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 June 30, 1996 , OR
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to______________
Commission File No. 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)
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 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 -- 32,969,990 shares outstanding as of
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July 25, 1996.
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FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
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Description Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
(a) Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 3
(b) Consolidated Statements of Income -
Three and Six months ended June 30, 1996 and 1995 4
(c) Consolidated Statements of Cash Flows -
Six months ended June 30, 1996 and 1995 5
(d) Notes to Consolidated Financial Statements - June 30, 1996 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------
June 30 December 31
1996 1995
---------------------------------------------
Assets
- -------------------------------------------------------------------------------------------------------------------------
Cash and due from banks................................................... $ 161,277 $ 152,143
Interest-bearing deposits with other banks................................ 2,588 4,425
Mortgage loans held for sale.............................................. 969 613
Investment securities:
Held to maturity (Fair value- $454,095 in 1996 and $506,359 in 1995)..... 454,667 503,926
Available for sale....................................................... 304,160 256,380
Loans..................................................................... 2,636,911 2,502,033
Less: Allowance for loan losses......................................... (39,053) (38,272)
Unearned income....................................................... (7,574) (8,711)
------------------- ------------------
Net Loans.......................................................... 2,590,284 2,455,050
------------------- ------------------
Premises and equipment.................................................... 49,817 47,606
Accrued interest receivable............................................... 24,995 25,275
Other assets.............................................................. 75,712 79,150
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Total Assets....................................................... $ 3,664,469 $ 3,524,568
=================== ==================
- -------------------------------------------------------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing...................................................... $ 456,158 $ 427,384
Interest-bearing......................................................... 2,546,998 2,487,885
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Total Deposits..................................................... 3,003,156 2,915,269
------------------- ------------------
Short-term borrowings:
Federal funds purchased and securities sold under
agreements to repurchase........................................... 204,909 126,372
Demand notes of U.S. Treasury............................................ 5,000 5,058
------------------- ------------------
Total Short-Term Borrowings........................................ 209,909 131,430
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Accrued interest payable.................................................. 20,400 19,357
Other liabilities......................................................... 43,794 69,809
Long-term debt............................................................ 21,335 34,689
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Total Liabilities.................................................. 3,298,594 3,170,554
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Shareholders' Equity
- -------------------------------------------------------------------------------------------------------------------------
Common stock ($2.50 par)..................................................
Shares: Authorized 100,000,000..........................................
Issued 32,968,076 (32,955,130 in 1995)...............................
Outstanding 32,965,126 (32,843,784 in 1995).......................... 82,421 74,907
Capital surplus........................................................... 220,758 174,023
Retained earnings......................................................... 57,444 98,746
Net unrealized holding gains on securities available for sale............ 5,311 8,526
Less: Treasury stock (2,950 shares in 1996 and 111,346 shares in 1995).... (59) (2,188)
------------------- ------------------
Total Shareholders' Equity......................................... 365,875 354,014
------------------- ------------------
Total Liabilities and Shareholders' Equity......................... $ 3,664,469 $ 3,524,568
=================== ==================
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See notes to consolidated financial statements
3
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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(Dollars in thousands, except per-share data)
Three Months Ended June 30 Six Months Ended June 3
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1996 1995 1996 1995
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Interest Income
- -------------------------------------------------------------------------------------------------------------------------
Loans, including fees.................. $ 55,076 $ 52,079 $ 109,334 $ 103,016
Investment securities:.................
Taxable............................... 9,737 7,538 18,725 15,006
Tax-exempt............................ 820 1,253 1,715 2,571
Dividends............................. 482 518 981 992
Federal funds sold..................... 2 763 141 1,002
Interest-bearing deposits with other
banks................................. 34 67 89 130
-------------- --------------- ------------- ------------------
Total Interest Income.......... 66,151 62,218 130,985 122,717
Interest Expense
- -------------------------------------------------------------------------------------------------------------------------
Deposits............................... 25,601 24,807 51,274 47,654
Short-term borrowings.................. 1,819 1,343 3,416 3,287
Long-term debt......................... 458 437 1,001 896
-------------- --------------- ------------- ------------------
Total Interest Expense.......... 27,878 26,587 55,691 51,837
Net Interest Income............. 38,273 35,631 75,294 70,880
Provision for Loan Losses.............. 965 653 1,641 1,333
-------------- --------------- ------------- ------------------
Net Interest Income After
Provision for Loan Losses..... 37,308 34,978 73,653 69,547
-------------- --------------- ------------- ------------------
Other Income
- -------------------------------------------------------------------------------------------------------------------------
Trust department....................... 1,914 1,850 3,817 3,722
Service charges on deposit accounts.... 3,198 2,602 6,161 5,139
Other service charges and fees......... 1,733 1,835 3,444 3,540
Gain on sale of mortgage loans......... 158 328 421 659
Investment securities gains............ 508 739 1,539 1,019
-------------- --------------- ------------- ------------------
7,511 7,354 15,382 14,079
Other Expenses
- -------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits......... 13,912 13,460 27,691 26,595
Net occupancy expense.................. 2,772 2,632 5,729 5,313
Equipment expense...................... 1,420 1,562 2,890 3,088
FDIC assessment expense................ 239 1,474 488 2,978
Special services....................... 1,591 1,409 3,135 2,772
Other.................................. 6,478 5,658 12,721 10,869
-------------- --------------- ------------- ------------------
26,412 26,195 52,654 51,615
Income Before Income Taxes...... 18,407 16,137 36,381 32,011
Income Taxes........................... 5,372 4,440 10,625 8,660
-------------- --------------- ------------- ------------------
Net Income...................... $ 13,035 $ 11,697 $ 25,756 $ 23,351
============== =============== ============= ==================
- -------------------------------------------------------------------------------------------------------------------------
Per-Share Data:
Net income............................. $0.40 $0.36 $0.78 $0.71
Cash dividends......................... $0.170 $0.142 $0.325 $0.274
Weighted average shares outstanding.... 32,952,444 32,938,795 32,922,089 32,941,687
- -------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
4
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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(Dollars in thousands)
Six Months Ended
June 30
---------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income............................................................... $ 25,756 $ 23,351
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Provision for loan losses................................................ 1,641 1,333
Depreciation and amortization of premises and equipment.................. 2,652 2,732
Net amortization of investment security premiums......................... 254 1,189
Gain on sale of investment securities.................................... (1,539) (1,019)
(Increase) decrease in mortgage loans held for sale...................... (356) 408
Amortization of intangible assets........................................ 733 774
Decrease (increase) in accrued interest receivable....................... 280 (1,596)
Decrease (increase) in other assets...................................... 3,988 (3,858)
Increase in accrued interest payable..................................... 1,043 6,930
(Decrease ) increase in other liabilities................................. (3,170) 3,549
---------------- ---------------
Total adjustments..................................................... 5,526 10,442
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Net cash provided by operating activities............................. 31,282 33,793
---------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale..................... 39,200 4,351
Proceeds from maturities of securities held to maturity.................. 122,155 101,522
Proceeds from maturities of securities available for sale................ 14,959 21,738
Purchase of securities held to maturity.................................. (96,924) (66,970)
Purchase of securities available for sale................................ (104,746) (41,437)
Decrease (increase) in short-term investments............................ 1,851 (28,254)
Net increase in loans.................................................... (136,875) (39,393)
Purchase of premises and equipment....................................... (4,863) (3,803)
---------------- ---------------
Net cash used in investing activities................................. (165,243) (52,246)
---------------- ---------------
Cash Flows from Financing Activities:
Net increase in noninterest-bearing deposits............................. 28,774 34,143
Net increase in interest-bearing deposits................................ 59,113 82,143
(Decrease) increase in long-term debt.................................... (13,354) 11,303
Increase (decrease) in short-term borrowings............................. 78,479 (82,806)
Dividends paid........................................................... (9,915) (9,015)
Net proceeds from issuance of common stock............................... 1,473 649
Cash paid in lieu of fractional shares................................... (74) (61)
Acquisition of treasury stock............................................ (1,387) (645)
---------------- ---------------
Net cash provided by financing activities............................. 143,109 35,711
---------------- ---------------
Net Increase in Cash and Cash Equivalents................................... 9,148 17,258
Cash and Cash Equivalents at Beginning of Period............................ 152,143 156,705
---------------- ---------------
Cash and Cash Equivalents at End of Period.................................. $ 161,291 $ 173,963
================ ===============
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 54,648 $ 50,794
Income taxes 8,139 7,935
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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 10-01 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 three and six month periods ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996.
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 March 19, 1996 which was
paid on May 31, 1996 to shareholders of record as of May 2, 1996. All share and
per-share information has been restated to reflect the effect of this stock
dividend.
NOTE D - Acquisitions
On February 29, 1996, the Corporation completed the previously announced
acquisition of Gloucester County Bankshares, Inc. (Gloucester County). As
provided under the terms of the merger agreement, Gloucester County was merged
with and into the Corporation and each of the outstanding shares of Gloucester
County common stock was converted into 1.58 shares of the common stock of the
Corporation.
The Corporation issued approximately 1.6 million shares of its common stock in
connection with the merger. The transaction was accounted for as a pooling of
interests and all financial statements and financial information contained
herein have been restated to include the amounts and results of operations of
Gloucester County for all periods presented.
Gloucester County is headquartered in Woodbury, New Jersey and operates six
branch offices through its wholly-owned subsidiary, The Bank of Gloucester
County, which had approximately $220 million in total assets as of June 30,
1996.
The following sets forth selected unaudited financial data for the Corporation
and Gloucester County for the two-months ended February 29, 1996:
Fulton Gloucester
Financial County
Corporation Bankshares
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Net interest income $22,575 $1,723
Other income 5,261 186
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Total income $27,836 $1,909
========== =========
Net income $ 7,696 $ 552
========== =========
The effect of the merger on the Corporation's previously reported revenues, net
income, and net income per share for the three and six months ended June 30,
1995 follows:
6
Three months ended June 30, 1995:
- ---------------------------------
Fulton Gloucester
Financial County
Corporation Bankshares Restated
----------- ---------- --------
Net interest income $ 33,202 $ 2,429 $ 35,631
Other income 7,123 231 7,354
Total income $ 40,325 $ 2,660 $ 42,985
========== ========== ========
Net income $ 11,066 $ 631 $ 11,697
========== ========== ========
Net income per share $ 0.35 $ 0.65 $ 0.36
========== ========== ========
Six months ended June 30, 1995:
- ---------------------------------
Fulton Gloucester
Financial County
Corporation Bankshares Restated
----------- ---------- --------
Net interest income $ 66,210 $ 4,670 $ 70,880
Other income 13,638 441 14,079
Total income $ 79,848 $ 5,111 $ 84,959
========== ========== ========
Net income $ 22,099 $ 1,252 $ 23,351
========== ========== ========
Net income per share $ 0.71 $ 1.29 $ 0.71
========== ========== ========
NOTE E - Adoption of New Accounting Standards
Accounting for Mortgage Servicing Rights
- ----------------------------------------
In May, 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" (Statement 122). This statement requires capitalization of the cost of
the rights to service mortgage loans when originated mortgages are sold and
servicing is retained, and for that cost to be amortized over the period of
estimated net servicing income.
In addition, the mortgage servicing rights must be periodically evaluated for
impairment based on their fair value. Statement 122 was adopted prospectively
on January 1, 1996. There has been no material financial statement impact as a
result of the adoption of this statement.
Stock-Based Compensation
- ------------------------
In October, 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" (Statement 123). This
statement requires a fair value approach to valuing compensation expense
associated with stock options and employee stock purchase plans. This
statement encourages, but does not require, the use of this method for financial
statement purposes. Companies that do not elect to adopt this statement for
financial statement purposes are required to present pro-forma footnote
disclosures of net income and earnings per share as if the fair value approach
were used. Management intends to adopt the disclosure requirements of this
statement only and, accordingly, there will be no impact on the consolidated
financial statements other than additional disclosures. The disclosures will
initially be required for the consolidated financial statements for the year
ending December 31, 1996.
7
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MERGER ACTIVITY
- ---------------
On February 29, 1996, the Corporation completed the previously announced
acquisition of Gloucester County Bankshares, Inc. of Woodbury, New Jersey. As
provided under the terms of the merger agreement, Gloucester County was merged
with and into the Corporation and each of the outstanding shares of Gloucester
County common stock was exchanged for 1.58 shares of the common stock of the
Corporation. Approximately 1.6 million shares of common stock were issued in
conjunction with the merger.
The transaction was accounted for as a pooling of interests. All of the
financial information contained herein has been restated to reflect the
financial condition and results of operations of Gloucester County.
In conjunction with the merger, Gloucester County's wholly-owned subsidiary, The
Bank of Gloucester County, became the Corporation's ninth banking subsidiary.
RESULTS OF OPERATIONS
- ---------------------
Quarter ended June 30, 1996 versus Quarter ended June 30, 1995
- --------------------------------------------------------------
Fulton Financial Corporation's net income for the second quarter of 1996
increased $1.3 million, or 11.4%, in comparison to the net income for the same
quarter in 1995. This increase is attributable primarily to increases in net
interest income as the Corporation continues to grow. In addition, reductions
in certain expenses have favorably impacted net income.
Net Interest Income
- -------------------
Net interest income increased $2.6 million, or 7.4%, during the second quarter.
Overall, this increase was a result of continued growth in the Corporation's
balance sheet while maintaining a stable net interest margin. The following
tables summarize the components of this increase as well as the changes in
average interest-earning assets and interest-bearing liabilities and the average
interest rates thereon. All dollar amounts are in thousands.
Change
--------------------------
1996 1995 Dollar Percent
------------ ----------- ------------ ----------
Interest income $66,151 $ 62,218 $ 3,933 6.3%
Interest expense 27,878 26,587 1,291 4.9%
------------ ----------- ------------ ----------
Net interest income $38,273 $ 35,631 $ 2,642 7.4%
============ =========== ============ ==========
1996 1995 % Change
----------- ----------- ----------
Average interest-earning assets $3,328,000 $3,083,000 7.9%
Yield on earning assets 7.95% 8.07% (1.5%)
Average interest-bearing liabilities $2,738,000 $2,559,000 7.0%
Cost of interest-bearing liabilities 4.07% 4.16% (2.2%)
8
The 6.3% increase in interest income was due primarily to an increase in average
interest-earning assets during the period, partially offset by a small decrease
in yield. Loan growth has been generated primarily by consumer installment
loans ($85.7 million, or 18.5%, increase), and commercial mortgages ($55.3
million, or 19.6%). Consumer loans have grown as the Corporation has focused on
strengthening its dealer programs. Commercial loan growth is a result of
improved calling and marketing efforts.
The increase in interest expense was a result of an increase in average
interest-bearing liabilities offset by a small decline in rates. Certificates
of deposit have seen the most significant growth, primarily in the products with
maturities of less than one year ($100.2 million, or 30.0%, increase). This
increase was due to the Corporation promoting short-term certificates of
deposits with competitive yields.
Provision and Allowance for Loan Losses
- ---------------------------------------
The provision for loan losses for the quarter ended June 30, 1996 was $965,000
compared to $653,000 for the same period of 1995. This provision reflects the
continued strong asset quality for the Corporation. The allowance for loan
losses as a percentage of gross loans (net of unearned income) was 1.48% at June
30, 1996 and 1.53% at December 31, 1995.
The following table summarizes the Corporation's non-performing assets as of the
indicated periods:
June 30 Dec. 31
(Dollars in thousands) 1996 1995
---------- ----------
Nonaccrual loans $11,495 $12,796
Loans 90 days past due and accruing 8,078 7,928
Other real estate owned 2,696 1,737
---------- ----------
Total non-performing assets $22,269 $22,461
========== ==========
Non-performing assets/Total assets 0.61% 0.64%
Non-performing assets/Gross loans 0.85% 0.90%
Other Income
- ------------
Other income for the quarter ended June 30, 1996 was $7.5 million. This was an
increase of $157,000 or 2.1%, over the comparable period in 1995. Of this
increase, $596,000 was due to service charges on deposits, reflecting a higher
deposit base and a change in the Corporation's fee structure, primarily for ATM
transactions. This increase was offset by lower gains on mortgage sales as
origination volumes declined during the period. In addition, fewer security
sales transactions occurred during the second quarter.
Other Expenses
- --------------
Total other expenses for the second quarter of 1996 increased $217,000, or 0.8%,
to $26.4 million from $26.2 million in the comparable period from 1995. The most
significant change in other expenses was a decline of $1.2 million, or 83.8%, in
Federal Deposit Insurance Corporation (FDIC) premiums as a result of a
reduction in the assessment rate on deposits insured by the Bank Insurance
Fund..
When FDIC premium expense is eliminated, total other expenses increased $1.5
million, or 5.9%. Overall, this increase is a result of the growth of the
Corporation. Most categories of other expense have experienced increases
consistent with the growth of the organization, rather than as a result of
individually significant factors. Salaries and employee benefits ($452,000, or
3.4%, increase); net occupancy expenses ($140,000, or 5.3%); and special
services ($182,000, or 12.9%) have increased as a result of additional
employees, facilities, and customers.
Other expenses were $6.5 million compared to $5.7 million for the same period in
1995. This $820,000, or 14.5%, increase is a result of advertising ($223,000,
or 31.6%, increase) and an increase of $320,000 in operating risk losses as the
1995 expense was offset by a significant recovery.
The Corporation has set efficiency goals for expenses and continues to
investigate areas where cost savings can be realized.
Income Taxes
- ------------
Income tax expense for the quarter was $5.4 million as compared to $4.4 million
for the comparable period in 1995. This $932,000, or 21.0%, increase was due to
higher pre-tax income as well as an increase in the Corporation's effective tax
rate from 27.5% in 1995 to 29.2% in the current year. The effective rate has
increased primarily as a result of a reduction in the Corporation's investments
in tax-free municipal bonds.
Six-months ended June 30, 1996 versus six months ended June 30, 1995
- --------------------------------------------------------------------
Fulton Financial Corporation's net income for the first six months of 1996
increased $2.4 million, or 10.3%, in comparison to the net income for the same
period in 1995. As with the second quarter increase, the improvement in year-
to-date earnings is primarily a result of net interest income growth. However,
growth in non-interest income has also had an impact.
Net Interest Income
- -------------------
Net interest income increased $4.4 million, or 6.2%, during the first half of
1996. Overall, this increase was a result of continued growth in the
Corporation's balance sheet coupled with a stable net interest margin. The
following tables summarize the components of this increase as well as the
changes in average interest-earning assets and interest-bearing liabilities and
the average interest rates thereon. All dollar amounts are in thousands.
Change
--------------------------
1996 1995 Dollar Percent
---------- ---------- ---------- ----------
Interest income $130,985 $ 122,717 $ 8,268 6.7%
Interest expense 55,691 51,837 3,854 7.4%
---------- ---------- ---------- ----------
Net interest income $ 75,294 $ 70,880 $ 4,414 6.2%
=========== ========== ========== =========
1996 1995 % Change
------------ ------------ ---------
Average interest-earning assets $3,280,000 $3,070,000 6.8%
Yield on earning assets 7.99 % 7.99 % -
Average interest-bearing liabilities $2,706,000 $2,560,000 5.7%
Cost of interest-bearing liabilities 4.12 % 4.05 % 1.7%
The 6.7% increase in interest income was due to the growth in average interest-
earning assets during the period. As noted in the second quarter discussion,
loan growth has resulted mainly from consumer installment loans and commercial
mortgages.
The increase in interest expense was a result of increases in both average
interest-bearing liabilities and the cost of funds. Although the year-to-date
cost of funds is higher in 1996 than 1995, this trend reversed during the second
quarter as
10
deposits have continued to reprice at lower rates. Certificates of
deposit have seen the most significant growth, primarily in the products with
short term maturities ($87.5 million, or 26.8%, increase). This increase was
due to the Corporation promoting short-term certificates of deposits with
competitive yields.
Provision and Allowance for Loan Losses
- ---------------------------------------
The provision for loan losses for the six months ended June 30, 1996 was $1.6
million compared to $1.3 million for the same period of 1995. This provision
increase is due mainly to the growth in the loan portfolio. The Corporation
continues to maintain a high quality loan portfolio.
Other Income
- ------------
Other income for the six months ended June 30, 1996 was $15.4 million. This
result was an increase of $1.3 million, or 9.3%, over the comparable period in
1995. Of this increase, $520,000 was due to higher gains on sales of available
for sale securities. Management monitors the Corporation's available for sale
securities and makes periodic sale decisions based on current and expected
market conditions. During the first six months of 1996, certain investments
were sold as a result of management's assessment of market conditions.
Service charges on deposits increased $1.0 million, or 19.9%, in the first six
months of 1996 as compared to the first six months of 1995. This increase
reflects the growth in the Corporation's deposits over the past year as well as
changes in fee strategies.
Other Expenses
- --------------
Total other expenses for the first six months of 1996 increased $1.0 million, or
2.0%, to $52.7 million from $51.6 in the comparable period from 1995. The most
significant change in other expenses was a decline of $2.5 million, or 83.6%, in
Federal Deposit Insurance Corporation (FDIC) premiums.
Adjusting for the FDIC benefit, total other expenses increased $3.5 million, or
7.3%. Most categories of other expense have experienced increases consistent
with the growth of the organization, rather than as a result of individually
significant factors. Salaries and employee benefits ($1.1 million, or 4.1%,
increase); net occupancy expenses ($416,000, or 7.8%); and special services
($363,000, or 13.1%) have increased as a result of additional employees,
facilities, and customers.
Other expenses were $12.7 million compared to $10.9 million for the same period
in 1995. This $1.9 million, or 17.0%, increase is primarily a result of
advertising ($402,000, or 30.4%, increase); loan expenses ($361,000, or 57.5%
increase), and operating risk losses ($494,000 increase).
Income Taxes
- ------------
Income tax expense for the six months ended June 30, 1996 was $10.6 million as
compared to $8.7 million for the comparable period in 1995. This $2.0 million,
or 22.7%, increase was due to higher pre-tax income as well as an increase in
the Corporation's effective tax rate from 27.1% in 1995 to 29.2% in the current
year. The effective rate has increased primarily as a result of a reduction in
the Corporation's investments in tax-free municipal bonds and an increase in
pre-tax income.
11
FINANCIAL CONDITION
- -------------------
At June 30, 1996, the Corporation had total assets of $3.7 billion, reflecting
an increase of $139.9 million, or 4.0%, over December 31, 1995. In general,
this growth is a result of an increase in loans.
Loans, net of unearned income and the allowance for loan losses, increased
$135.2 million, or 5.5%, to $2.6 billion. This increase was attributable
primarily to installment loans ($85.7 million or 18.5%) as several banking
affiliates initiated or expanded on auto lending through dealer programs. In
addition, commercial loans have grown $48.9 million, or 13.2%.
The funding for asset growth has been provided by increases in deposits of $87.9
million, or 3.0% and short-term borrowings ($78.5 million, or 59.7% increase).
Deposit growth has been realized primarily in short-term CD products, which
increased $65.5 million during the period. This increase was primarily a result
of special promotions on such CD's.
Liquidity and Interest Rate Sensitivity Management
- --------------------------------------------------
The goals of the Corporation's asset/liability management function are to ensure
adequate liquidity while maintaining an appropriate balance between relative
sensitivity of interest-earning assets and interest-bearing liabilities.
Adequate liquidity is provided by cash, short-term investments, securities
available for sale and scheduled payments and maturities of loans receivable and
securities held to maturity. Liquidity is also provided by deposits and short-
term borrowings.
While the interest rate sensitivity gap (the difference between repricing
opportunities available for interest-earning assets and interest-bearing
liabilities) must be managed over all periods, the Corporation focuses on the
six-month period as the key interval affecting net interest income. This
shorter period is monitored as a large percentage of the Corporation's assets
and liabilities reprice within this period. In addition, short-term rate swings
can be more pronounced and provide a shorter time for reaction and strategy
adjustment.
The following table shows the interest sensitivity gaps for four different time
intervals as of June 30, 1996:
Daily 0-90 91-180 181-365
Adjustable Days Days Days
---------- ---- ------ -------
Period gap 1.05 0.89 0.73 1.20
Cumulative gap 1.05 0.99 0.94 0.99
The Corporation's policy provides for the six-month gap position to be
maintained between 0.85 and 1.15. The Corporation was positioned within this
range throughout the first six months of 1996.
Capital Resources
- -----------------
The capital resources of the Corporation, as represented by the two major
components of regulatory capital, shareholders' equity and the allowance for
loan losses, have continued to grow during 1996, increasing 3.4% and 2.0%,
respectively. Shareholders' equity growth is primarily a result of net income,
net of dividends. The allowance growth is a result of provisions exceeding
charge-offs.
Current capital guidelines 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 risk-based Tier I capital
percentage of 4.0% and a minimum risk-based total capital of 8.0%. Tier I
capital includes common shareholders' equity less goodwill and non-qualified
intangible assets. Total capital includes all Tier I capital components plus
the allowance for loan losses.
12
The Corporation is also subject to a "leverage capital" requirement, which
compares capital (using the definition of Tier I capital) to total balance sheet
assets and is intended to supplement the risk based capital ratios in measuring
capital adequacy. The minimum acceptable leverage capital ratio is 3% for
institutions which are highly-rated in terms of safety and soundness and which
are not experiencing or anticipating any significant growth. Other institutions
are expected to maintain capital levels at least one or two percent above the
minimum.
As of June 30, 1996, the Corporation's capital ratios exceeded all of the
minimum ratios as set forth above.
As a result of the 10% stock dividend paid on May 31, 1996, approximately $56.3
million of the Corporation's capital was transferred from retained earnings to
common stock and capital surplus.
13
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) Articles of incorporation as amended on April 13, 1990 and
Bylaws of Fulton Financial Corporation as amended on April 17,
1990 - Incorporated by reference from Exhibits 19(a) and 19(b)
of the Fulton Financial Corporation Quarterly Report on Form
10-Q for the quarter ended March 31, 1990.
(2) Instruments defining the right of securities holders, including
indentures:
(a) Rights Agreement dated June 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.
(3) 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 adopted September 19, 1995--
Incorporated by reference from Exhibit A of Fulton Financial
Corporation's 1996 Proxy Statement.
(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.
(4) Financial Data Schedule - June 30, 1996
(b) Reports on Form 8-K:
(1) Form 8-K dated April 16, 1996 reporting results of combined
operations of Fulton Financial Corporation and Gloucester County
Bankshares, Inc.
14
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: August 9, 1996 /s/ Rufus A. Fulton, Jr.
-------------------- --------------------------------
Rufus A. Fulton, Jr.
President and Chief Executive
Officer
Date: August 9, 1996 /s/ Betsy Chivinski
-------------------- ----------------------------------
Betsy Chivinski
Senior Vice President-Controller
15
EXHIBIT INDEX
Exhibits Required Pursuant
to Item 601 of Regulation S-K
-----------------------------
3. Articles of Incorporation as amended on April 30, 1990, and Bylaws of
Fulton Financial Corporation as amended on April 17, 1990 -
Incorporated by reference from Exhibits 19(a) and 19(b) of the Fulton
Financial Corporation Quarterly Report on Form 10-Q for the quarter
ended March 31, 1990.
4. Instruments defining the rights of security holders, including
indentures.
(a) Rights Agreement dated June 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 adopted September 19, 1995 -
Incorporated by reference from Exhibit A of Fulton Financial
Corporation's 1996 Proxy Statement.
(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 schedule - June 30, 1996
16