25.7%, offset by the decreases in investment security gains of $503,000 or 26.3%
and gain on sale of mortgage loans of $332,000, or 29.0%.
The increase in other service charges and fees includes a significant increase
in mortgage servicing fees as a result of the servicing portfolio acquired from
CPFC in the fourth of 1994, as well as fees from a debit card introduced by one
of the Corporation's affiliate bank during 1994.
The decrease in investment securities gains is a result of management's policy
of realizing such gains only when deemed prudent to do so, based upon the
current and expected fair market values of the individual securities within the
equity portfolio.
Other Expenses
- - --------------
For the nine months ended September 30, 1995, total other expenses were
$74,371,000, an increase of $4,289,000, or 6.1%, over the similar period in
1994. The categories contributing to this increase were salaries and employee
benefits, increasing $2,002,000, or 5.5%, net occupancy expense, increasing
$948,000 or 14.4%; special services, increasing $414,000 or 11.7%; and other
expenses, increasing $2,050,000 or 13.5%. These increases were primarily due to
the operating expenses related to the branches which were acquired from CPFC on
October 1, 1994. Also contributing to the increase in other expenses is
approximately $780,000 of goodwill amortization as a result of this acquisition.
Offsetting the above mentioned increases was the refund of FDIC insurance
premiums received during the third quarter of 1995. The FDIC reduced the
assessment rate for Bank Insurance Fund (BIF) deposits from 23 basis points to 4
basis points, effective June 1, 1995, resulting in a total refund to the
Corporation of $1,327,000, which was credited to FDIC insurance expense.
Legislation has been proposed for a significant one-time FDIC assessment on
Savings Association Fund (SAIF) deposits, of which the Corporation has
approximately $400 million. This assessment will result in a significant
increase of the Corporation's other expenses when and if such legislation is
approved.
Income Taxes
- - ------------
Income tax expense increased $1,400,000, to $10,862,000, for the nine months
ended September 30, 1995. This increase was directly attributable to the
increase in pretax income and the decreasing level of tax-exempt interest
income. The effective tax rate was 24.4% in 1995 compared to 24.1% in 1994.
15
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits -- The following is a list of the exhibits required by Item 601 of
Regulation S-K and filed as part of this report:
(1) Instruments defining the right of securities holders, including
indentures:
(a) Rights Agreement dated September 20, 1989 between Fulton
Financial Corporation and Fulton Bank -- Incorporated by
reference to Exhibit 1 of the Fulton Financial Corporation
Current Report on Form 8-K dated June 21, 1989.
(2) Material Contracts - Executive Compensation Agreements and Plans:
(a) Severance Agreements entered into as of April 17, 1984 and as of
May 17, 1988 between Fulton Financial Corporation and the
following executive officers: Robert D. Garner, Rufus A. Fulton,
Jr., James K. Sperry and R. Scott Smith, Jr. - Incorporated by
reference from Exhibit 28 (a) of the Fulton Financial Corporation
Quarterly Report on Form 10-Q for the quarter ended March 31,
1990.
(b) Incentive Stock Option Plan and Amendment No.1 to that Plan
adopted February 17, 1987--Incorporated by reference from Exhibit
(a) (i) of the Fulton Financial Corporation Quarterly Report on
Form 10-Q for the quarter ended March 31, 1987.
(c) Severance Agreement entered into as of November 19, 1992 between
Fulton Financial Corporation and Charles J. Nugent, Executive
Vice President and Chief Financial Officer, incorporated by
reference from Exhibit 10 (c) to the Fulton Financial Corporation
Annual Report on Form 10-K for the year ended December 31, 1992.
(b) Reports on Form 8-K -
(1) Form 8-K dated October 17, 1995 reporting results of combined
operations of Fulton Financial Corporation and Delaware National
Bankshares Corp.
(2) Form 8-K dated November 3, 1995 reporting merger agreement with
Gloucester County Bankshares, Inc.
16
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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
Date November 3, 1995 /s/ Rufus A. Fulton, Jr.
--------------------------- ----------------------------
Rufus A. Fulton, Jr.
President and Chief
Executive Officer
Date November 3, 1995 /s/ Charles J. Nugent
--------------------------- ----------------------------
Charles J. Nugent
Executive Vice President;
Chief Financial Officer
17
EXHIBIT INDEX
Page
(in accordance with
Exhibits Required Pursuant sequential numbering
to Item 601 of Regulation S-K system)
- - ----------------------------- --------------------
4. Instruments defining the rights
of security holders, including
indentures.
(a) Rights Agreement dated September 20, 1989
between Fulton Financial Corporation
and Fulton Bank -- Incorporated by
reference to Exhibit 1 of the Fulton
Financial Corporation Current Report
on Form 8-K dated June 21, 1989.
10. Material Contracts
(a) Severance Agreements entered into as
of April 17, 1984 and as of May 17,
1988 between Fulton Financial
Corporation and the following
executive officers: Robert D. Garner,
Rufus A. Fulton, Jr., James K. Sperry
and R. Scott Smith, Jr. - Incorporated
by reference from Exhibit 28(a) of the
Fulton Financial Corporation Quarterly
Report on Form 10-Q for the quarter
ended March 31, 1990.
(b) Incentive Stock Option Plan and
Amendment No. 1 to that Plan adopted
February 17, 1987 -Incorporated by
reference from Exhibit (a) (i) of the
Fulton Financial Corporation Quarterly
Report on Form 10-Q for the quarter
ended March 31, 1987.
(c) Severance Agreement entered into as
of November 19, 1992 between Fulton
Financial Corporation and Charles J.
Nugent, Executive Vice President and
Chief Financial Officer, filed as
Exhibit 10(c) to the Fulton Financial
Corporation Annual Report on Form 10-K
for the year ended December 31, 1992.
27. Financial Data Sheet -- Article 9
18