UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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, 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 -- 32,989,828 shares outstanding
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as of October 25, 1996.
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FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 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 -
September 30, 1996 and December 31, 1995.......................... 3
(b) Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1996 and 1995........... 4
(c) Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995..................... 5
(d) Notes to Consolidated Financial Statements - September 30, 1996... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.......................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 15
SIGNATURES................................................................. 16
2
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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(Dollars in thousands)
September 30 December 31
1996 1995
-------------------------------
Assets
- --------------------------------------------------------------------------------
Cash and due from banks ...................... $ 190,897 $ 152,143
Interest-bearing deposits with other banks ... 2,056 4,425
Mortgage loans held for sale ................. 510 613
Investment securities:
Held to maturity (Fair value- $413,133
in 1996 and $506,359 in 1995) ............ 415,349 503,926
Available for sale ........................ 321,046 256,380
Loans ........................................ 2,708,702 2,502,033
Less: Allowance for loan losses ......... (40,519) (38,272)
Unearned income ................... (7,280) (8,711)
-------------- -------------
Net Loans ..................... 2,660,903 2,455,050
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Premises and equipment ....................... 51,037 47,606
Accrued interest receivable .................. 24,198 25,275
Other assets ................................. 78,667 79,150
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Total Assets .................. $ 3,744,663 $ 3,524,568
============== =============
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Liabilities
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Deposits:
Noninterest-bearing ....................... $ 474,541 $ 427,384
Interest-bearing .......................... 2,579,110 2,487,885
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Total Deposits ................ 3,053,651 2,915,269
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Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase ...... 225,173 126,372
Demand notes of U.S. Treasury ............. 5,000 5,058
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Total Short-Term Borrowings ... 230,173 131,430
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Accrued interest payable ..................... 24,330 19,357
Other liabilities ............................ 40,935 69,809
Long-term debt ............................... 21,074 34,689
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Total Liabilities ............. 3,370,163 3,170,554
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Shareholders' Equity
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Common stock ($2.50 par)
Shares: Authorized 100,000,000
Issued 32,985,637 (32,955,130
in 1995)
Outstanding 32,980,497
(32,843,784 in 1995) ............. 82,465 74,907
Capital surplus .............................. 220,977 174,023
Retained earnings ............................ 64,428 98,746
Net unrealized holding gains on securities
available for sale .......................... 6,729 8,526
Less: Treasury stock (5,140 shares in 1996
and 111,346 shares in 1995) ................. (99) (2,188)
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Total Shareholders' Equity .... 374,500 354,014
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Total Liabilities and
Shareholders' Equity ......... $ 3,744,663 $ 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 Nine Months Ended
September 30 September 30
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1996 1995 1996 1995
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Interest Income
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Loans, including fees ..................................... $ 57,382 $ 53,300 $ 166,716 $ 156,316
Investment securities:
Taxable .............................................. 9,413 8,301 28,138 23,307
Tax-exempt ........................................... 812 1,159 2,527 3,730
Dividends ............................................ 510 500 1,491 1,492
Federal funds sold ........................................ 13 538 154 1,540
Interest-bearing deposits with other banks ................ 35 65 124 195
------------- ------------- ------------- -------------
Total Interest Income ............ 68,165 63,863 199,150 186,580
Interest Expense
- -----------------------------------------------------------------------------------------------------------------------------------
Deposits .................................................. 25,858 25,591 77,132 73,245
Short-term borrowings ..................................... 2,409 1,464 5,825 4,751
Long-term debt ............................................ 333 608 1,334 1,504
------------- ------------- ------------- -------------
Total Interest Expense ........... 28,600 27,663 84,291 79,500
Net Interest Income .............. 39,565 36,200 114,859 107,080
Provision for Loan Losses ................................. 1,153 688 2,794 2,021
------------- ------------- ------------- -------------
Net Interest Income After
Provision for Loan Losses .... 38,412 35,512 112,065 105,059
------------- ------------- ------------- -------------
Other Income
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Trust department .......................................... 1,927 1,846 5,744 5,568
Service charges on deposit accounts ....................... 3,263 2,696 9,424 7,835
Other service charges and fees ............................ 2,155 2,108 5,599 5,648
Gain on sale of mortgage loans ............................ 278 152 699 811
Investment securities gains ............................... 597 390 2,136 1,409
------------- ------------- ------------- -------------
8,220 7,192 23,602 21,271
Other Expenses
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Salaries and employee benefits ............................ 14,306 13,631 41,997 40,226
Net occupancy expense ..................................... 2,833 2,723 8,562 8,036
Equipment expense ......................................... 1,515 1,467 4,405 4,555
FDIC assessment expense ................................... 2,752 93 3,240 3,071
Special services .......................................... 1,701 1,451 4,836 4,223
Other ..................................................... 6,006 6,234 18,727 17,103
------------- ------------- ------------- -------------
29,113 25,599 81,767 77,214
Income Before Income Taxes ....... 17,519 17,105 53,900 49,116
Income Taxes .............................................. 4,930 4,786 15,555 13,446
------------- ------------- ------------- -------------
Net Income ....................... $ 12,589 $ 12,319 $ 38,345 $ 35,670
============= ============= ============= =============
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Per-Share Data:
Net income ................................................ $ 0.38 $ 0.37 $ 1.16 $ 1.08
Cash dividends ............................................ $ 0.170 $ 0.146 $ 0.495 $ 0.420
Weighted average shares outstanding ....................... 32,973,806 32,901,197 32,939,454 32,928,042
- -----------------------------------------------------------------------------------------------------------------------------------
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)
Nine Months Ended
September 30
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1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income ....................................................................... $ 38,345 $ 35,670
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for loan losses ...................................................... 2,794 2,021
Depreciation and amortization of premises and equipment ........................ 4,210 4,133
Net amortization of investment security premiums ............................... 337 1,482
Gain on sale of investment securities .......................................... (2,136) (1,409)
Decrease (increase) in mortgage loans held for sale ............................ 103 (344)
Amortization of intangible assets .............................................. 1,100 1,180
Decrease (increase) in accrued interest receivable ............................. 1,077 (2,437)
Increase in other assets ....................................................... (91) (2,422)
Increase in accrued interest payable ........................................... 4,973 10,556
(Decrease) increase in other liabilities ....................................... (6,029) 8,049
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Total adjustments ......................................................... 6,338 20,809
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Net cash provided by operating activities ................................ 44,683 56,479
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Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale ........................... 40,079 5,003
Proceeds from maturities of securities held to maturity ........................ 163,486 140,543
Proceeds from maturities of securities available for sale ...................... 26,084 59,675
Purchase of securities held to maturity ........................................ (99,026) (170,905)
Purchase of securities available for sale ...................................... (130,858) (61,278)
Decrease (increase) in short-term investments .................................. 2,369 (1,893)
Net increase in loans .......................................................... (208,647) (80,549)
Purchase of premises and equipment ............................................. (7,641) (4,870)
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Net cash used in investing activities .................................... (214,154) (114,274)
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Cash Flows from Financing Activities:
Net increase in noninterest-bearing deposits ................................... 47,157 13,877
Net increase in interest-bearing deposits ...................................... 91,225 128,649
(Decrease) increase in long-term debt .......................................... (13,615) 8,629
Increase (decrease) in short-term borrowings ................................... 98,743 (73,790)
Dividends paid ................................................................. (15,520) (13,387)
Net proceeds from issuance of common stock ..................................... 1,717 1,951
Acquisition of treasury stock .................................................. (1,482) (2,579)
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Net cash provided by financing activities ................................ 208,225 63,350
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Net Increase in Cash and Cash Equivalents ........................................... 38,754 5,555
Cash and Cash Equivalents at Beginning of Period .................................... 152,143 156,705
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Cash and Cash Equivalents at End of Period .......................................... $ 190,897 $ 162,260
================ ===============
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest ................................................................. $ 79,318 $ 68,944
Income taxes ............................................................. 12,759 11,882
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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 nine month periods ended
September 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
Gloucester County Bankshares, Inc. - 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 $229 million in total assets as of September 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
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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
=========== ===========
6
The effect of the merger on the Corporation's previously reported revenues, net
income, and net income per share for the three and nine months ended September
30, 1995 follows:
Three months ended September 30,1995:
- -------------------------------------
Fulton Gloucester
Financial County Restated
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Net interest income ............ $ 33,588 $ 2,612 $ 36,200
Other income ................... 6,960 232 7,192
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Total income ................... $ 40,548 $ 2,844 $ 43,392
=========== =========== =============
Net income ..................... $ 11,523 $ 796 $ 12,319
=========== =========== =============
Net income per share ........... $ 0.37 $ 0.82 $ 0.37
=========== =========== =============
Nine months ended September 30, 1995:
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Fulton Gloucester
Financial County Restated
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Net interest income ............ $ 99,793 $ 7,287 $ 107,080
Other income ................... 20,603 668 21,271
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Total income ................... $ 120,396 $ 7,955 $ 128,351
=========== =========== =============
Net income ..................... $ 33,622 $ 2,048 $ 35,670
=========== =========== =============
Net income per share ........... $ 1.08 $ 2.11 $ 1.08
=========== =========== =============
The Woodstown National Bank and Trust Company - On September 30, 1996, the
Corporation entered into a merger agreement with The Woodstown National Bank &
Trust Company. (Woodstown), under the terms of which the Corporation will
acquire each of the 1.8 million outstanding shares of common stock of Woodstown
in exchange for 1.6 shares of the Corporation's common stock.
The acquisition is subject to approval by bank regulatory authorities and
Woodstown shareholders and is expected to close by the end of the first quarter
of 1997. It is expected that the acquisition will be accounted for as a pooling
of interests.
Woodstown is headquartered in Woodstown, NJ and operates four branches in Salem
County and two branches in Gloucester County. As of September 30, 1996,
Woodstown had approximately $270 million in assets.
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.
7
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.
8
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 its acquisition of Gloucester
County Bankshares, Inc. of Woodbury, New Jersey (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 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 which 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.
As a result of the merger, Gloucester County's wholly-owned subsidiary, The Bank
of Gloucester County, became the Corporation's ninth banking subsidiary. As of
September 30, 1996, The Bank of Gloucester County has approximately $229 million
in total assets.
On September 30, 1996, the corporation entered into a merger agreement with the
Woodstown National Bank & Trust Company (Woodstown), under the terms of which
the corporation would acquire each of the 1.8 million outstanding shares of
common stock of Woodstown in exchange for 1.6 shares of the Corporation's common
stock. The acquisition is subject to approval by bank regulatory authorities and
Woodstown shareholders and is expected to close by the end of the first quarter
of 1997. It is expected that the acquisition will be accounted for as a pooling
of interests.
Woodstown is headquartered in Woodstown, NJ and operates four branches in Salem
County and two branches in Gloucester County. As of September 30, 1996,
Woodstown had approximately $270 million in assets.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended September 30, 1996 versus Three Months Ended
- ---------------------------------------------------------------
September 30,1995
- -----------------
Fulton Financial Corporation's net income for the third quarter of 1996
increased $270,000 or 2.2%, in comparison to net income for the same quarter in
1995. For the third quarter, return on average assets (ROA) was 1.37% in 1996
and 1.43% in 1995. Return on average equity (ROE) was 13.50% in 1996 and 14.38%
in 1995.
The decreases in ROA and ROE and the decrease in net income growth (as compared
with prior quarters) reflect the impact of the industry-wide assessment by the
Federal Deposit Insurance Corporation (FDIC) to recapitalize the Savings
Association Insurance Fund (SAIF). The Corporation has approximately $400
million in SAIF-insured deposits which were subject to the one-time assessment.
This includes all of the deposits for Great Valley Savings Bank (approximately
$200 million) and an additional $200 million of SAIF deposits which were
obtained in the 1994 acquisition of Central Pennsylvania Savings Association and
distributed to certain other affiliate banks. This one-time expense for the
Corporation totaled $2.5 million ($1.6 million, after tax).
Net Interest Income
- -------------------
Net interest income increased $3.4 million, or 9.3%, during the third quarter.
Overall, this increase was a result of continued growth in the Corporation's
balance sheet while maintaining a stable net interest margin (4.80% in 1996 and
4.76% in 1995). The following tables summarize the components of this increase
in net interest income in average interest-earning assets and interest-bearing
liabilities and the interest rates thereon. All dollar amounts are in thousands.
9
Summary of Net Interest Income:
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Three Months Ended
September 30 Change
-------------------------------- ------------------------------
1996 1995 Dollar Percent
------------ -------------- ------------ -----------
Interest income.......... $ 68,165 $ 63,863 $ 4,302 6.7 %
Interest expense......... 28,600 27,663 937 3.4 %
------------ -------------- ------------ -----------
Net interest income...... $ 39,565 $ 36,200 $ 3,365 9.3 %
============ ============== ============ ===========
Summary of Average Balances and Interest Rates:
- -----------------------------------------------
Three Months Ended September 30
-------------------------------------------------------
1996 1995 % Change
------------ -------------- -------------
Average interest-earning assets.......... $ 3,378,000 $ 3,145,000 7.4 %
Yield on earning assets.................. 8.07% 8.12 % (0.6 %)
Average interest-bearing liabilities..... $ 2,793,000 $ 2,613,000 6.9 %
Cost of interest-bearing liabilities..... 4.10% 4.23 % (3.1 %)
The 4 basis point increase in net interest margin is primarily a result of rates
on liabilities decreasing more than rates on assets. The 6.7% increase in
interest income was due primarily to an increase in average interest-earning
assets during the period, partially offset by a 5 basis point decrease in yield.
Loan growth has been generated primarily by consumer installment loans ($123.0
million, or 25.7%, increase), and commercial mortgages ($56.4 million, or 18.7%,
increase). Consumer loan growth has been fueled by a focus on strengthening
automobile dealer programs. Commercial loan growth was a result of enhanced
calling and marketing efforts.
The increase in interest expense was a result of an increase in average
interest-bearing liabilities offset by a 13 basis point decline in rates.
Certificates of deposit have seen the most significant growth, primarily in the
products with maturities of less than one year ($79.1 million, or 22.7%,
increase). This increase was due to the Corporation promoting short-term
certificates of deposits with competitive yields. The Corporation also increased
its use of customer repurchase agreements to attract and retain deposits. The
average balance of repurchase agreements, including customer accounts, increased
$53.4 million, or 57.2%.
Provision and Allowance for Loan Losses
- ---------------------------------------
The provision for loan losses for the quarter ended September 30, 1996 was $1.2
million compared to $688,000 for the same period of 1995. The increase was
primarily a result of loan growth, although the provision remains relatively
low, reflecting continued strong asset quality for the Corporation and
management's assessment of the adequacy of the allowance for loan losses.. The
allowance for loan losses as a percentage of gross loans (net of unearned
income) was 1.50% at September 30, 1996 and 1.53% at December 31, 1995.
10
As the following table shows, the Corporation's non-performing assets have
remained low and have improved since December 31, 1995:
September 30 December 31
(Dollars in thousands) 1996 1995
------------- -------------
Nonaccrual loans............... $ 11,565 $ 12,796
Loans 90 days past due
and accruing................... 8,059 7,928
Other real estate owned........ 2,573 1,737
------------- -------------
Total non-performing assets.... $ 22,197 $ 22,461
============= =============
Non-performing assets/Total
assets......................... 0.59 % 0.64 %
Non-performing assets/Gross
loans.......................... 0.82 % 0.90 %
Other Income
- ------------
Other income for the quarter ended September 30, 1996 was $8.2 million. This was
an increase of $1.0 million, or 14.3%, over the comparable period in 1995. Of
this increase, $567,000 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 and checking account fees. In addition, the Corporation had
an increase in investment securities gains ($207,000, or 53.1%), and mortgage
sale gains ($126,000, or 82.9%) as favorable mortgage rates generated an
increase in volume.
Other Expenses
- --------------
Total other expenses for the third quarter of 1996 increased $3.5 million, or
13.7%, to $29.1 million from $25.6 million in the comparable period from 1995.
The most significant increase in other expenses was FDIC assessment expense,
which increased from $93,000 in the third quarter of 1995 to almost $2.8 million
in the third quarter of 1996. This increase reflects both the $2.5 million
special SAIF assessment in 1996 as well as the receipt in the third quarter of
1995 of a rebate of FDIC insurance related to the second quarter of 1995.
When the FDIC assessment expense is excluded, total other expenses increased
$855,000, or 3.4%. 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 ($675,000, or
5.0%, increase); net occupancy expenses ($110,000, or 4.0%); and special
services ($250,000, or 17.2%) have increased as a result of additional
employees, facilities, and customers. 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 $4.9 million as compared to $4.8 million
for the comparable period in 1995. This $144,000, or 3.0%, increase was due
mainly to higher pre-tax income.
Nine Months Ended September 30, 1996 versus Nine Months Ended September 30, 1995
- --------------------------------------------------------------------------------
Fulton Financial Corporation's net income for the first nine months of 1996
increased $2.7 million, or 7.5%, in comparison to the net income for the same
period in 1995. ROA for the period was 1.43% versus 1.42% in 1995, while ROE was
14.09% compared to 14.38% in 1995. The improvement in year-to-date earnings is a
result of growth in both net interest income and other non-interest income.
Income growth was offset by higher non-interest expense.
11
Net Interest Income
- -------------------
Net interest income increased $7.8 million, or 7.3%, during the first nine
months of 1996. Overall, this increase was a result of continued growth in the
Corporation's balance sheet coupled with a stable net interest margin (4.74% in
1996 versus 4.77% in 1995). 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.
Summary of Net Interest Income:
- -------------------------------
Nine Months Ended
September 30 Change
-------------------------------- ---------------------------------
1996 1995 Dollar Percent
-------------- ------------ -------------- --------------
Interest income ....... $ 199,150 $ 186,580 $ 12,570 6.7 %
Interest expense....... 84,291 79,500 4,791 6.0 %
------------ ------------ ----------- ------------
Net interest income.... $ 114,859 $ 107,080 $ 7,779 7.3 %
============ ============ =========== ============
Summary of Average Balances and Interest Rates:
- -----------------------------------------------
Nine Months Ended September 30
---------------------------------------------------
1996 1995 % Change
------------- ------------- -------------
Average interest-earning assets............ $ 3,312,559 $ 3,095,406 7.0 %
Yield on earning assets.................... 8.02 % 8.04 % (0.2)
Average interest-bearing liabilities....... $ 2,735,011 $ 2,577,350 6.1 %
Cost of interest-bearing liabilities....... 4.11 % 4.11 % -
As the tables show, growth in interest income, interest expense and net interest
income is attributable almost entirely to the growth in interest earning assets
and interest bearing liabilities. Yields and costs over the periods have
remained comparable, although rates in general were rising in 1995, while a
slight downward trend prevailed in 1996.
As with the third quarter comparisons, most of the growth in loans year-to-date
is attributable to consumer installment loans ($90.6 million, or 19.5%) and
commercial mortgages ($68.0 million, or 25.1%).
On the liability side, most of the growth in deposits is attributable to
short-term certificates of deposit which increased $84.7 million or 25.3%.
Provision and Allowance for Loan Losses
- ---------------------------------------
The provision for loan losses for the nine months ended September 30, 1996 was
$2.8 million compared to $2.0 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.
12
Other Income
- ------------
Other income for the nine months ended September 30, 1996 was $23.6 million,
which reflects an increase of $2.3 million, or 11.0%, over the comparable period
in 1995. Of this increase, $727,000 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 nine months of 1996, certain
investments were sold as a result of management's assessment of market
conditions.
Service charges on deposits increased $1.6 million, or 20.3%, in the first nine
months of 1996 as compared to the first nine 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 nine months of 1996 increased $4.6 million,
or 5.9%, to $81.8 million from $77.2 in the comparable period from 1995. 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 ($1.8 million, or 4.4%, increase); net
occupancy expenses ($526,000 or 6.5%); and special services ($613,000, or 14.5%)
continued to increase moderately to support the Corporation's growth.
Although the impact of FDIC assessment expense had a dramatic impact on the
third quarter comparisons, it had a smaller effect on the year-to-date
comparisons. In 1995, the assessment rate on deposits insured by the Bank
Insurance Fund (BIF) was reduced. The result of this reduction was a decrease of
approximately $2.2 million in FDIC assessments on BIF deposits in 1996 versus
1995. This reduces the impact of the SAIF assessment when making year-to-date
comparisons. The recently passed BIF- SAIF legislation also contained proposed
future assessment rates on insured deposits. As currently contemplated, SAIF
insured deposits will be assessed at an annual rate of .0644%, while BIF insured
deposits will pay an assessment rate of .0129%. These assessments, which are
intended to pay the debt service on bonds issued in conjunction with the savings
and loan crisis, would result in an annual savings to the Corporation of
approximately $300,000.
Other expenses were $18.7 million, compared to $17.1 million for the same period
in 1995. This $1.6 million, or 9.5%, increase is primarily a result of
advertising ($557,000, or 27.5%, increase) and loan expenses ($312,000, or 31.4%
increase). The remaining increases occurred in stationary and supplies, postage,
insurance and state taxes.
Income Taxes
- ------------
Income tax expense for the nine months ended September 30, 1996 was $15.6
million as compared to $13.4 million for the comparable period in 1995. This
$2.1 million, or 15.7%, increase was due to higher pre-tax income as well as an
increase in the Corporation's effective tax rate from 27.4% in 1995 to 28.8% in
the current year. The effective rate has increased primarily as a result of a
reduction in the Corporation's tax-free investments.
FINANCIAL CONDITION
- -------------------
At September 30, 1996, the Corporation had total assets of $3.7 billion,
reflecting an increase of $220 million, or 6.2%, 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
$205.9 million, or 8.4%, to $2.7 billion. As discussed in the interest income
analysis, this increase was attributable primarily to installment loans ($114.9
million, or 22.5%) as several banking affiliates initiated or expanded on auto
lending through dealer programs. In addition, commercial mortgages have grown
$56.8 million, or 17.8%.
13
The funding for asset growth has been provided by increases in deposits of
$138.4 million, or 4.7%, and short-term borrowings ($98.7 million, or 75.1%
increase). Deposit growth has been realized primarily in short-term CD products,
which increased $74.4 million during the period and non-interest bearing demand
deposit accounts which grew by $52.3 million.
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 September 30, 1996:
Daily 0-90 91-180 181-365
Adjustable Days Days Days
---------- ---- ---- ----
Period gap............ 1.00 0.73 0.76 1.41
Cumulative gap........ 1.00 0.90 0.87 0.98
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 nine months of 1996.
Capital Resources
- -----------------
Shareholders' equity of the Corporation has continued to grow during 1996,
increasing 5.8% to $374.5 million. Growth in equity is primarily a result of net
income, net of dividends paid to shareholders.
Current regulatory 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.
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 3.0% 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, 1996, the Corporation's capital ratios exceeded all of the
minimum ratios as set forth above.
14
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
6 01 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) Plan of acquisition, reorganization, arrangement,
liquidation, or succession:
(a) Merger Agreement dated September 30, 1996 between
Fulton Financial Corporation and The Woodstown
National Bank and Trust Company - Incorporated by
reference to Exhibit 2 of the Fulton Financial
Corporation Current Report on Form 8-K dated
October 9, 1996.
(3) Instruments defining the right of securities holders,
including indebtures.
(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.
(4) 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.
(5) Financial Data Schedule - September 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.
(2) Form 8-K dated October 7, 1996 reporting execution of a
Merger Agreement between Fulton Financial Corporation and
The Woodstown National Bank & Trust Company.
15
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: October 28, 1996 /s/Rufus A. Fulton, Jr.
------------------------ -----------------------------
Rufus A. Fulton, Jr.
President and Chief Executive
Officer
Date: October 28, 1996 /s/ Betsy Chivinski
------------------------ -----------------------------
Betsy Chivinski
Senior Vice President-Controller
16
EXHIBIT INDEX
Exhibits Required Pursuant
to Item 601 of Regulation S-K
-----------------------------
2. Plan of acquisition, reorganization, arrangement, liquidation, or
succession:
(a) Merger Agreement dated September 30, 1996 between Fulton
Financial Corporation and The Woodstown National Bank and
Trust Company - Incorporated by reference to Exhibit 2 of the
Fulton Financial Corporation Current Report on Form 8-K dated
October 9, 1996.
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 - September 30, 1996
17