UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996, or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission File Number: 0-10587
FULTON FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2195389
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Penn Square, P. O .Box 4887, Lancaster, Pennsylvania 17604
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(Address of principal executive offices) (Zip Code)
(717) 291-2411
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each Exchange
Title of each class on which registered
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Common Stock, $2.50 Par Value None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K X
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 [_].
The aggregate market value of 32,818,915 shares of common stock held by
non-affiliates, calculated based on the average of the bid and asked prices on
March 13, 1997, was $789,707,067.
As of March 13, 1997 there were 35,973,617 shares of Fulton Financial
Corporation common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference:
Part of Form 10-K into
Document which incorporated
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Definitive Proxy Statement of Part III
Fulton Financial Corporation
dated March 25, 1997
PART I
Item 1. Description of Business
- --------------------------------
Fulton Financial Corporation (the Corporation) is a Pennsylvania business
corporation which was organized on February 8, 1982 and became a bank holding
company through the acquisition of all of the outstanding stock of Fulton Bank
on June 30, 1982. Fulton Financial Corporation provides a wide variety of
banking and trust services to businesses and consumers located primarily in
southeastern Pennsylvania, southern New Jersey, northern Maryland and southern
Delaware through its nine wholly-owned banking subsidiaries: Fulton Bank,
Farmers Trust Bank, Swineford National Bank, Lafayette Bank, FNB Bank, N.A.,
Great Valley Savings Bank, Hagerstown Trust Company, Delaware National Bank, and
The Bank of Gloucester County. On February 28, 1997, the Corporation completed
its acquisition of its tenth banking subsidiary, The Woodstown National Bank &
Trust Company.
In addition, Fulton Financial Corporation owns all of the outstanding stock
of four nonbank subsidiaries: (i) Fulton Financial Realty Company, which holds
title to or leases certain properties upon which Fulton Bank and Farmers Trust
Bank branch offices and other Fulton Bank facilities are located, (ii) Fulton
Life Insurance Company, which engages in the business of reinsuring credit life
and accident and health insurance directly related to extensions of credit by
the banking subsidiaries of the Corporation (iii) Central Pennsylvania Financial
Corporation which owns certain limited partnership interests in partnerships
invested in low and moderate income housing projects and two nonbank companies
in various stages of liquidation and (iv) FFC Management, Inc. which owns
certain investment securities.
Fulton Financial Corporation is registered with the Federal Reserve Board
in accordance with the requirements of the Federal Bank Holding Company Act of
1956, as amended, and is subject to regulation by the Federal Reserve Board, the
Office of the Comptroller of the Currency, the Pennsylvania Department of
Banking, the State of Maryland, and the New Jersey Department of Banking.
The common stock of Fulton Financial Corporation is listed for quotation on
the National Market System of the National Association of Securities Dealers
Automated Quotation System under the symbol FULT.
All of the banking subsidiaries face significant competition from
commercial banks, savings banks, credit unions, and various nonbank providers of
financial services. None of the Corporation's banking subsidiaries is dependent
upon any single customer, and the loss of any single customer or few customers
would not have a material adverse impact on any of the banking subsidiaries. The
table below summarizes selected information about the Corporation's banking
subsidiaries.
Main Office Total Total No. of Employees
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Banking Subsidiary Location Assets Deposits Full-time Part-time
------------------------------------------ ----------------- ----------- ----------- --------- ---------
(in thousands)
Fulton Bank Lancaster, PA $1,739,000 $1,351,000 634 253
Farmers Trust Bank Lebanon, PA 166,000 135,000 54 24
Swineford National Bank Hummels Wharf, PA 217,000 185,000 78 37
Lafayette Bank Easton, PA 428,000 362,000 164 70
FNB Bank, N.A. Danville, PA 246,000 209,000 80 24
Great Valley Savings Bank Reading, PA 270,000 214,000 80 16
Hagerstown Trust Company Hagerstown, MD 364,000 301,000 170 15
Delaware National Bank Georgetown, DE 122,000 106,000 55 18
The Bank of Gloucester County Woodbury, NJ 235,000 204,000 86 35
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1,401 492
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Fulton Bank
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Fulton Bank is a full-service commercial bank which was originally
chartered as a national banking association on February 8, 1882, and which
converted to a Pennsylvania bank and trust company on July 1, 1974. As a state-
chartered bank whose deposits are insured by the Federal Deposit Insurance
Corporation (FDIC) and which is not a member of the Federal Reserve System,
Fulton Bank is subject to regulation and periodic examination by the FDIC and
the Pennsylvania Department of Banking.
Fulton Bank offers a full range of general retail and wholesale banking
services, including the following: demand, savings and time deposits;
commercial, consumer and mortgage loans; vehicle and equipment leasing and
financing; VISA and Mastercard credit cards; VISA debit cards; and a wide range
of international services such as letters of credit and currency exchange.
Fulton Bank maintains a network of automated teller machines, which is
integrated with the MACtm regional and CIRRUStm and PLUStm national automated
teller systems, as well as telephone banking services through the Bank-By-Phone
system.
Fulton Bank maintains correspondent relationships with major banks in New
York, Philadelphia, Pittsburgh and Baltimore and through them offers a variety
of collection and funds transfer services. Fulton Bank is a member of the
Federal Home Loan Bank of Pittsburgh.
Fulton Bank has trust powers and maintains a staff of investment, trust and
financial professionals. Personal services available through the Investment
Management and Trust Services Department of Fulton Bank include trust and estate
planning, investment management, estate settlement, private banking, a mutual
fund asset allocation program, and IRA rollovers. Institutional services
available include full service retirement plan management and 401(k) programs,
cash reserve investment management accounts, administrative and investment
services for Foundations and Endowments and comprehensive corporate trust
services.
The trade area of Fulton Bank consists of Lancaster County, with a
population of 422,822 (1990 Census Update), Dauphin County, with a population of
237,813 (1990 Census Update), portions of Cumberland County, with a population
of 195,257 (1990 Census Update), portions of Chester County, with a population
of 376,396 (1990 Census Update) and portions of York County, with a population
of 339,574 (1990 Census Update). For marketing purposes, the Fulton Bank trade
area is divided into two regions: the Lancaster Region, consisting of Lancaster
and Chester counties, and the Capital Region, consisting of Dauphin, Cumberland,
and York Counties. Approximately 75 percent of the business of Fulton Bank is
derived from the Lancaster Region, where its administrative headquarters,
twenty-nine branch offices, and six remote service facilities are located.
Approximately 25 percent of the business of Fulton Bank is derived from the
Capital Region, where it maintains thirteen branch offices. Both regions have
stable economies and have experienced unemployment rates which are below the
average state and national levels.
Diversity is the key to the economic well-being of the Lancaster Region.
Twenty-nine of the leading manufacturing companies located in the Lancaster
Region have 500 or more employees. The Lancaster Region ranks as one of the top
twenty agricultural production areas in the country.
While the Capital Region also has a wide range of industry, its economy is
anchored by the thousands of workers who are employed by the state government in
the capitol city of Harrisburg and by the employees of several large service
organizations, including Capital Blue Cross/Pennsylvania Blue Shield which is
located in Cumberland County. Government employment figures are fairly constant
and are therefore an important factor in the below-average unemployment rate
experienced in the Capital Region.
Fulton Bank maintains a competitive posture within its market area. The
trade area of Fulton Bank is characterized by active competition among state and
national banks. There are 42 full-service banks and thrifts with offices in the
Lancaster Region and 35 full-service commercial banks with offices in the
Capital Region. Fulton Bank ranks first in market share (based on total
deposits) in Lancaster County, eighth in market share in Dauphin County, twelfth
in market share in Cumberland County, twentieth in market share in York County,
and twenty-seventh in market share in Chester County, according to the most
recent available deposit survey.
Farmers Trust Bank
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Farmers Trust Bank is a full-service commercial bank which was chartered
under the laws of the Commonwealth of Pennsylvania in 1892. Farmers Trust Bank
is a member of the Federal Reserve System and its deposits are insured by the
FDIC. Farmers Trust Bank is subject to regulation and periodic examination by
the Federal Reserve Bank of Philadelphia and by the Pennsylvania Department of
Banking. In addition to its administrative headquarters located in Lebanon,
Pennsylvania, Farmers Trust Bank maintains seven branch offices and one remote
service facility.
Farmers Trust Bank offers a full range of general retail and commercial
banking services, including demand, savings and time deposits, and commercial,
consumer, and mortgage loans. Farmers Trust Bank maintains automated teller
machines which are integrated with the MACtm regional and CIRRUStm and PLUStm
national automated teller systems. Farmers Trust Bank maintains correspondent
relationships with major banks in New York and Philadelphia and through them
offers a variety of collection and funds transfer services. Farmers Trust Bank
is a member of the Federal Home Loan Bank of Pittsburgh.
Farmers Trust Bank has trust powers and offers a variety of services
through its Trust Department, including estate planning, executorships, estate
administration, living trusts, life insurance trusts, testamentary trusts,
custodianships, guardianships, investment management accounts, escrow accounts
and mutual fund asset allocation accounts.
The trade area of Farmers Trust Bank consists of Lebanon County,
Pennsylvania with a population of 113,744 (1990 Census Update), along with a
portion of western Berks County. There are ten full-service banks and thrifts
with offices in Lebanon County. Farmers Trust Bank ranks fourth in Lebanon
County based on its market share of deposits, according to the most recent
available deposit survey.
Swineford National Bank
-----------------------
Swineford National Bank is a national banking association which was
chartered in 1903. Swineford National Bank is a member of the Federal Reserve
System and its deposits are insured by the FDIC. As a national banking
association, Swineford National Bank is subject to regulation and periodic
examination by the Office of the Comptroller of the Currency. In addition to its
administrative headquarters located in Hummels Wharf, Pennsylvania, Swineford
National Bank maintains six branch offices.
Swineford National Bank offers a full range of general retail and
commercial banking services, including demand, savings and time deposits and
commercial, consumer and mortgage loans. Swineford National Bank maintains
automated teller machines which are integrated with the MACtm regional and
CIRRUStm national automated teller systems. Swineford National Bank maintains a
correspondent relationship with major banks in New York and Philadelphia and
through them offers a variety of collection and funds transfer services.
Swineford National Bank is a member of the Federal Home Loan Bank of Pittsburgh.
The trade area of Swineford National Bank consists of Snyder County, with a
population of 36,680 (1990 Census Update), Northumberland County, with a
population of 96,771 (1990 Census Update) and Union County, with a population of
36,176 (1990 Census Update). There are four full-service banks and thrifts with
offices in Snyder County, fifteen with offices in Northumberland County and
eight with offices in Union County. Swineford National Bank ranks first in
Snyder County, thirteenth in Northumberland and sixth in Union County, based on
market share of deposits, according to the most recent available deposit survey.
Lafayette Bank
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Lafayette Bank is a full-service commercial bank which was originally
chartered under the laws of the Commonwealth of Pennsylvania in 1922 as
Lafayette Trust Bank. During 1988, Lafayette Trust Bank and the Pen Argyl
National Bank, both wholly-owned subsidiaries of Fulton Financial Corporation,
merged to form Lafayette Bank. During 1991, Second National Bank of Nazareth, a
wholly-owned subsidiary of Fulton Financial Corporation serving the same market
area, was merged into Lafayette Bank.
As a state-chartered bank whose deposits are insured by the FDIC and which
is not a member of the Federal Reserve System, Lafayette Bank is subject to
regulation and periodic examination by the FDIC and by the Pennsylvania
Department of Banking. In addition to its administrative headquarters located in
the City of Easton, Lafayette Bank currently maintains twelve branch offices.
Lafayette Bank offers a full range of general retail and commercial banking
services, including demand, savings and time deposits, and commercial, consumer
and mortgage loans. Lafayette Bank maintains automated teller machines which are
integrated with the MACtm regional and CIRRUStm and PLUStm national automated
teller systems. Lafayette Bank maintains correspondent relationships with major
banks in New York and Philadelphia and through them offers a variety of
collection and funds transfer services. Lafayette Bank is a member of the
Federal Home Loan Bank of Pittsburgh.
Lafayette Bank has trust powers and offers a variety of services through
its Trust Department, including estate planning, estate administration, living
trusts, life insurance trusts, testamentary trusts, custodianships,
guardianships, investment management accounts, escrow accounts, and IRA rollover
accounts.
The trade area of Lafayette Bank consists of Northampton County, with a
population of 247,105 (1990 Census Update). There are eighteen full-service
banks and thrifts with offices in Northampton County. Lafayette Bank ranks third
in Northampton County in market share of deposits, based on the most recent
available deposit survey.
FNB Bank, N.A.
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FNB Bank, N.A. is a national banking association which was chartered in
1864. FNB Bank, N.A. is a member of the Federal Reserve System and its deposits
are insured by the FDIC. As a national banking association, FNB Bank, N.A. is
subject to regulation and periodic examination by the Office of the Comptroller
of the Currency. In addition to its administrative headquarters located in
Danville, PA, FNB Bank, N.A. currently maintains six branch offices.
FNB Bank, N.A. offers a full range of general retail and commercial banking
services, including demand, savings and time deposits and commercial, consumer
and mortgage loans. FNB Bank, N.A. maintains automated teller machines which are
integrated with the MACtm regional automated teller system. FNB Bank, N.A.
maintains a correspondent relationship with major banks in New York and
Philadelphia and through them offers a variety of collection and funds transfer
services. FNB Bank, N.A. is a member of the Federal Home Loan Bank of
Pittsburgh.
FNB Bank, N.A. has trust powers and offers a variety of services including
estate planning, executorships, estate administration, living trusts, life
insurance trusts, testamentary trusts, agency accounts, guardianships and asset
management accounts.
The trade area of FNB Bank, N.A. consists of Montour County, with a
population of 17,735 (1990 Census Update), Lycoming County, with a population of
118,710 (1990 Census Update) and Northumberland County, with a population of
96,771 (1990 Census Update). There are four full-service banks and thrifts with
offices in Montour County, eleven with offices in Lycoming County and fifteen
with offices in Northumberland County. FNB Bank, N.A. ranks first in Montour
County and fourth in Northumberland County, based on market share of deposits,
according to the most current available deposit survey. FNB Bank, N.A. ranks
fifteenth in Lycoming County due to the presence of several large credit unions.
Great Valley Savings Bank
-------------------------
Great Valley Savings Bank was organized as a Pennsylvania chartered mutual
savings association in 1974. During 1991, Great Valley Savings Bank converted to
a Pennsylvania chartered stock savings bank. As a state-chartered savings bank
whose deposits are insured by the FDIC and which is not a member of the Federal
Reserve System, Great Valley Savings Bank is subject to regulation and periodic
examination by the FDIC and by the Pennsylvania Department of Banking. In
addition to its administrative headquarters located in the City of Reading,
Great Valley Savings Bank maintains eight branch offices.
Great Valley Savings Bank offers retail banking services, principally in
the form of demand, savings and time deposits, as well as commercial, mortgage
and consumer loans. Great Valley Savings Bank maintains a correspondent banking
relationship with the Federal Home Loan Bank of Pittsburgh.
The market area of Great Valley Savings Bank consists of seven branches in
Berks County, with a population of 336,523 (1990 Census Update), and one branch
in Montgomery County, with a population of 678,111 (1990 Census Update), along
with a portion of contiguous counties. There are 19 full-service banks and
thrifts with offices in Berks County and 43 with offices in Montgomery County.
Great Valley Savings Bank ranks eighth in Berks County based on market share of
deposits. Great Valley Savings Bank ranks 48th in market share in Montgomery
County due to the presence of several large credit unions.
Hagerstown Trust Company
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Hagerstown Trust Company is a full-service commercial bank which was
chartered under the laws of the State of Maryland in 1933. As a state-chartered
bank whose deposits are insured by the FDIC and which is not a member of the
Federal Reserve System, Hagerstown Trust Company is subject to regulation and
periodic examination by the FDIC and by the Bank Commissioner of the state of
Maryland. In addition to its administrative headquarters located in Hagerstown,
Maryland, Hagerstown Trust Company maintains thirteen offices and ten remote
service facilities.
The trade area of Hagerstown Trust Company consists of Washington County,
Maryland with a population 121,393 (1990 Census Update), along with a portion of
the surrounding counties. There are ten full-service banks and thrifts with
offices in Washington County, Maryland. Hagerstown Trust Company ranks first in
Washington County, Maryland based on its market share of deposits, according to
the most recent available deposit survey.
Hagerstown Trust Company offers a full range of general retail and
wholesale banking services, including demand, savings and time deposits and
commercial, consumer and mortgage loans. Hagerstown Trust Company maintains
automated teller machines which are integrated with MACtm and MOSTtm regional
and CIRRUStm national automated teller systems. Hagerstown Trust Company
maintains a correspondent relationship with major banks in Philadelphia, New
York, Richmond and Baltimore. Hagerstown Trust Company is a member of the
Federal Home Loan Bank of Atlanta.
Hagerstown Trust Company has trust powers and offers a variety of services
including estate administration, estate planning, living trusts, life insurance
trusts, testamentary trusts, custodianships, guardianships, investment
management accounts, agency accounts, escrow accounts, employee benefits,
pension and profit sharing accounts, and mutual fund accounts.
Delaware National Bank
----------------------
Delaware National Bank is a national banking association chartered in 1979.
Delaware National Bank is a member of the Federal Reserve System and its
deposits are insured by the FDIC. Delaware National Bank is subject to
regulation and periodic examination by the Office of the Comptroller of the
Currency. Delaware National Bank maintains six branch offices in addition to an
operations and administrative facility.
Delaware National Bank offers a full range of banking services including
retail and commercial checking, savings and time deposits, and consumer,
mortgage, and commercial loans. At this time, Delaware National Bank does not
have trust powers and does not offer investment or discount brokerage services.
Delaware National Bank currently has five drive-up automated teller machines on
the MAC/tm/ regional automated teller system. Delaware National Bank maintains a
correspondent relationship with major banks in Baltimore and the Federal Home
Loan Bank of Pittsburgh.
The primary market area for Delaware National Bank is Sussex County,
Delaware, with a population of 113,229 (1990 Census Update). There are currently
twelve full-service banks and thrifts with offices Sussex County. Delaware
National ranks seventh in the Sussex County based on market share of deposits,
according to the most recent available deposit summary.
The Bank of Gloucester County
-----------------------------
The Bank of Gloucester County is a state bank chartered by the State of New
Jersey in 1989. The deposits of The Bank of Gloucester County are insured by the
FDIC and the bank is subject to regulation and periodic examinations by both the
State of New Jersey and the FDIC. The Bank of Gloucester County maintains seven
branch offices in addition to an operations facility.
The Bank of Gloucester County offers a full range of banking services
including retail and commercial checking, savings and time deposits, and
consumer, mortgage, and commercial loans. At this time, the bank does not have
trust powers and does not offer investment or discount brokerage services.
Currently, the Bank of Gloucester County has four automated teller machines on
the MAC/tm/ regional automated teller system. The Bank of Gloucester County
maintains a correspondent relationship with major banks in Philadelphia and the
Federal Home Loan Bank of New York.
The primary market area of The Bank of Gloucester County is Gloucester
County, New Jersey with a population of 232,444 (1990 Census update). There are
currently 26 full-service banks and thrifts with offices in Gloucester County.
The Bank of Gloucester County ranks third in the county in market share of
deposits based on updates of most recently available deposit summary
information.
The Woodstown National Bank & Trust Company
-------------------------------------------
On February 28, 1997, the Corporation completed its acquisition of The
Woodstown National Bank & Trust Company (Woodstown). As provided under the terms
of the merger agreement, Woodstown became a wholly-owned subsidiary of the
Corporation and each of the outstanding shares of the common stock of Woodstown
was converted into 1.6 shares of the common stock of the Corporation. The
Corporation issued approximately 2.9 million shares of its common stock in
connection with this merger.
Upon consummation of the merger, Woodstown became the tenth banking
subsidiary of the Corporation and the second in New Jersey. Woodstown, with
approximately $260 million in assets, is headquartered in Woodstown, New Jersey
and operated four branches in Salem County and two in Gloucester County.
Certain additional statistical information relating to the business of
Fulton Financial Corporation is set forth in the following tables.
FULTON FINANCIAL CORPORATION
COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
Year Ended December 31
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(Dollars in thousands) 1996 1995
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Average Yield/ Average
ASSETS Balance Interest Rate Balance Interest
- ------------------------------------------------ ----------- ----------- ------- ------------ ---------
Interest-earning assets:
Loans and leases (1).......................... $ 2,617,739 225,595 8.62% $ 2,390,737 $ 210,562
Taxable investment securities (2)............. 634,386 37,390 5.89 585,415 32,233
Tax-exempt investment securities (2).......... 54,826 3,315 6.05 76,546 4,843
Equity securities (2)......................... 39,590 2,037 5.15 37,731 1,976
Short-term investments........................ 5,392 320 5.93 34,198 2,055
----------- ----------- ------- ------------ ---------
Total interest-earning assets................... 3,351,933 268,657 8.01 3,124,627 251,669
Noninterest-earning assets:
Cash and due from banks....................... 145,005 143,089
Premises and equipment........................ 49,829 46,265
Other assets(2)............................... 109,147 106,076
Less: Allowance for loan losses............... (39,780) (37,988)
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Total Assets.......................... $ 3,616,134 $ 3,382,069
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
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Interest-bearing liabilities:
Demand deposits............................... $ 366,912 6,570 1.79% $ 365,868 $ 7,646
Savings deposits.............................. 762,272 18,519 2.43 772,663 20,287
Time deposits................................. 1,421,090 78,308 5.51 1,298,697 71,590
Short-term borrowings......................... 179,536 8,541 4.76 125,219 6,291
Long-term debt................................ 28,662 1,864 6.50 31,643 2,081
----------- ----------- ------- ------------ ---------
Total interest-bearing liabilities.............. 2,758,472 113,802 4.13 2,594,090 107,895
Noninterest-bearing liabilities:
Demand deposits............................... 425,079 385,686
Other......................................... 65,197 66,660
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Total Liabilities..................... 3,248,748 3,046,436
Shareholders' equity............................ 367,386 335,633
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Total Liabilities and
Shareholders' Equity................ $ 3,616,134 $ 3,382,069
=========== ============
Net interest income............................. 154,855 143,774
Net yield on interest-earning assets............ 4.62%
Tax equivalent adjustment (3)................... 3,698 4,473
----------- ------- ---------
Net interest margin............................. 158,553 4.73% $ 148,247
=========== ======= =========
Year Ended December 31
(Dollars in thousands) 1994
- ---------------------------------------------------------------------------------------------------------
Yield/ Average Yield/
ASSETS Rate Balance Interest Rate
- ------------------------------------------------ ------ ------------ --------- ------
Interest-earning assets:
Loans and leases (1).......................... 8.81% $ 2,059,883 $ 169,894 8.25%
Taxable investment securities (2)............. 5.51 651,684 32,707 5.02
Tax-exempt investment securities (2).......... 6.33 85,787 5,588 6.51
Equity securities (2)......................... 5.24 28,519 1,398 4.90
Short-term investments........................ 6.01 23,369 963 4.12
------ ------------ --------- ------
Total interest-earning assets................... 8.05 2,849,242 210,550 7.39
Noninterest-earning assets:
Cash and due from banks....................... 151,353
Premises and equipment........................ 42,283
Other assets(2)............................... 81,411
Less: Allowance for loan losses............... (32,569)
------------
Total Assets.......................... $ 3,091,720
============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand deposits............................... 2.09% $ 382,012 $ 7,038 1.84%
Savings deposits.............................. 2.63 815,801 19,643 2.41
Time deposits................................. 5.51 1,014,723 45,535 4.49
Short-term borrowings......................... 5.02 140,857 5,288 3.75
Long-term debt................................ 6.58 17,750 1,116 6.29
------ ------------ --------- ------
Total interest-bearing liabilities.............. 4.16 2,371,143 78,620 3.32
Noninterest-bearing liabilities:
Demand deposits............................... 360,201
Other......................................... 52,103
------------
Total Liabilities..................... 2,783,447
Shareholders' equity............................ 308,273
------------
Total Liabilities and
Shareholders' Equity................ $ 3,091,720
============
Net interest income............................. 131,930
Net yield on interest-earning assets............ 4.60% 4.63%
Tax equivalent adjustment (3)................... 4,557
------ --------- ------
Net interest margin............................. 4.74% $ 136,487 4.79%
====== ========= ======
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes nonperforming loans.
(2) Balances reflect amortized historical cost for available for sale
securities. The related unrealized holding gain on securities of $10,440
in 1996, $6,462 in 1995 and $9,346 in 1994 is included in other assets.
(3) Based on marginal Federal income tax rate and statutory interest expense
disallowances.
FULTON FINANCIAL CORPORATION
CHANGES IN INTEREST INCOME/EXPENSE DUE TO VOLUME AND RATE CHANGE
The following table sets forth for the periods indicated a summary of
changes in interest income and interest expense resulting from corresponding
volume and rate changes:
1996 vs. 1995 1995 vs. 1994
Increase (decrease) due Increase (decrease) due
to change in to change in
------------------------------------------- ------------------------------------
Volume Rate Net Volume Rate Net
---------- ---------- ------------ ----------- ---------- --------
(in thousands)
Interest income on:
Loans and direct lease financing.... $ 19,993 $ (4,960) $ 15,033 $ 27,288 $ 13,380 $ 40,668
Taxable investment securities....... 2,696 2,461 5,157 (3,326) 2,852 (474)
Tax-exempt investment securities.... (1,374) (154) (1,528) (602) (143) (745)
Equity securities................... 97 (36) 61 452 126 578
Short-term investments.............. (1,731) (4) (1,735) 446 646 1,092
-------- -------- -------- -------- -------- --------
Total interest-earning assets..... $ 19,681 $ (2,693) $ 16,988 $ 24,258 $ 16,861 $ 41,119
======== ======== ======== ======== ======== ========
Interest expense on:
Demand deposits..................... $ 22 $ (1,098) $ (1,076) $ (297) $ 905 $ 608
Savings deposits.................... (273) (1,495) (1,768) (1,039) 1,683 644
Time deposits....................... 6,747 (29) 6,718 12,743 13,312 26,055
Short-term borrowings............... 2,729 (479) 2,250 (587) 1,590 1,003
Long-term debt...................... (196) (21) (217) 873 92 965
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities $ 9,029 $ (3,122) $ 5,907 $ 11,693 $ 17,582 $ 29,275
======== ======== ======== ======== ======== ========
Note: The rate/volume variances are allocated in the table above by applying
the changes in volume times the prior period rate and by applying the changes
in rate times the current period volume on a consistent basis throughout.
FULTON FINANCIAL CORPORATION
INVESTMENT PORTFOLIO
The following table sets forth the carrying amount of investment securities
held to maturity (HTM) and available for sale (AFS) as of the dates shown:
December 31
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1996 1995
------------------------------------------ ----------------------------------------
HTM AFS Total HTM AFS Total
------------ ----------- ----------- ---------- ---------- -------------
(in thousands)
United States Treasury and U.S.
Government agencies and
corporations.................... $104,719 $159,148 $263,867 $209,580 $144,058 $353,638
State and municipal.................. 50,490 - 50,490 62,606 - 62,606
Other securities..................... 1,326 - 1,326 10,960 - 10,960
Equity securities.................... - 59,772 59,772 - 56,120 56,120
Mortgage-backed securities........... 237,173 98,189 335,362 220,780 56,202 276,982
-------- -------- -------- -------- -------- --------
Totals......................... $393,708 $317,109 $710,817 $503,926 $256,380 $760,306
======== ======== ======== ======== ======== ========
December 31
-----------------------------------------
1994
HTM AFS Total
------------- ----------- ----------
United States Treasury and U.S.
Government agencies and
corporations.................... $226,754 $ 95,497 $322,251
State and municipal.................. 88,166 - 88,166
Other securities..................... 41,107 - 41,107
Equity securities.................... - 47,487 47,487
Mortgage-backed securities........... 159,036 52,223 211,259
-------- -------- --------
Totals......................... $515,063 $195,207 $710,270
======== ======== ========
FULTON FINANCIAL CORPORATION
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
The following tables set forth the maturities of investment securities at
December 31, 1996 and the weighted average yields of such securities (calculated
based upon historical cost).
HELD TO MATURITY (at amortized cost)
- ----------------
MATURING
-------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years
--------------------------- -------------------------- -------------------------
Amount Yield Amount Yield Amount Yield
-------------- ----------- -------------- ---------- -------------- ---------
(dollars in thousands)
United States Treasury and
other U.S. Government
agencies and corporations....... $ 68,545 5.77% $ 32,831 6.03% $ 3,004 6.29%
State and municipal (1).............. 11,041 9.93 25,993 8.90 10,604 8.93
Other securities..................... 797 6.23 318 4.73 211 6.52
-------------- ----------- -------------- ---------- -------------- ---------
Totals............................ $ 80,383 6.35% $ 59,142 7.28% $ 13,819 8.32%
============== =========== ============== ========== ============== =========
Mortgage-backed securities (2)....... $ 237,173 6.13%
============== ===========
--------------------------------
After Ten Years
--------------------------------
Amount Yield
-------------- ----------------
United States Treasury and
other U.S. Government
agencies and corporations....... $ 339 7.61%
State and municipal (1).............. 2,852 9.44
Other securities..................... - -
-------------- ----------------
Totals............................ $ 3,191 9.25%
============== ================
Mortgage-backed securities (2).......
AVAILABLE FOR SALE (at estimated fair value)
- ------------------
MATURING
------------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years
------------------------------ -------------------------------- --------------------------
Amount Yield Amount Yield Amount Yield
-------------- -------------- ---------------- -------------- ------------- -----------
(dollars in thousands)
United States Treasury and
other U.S. Government
agencies and corporations....... $ 46,611 6.28% $ 108,647 5.90% $ 3,890 6.62%
============== ============ ================ ============= ============= ===========
Mortgage-backed securities (2)....... $ 98,189 6.17%
============== ============
(1) Weighted average yields on tax-exempt securities have been computed on
a fully tax-equivalent basis assuming a tax rate of 35 percent.
(2) Maturities for mortgage-backed securities are dependent upon the interest
rate environment and prepayments on the underlying loans. For the purpose
of this table, the entire balance and weighted average rate is shown in one
period.
FULTON FINANCIAL CORPORATION
LOAN PORTFOLIO BY TYPE
The amounts of loans outstanding (including unearned income) at the
indicated dates for the periods are shown in the following table by type of loan
(1):
December 31
--------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- --------------
(in thousands)
Commercial, financial and agricultural..... $ 366,223 $ 362,009 $ 350,278 $ 360,868 $ 365,210
Real estate - construction................. 110,747 92,717 94,711 65,795 60,715
Real estate - mortgage..................... 1,729,817 1,573,663 1,499,509 1,195,116 1,123,313
Consumer .................................. 532,982 439,873 386,589 295,462 281,386
Leasing and other.......................... 43,818 33,771 25,205 18,428 15,149
-------------- -------------- -------------- -------------- --------------
Totals.................................. $ 2,783,587 $ 2,502,033 $ 2,356,292 $ 1,935,669 $ 1,845,773
============== ============== ============== ============== ==============
(1) At December 31, 1996, Fulton Financial Corporation did not have any loan
concentrations to borrowers engaged in the same or similar industries that
exceeded 10% of total loans.
MATURITY & SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The following table summarizes the maturity and sensitivity of loans to
changes in interest rates as of December 31, 1996:
One
One Year Through More Than
or Less Five Years Five Years Total
--------------- --------------- --------------- ---------------
(in thousands)
Floating rate........ $ 1,036,655 $ 110,460 $ 5,350 $ 1,152,465
Fixed rate........... 107,013 658,413 865,696 1,631,122
--------------- --------------- --------------- ---------------
Totals.......... $ 1,143,668 $ 768,873 $ 871,046 $ 2,783,587
=============== =============== =============== ===============
FULTON FINANCIAL CORPORATION
RISK ELEMENTS IN LOAN PORTFOLIO
The following table presents information concerning the aggregate amount of
nonaccrual, past due and restructured loans and other nonperforming assets (4):
December 31
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(in thousands)
Nonaccrual loans (1) (2) (3)............... $ 12,879 $ 12,795 $ 15,846 $ 15,135 $ 21,133
Accruing loans past due 90 days or more.... 6,776 7,928 5,654 5,807 6,068
Other real estate.......................... 1,750 1,785 2,870 2,282 1,705
--------- --------- --------- --------- ---------
Totals................................ $ 21,405 $ 22,508 $ 24,370 $ 23,224 $ 28,906
========= ========= ========= ========= =========
(1) Includes impaired loans as defined by Statement of Financial Accounting
Standards No. 114 of approximately $11.3 million at December 31, 1996.
(2) As of December 31, 1996, the gross interest income that would have been
recorded during 1996 if nonaccrual loans had been current in accordance
with their original terms was approximately $1.5 million. The amount of
interest income on those nonaccrual loans that was included in 1996 net
income was approximately $720,000. At December 31, 1996, $12.4 million of
nonaccrual loans are considered to be adequately secured.
(3) Accrual of interest is generally discontinued when a loan becomes 90 days
past due as to principal and interest. When interest accruals are
discontinued, interest credited to income is reversed. Nonaccrual loans are
restored to accrual status when all delinquent principal and interest
becomes current or the loan is considered secured and in the process of
collection. Certain loans, primarily residential mortgages, that are
determined to be sufficiently collateralized may continue to accrue
interest after reaching 90 days past due.
(4) Excluded from the amounts presented above at December 31, 1996 are $11.2
million in domestic commercial loans for which payments were current, but
as to which the borrowers were experiencing significant financial
difficulties. These loans are subject to constant management attention and
their classification is reviewed monthly.
FULTON FINANCIAL CORPORATION
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Corporation's loss experience is as follows:
Year Ended December 31
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(dollars in thousands)
Loans outstanding at end of year................... $2,776,225 $2,493,322 $2,345,340 $1,923,124 $1,829,981
========== ========== ========== ========== ==========
Daily average balance of loans and leases.......... $2,617,739 $2,390,737 $2,059,883 $1,861,478 $1,782,209
========== ========== ========== ========== ==========
Balance of allowance for loan losses
at beginning of year............................ $ 38,272 $ 37,279 $ 29,932 $ 30,282 $ 24,393
Loans charged-off:
Commercial, financial and agricultural.......... 1,528 1,808 1,759 3,652 6,539
Real estate - construction...................... 30 - 144 - -
Real estate - mortgage.......................... 1,133 1,974 1,205 3,856 2,832
Consumer........................................ 2,392 1,650 1,044 1,425 1,666
Leasing and other............................... 50 59 33 51 56
---------- ---------- ---------- ---------- ----------
Total loans charged-off......................... 5,133 5,491 4,185 8,984 11,093
---------- ---------- ---------- ---------- ----------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural.......... 1,173 1,459 1,188 2,109 679
Real estate - construction...................... - - 58 - -
Real estate - mortgage.......................... 1,373 471 587 228 242
Consumer........................................ 908 701 485 559 614
Leasing and other............................... 22 20 29 62 10
---------- ---------- ---------- ---------- ----------
Total recoveries................................ 3,476 2,651 2,347 2,958 1,545
---------- ---------- ---------- ---------- ----------
Net loans charged-off............................... 1,657 2,840 1,838 6,026 9,548
Provision for loan losses........................... 4,192 3,833 2,715 5,676 15,437
Allowance purchased from
Central Pennsylvania Financial Corp.............. - - 6,470 - -
---------- ---------- ---------- ---------- ----------
Balance at end of year.............................. $ 40,807 $ 38,272 $ 37,279 $ 29,932 $ 30,282
========== ========== ========== ========== ==========
Ratio of net charge-offs during period to
average loans.................................... 0.06% 0.12% 0.09% 0.32% 0.54%
========== ========== ========== ========== ==========
Ratio of allowance for loan losses to loans
outstanding at end of year....................... 1.47% 1.53% 1.59% 1.56% 1.65%
========== ========== ========== ========== ==========
FULTON FINANCIAL CORPORATION
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses has been allocated as follows to provide for
the possibility of losses being incurred within the following categories of
loans at the dates indicated:
December 31
------------------------------------------------------------------------------------
1996 1995 1994
------------------------- ------------------------- -------------------------
(dollars in thousands)
% of % of % of
loans in loans in loans in
each each each
Allowance category Allowance category Allowance category
--------- -------- --------- -------- --------- --------
Commercial, financial
& agriculture............. $ 9,604 13.2% $ 11,503 14.5% $ 14,611 14.9%
Real estate - construction
& mortgages............... 11,427 66.1 12,023 66.6 12,615 67.6
Consumer, leasing
& other................... 2,561 20.7 2,609 18.9 2,392 17.5
Unallocated................. 17,215 - 12,137 - 7,661 -
---------- ---------- ---------- ---------- ---------- ----------
Totals.................... $ 40,807 100.0% $ 38,272 100.0% $ 37,279 100.0%
========== ========== ========== ========== ========== ==========
December 31
------------------------------------------------------
1993 1992
------------------------- -------------------------
(dollars in thousands)
% of % of
loans in loans in
each each
Allowance category Allowance category
--------- -------- --------- --------
Commercial, financial
& agriculture............. $ 14,149 18.6% $ 17,141 19.8%
Real estate - construction
& mortgages............... 11,088 65.1 9,131 64.2
Consumer, leasing
& other................... 2,665 16.3 2,864 16.0
Unallocated................. 2,030 - 1,146 -
---------- ---------- ---------- ----------
Totals.................... $ 29,932 100.0% $ 30,282 100.0%
========== ========== ========== ==========
(1) The Corporation allocates the allowance for loan losses in three components:
(1) specific accounts; (2) 50% of doubtful, 15% of substandard and 10% of
fair internally risk rated loans (excluding those subject to specific
allocation under (1)); and (3) based upon historical averages for the
remaining balances. As of December 31, 1996, the Corporation has allocated
$9.5 million based on four-year historical averages, as follows: $3.7
million commercial, $2.5 million consumer, $3.3 million mortgage, and
$89,000 leasing. Additional allocations of the allowance for loan losses
include: $143,000 for specific accounts; $7.4 million for fair rated loans;
$6.0 million for substandard rated loans; $322,000 for doubtful rated loans;
and $178,000 for off-balance sheet risk for standby letters of credit.
(2) Charge-offs for 1997 are not anticipated to exceed $2.7 million:
commercial - $1.0 million; consumer - $1.0 million; mortgage - $600,000 and
leases $100,000. The overall risk factors in the portfolio are best
evidenced by a 30 day and over delinquency rate in the 2.00% to 2.50% range
and overall credit risk ratings of satisfactory and above for 75% of the
commercial and real estate portfolios.
FULTON FINANCIAL CORPORATION
DEPOSITS
The average daily balances of deposits and rates paid on such deposits are
summarized for the periods indicated in the following table:
Year Ended December 31
------------------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
Amount Rate Amount Rate Amount Rate
---------- -------- ---------- -------- ---------- --------
(dollars in thousands)
Noninterest-bearing demand deposits...... $ 425,079 - % $ 385,686 - % $ 360,201 - %
Interest-bearing demand deposits......... 366,912 1.79 365,868 2.09 382,012 1.84
Savings deposits......................... 762,272 2.43 772,663 2.63 815,801 2.41
Time deposits............................ 1,421,090 5.51 1,298,697 5.51 1,014,723 4.49
---------- ------- ---------- ------ ---------- ------
Totals................................... $2,975,353 3.47% $2,822,914 3.53% $2,572,737 2.81%
========== ======= ========== ====== ========== ======
Maturities of time deposits of $100,000 or more outstanding at December 31,
1996 are summarized as follows:
Time Deposits
Over $100,000
-----------------
(in thousands)
Three months or less.................. $ 64,452
Over three through six months......... 25,676
Over six through twelve months........ 31,514
Over twelve months.................... 38,562
-----------------
Totals................................ $ 160,204
=================
FULTON FINANCIAL CORPORATION
SHORT-TERM BORROWINGS
The following table presents information related to Federal funds purchased
and securities sold under agreements to repurchase. No other categories of
short-term borrowings exceeded 30% of shareholders' equity at December 31, 1996.
December 31
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
(dollars in thousands)
Amount outstanding at December 31................... $211,440 $126,372 $183,923
Weighted average interest rate at year end.......... 4.86% 4.88% 4.93%
Maximum amount outstanding at any month end......... $233,564 $216,650 $201,187
Average amount outstanding during the year.......... $179,536 $125,219 $140,857
Weighted average interest rate during the year...... 4.76% 5.02% 3.75%
FULTON FINANCIAL CORPORATION
RETURN ON EQUITY AND ASSETS
The ratio of net income to average shareholders' equity and to average
total assets and certain other ratios are as follows:
Year Ended December 31
-------------------------------------------------------------------
1996 1995 1994 1993(1) 1992
---------- ---------- ---------- ---------- ----------
Percentage of net income to:
Average shareholders' equity................. 14.16% 14.10% 13.79% 12.39% 10.53%
Average total assets......................... 1.44 1.40 1.38 1.19 0.99
Percentage of dividends declared per common
share to net income per common share......... 42.1 39.3 38.5 43.0 43.2
Percentage of average shareholders' equity
to average total assets...................... 10.2 9.9 10.0 9.6 9.4
(1) Percentage of income before cumulative effect of changes in accounting
principles to average shareholders' equity and average total assets was
13.64% and 1.31%, respectively.
FULTON FINANCIAL CORPORATION
INTEREST SENSITIVITY TABLE
December 31, 1996
Floating Three Three to Six to Greater
or Daily Months Six Twelve Than
Adjustable or Less Months Months One Year Total
------------ ------------ ------------ ------------ ------------ ------------
(in thousands)
Assets
- ------
Interest-bearing deposits.............. $ 351 $ 1,677 $ - $ - $ - $ 2,028
Taxable investments.................... - 80,675 69,066 145,928 305,958 601,627
Tax exempt investments................. - 7,414 1,373 10,776 30,926 50,489
Equity securities...................... - 744 744 1,486 41,282 44,256
Loans and direct lease financing....... 694,641 183,123 152,190 318,980 1,427,291 2,776,225
------------ ------------ ------------ ------------ ------------ ------------
Total rate sensitive assets......... $ 694,992 $ 273,633 $ 223,373 $ 477,170 $ 1,805,457 $ 3,474,625
============ ============ ============ ============ ============ ============
Liabilities
- -----------
Demand deposits (1).................... $ 95,375 $ 5,872 $ 5,872 $ 11,744 $ 254,862 $ 373,725
Savings deposits (2)................... 340,620 8,426 8,426 18,232 364,708 740,412
Time deposits.......................... 27,451 312,716 251,176 308,285 551,734 1,451,362
Short-term debt........................ 216,432 - - - - 216,432
Long-term debt......................... - 932 205 423 47,600 49,160
------------ ------------ ------------ ------------ ------------ ------------
Total rate sensitive liabilities.... $ 679,878 $ 327,946 $ 265,679 $ 338,684 $ 1,218,904 $ 2,831,091
============ ============ ============ ============ ============ ============
Period gap............................. 1.02 0.83 0.84 1.41 1.48
Cumulative gap......................... 1.02 0.96 0.94 1.04 1.23
(1) NOW accounts - Despite the fact that NOW account funds could be withdrawn at
any time, experience reflects only the normal monthly (beginning, middle,
and end of the month) balance changes coupled with slow but stable growth.
These accounts historically have exhibited all the characteristics of
transaction accounts and are therefore somewhat insensitive to minor
fluctuations in interest rates. The table assumes that 18% of NOW account
balances are subject to repricing within one year or approximately $48
million dollars. This percentage has been based upon recent trends as well
as management's assessment of the effect of current conditions.
(2) Savings deposits include money market accounts, statements savings accounts
and passbook savings accounts. In view of the historic stable deposit levels
and after analysis of recent deposit flows, management feels it is realistic
to use 9% to project passbook and statement savings repricings within one
year. Money market deposit accounts can be subject to repricing as
frequently as daily.
Item 2. Properties
- ------------------
The administrative headquarters of Fulton Financial Corporation and
Fulton Bank is located in a six-story brick building at the northeast corner of
Penn Square in the City of Lancaster, Pennsylvania. This building, together with
fourteen properties upon which Fulton Bank branch offices are located, are owned
in fee by Fulton Bank, free and clear of encumbrances. Five properties upon
which Fulton Bank branch offices are located and four properties upon which
remote service facilities are located are leased by Fulton Bank from
nonaffiliated persons. Eighteen properties upon which Fulton Bank branch offices
are located and two properties upon which remote service facilities are located
are owned or leased by Fulton Financial Realty Company and subleased to Fulton
Bank. Office space is leased by Fulton Financial Realty Company and subleased to
Fulton Financial Corporation and Fulton Bank. The foregoing leases expire
intermittently over the years through the year 2023 and most are subject to one
or more renewal options. The Fulton Bank Administrative Service Center is
located on property which is owned free and clear of encumbrances by Fulton
Financial Realty Company.
The administrative headquarters of Farmers Trust Bank is located in a
five-story building at 817 Cumberland Street in Lebanon, Pennsylvania. This
building and three branch offices are owned in fee by Farmers Trust Bank, free
and clear of encumbrances. One of the properties upon which a Farmers Trust Bank
branch office is located is leased by Fulton Financial Realty Company and
subleased to Farmers Trust Bank, while three additional properties are owned by
Fulton Financial Realty Company and leased to Farmers Trust Bank for branch
offices. Farmers Trust Bank has erected a remote service facility on an
additional property, which is leased from a nonaffiliated person. These leases
expire intermittently over the years through the year 2009 and are subject to
two renewal options.
The administrative headquarters and operations center of Swineford
National Bank are located in a one-story brick building on Routes 11 and 15 in
Hummels Wharf, Pennsylvania. In addition to a branch located at the site of the
operations center, Swineford National Bank operates five other branch offices.
The Hummels Wharf property and four branch offices are owned free and clear of
encumbrances by Swineford National Bank. One additional property used for a
branch office is leased by Swineford National Bank from a non-affiliated person.
This lease expires in 1997 and is subject to one renewal option.
The administrative headquarters of Lafayette Bank is located in a
three-story brick building at 360 Northampton Street, Easton, Pennsylvania.
Lafayette Bank maintains two other sites housing administrative operations of
the bank. In addition to these three buildings, which are owned in fee by
Lafayette Bank, free and clear of encumbrances, six branch offices and another
structure are also owned in fee by Lafayette Bank, free and clear of
encumbrances. Seven additional properties are leased by Lafayette Bank from
nonaffiliated persons; these leases expire intermittently over the years through
the year 2020 and are subject to one or more renewal options. Six of these
leased properties are used as branch offices and one of these properties is a
branch that was relocated and is no longer used as a branch office.
The administrative headquarters of FNB Bank, N.A. is located at 354
Mill Street, Danville, Pennsylvania. This building and three branch offices are
owned in fee by FNB Bank, N.A. free and clear of encumbrances. Two other branch
facilities are leased by FNB Bank, N.A. from nonaffiliated persons. These leases
expire intermittently over the years through the year 2014 and are subject to
one or more options.
The administrative headquarters of Great Valley Savings Bank is
located in a two-story building at 210 North Fifth Street, Reading,
Pennsylvania. This building and two branches are owned in fee by Great Valley
Savings Bank, free and clear of encumbrances. Five branch offices are leased by
Great Valley Savings Bank from nonaffiliated persons. These leases expire
intermittently over the years through the year 2023 and are subject to two or
more options.
The administrative headquarters of Hagerstown Trust Company is
located in a three story brick building at 83 West Washington Street,
Hagerstown, Maryland. This building and eleven branch offices are owned in fee
by Hagerstown Trust Company, free and clear of encumbrances. Two branch offices
and seven remote facilities are leased by Hagerstown Trust Company from
non-affiliated persons. These leases expire intermittently over the years
through the year 2006 and are subject to one or more options.
The administrative headquarters and operations center for Delaware
National Bank are located at 9 South Dupont Highway, Georgetown, in Sussex
County, Delaware. The facility is approximately 8,000 square feet on the first
and second floors of a former bank operations facility leased from a
non-affiliated entity. Two bank branch offices are leased from non-affiliated
entities. These leases expire intermittently over the years through the year
2012 and are subject to one or more renewal options. Four branch offices are
owned free and clear of encumbrances by Delaware National Bank.
The administrative headquarters of The Bank of Gloucester County is
located at 100 Park Avenue, Woodbury, in Gloucester County, New Jersey. This
building and five branch offices are owned by the bank, free and clear of
encumbrances. The operations center and one branch office are leased from
non-affiliated entities at market rates for varying terms.
Item 3. Legal Proceedings
- --------------------------
There are no legal proceedings pending against Fulton Financial
Corporation or any of its subsidiaries which are expected to have a material
impact upon the financial position and/or the operating results of the
Corporation.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders of Fulton
Financial Corporation during the fourth quarter of 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
The information appearing under the heading "Capital Resources"
and "Common Stock" in Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" is incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
FULTON FINANCIAL CORPORATION
5-YEAR CONSOLIDATED SUMMARY OF OPERATIONS
For the Year
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- -------------- ------------- ------------- -------------
(Dollars in thousands, except per-share data)
Interest income............................. $ 268,657 $ 251,669 $ 210,550 $ 198,201 $ 210,175
Interest expense............................ 113,802 107,895 78,620 77,499 98,836
------------- -------------- ------------- ------------- -------------
Net interest income......................... 154,855 143,774 131,930 120,702 111,339
Provision for loan losses................... 4,192 3,833 2,715 5,676 15,437
Other income................................ 32,803 29,889 26,397 29,939 25,636
Other expenses.............................. 110,151 104,611 97,508 95,006 87,025
------------- -------------- ------------- ------------- -------------
Income before income taxes.................. 73,315 65,219 58,104 49,959 34,513
Income taxes................................ 21,297 17,907 15,587 12,043 7,064
------------- -------------- ------------- ------------- -------------
Income before cumulative effect of changes
in accounting principles............... 52,018 47,312 42,517 37,916 27,449
Cumulative effect of changes
in accounting principles............... - - - (3,457) -
------------- -------------- ------------- ------------- -------------
Net income.................................. $ 52,018 $ 47,312 $ 42,517 $ 34,459 $ 27,449
============= ============== ============= ============= =============
PER-SHARE DATA (1)
- ------------------
Income before cumulative effect of changes
in accounting principles............... $ 1.58 $ 1.44 $ 1.30 $ 1.17 $ 0.86
Net income.................................. 1.58 1.44 1.30 1.06 0.86
Cash dividends.............................. 0.665 0.566 0.501 0.456 0.376
AT YEAR END
- -----------
Total assets................................ $ 3,769,385 $3,524,568 $3,338,427 $2,954,908 $2,896,010
Net loans................................... 2,735,418 2,455,050 2,308,061 1,894,445 1,800,432
Deposits.................................... 3,054,174 2,915,269 2,738,897 2,496,581 2,538,503
Long-term debt.............................. 49,160 34,689 27,283 13,051 16,764
Shareholders' equity........................ 385,678 354,014 319,608 298,581 269,811
Average shareholders' equity................ 367,386 335,633 308,273 278,026 260,619
Average total assets........................ 3,616,134 3,382,069 3,091,720 2,884,838 2,770,438
(1) Per-share data is based on the weighted average outstanding shares adjusted
for stock dividends and stock splits.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
This discussion concerns Fulton Financial Corporation (the
Corporation), a bank holding company incorporated under the laws of the
Commonwealth of Pennsylvania in 1982, and its wholly-owned subsidiaries. This
discussion and analysis should be read in conjunction with the consolidated
financial statements and other financial information presented in this report.
MERGER ACTIVITY
- ---------------
During 1996, the Corporation continued its external growth through
strategic acquisitions. One acquisition of a new banking affiliate was completed
during the year, while a second acquisition was announced..
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 the
common stock of Gloucester County was converted into 1.74 shares of the common
stock of the Corporation.
The Corporation issued a total of 1.8 million shares of its common
stock in connection with the Gloucester County merger. The transaction was
accounted for as a pooling of interests and, therefore, the financial
information presented herein has been restated to include the accounts of
Gloucester County for all periods presented.
Through this transaction, the Corporation acquired ownership of The
Bank of Gloucester County, its first banking subsidiary in New Jersey. The Bank
of Gloucester County, with approximately $235 million in assets as of December
31, 1996, is headquartered in Woodbury, New Jersey, and operates seven branch
offices in Gloucester County, New Jersey.
On February 28, 1997, the Corporation completed the previously
announced acquisition of The Woodstown National Bank & Trust Company
(Woodstown). Woodstown, with approximately $270 million in assets, is
headquartered in Woodstown, New Jersey and operates four branches in Salem
County and two branches in Gloucester County. As provided under the terms of the
merger agreement, Woodstown became a subsidiary of the Corporation and each of
the outstanding shares of the common stock of Woodstown was converted into 1.6
shares of the common stock of the Corporation.
The Corporation issued approximately 2.9 million shares of its common
stock in connection with the Woodstown merger. The transaction was accounted for
as a pooling of interests. Since consummation of the merger occurred subsequent
to December 31, 1996, the financial information presented herein does not
include the accounts of Woodstown.
On October 1, 1994, the Corporation acquired Central Pennsylvania
Financial Corp. (CPFC), a savings and loan holding company headquartered in
Shamokin, Pennsylvania, in exchange for cash of approximately $45.9 million.
Through this transaction, the Corporation acquired ownership of Central
Pennsylvania Savings Association, F.A. (CPSA), a federal savings association
which was headquartered in Shamokin. Immediately following the merger,
approximately $260 million of CPSA's assets and $225 million of its liabilities
were distributed among the Corporation's various banking subsidiaries. The major
portion of the net assets distributed represented ten branches in Cumberland,
Dauphin, Lycoming, Montour, Northumberland, Snyder and Union Counties,
Pennsylvania.
The transaction was accounted for as a purchase of assets and
assumption of liabilities. The Corporation's financial statements include the
results of CPFC from the October 1, 1994 acquisition date forward.
RESULTS OF OPERATIONS
- ---------------------
The Corporation achieved record net income of $52.0 million for the
year ended 1996. This represents an increase of $4.7 million or 9.9% over 1995's
net income of $47.3 million, which was an increase of $4.8 million or 11.3% over
1994's net income of $42.5 million.
The Corporation continued to achieve a strong return on average
assets (ROA), a widely used performance barometer within the financial services
industry. This ratio was 1.44% for 1996 compared to 1.40% for 1995 and
1.38% for 1994. Return on average shareholders' equity (ROE), another measure of
performance, increased in 1996 to 14.16% from 14.10% in 1995 and 13.79% in 1994.
The 9.9% increase in earnings in 1996 was driven by growth in both
net interest income and other income, offset somewhat by related increases in
noninterest expenses.
Net Interest Income
Net interest income is the most significant contributor to the
Corporation's net income. During 1996, net interest income increased 7.7% to
$154.9 million compared to increases of 9.0% and 9.3% during 1995 and 1994,
respectively. The "Comparative Average Balance Sheets and Net Interest Income
Analysis" on page 15 summarizes the components of the net interest income
growth. The increases in interest income and interest expense during 1996 were
due mainly to growth in interest-earning assets and interest-bearing liabilities
while average rates over the period remained fairly stable. In 1995, increases
were a result of both rate and volume fluctuations.
Interest income increased $17.0 million or 6.8% from $251.7 million
in 1995 to $268.7 million in 1996 This increase reflects the growth in average
interest-earning assets, which increased $227.3 million or 7.3% during 1996,
after increasing $275.4 million or 9.7% during 1995 and $187.3 million or 7.0%
during 1994. The Corporation generated significant growth in loans as a result
of the strong economy in its markets. Average loans increased $227.0 million
(9.5%), $330.9 million (16.1%) and $198.4 million (10.7%) during 1996, 1995 and
1994, respectively. A portion of this growth during 1995 and 1994 was due to the
October 1, 1994 acquisition of CPFC.
The yield on interest-earning assets decreased to 8.01% in 1996 from
8.05% in 1995. The slight decrease in the 1996 yield is primarily a result of
the yield on loans declining by 19 basis points, offset by an increase in yields
on investments. Many of the Corporation's loans are adjustable rate and, as
such, the overall loan portfolio yield is influenced by changes in certain
market indices, such as the prime rate. The Fulton Bank prime rate declined from
an average of 8.8% in 1995 to 8.3% in 1996.
The 1995 yield on interest-earning assets was 8.9% higher than the
7.39% yield in 1994. This increase is a result of two factors. First, in 1995,
the yield on loans increased 56 basis points to 8.81% from 8.25% in 1994 as the
average prime rate increased from 7.1% to 8.8%. Secondly, a more significant
change in the composition of interest-earning assets occurred. Loans increased
to 77% of total interest-earning assets from 72% in 1994. Since loans generally
have a higher yield than investments, this shift also influenced overall yields.
Interest expense increased $5.9 million or 5.5%, reflecting the
growth in interest-bearing liabilities during 1996. Interest-bearing liabilities
increased $164.4 million or 6.3% during 1996, after increasing $222.9 million or
9.4% during 1995 and $134.0 million or 6.0% during 1994. While a significant
portion of the growth during 1995 and 1994 was due to the acquisition of CPFC,
increases in interest-bearing liabilities were required to fund continued loan
growth. Average interest-bearing deposits have provided much of this growth,
increasing $113.0 million (4.6%), $224.7 million (10.2%) and $50.4 million
(2.3%) during 1996, 1995 and 1994, respectively. As competition for customer
deposits has intensified over the past few years, the Corporation has also
turned to short-term borrowings as an additional funding source. In 1996,
short-term borrowings increased 54.3 million or 43.4% over 1995. The cost of
interest-bearing liabilities decreased slightly from 4.16% for 1995 to 4.13% for
1996, after increasing from 3.32% in 1994. The changes in the cost of funds
primarily reflect fluctuations of the interest rate environment.
Provision for Loan Losses
The provision for loan losses for 1996 totaled $4.2 million, compared
to the 1995 and 1994 provisions of $3.8 million and $2.7 million, respectively.
The statement of income for 1994 does not reflect the addition to the allowance
for loan losses of $6.5 million as a result of the CPFC acquisition. At December
31, 1996, the allowance for loan losses as a percentage of loans (net of
unearned income) stood at 1.47%, as compared to 1.53% and 1.59% at December 31,
1995 and 1994, respectively.
The Corporation's subsidiary banks continued their excellent net
charge-off record during 1996. For the year, the subsidiary banks recorded net
charge-offs of $1.7 million or 0.06% of average loans outstanding. This
represents a decrease from the levels recorded during 1995, $2.8 million or
0.12%, and 1994, $1.8 million or
0.09%. In management's opinion, the allowance for loan losses of $40.8 million,
or 1.47% of loans and 1.91 times nonperforming assets (1.70 at December 31,
1995) is adequate to absorb any foreseeable loan losses.
The detail of nonperforming assets as of December 31, and net
charge-offs by category for 1996 and 1995 is as follows:
Nonperforming Assets Net Charge-Offs
------------------------------------- ----------------------------------
1996 1995 1996 1995
---------------- --------------- -------------- ---------------
(in thousands)
Real Estate Loans................. $ 11,151 $ 14,495 $ (210) $ 1,503
Commercial &
Industrial Loans............. 5,131 4,570 355 349
Consumer Loans.................... 3,373 1,658 1,512 988
Other Real Estate Owned........... 1,750 1,785 - -
---------------- --------------- -------------- ---------------
$ 21,405 $ 22,508 $ 1,657 $ 2,840
================ =============== ============== ===============
Nonperforming assets include all loans 90 days or more past due as to
principal or interest, nonaccrual loans and other real estate owned. The
majority of the nonperforming real estate loans above represents residential
real estate loans which, in the opinion of management, are adequately secured.
Other Income
Noninterest income was $32.8 million for 1996. This represents an
increase of $2.9 million or 9.7% over the 1995 total of $29.9 million, which, in
turn, was 13.2% higher than the 1994 total of $26.4 million. Almost all
noninterest income categories increased during 1996, reflecting the
Corporation's growth.
Investment management and trust services income reached a record
level of $7.8 million in 1996, an increase of $423,000 or 5.8%, following a 1995
increase of $390,000 or 5.6%. Adjusting for a one-time change in the method of
recognizing income on certain employee benefit plans, the increase in income was
9.4% in 1996 and 6.7% in 1995. The growth during 1996 and 1995 was due to
ongoing expansion and increased marketing of traditional trust services as well
as the continued success of several innovative investment management products.
The customized Cash Reserve Investment Management product continued to grow as
an important vehicle for companies, municipalities, and not-for-profit
institutions looking to enhance the short-term return on their invested funds.
Likewise, private banking, which integrates personalized investment portfolio
management with traditional commercial bank deposit and loan services, continued
to attract new clients. An expanded, full-service 401(k) program was introduced
toward the end of 1995 which contributed to trust revenue growth during 1996.
Service charges on deposit accounts increased $2.2 million or 20.8%
during 1996, after increasing $606,000 or 6.0% in 1995. The significant increase
in 1996 is attributable to changes in fee structures on many of the
Corporation's deposit products and services, including the introduction of
foreign ATM charges by certain subsidiary banks, and continued growth in the
Corporation's fee-based deposits. The Corporation uses a product review and
development process through which all products and services provided by the
Corporation's subsidiary banks are reviewed on a rotating basis. This review
allows the Corporation to formally assess product features and pricing in
comparison to its competitors.
Other service charges and fees increased $244,000 or 3.2% during 1996
after increasing $1.5 million, or 25.3% in 1995. The increase in 1996 was mainly
due to normal growth. In 1995, however, other service charges and fees were
positively impacted by the first full year of income from the Corporation's
debit card, which was introduced in late 1994. This product produced additional
revenue of approximately $450,000 in 1995 and $650,000 in 1996. Income in 1995
also increased as a result of several non-recurring items, including $180,000 in
life insurance proceeds and $371,000 from gains on dispositions of other real
estate.
Investment security gains decreased $81,000 or 2.5% to a level of
$3.1 million for 1996. As a percentage of noninterest income, investment
security gains represented 9.5%, 10.7% and 8.1% during 1996, 1995 and 1994,
respectively. The majority of the gains realized during 1996, $2.9 million, were
generated from the sale of equity securities. Management monitors the
Corporation's available for sale securities and makes periodic sale and
investment decisions based on current and expected market conditions. During
1996, certain investments were sold as a result of management's assessment of
market conditions.
Other Expenses
Noninterest expenses for 1996 increased $5.6 million or 5.3% to
$110.2 million, from the 1995 total of $104.6 million, after increasing $7.1
million or 7.3% during 1995.
Salaries and employee benefits expense, which accounts for the
largest portion of other expenses, increased $1.8 million or 3.3% during 1996.
Increases of $4.2 million, or 8.4%, and $2.8 million, or 5.9%, were registered
for 1995 and 1994, respectively. The moderate increase in salaries and benefits
in 1996 was in line with the Corporation's target of a 4% increase. In 1996
there were no significant or unusual changes in the organization which impacted
salaries and benefits. The average number of full-time equivalent employees
remained constant at 1,735 for both 1996 and 1995. The Corporation continued to
improve salary efficiencies by reducing the ratio of employees to million
dollars of average assets to 0.48 in 1996 from 0.51 in 1995. The Corporation
continues to evaluate its structure to improve operating efficiencies.
The increase in salaries and benefits expense in 1995 was a result of
two primary factors. First, 1995 was the first full year in which CPFC was a
part of the Corporation. Secondly, in 1995, the Corporation paid an additional
bonus to substantially all employees. This bonus cost the Corporation
approximately $715,000. Excluding these items, the 1995 increase in expense was
approximately 4%.
Net occupancy expense increased $517,000 or 5.8% during 1996,
compared to an increase of $1.2 million or 15.5% in 1995 and a decrease of
$257,000 or 3.2% in 1994. The significant increase in 1995 reflects the cost of
operating the eight remaining branches acquired from CPFC in 1994, as well new
branches opened during 1994 and 1995.
Equipment expense increased $308,000 or 5.9% in 1996, after
decreasing $235,000 or 4.3% in 1995 and increasing $187,000 or 3.5% in 1994. The
increase in 1996 is attributable to depreciation on new equipment acquired
during 1995 and 1996.
FDIC assessment expense decreased $320,000 or 9.0% in 1996 after
decreasing $2.2 million or 38.5% in 1995. These decreases reflect both the
changes in the assessment rates set by the FDIC and the effect of recent
legislation. The Corporation has approximately $400 million in Savings
Association Insurance Fund (SAIF)-insured deposits, consisting of all of the
deposits at Great Valley Savings Bank and all of the deposits acquired from
CPFC, which were distributed to three other banking affiliates. The remaining
deposits of the Corporation are Bank Insurance Fund (BIF)-insured. Effective
June 1, 1995, the rate on the Corporation's BIF-insured deposits was reduced
from 23 basis points to 4 basis points as the BIF became fully funded at its
mandated minimum level. All of the Corporation's BIF-insured deposits qualified
for the lowest rate as its banks met the prescribed measures of strength. The
significant decline in 1995 expense was a direct result of this reduction.
Effective January 1, 1996, the rate on the Corporation's BIF-insured
deposits was reduced from four basis points to zero, with a requirement for a
minimum premium of $2,000 per institution. However, these savings, which
approximated $2.8 million in 1996, were offset by a special one-time assessment
on SAIF-insured deposits. On September 30, 1996, legislation was enacted to
adequately fund the SAIF, which remained undercapitalized as a result of the
savings and loan crisis in the late 1980s. The legislation called for a one-time
assessment on SAIF-insured deposits. The Corporation's share of this assessment,
which was expensed in the third quarter, was approximately $2.5 million. As a
result of this special one-time assessment, the SAIF became fully funded, and
SAIF insurance rates were reduced to the BIF levels.
This legislation also provided that the repayment of the Financing
Corporation (FICO) bonds, which had been issued to finance the thrift bailout,
be shared by both banks and thrifts. For the three-year period beginning January
1, 1997, SAIF-insured deposits will be assessed at an annual rate of 0.0644%
while BIF-insured deposits will pay an assessment rate of .0129%. Beginning
January 1, 2000, both BIF and SAIF-insured deposits will be assessed at an
annual rate of 0.0243%.
For the Corporation, the decrease in its SAIF assessment (from 23
basis points to 6.44 basis points) will be greater than the increase in its BIF
assessment (from zero to 1.29 basis points). The Corporation's FDIC insurance
expense calculated by applying the 1997 assessment rates to its 1996 year-end
deposit balances is expected to be approximately $600,000.
Special services expense, which represents the cost of data
processing, increased $797,000 or 13.9% during 1996 after increasing $702,000 or
14.0% in 1995 and decreasing $228,000 or 4.3% in 1994. The Corporation has
generally been able to control this cost by implementing and maintaining a
common system for all subsidiaries under a corporate contract. The 1996 and 1995
increases are due to growth in trust operations and loans, resulting in larger
transaction volumes and costs. In addition, the Corporation outsourced student
loan processing in 1995, which increased this expense by approximately $75,000.
Other expenses increased $2.5 million or 9.3% during 1996 after
increasing $3.4 million or 14.9% during 1995. Expenses in this category include
stationery and supplies, postage, audits, telecommunications, Pennsylvania
shares tax, advertising, insurance, legal fees and goodwill amortization. The
increase in 1996 was due mainly to operating risk losses (increase of $492,000
or 58.7%); OREO expense, ($269,000 or 140.1%) due to certain properties held by
one of the Corporation's subsidiary banks; and other insurance ($334,000 or
56.4%) as a result of expense related to the Corporation's Life Insurance Plan.
Other increases are a result of normal growth in the Corporation. Contributing
to the increase during 1995 were goodwill amortization (increase of $840,000 or
117.9%) related to the CPFC acquisition which was effective October 1, 1994;
stationary and supplies (increase of $601,000 or 27.0%) due to increases in both
volume and increased paper costs in general; advertising ($671,000 or 26.4%
increase); and postage (increase of $337,000 or 18.3%) due to increases in both
volume and postage rates.
Income Taxes
Income tax expense continued to increase both in absolute dollars and
as a percentage of pretax income. The effective tax rate was 29.0% in 1996
compared to 27.5% and 26.8% in 1995 and 1994, respectively. The increase in the
effective tax rate reflects the reduction in the beneficial effect of tax-exempt
income as the Corporation's investments in tax free securities continued to
decline.
FULTON FINANCIAL CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS
Month Ended December 31
------------------------------------------------------------
1996 1995 1994
------------ ------------ ------------
ASSETS (in thousands)
- ------
Cash and due from banks........................................... $ 140,701 $ 142,583 $ 151,201
Interest-bearing deposits with other banks........................ 2,038 4,302 2,540
Federal funds sold................................................ 387 18,297 14,632
Investment securities............................................. 711,352 730,009 718,941
Loans, including loans held for sale.............................. 2,766,148 2,473,449 2,336,379
Less: Allowance for loan losses................................... (41,541) (38,209) (38,120)
----------- ----------- -----------
Net Loans................................................ 2,724,607 2,435,240 2,298,259
----------- ----------- -----------
Premises and equipment............................................ 50,879 47,375 45,768
Other assets...................................................... 105,129 100,706 99,475
----------- ----------- -----------
Total Assets............................................. $ 3,735,093 $ 3,478,512 $ 3,330,816
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest-bearing............................................. $ 454,506 $ 406,455 $ 380,851
Interest-bearing................................................ 2,555,606 2,482,496 2,355,360
----------- ----------- -----------
Total Deposits........................................... 3,010,112 2,888,951 2,736,211
----------- ----------- -----------
Short-term borrowings............................................. 235,642 129,227 185,491
Long-term debt.................................................... 38,234 34,692 27,928
Other liabilities................................................. 68,794 73,853 60,614
----------- ----------- -----------
Total Liabilities........................................ 3,352,782 3,126,723 3,010,244
----------- ----------- -----------
Total Shareholders' Equity............................... 382,311 351,789 320,572
----------- ----------- -----------
Total Liabilities and Shareholders' Equity............... $ 3,735,093 $ 3,478,512 $ 3,330,816
=========== =========== ===========
FINANCIAL CONDITION
- -------------------
The Corporation functions as a financial intermediary and therefore
its financial condition is analyzed in terms of its sources and uses of funds.
The table on page 18 highlights the trends in the balance sheet over the past
two years. Because annual averages tend to conceal trends and year-end balances
can be distorted by one-day fluctuations, the December monthly averages for each
year are provided to give a better indication of trends in the balance sheet.
All references within the discussion that follows are to such average balances
unless specifically noted otherwise.
The Corporation's assets continued to grow during 1996, reaching the
level of $3.7 billion, an increase of $256.6 million or 7.4% as compared to
1995. The rate of growth for 1996 can be attributed to the continuing loan
demand throughout the Corporation's markets that resulted in loan growth of
approximately $292.7 million or 11.8% for the year. This loan growth was funded
primarily through an increase in deposits and short-term borrowings.
Loans
Loans outstanding (net of unearned income) increased $292.7 million
or 11.8% for 1996, compared to a 1995 increase of $137.1 million or 5.9%.
Demand for consumer credit again provided a significant share of loan
growth during 1996, increasing $170.8 or 23.5%. The dramatic increase was
largely due to the Corporation expanding its indirect lending operations. This
expansion, coupled with continued high demand for automobiles, resulted in an
installment loan increase of approximately $154.0 million or 30.3%. Also
contributing to the increase in consumer loans were student loans (increase of
$7.0 million or 13.0%), credit cards (increase of $2.9 million or 8.6%), and
leasing (increase of $6.5 million or 27.0%).
Commercial loans and commercial mortgages continued to exhibit growth
reflecting the strength of the economy. These loans increased $101.6 million or
9.8% in 1996, compared to an increase of $91.9 million or 9.7% in 1995.
Increases in both years were primarily in fixed rate categories, as customers
sought to lock in the lower rates in effect throughout the two-year period.
Residential mortgage loans outstanding increased $20.4 million or 2.9% in 1996,
following a $44.0 million or 5.9% decrease in 1995. In general, the
Corporation's policy is to sell all conforming fixed-rate residential mortgage
production. In 1995, as mortgage rates continued to decline, fixed rate
mortgages were refinanced by borrowers at lower rates and the Corporation sold
the new loans. The fixed rate mortgage portfolio decreased $83.0 million or
17.2% as a result. In 1996, the refinance volume subsided, however new fixed
rate loans continued to be popular and the production continued to be sold in
the secondary market. As a result, fixed rate mortgage balances remained stable
in 1996. Adjustable rate mortgages declined by $5.1 in 1996 million as fixed
rate loans remained preferable in the low rate environment.
Investment Securities
Investment securities decreased $18.7 million or 2.6% during 1996,
compared to an increase of $11.1 million or 1.5% during 1995. During both years,
a portion of the proceeds from maturities and sales was used to fund loan growth
rather than reinvestment in securities.
In recent years, the Corporation has increased its investments in
mortgage-backed securities. These securities have provided higher returns over
similarly rated conventional securities. As of December 31, 1996, the
Corporation had mortgage-backed securities in its portfolio with an amortized
cost of $336.9 million as compared to $277.7 million at December 31, 1995.
The Corporation's investment in equity securities was $44.3 million
(amortized cost basis) at year end, of which $12.9 million represents holdings
of stock issued by the Federal Home Loan Bank (FHLB). As of December 31, 1996,
all subsidiary banks were members of the FHLB and therefore eligible for its
funding programs. The Corporation continues to follow an equity securities
investment strategy of seeking and maintaining long-term investment positions in
regional financial institutions which in management's view represent solid
investment value.
Investments in tax-exempt municipal securities decreased to $50.5
million at December 31, 1996 from $62.6 million at the end of 1995. This
continued decrease reflects the effect of the Tax Reform Act of 1986, which
sharply reduced the tax benefit of the majority of tax-exempt securities
acquired subsequent to its passage and thus reduced the Corporation's incentive
to invest in them.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" requires that all investment
securities be classified as either (i) held to maturity, (ii) available for
sale, or (iii) a trading security. The Corporation possesses both the intent,
subject to credit impairment, and ability to hold each debt security in its
investment portfolio to maturity. Management does, however, recognize the
portfolio to be an important potential source of liquidity. Therefore at
December 31, 1996, $302.7 million or 43.5% (amortized cost basis) of the
portfolio was classified as available for sale. This compares to $243.3 million
or 32.6% classified as available for sale at December 31, 1995.
Debt securities are classified as available for sale upon purchase
primarily based upon liquidity considerations. All equity securities are
classified as available for sale since the Corporation does not engage in
trading activities.
At December 31, 1996, securities available for sale had an estimated
fair value of $317.1 million and an amortized cost of $302.7 million compared to
an estimated fair value of $256.4 million and an amortized cost of $243.3
million at December 31, 1995. The increase in the aggregate unrealized
appreciation reflects the effect of decreasing interest rates on the market
value of fixed rate securities within this portfolio, as well as the favorable
performance of the Corporation's equity portfolio, offset by the gains realized
during 1996.
At December 31, 1996, securities held to maturity had an estimated
fair value of $393.7 million, $13,000 below their amortized cost, compared to an
estimated fair value of $506.4 million, $2.4 million above their amortized cost
at December 31, 1995.
Short-term investments, which include Federal funds sold, money
market investments and interest-bearing deposits with other banks, have
decreased over the past several years in order to fund loan growth. Short-term
investments decreased $20.2 million during 1996 after increasing $5.4 million
during 1995.
Other Assets
Noninterest earning assets increased $6.0 million or 2.1% in 1996
after decreasing $5.8 million or 1.9% in 1995. The 1996 increase was due mainly
to new expenditures for premises and equipment. The 1995 decrease primarily
reflects a $9.1 million decrease in transaction balances maintained with
correspondent banks and vault cash. During 1995, the Corporation restructured
its check clearing procedures and switched this function to a different
correspondent bank, thereby reducing required cash balances
Capital expenditures on premises and equipment totaled $9.1 million
during 1996, compared to $7.2 million and $6.9 million during 1995 and 1994,
respectively. The increases in capital expenditures reflect additional
investments in technology to strengthen the Corporation's competitive position
in its markets. In 1995, the Corporation completed the implementation of an
automated platform system at Fulton Bank that provided each branch with the
ability to more effectively and efficiently service customers and enhanced the
ability to cross-sell bank products. The Corporation anticipates that this
system will be implemented at additional subsidiary banks over the next several
years. Expansion of the branch office network of bank subsidiaries continued
during the year.
During 1996, the Corporation continued its participation in
affordable housing and community development projects through investments in
partnerships. Equity commitments totaling $1.9 million were made to two new
projects. The Corporation made its initial investment of this type during 1989
and is now involved in 24 projects, all located in the various communities
served by its subsidiary banks. The carrying value of such investments was
approximately $20.7 million at December 31, 1996. With these investments, the
Corporation not only improves the quantity and quality of available housing for
low and moderate income individuals in its service area in support of its
subsidiary bank's Community Reinvestment Act compliance effort, but also becomes
eligible for tax credits under federal and, in some instances, state programs.
Deposits
Asset growth has been funded partially through growth in deposits.
During 1996, deposits increased $121.2 million or 4.2% to $3.0 billion. In 1995,
deposits increased $152.7 million or 5.6%. Deposit activity in the last few
years has not kept pace with loan growth as a result of increased competition
for consumer savings dollars from non-banks and other financial institutions.
Interest-bearing deposits grew $73.1 million or 2.9% in 1996 compared
to growth of $127.1 million or 5.4% in 1995. Savings deposits, including money
market deposit accounts, decreased $25.2 million or 3.3% following a $62.8
million or 7.6% decrease during 1995. These decreases reflect the movement of
customer funds into time deposit products, which the affiliate banks have
aggressively marketed.
Time deposits increased $98.3 million or 7.3% during 1996 after
increasing $194.5 million or 16.8% in 1995. Short-term certificates of deposit,
those with initial maturities of less than two years, saw the majority of the
growth during 1996 ($108.4 million or 19.1% increase). This increase was a
result of the Corporation identifying this customer preference and marketing
these products with promotional rates.
Noninterest-bearing demand deposit accounts continued to grow during
1996 and 1995, increasing $48.1 million or 11.8% and $25.6 million or 6.7%,
respectively.
Borrowings
Short-term borrowings, consisting of Federal funds purchased;
securities sold under agreements to repurchase (repurchase agreements); and
treasury, tax and loan notes, increased $106.4 million or 82.3% in 1996 after
decreasing $56.3 million or 30.3% in 1995. The increase over the past year is
attributable primarily to (1) the use of fed funds purchased to meet customer
loan demand in the face of lower deposit growth, and (2) the continuing flow of
corporate funds from deposit accounts into repurchase agreements due to the
availability of higher returns.
Federal funds purchased increased 304% from $20.0 million in 1995 to
$80.0 million in 1996. In 1995, federal funds purchased decreased $68.8 million
or 77%. During 1996 and 1995, repurchase agreements increased $25.4 million or
21.8% and $22.0 million or 23.3%, respectively.
Long-term debt increased $3.5 million or 10.2% during 1996 after
increasing $6.8 million or 24.2% during 1995. During 1996 and 1995, the
Corporation took advantage of certain FHLB funding programs. FHLB advances
represent the majority of the long-term debt balances.
Shareholders' Equity
Shareholders' equity continued to be an important funding source,
providing a 1996 funding level of $382.3 million, an increase of $30.5 million
or 8.7% from the $351.8 million provided in 1995. In spite of increasing
dividends, the Corporation maintained a strong rate of internal capital
generation (8.5% and 9.0% in 1996 and 1995, respectively). This internal capital
generation is dependent upon strong earnings performance in conjunction with a
prudent dividend policy, represented by payout ratios of 42.1% for 1996 and
39.3% for 1995.
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 rate sensitivity of interest-earning assets and interest-bearing
liabilities. Liquidity management encompasses the ability to meet the ongoing
cash flow requirements of customers, who, as depositors, may want to withdraw
funds or who, as borrowers, need credit availability. Interest rate sensitivity
management attempts to provide stable net interest margins through changing
interest rate environments and thereby achieve consistent growth in net interest
income.
Liquidity sources are found on both sides of the balance sheet.
Liquidity is provided on a continuous basis through scheduled and unscheduled
principal reductions and interest payments on outstanding loans and investments.
Liquidity is also provided through the availability of deposits and borrowings.
At December 31, 1996, liquid assets (defined as cash and due from
banks, short-term investments, securities available for sale, and
non-mortgage-backed securities held to maturity due in one year or less) totaled
$564.5 million or 15.0% of total assets. This represents an increase from the
December 31, 1995 total of $459.4 million or 13.0% of total assets. Liquidity is
also provided by non-mortgage-backed securities held to maturity due from one to
five years, which totaled $59.1 million and $103.7 million at December 31, 1996
and 1995, respectively. Scheduled and unscheduled principal payments received on
the held to maturity mortgage-backed securities portfolio also provides
liquidity. The Corporation had $237.2 million of such mortgage-backed securities
at December 31, 1996 and $220.8 million at December 31, 1995. The Corporation's
practice is to purchase mortgage-backed securities with relatively accurately
defined principal repayment schedules of short duration.
The loan portfolio provides an additional source of liquidity due to
the Corporation's ability to participate in the secondary mortgage market. Sales
of residential mortgages into the secondary market of $80.5 million and $80.7
million in 1996 and 1995, respectively, provided the necessary funding which
allowed the Corporation to meet the needs of its customers for new mortgage
financing.
From a funding standpoint, the Corporation has been able to rely over
the years on a stable base of "core" deposits. Even though the Corporation has
experienced notable changes in the composition and interest sensitivity of this
deposit base, it has been able to rely on the steady growth of this base to
provide needed liquidity.
The Corporation also has access to sources of large denomination or
jumbo time deposits and repurchase agreements as potential sources of liquidity.
However, the Corporation has attempted to minimize its reliance upon these more
volatile short-term funding sources and to use them primarily to meet the
requirements of its existing customer base or when it is profitable to do so.
Each of the Corporation's subsidiary banks are members of the Federal
Home Loan Bank, which provides them access to FHLB overnight and term credit
facilities. At December 31, 1996, the Corporation had $47.0 million in term
advances from the FHLB with an additional $670 million of borrowing capacity
(including both short-term funding on its lines of credit and long-term
borrowings). This availability, along with Federal funds lines at various
correspondent commercial banks, provides the Corporation with additional
liquidity.
Interest rate sensitivity varies widely with different types of
interest-earning assets and interest-bearing liabilities. At the short end of
the asset spectrum are overnight Federal funds, on which rates change daily, and
loans, whose rates float with the prime rate or a similar index. At the other
end are long-term investment securities and fixed-rate loans. On the liability
side, jumbo time deposits and short-term borrowings are much more interest rate
sensitive than passbook savings and FHLB advances.
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 time horizons, the
Corporation focuses on the 6-month period as the key interval affecting net
interest income. This shorter period is monitored because a large percentage of
the Corporation's interest-earning assets and interest-bearing liabilities are
subject to repricing or maturity within this period. In addition, short-term
interest rate swings can be more pronounced and provide a shorter time for
reaction or strategy adjustment.
The following is a summary of the interest sensitivity gaps for four
different time intervals as of December 31, 1996:
Daily 0-90 91-180 181-365
Adjustable Days Days Days
---------- ---------- ---------- ----------
GAP............................. 1.02 0.83 0.84 1.41
CUMULATIVE GAP.................. 1.02 0.96 0.94 1.04
The Corporation's policy provides for the 6-month cumulative gap to
be maintained between .85 and 1.15. The Corporation was positioned within this
range throughout 1996 and as of December 31, 1996.
Common Stock
- ------------
As of December 31, 1996, the Corporation had 33,022,957 shares of
$2.50 par value common stock outstanding held by 11,429 shareholders. The common
stock of the Corporation is traded on the national market system of the National
Association of Securities Dealers Automated Quotation System (NASDAQ) under the
symbol FULT.
The following table presents the quarterly high and low prices of the
Corporation's common stock for the years 1996 and 1995, which have been
retroactively adjusted to reflect the effect of stock dividends declared.
Price Range Per-Share
-----------
High Low Dividend
-------- --------- ----------
1996
- ----
First Quarter.......... 20 15/64 18 13/32 .155
Second Quarter......... 20 3/4 18 3/4 .170
Third Quarter.......... 20 3/4 18 5/8 .170
Fourth Quarter......... 21 1/2 19 1/4 .170
1995
- ----
First Quarter.......... 16 15/16 15 45/64 .132
Second Quarter......... 17 1/2 16 21/64 .142
Third Quarter.......... 18 19/64 16 9/64 .146
Fourth Quarter......... 20 11/16 17 47/64 .146
Item 8. Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
December 31
-------------------------------------
1996 1995
--------------- -------------
Assets
- -------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks ............................................................... $ 164,975 $ 152,143
Interest-bearing deposits with other banks ............................................ 2,028 4,425
Mortgage loans held for sale .......................................................... 125 613
Investment securities:
Held to maturity (estimated fair value- $393,695 in 1996 and $506,359 in 1995) ... 393,708 503,926
Available for sale ............................................................... 317,109 256,380
Loans ................................................................................. 2,783,587 2,502,033
Less: Allowance for loan losses ................................................. (40,807) (38,272)
Unearned income ........................................................ (7,362) (8,711)
--------------- ---------------
Net Loans .................................................... 2,735,418 2,455,050
--------------- ---------------
Premises and equipment ................................................................ 51,095 47,606
Accrued interest receivable ........................................................... 24,725 25,275
Other assets .......................................................................... 80,202 79,150
--------------- ---------------
Total Assets ................................................. $ 3,769,385 $ 3,524,568
=============== ===============
Liabilities
- ----------------------------------------------------------------------------------------- ----------------- --- ------------------
Deposits:
Noninterest-bearing .............................................................. $ 488,675 $ 427,384
Interest-bearing ................................................................. 2,565,499 2,487,885
--------------- ---------------
Total Deposits ............................................... 3,054,174 2,915,269
--------------- ---------------
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase........ 211,440 126,372
Demand notes of U.S. Treasury .................................................... 4,992 5,058
--------------- ---------------
Total Short-Term Borrowings .................................. 216,432 131,430
--------------- ---------------
Accrued interest payable .............................................................. 19,741 19,357
Other liabilities ..................................................................... 44,200 69,809
Long-term debt ........................................................................ 49,160 34,689
--------------- ---------------
Total Liabilities ............................................ 3,383,707 3,170,554
--------------- ---------------
Shareholders' Equity
- -------------------------------------------------------------------------------------------------------------------------------
Common stock ($2.50 par)
Shares: Authorized 100,000,000
Issued 33,022,957 (32,955,130 in 1995)
Outstanding 33,022,957 (32,843,784 in 1995) ......................... 82,557 74,907
Capital surplus ....................................................................... 221,238 174,023
Retained earnings ..................................................................... 72,494 98,746
Net unrealized holding gains on securities available for sale.......................... 9,389 8,526
Less: Treasury stock (111,346 shares in 1995) ......................................... - (2,188)
--------------- ---------------
Total Shareholders' Equity ................................... 385,678 354,014
--------------- ---------------
Total Liabilities and Shareholders' Equity ................... $ 3,769,385 $ 3,524,568
=============== ===============
- --------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Year Ended December 31
------------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Interest Income
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, including fees .............................................. $ 225,595 $ 210,562 $ 169,894
Investment securities:
Taxable ....................................................... 37,390 32,233 32,707
Tax-exempt .................................................... 3,315 4,843 5,588
Dividends ..................................................... 2,037 1,976 1,398
Federal funds sold ................................................. 162 1,783 793
Interest-bearing deposits with other banks ......................... 158 272 170
--------------- --------------- ---------------
Total Interest Income .................... 268,657 251,669 210,550
Interest Expense
- ----------------------------------------------------------------------------------------------------------------------------------
Deposits ........................................................... 103,397 99,523 72,216
Short-term borrowings .............................................. 8,541 6,291 5,288
Long-term debt ..................................................... 1,864 2,081 1,116
--------------- --------------- ---------------
Total Interest Expense .................... 113,802 107,895 78,620
Net Interest Income ....................... 154,855 143,774 131,930
Provision for Loan Losses .......................................... 4,192 3,833 2,715
--------------- --------------- ---------------
Net Interest Income After
Provision for Loan Losses .......... 150,663 139,941 129,215
--------------- --------------- ---------------
Other Income
- ----------------------------------------------------------------------------------------------------------------------------------
Trust department ................................................... 7,757 7,334 6,944
Service charges on deposit accounts ................................ 12,865 10,648 10,042
Other service charges and fees ..................................... 7,872 7,628 6,089
Gain on sale of mortgage loans ..................................... 1,185 1,074 1,189
Investment securities gains ........................................ 3,124 3,205 2,133
--------------- --------------- ---------------
32,803 29,889 26,397
Other Expenses
- ----------------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits ..................................... 56,541 54,753 50,533
Net occupancy expense .............................................. 9,366 8,849 7,663
Equipment expense .................................................. 5,553 5,245 5,480
FDIC assessment expense ............................................ 3,221 3,541 5,760
Special services ................................................... 6,524 5,727 5,025
Other .............................................................. 28,946 26,481 23,047
--------------- --------------- ---------------
110,151 104,596 97,508
--------------- --------------- ---------------
Income Before Income Taxes ................ 73,315 65,234 58,104
Income Taxes ....................................................... 21,297 17,922 15,587
--------------- --------------- ---------------
Net Income ................................ $ 52,018 $ 47,312 $ 42,517
- ----------------------------------------------------------------------------------------------------------------------------------
Per-Share Data:
Net Income ......................................................... $ 1.58 $ 1.44 $ 1.30
Cash Dividends ..................................................... $ 0.665 $ 0.566 $ 0.501
Weighted average shares outstanding ................................ 32,953,845 32,918,731 32,693,447
- ----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Capital Retained
(Dollars in thousands, except per-share data) Stock Surplus Earnings
- ------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1994................................................... $ 67,692 $ 133,664 89,310
Net income.............................................................. 42,517
Stock issued in connection with equity contracts (509,628 shares)....... 1,053 3,975
Stock issued for employee plans and stock option exercises
(158,006 shares)................................................... 327 1,373
Acquisition of treasury stock (244,126 shares)..........................
Net unrealized holding loss on securities...............................
Cash dividends - $0.501 per share....................................... (16,365)
----------------------------------------------
Balance at December 31, 1994................................................. 69,072 139,012 115,462
Net income.............................................................. 47,312
Stock dividends issued - 10% (2,771,000 shares including
311,832 shares of treasury stock).................................. 5,591 34,656 (45,397)
Stock issued for employee plans and stock option exercises
(230,478 shares, including 191,672 shares of treasury stock)....... 244 355
Acquisition of treasury stock (331,448 shares)..........................
Net unrealized holding gain on securities...............................
Cash dividends - $.566 per share........................................ (18,631)
----------------------------------------------
Balance at December 31, 1995................................................. 74,907 174,023 98,746
Net income.............................................................. 52,018
Stock dividends issued - 10% (3,002,168 shares including
112,076 shares of treasury stock).................................. 7,225 46,859 (56,364)
Stock issued for employee plans and stock option exercises
(255,431 shares, including 75,528 shares of treasury stock)........ 425 356
Acquisition of treasury stock (76,258 shares) ..........................
Net unrealized holding gain on securities...............................
Cash dividends - $.665 per share........................................ (21,906)
---------------------------------------------
Balance at December 31, 1996................................................. $ 82,557 $ 221,238 72,494
=============================================
Net
Unrealized
Holding
Gain (Loss) Treasury
(Dollars in thousands, except per-share data) on Securities Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1994................................................... $ 8,411 $ (496) 298,581
Net income.............................................................. 42,517
Stock issued in connection with equity contracts (509,628 shares)....... 5,028
Stock issued for employee plans and stock option exercises
(158,006 shares)................................................... 1,700
Acquisition of treasury stock (244,126 shares).......................... (3,978) (3,978)
Net unrealized holding loss on securities............................... (7,875) (7,875)
Cash dividends - $0.501 per share....................................... (16,365)
---------------------------------------------------
Balance at December 31, 1994................................................. 536 (4,474) 319,608
Net income.............................................................. 47,312
Stock dividends issued - 10% (2,771,000 shares including
311,832 shares of treasury stock).................................. 4,934 (216)
Stock issued for employee plans and stock option exercises
(230,478 shares, including 191,672 shares of treasury stock)....... 3,331 3,930
Acquisition of treasury stock (331,448 shares).......................... (5,979) (5,979)
Net unrealized holding gain on securities............................... 7,990 7,990
Cash dividends - $.566 per share........................................ (18,631)
---------------------------------------------------
Balance at December 31, 1995................................................. 8,526 (2,188) 354,014
Net income.............................................................. 52,018
Stock dividends issued - 10% (3,002,168 shares including
112,076 shares of treasury stock).................................. 2,206 (74)
Stock issued for employee plans and stock option exercises
(255,431 shares, including 75,528 shares of treasury stock)........ 1,464 2,245
Acquisition of treasury stock (76,258 shares) .......................... (1,482) (1,482)
Net unrealized holding gain on securities............................... 863 863
Cash dividends - $.665 per share........................................ (21,906)
---------------------------------------------------
Balance at December 31, 1996................................................. $ 9,389 $ - 385,678
===================================================
- --------------------------------------------------------------------------------
See notes to consolidated financial statements
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(In Thousands)
Year Ended December 31
-----------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Cash Flows from Operating Activities:
Net income ...................................................... $ 52,018 $ 47,312 $ 42,517
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Provision for loan losses ...................................... 4,192 3,833 2,715
Depreciation and amortization of premises and equipment ........ 5,617 5,096 4,833
Net amortization of investment security premiums ............... 514 1,732 1,685
Deferred income tax expense (benefit)........................... 582 1,512 (565)
Gain on sale of investment securities .......................... (3,124) (3,205) (2,133)
Gain on sale of mortgage loans.................................. (1,185) (1,074) (1,189)
Proceeds from sale of mortgage loans............................ 80,548 80,696 76,038
Originations of mortgage loans held for sale.................... (78,875) (79,585) (65,099)
Amortization of intangible assets .............................. 1,466 1,552 712
Decrease (increase) in accrued interest receivable ............. 550 (3,501) (2,392)
Increase in other assets ....................................... (3,568) (7,263) (3,888)
Increase in accrued interest payable ........................... 384 6,340 1,773
(Decrease) increase in other liabilities........................ (2,767) 2,673 (1,518)
--------------- --------------- ---------------
Total adjustments......................................... 4,334 8,806 10,972
--------------- --------------- ---------------
Net cash provided by operating activities ........... 56,352 56,118 53,489
--------------- --------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale ........... 47,149 14,918 31,373
Proceeds from maturities of securities held to maturity ........ 186,295 198,426 257,041
Proceeds from maturities of securities available for sale ...... 36,807 57,407 51,596
Purchase of securities held to maturity ........................ (100,298) (228,075) (243,015)
Purchase of securities available for sale ...................... (140,145) (55,353) (42,412)
Decrease (increase) in short-term investments .................. 2,397 (1,886) 22,424
Net increase in loans .......................................... (284,560) (150,822) (196,964)
Purchase of premises and equipment, net......................... (9,106) (7,175) (6,854)
Payment for purchase of CPFC, net of cash acquired.............. - - (44,750)
--------------- --------------- ---------------
Net cash used in investing activities ............... (261,461) (172,560) (171,561)
--------------- --------------- ---------------
Cash Flows from Financing Activities:
Net increase (decrease)in demand and savings deposits .......... 49,857 (17,307) (65,074)
Net increase in time deposits .................................. 89,048 193,679 112,891
Addition to long-term debt...................................... 27,478 8,383 -
Repayment of long -term debt.................................... (13,007) (977) (10,536)
Increase (decrease) in short-term borrowings ................... 85,002 (51,418) 115,613
Dividends paid ................................................. (21,126) (18,215) (15,773)
Net proceeds from issuance of common stock ..................... 2,171 3,714 1,700
Acquisition of treasury stock .................................. (1,482) (5,979) (3,978)
--------------- --------------- ---------------
Net cash provided by financing activities............ 217,941 111,880 134,843
--------------- --------------- ---------------
Net Increase (Decrease) in Cash and Due From Banks ............. 12,832 (4,562) 16,771
Cash and Due From Banks at Beginning of Period ................. 152,143 156,705 139,934
--------------- --------------- ---------------
Cash and Due From Banks at End of Period ....................... $ 164,975 $ 152,143 $ 156,705
=============== =============== ===============
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest ............................................ $ 113,418 $ 101,555 $ 76,847
Income taxes ........................................ $ 16,861 $ 14,444 $ 15,280
- ----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
FULTON FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Business: Fulton Financial Corporation (Parent Company) provides a
full range of banking and financial services to businesses and consumers through
its wholly-owned banking subsidiaries: Fulton Bank, Farmers Trust Bank,
Swineford National Bank, Lafayette Bank, FNB Bank, N.A., Great Valley Savings
Bank, Hagerstown Trust Company, Delaware National Bank and The Bank of
Gloucester County. In addition, the Parent Company owns four non-banking
subsidiaries: Fulton Financial Realty Company, Fulton Life Insurance Company,
Central Pennsylvania Financial Corporation and FFC Management, Inc.
Collectively, the Parent Company and its subsidiaries are referred to as the
Corporation.
The Corporation's primary source of revenue is interest income on loans and
investment securities and fee income on its products and services. Its expenses
consist of interest expense on deposits and borrowed funds and other operating
expenses. The Corporation is subject to competition from other financial
services providers operating in its region. The Corporation is also subject to
the regulations of certain federal and state agencies and undergoes periodic
examinations by such regulatory authorities.
The Corporation offers, through its nine banking subsidiaries, a full
range of retail and wholesale banking services throughout fourteen central and
eastern Pennsylvania counties, one Maryland county, one Delaware county and one
New Jersey county. Approximately 50% of the business is being conducted
throughout the south central Pennsylvania region. Industry diversity is the key
to the economic well-being of the south central Pennsylvania region. The
business of the Corporation is not dependent upon any single customer or
industry.
Basis of Financial Statement Presentation: The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles (GAAP) and include the accounts of the Parent Company and all
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The preparation of GAAP-basis financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements as well as revenues and expenses during the period. Actual results
could differ from those estimates.
Investments: Debt securities are generally acquired with the intent to hold
such securities until maturity. Accordingly, except as noted below, these
securities are classified as held to maturity and are carried at cost adjusted
for amortization of premiums and accretion of discounts using the effective
yield method. The Corporation does not engage in trading activities, however,
since the investment portfolio serves as a source of liquidity, certain specific
debt securities and all marketable equity securities are classified as available
for sale. Securities available for sale are carried at estimated fair value with
the related unrealized holding gains and losses reported as a separate component
of shareholders' equity, net of tax. Realized security gains and losses are
computed using the specific identification method and are recorded on a trade
date basis.
In December, 1995, the Corporation reclassified investment securities with
an amortized cost of $62.6 million and an estimated fair value of $63.3 million
from held to maturity to available for sale. This reclassification was allowable
under Financial Accounting Standards Board (FASB) guidance which permitted
institutions to make a one-time reassessment of investment security
classifications. As a result of this reclassification, the unrealized gain on
securities recorded as a component of shareholders' equity increased
approximately $447,000, net of tax.
Revenue Recognition: Loan and lease financing receivables are stated at
their principal amount outstanding, except for mortgages held for sale which are
carried at the lower of aggregate cost or market value. Interest income on loans
is accrued as earned. Unearned income on installment loans is recognized on a
basis which approximates the interest method.
Accrual of interest income is generally discontinued when a loan becomes 90
days past due as to principal or interest. When interest accruals are
discontinued, interest credited to income is reversed. Nonaccrual loans are
restored to accrual status when all delinquent principal and interest become
current or the loan is considered secured and in the process of collection.
Loan Origination Fees and Costs: Loan origination fees and the related
direct origination costs are offset and the net amount is deferred and amortized
over the life of the loan as an adjustment to interest income. For mortgage
loans sold, the net amount is included in gain (loss) upon the sale of the
related mortgage loan.
Allowance for Loan Losses: The allowance for loan losses is increased by
charges to income and decreased by charge-offs, net of recoveries. Management's
periodic evaluation of the adequacy of the allowance for loan losses is based on
the Corporation's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to repay,
the estimated fair value of the underlying collateral, and current economic
conditions. Management believes that the allowance for loan losses is adequate,
however, future additions to the allowance may be necessary based on changes in
economic conditions.
The Corporation adopted Statement of Financial Accounting Standards
No. 114, as amended, "Accounting by Creditors for Impairment of a Loan"
(Statement 114) as of January 1, 1995. Statement 114 requires that impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's observable
market price or fair value of the collateral if the loan is collateral
dependent. A loan is considered to be impaired when, based on current
information and events, it is probable that the Corporation will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Prior to adoption of Statement 114, the allowance for loan losses
related to impaired loans was based on undiscounted cash flows or the fair value
of the collateral for collateral dependent loans. Adoption of Statement 114 did
not materially affect the Corporation's financial statements.
Premises and Equipment: Premises and equipment are stated at cost, less
accumulated depreciation and amortization. The provision for depreciation and
amortization is generally computed using the straight-line method over the
estimated useful lives of the related assets, which are a maximum of 39 years
for buildings and improvements and eight years for furniture and equipment.
Interest costs incurred during the construction of major bank premises are
capitalized.
Other Real Estate Owned: Assets acquired in settlement of mortgage loan
indebtedness are recorded as other real estate owned and are included in other
assets initially at the lower of the estimated fair value of the asset or the
carrying amount of the loan. Costs to maintain the assets and subsequent gains
and losses on sales are included in other income and other expense.
Income Taxes: The provision for income taxes is based upon the results of
operations, adjusted primarily for the effect of tax-exempt income and the net
credits received as a result of investments in low and moderate income housing
partnerships. Certain items of income and expense are reported in different
periods for financial reporting and tax return purposes. The tax effects of
these temporary differences are recognized currently in the deferred income tax
provision or benefit. Deferred tax assets or liabilities are computed based on
the difference between the financial statement and income tax bases of assets
and liabilities using the applicable enacted marginal tax rate. Deferred income
tax expenses or benefits are based on the changes in the deferred tax asset or
liability from period to period.
Net Income and Dividends Per Share: Net income per share is based on the
weighted average number of shares outstanding, after giving retroactive effect
to stock dividends. Unexercised options under the Incentive Stock Option Plan
are common stock equivalents and are included in the average number of shares
using the treasury stock method when the options are materially dilutive (none
in 1996, 1995 or 1994).
Accounting for Mortgage Servicing Rights: The Corporation adopted Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" (Statement 122) on January 1, 1996. 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. There has been no material financial statement impact as a
result of adopting Statement 122.
Accounting for Stock-Based Compensation: In 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. Statement
123 became effective for the Corporation in 1996 and is applicable to all
options granted after January 1, 1995. Management has adopted the disclosure
requirements of this statement only and, accordingly, there has been no impact
on the consolidated financial statements other than additional disclosures as
provided in Note J --"Stock-Based Compensation Plans and Shareholders' Equity".
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities: Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (Statement 125) was issued in 1996 and is
effective for 1997. Statement 125 establishes standards for transfers and
servicing of financial assets and extinguishments of liabilities. Statement of
Financial Accounting Standards No. 127 (Statement 127) was also issued in 1996
and amended Statement 125 by deferring for one year the effective date for
certain provisions of Statement 125. The Corporation adopted Statement 125, as
amended, on January 1, 1997 and intends to adopt Statement 127 on January 1,
1998. No material financial statement impact is expected.
Reclassifications: Certain amounts in the 1995 and 1994 consolidated
financial statements and notes have been reclassified to conform to the 1996
presentation.
NOTE B - RESTRICTIONS ON CASH AND DUE FROM BANKS
- --------------------------------------------------------------------------------
The Corporation's subsidiary banks are required to maintain reserves,
in the form of cash and balances with the Federal Reserve Bank, against their
deposit liabilities. The average amount of such reserves during 1996 and 1995
was approximately $40.4 million and $45.1 million, respectively.
NOTE C - INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
The following summarizes the amortized cost and estimated fair values of
investment securities as of December 31 (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
1996 Held to Maturity Cost Gains Losses Value
- ------------------------------------------- -------------- --------------- ------------- ---------------
U.S. Government and
agency securities..................... $ 104,719 $ 423 $ (203) $ 104,939
State and municipal securities............. 50,490 1,230 (64) 51,656
Debt securities issued
by foreign governments................ 410 1 (3) 408
Corporate debt securities.................. 916 - (9) 907
Mortgage-backed securities................. 237,173 389 (1,777) 235,785
$ 393,708 $ 2,043 $ (2,056) $ 393,695
============== ============== ============= ==============
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
1996 Available for Sale Cost Gains Losses Value
- ------------------------------------------- -------------- --------------- ------------- ---------------
Equity securities........................... $ 44,255 $ 15,843 $ (326) $ 59,772
U.S. Government and
agency securities...................... 158,703 760 (315) 159,148
Mortgage-backed securities.................. 99,706 123 (1,640) 98,189
-------------- -------------- ------------- --------------
$ 302,664 $ 16,726 $ (2,281) $ 317,109
============== ============== ============= ==============
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
1995 Held to Maturity Cost Gains Losses Value
- -------------------------------------------- --------------- --------------- --------------- ---------------
U.S. Government and
agency securities...................... $ 209,580 $ 1,234 $ (490) $ 210,324
State and municipal securities.............. 62,606 2,075 (70) 64,611
Debt securities issued
by foreign governments................. 407 4 (1) 410
Corporate debt securities................... 10,553 3 (26) 10,530
Mortgage-backed securities.................. 220,780 1,005 (1,301) 220,484
--------------- --------------- --------------- ---------------
$ 503,926 $ 4,321 $ (1,888) $ 506,359
=============== =============== =============== ===============
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
1995 Available for Sale Cost Gains Losses Value
- -------------------------------------------- --------------- --------------- --------------- ---------------
Equity securities........................... $ 43,386 $ 12,977 $ (243) $ 56,120
U.S. Government and
agency securities...................... 143,002 1,538 (482) 144,058
Mortgage-backed securities.................. 56,878 75 (751) 56,202
--------------- --------------- --------------- ---------------
$ 243,266 $ 14,590 $ (1,476) $ 256,380
=============== =============== =============== ===============
The amortized cost and estimated fair value of debt securities at
December 31, 1996 by contractual maturity are shown below. Actual maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Held to Maturity Available for Sale
-------------------------------- ---------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------------- --------------- --------------- ---------------
(in thousands)
Due in one year or less................. $ 80,383 $ 80,710 $ 46,411 $ 46,611
Due from one year to five years......... 59,142 59,839 108,292 108,647
Due from five years to ten years........ 13,819 14,067 4,000 3,890
Due after ten years..................... 3,191 3,294 - -
--------------- --------------- --------------- ---------------
156,535 157,910 158,703 159,148
Mortgage-backed securities.............. 237,173 235,785 99,706 98,189
--------------- --------------- --------------- ---------------
$393,708 $393,695 $258,409 $257,337
=============== =============== =============== ===============
Gains totaling $2.9 million, $3.2 million, and $2.0 million were
realized on the sale of equity securities during 1996, 1995 and 1994,
respectively. Gains totaling $261,000 and $84,000 were realized on the sale of
available for sale debt securities during 1996 and 1994 respectively. There were
no sales of debt securities during 1995.
Securities carried at $401.5 million and $396.3 million at December 31,
1996 and 1995, respectively, were pledged as collateral to secure public and
trust deposits and for other purposes.
NOTE D - LOANS AND ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
Gross loans are summarized as follows as of December 31:
1996 1995
--------------- --------------
(in thousands)
Commercial, financial and agricultural............ $ 366,223 $ 362,009
Real estate-construction.......................... 110,747 92,717
Real estate-mortgage:
First and second-residential................... 1,022,765 977,527
Commercial..................................... 707,052 596,136
Consumer.......................................... 532,982 439,873
Leasing and other................................ 43,818 33,771
--------------- --------------
$ 2,783,587 $ 2,502,033
=============== ==============
Changes in the allowance for loan losses were as follows for the
years ended December 31:
1996 1995 1994
------------- -------------- -------------
(in thousands)
Balance at January 1.............................. $ 38,272 $ 37,279 $ 29,932
------------- -------------- -------------
Loans charged off................................. (5,133) (5,491) (4,185)
Recoveries of loans
previously charged off....................... 3,476 2,651 2,347
------------- -------------- -------------
Net loans charged off............................. (1,657) (2,840) (1,838)
------------- -------------- -------------
Provision for loan losses......................... 4,192 3,833 2,715
Allowance for loan losses
purchased from CPFC.......................... - - 6,470
------------- -------------- -------------
Balance at December 31............................ $ 40,807 $ 38,272 $ 37,279
============= ============== =============
Nonaccrual loans aggregated approximately $12.9 million at December 31,
1996, $12.8 million at December 31, 1995 and $15.8 million at December 31, 1994.
Interest of approximately $1.5 million, $1.6 million and $1.1 million was not
recognized as interest income due to the nonaccrual status of loans during 1996,
1995 and 1994, respectively.
At December 31, 1996, the recorded investment in loans that are
considered to be impaired as defined by Statement 114 was $14.2 million (of
which $11.3 million are included in nonaccrual loans). Included in this amount
is $12.2 million of impaired loans for which the related allowance for credit
losses is $2.3 million and $60,000 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 year ended December 31, 1996 was
approximately $13.7 million.
The Corporation applies all payments received on nonaccruing impaired
loans to principal until such time as the principal is paid off, after which
time any additional payments received are recognized as interest income.
Payments received on accruing impaired loans are applied to principal and
interest according to the original terms of the loan. For the year ended
December 31, 1996, the Corporation recognized interest income of approximately
$287,000 on impaired loans.
The Corporation has granted loans to the officers and directors of the
Corporation and to their associates. Related-party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than the normal risk of collectibility. The aggregate dollar
amount of these loans was $51.8 million and $47.2 million at December 31, 1996
and 1995, respectively. During 1996, $22.3 million of new loans were made and
repayments totaled $17.7 million.
The total portfolio of mortgage loans serviced by the Corporation for
unrelated third parties at December 31, 1996 and 1995 was $504.7 million and
$516.6 million, respectively.
NOTE E - PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
The following is a summary of premises and equipment
as of December 31:
1996 1995
-------------- --------------
(in thousands)
Premises and leasehold improvements...................... $ 62,774 $ 57,503
Furniture and equipment.................................. 39,975 36,681
Construction in progress................................. 1,404 2,008
-------------- --------------
104,153 96,192
Less accumulated depreciation and amortization........... (53,058) (48,586)
-------------- --------------
$ 51,095 $ 47,606
============== ==============
NOTE F - LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt includes the following as of December 31:
1996 1995
-------------- --------------
(in thousands)
Federal Home Loan Bank advances............... $ 47,028 $ 31,668
Collateralized mortgage obligations........... 2,098 2,969
Other......................................... 34 52
-------------- --------------
$ 49,160 $ 34,689
============== ==============
As of December 31, the Corporation has a series of collateralized
Federal Home Loan Bank advances totaling $47.0 million. These advances mature
through June, 2000, and carry a weighted average interest rate of 5.96%. As of
December 31, 1996, the Corporation has an additional borrowing capacity of
approximately $670 million with the Federal Home Loan Bank.
In connection with the Central Pennsylvania Financial Corp. acquisition
(Note N), the Corporation assumed the responsibility for real estate mortgage
investment conduit (REMIC) status collateralized mortgage obligations. The
maturity and weighted average interest rate is July, 2003 and 10.1%,
respectively.
NOTE G - REGULATORY MATTERS
- --------------------------------------------------------------------------------
Dividend and Loan Limitations
The dividends that may be paid by subsidiary banks to the Parent Company
are subject to certain legal and regulatory limitations. Under such limitations,
the total amount available for payment of dividends by subsidiary banks is
approximately $136 million at December 31, 1996.
Under current Federal Reserve regulations, the subsidiary banks are
limited in the amount they may loan to their affiliates, including the Parent
Company. Loans to a single affiliate may not exceed 10%, and the aggregate of
loans to all affiliates may not exceed 20% of each bank subsidiary's capital and
surplus. At December 31, 1996, the maximum amount available for transfer from
the subsidiary banks to the Parent Company in the form of loans and dividends
was approximately $158 million.
Regulatory Capital Requirements
The Corporation's subsidiary banks are subject to various regulatory
capital requirements administered by banking regulators. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the subsidiary banks must meet specific capital guidelines that involve
quantitative measures of the subsidiary banks' assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
subsidiary banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the subsidiary banks to maintain minimum amounts and ratios of
total and Tier I capital (as defined in the regulations) to risk-weighted assets
(as defined), and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1996, that all of its bank subsidiaries
meet the capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notifications from The
Pennsylvania Department of Banking categorized the Corporation's two significant
subsidiaries -- Fulton Bank and Lafayette Bank -- as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, these banks must maintain minimum total risk-based, Tier I risk-
based, and Tier I leverage ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have
changed the institutions' categories
The table below presents the total risk-based, Tier I risk-based and
Tier I leverage requirements for the Corporation, Fulton Bank, and Lafayette
Bank. Actual capital amounts and ratios are also presented.
As of December 31, 1996
---------------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- --------- ---------- --------- ---------- ----------
(Dollars in thousands)
Total Capital (to Risk Weighted Assets):
Corporation................................... $395,359 14.3% $221,070 8.0% $276,338 10.0%
Fulton Bank................................... 179,555 13.1 102,084 8.0 127,605 10.0
Lafayette Bank................................ 42,801 14.3 24,017 8.0 30,022 10.0
Tier I Capital (to Risk Weighted Assets):
Corporation................................... $360,739 13.1% $110,535 4.0% $165,803 6.0%
Fulton Bank................................... 163,923 11.9 51,042 4.0 76,562 6.0
Lafayette Bank................................ 39,089 13.0 12,009 4.0 18,013 6.0
Tier I Capital (to Average Assets):
Corporation................................... $360,739 10.3% $108,193 3.0% $180,322 5.0%
Fulton Bank................................... 163,923 9.9 49,629 3.0 82,716 5.0
Lafayette Bank................................ 39,089 9.5 12,356 3.0 20,593 5.0
As of December 31, 1995
---------------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- --------- ---------- --------- ---------- ----------
(Dollars in thousands)
Total Capital (to Risk Weighted Assets):
Corporation................................... $360,619 14.2% $203,805 8.0% $254,756 10.0%
Fulton Bank................................... 165,530 12.9 102,626 8.0 128,282 10.0
Lafayette Bank................................ 39,869 14.0 22,847 8.0 28,559 10.0
Tier I Capital (to Risk Weighted Assets):
Corporation................................... $328,695 12.9% $101,902 4.0% $152,853 6.0%
Fulton Bank................................... 151,151 11.8 51,313 4.0 76,969 6.0
Lafayette Bank................................ 36,282 12.7 11,424 4.0 17,135 6.0
Tier I Capital (to Average Assets):
Corporation................................... $328,695 9.4% $104,602 3.0% $174,336 5.0%
Fulton Bank................................... 151,151 9.6 47,432 3.0 79,054 5.0
Lafayette Bank................................ 36,282 9.1 11,961 3.0 19,935 5.0
NOTE H - INCOME TAXES
- --------------------------------------------------------------------------------
The components of the provision for income taxes are as follows:
Year ended December 31
--------------------------------------------
1996 1995 1994
----------- --------------- ------------
(in thousands)
Current tax expense -
Federal............................. $ 20,559 $ 16,400 $ 15,682
State............................... 156 10 470
----------- --------------- ------------
20,715 16,410 16,152
----------- --------------- ------------
Deferred tax expense (benefit) -
Federal............................. 582 1,512 (548)
State............................... - - (17)
----------- --------------- ------------
582 1,512 (565)
----------- --------------- ------------
$ 21,297 $ 17,922 $ 15,587
=========== =============== ============
The deferred federal tax benefit for 1994 includes $309,000 resulting
from the federal statutory tax rate change from 34% to 35%.
The differences between the effective income tax rate and the federal
statutory income tax rate are as follows:
Year ended December 31
-----------------------------------------------
1996 1995 1994
-------------- --------------- --------------
Statutory tax rate...................................... 35.0% 35.0% 35.0%
Effect of tax-exempt income............................. (3.4) (4.1) (4.7)
Effect of low income housing investments................ (3.4) (2.9) (2.2)
Goodwill amortization................................... 0.6 0.7 0.3
Other................................................... 0.2 (1.2) (1.6)
-------------- --------------- --------------
Effective income tax rate............................... 29.0% 27.5% 26.8%
============== =============== ==============
The net deferred tax asset recorded by the Corporation consisted of the
following tax effects of temporary differences at December 31:
1996 1995
-------------- --------------
(in thousands)
Allowance for loan losses.............................................. $ 13,704 $ 12,453
Deferred loan fees..................................................... 1,215 1,814
Direct leasing......................................................... (3,235) (2,539)
Deferred compensation.................................................. 1,675 1,711
Postretirement benefits................................................ 3,129 3,101
Fixed asset depreciation............................................... (64) (727)
Other.................................................................. 1,437 1,466
-------------- --------------
Total operating.................................................. 17,861 17,279
Unrealized holding gains on securities available for sale.............. (5,056) (4,589)
-------------- --------------
$ 12,805 $ 12,690
============== ==============
As of December 31, 1996 and 1995, the Corporation has not established
any valuation allowance against deferred tax assets since these tax benefits are
realizable either through carryback availability against prior years' taxable
income or the reversal of existing deferred tax liabilities.
NOTE I - EMPLOYEE BENEFIT PLANS
- --------------------------------------------------------------------------------
Description of Plans
The Corporation has a noncontributory defined contribution profit-
sharing plan covering substantially all employees of the Parent Company, Fulton
Bank, Farmers Trust Bank and certain employees of Lafayette Bank.
Contributions are based on a formula providing for an amount not to exceed 15%
of each eligible employee's annual salary for employees hired prior to January
1, 1996 and 10% of such annual salary for employees hired subsequent to January
1, 1996.
The Corporation also maintains a defined benefit pension plan which
covers substantially all full-time employees of Swineford National Bank, FNB
Bank, N.A., Lafayette Bank, Great Valley Savings Bank, Hagerstown Trust Company,
and Delaware National Bank. Pension contributions are actuarially determined and
funded as accrued. These funds are invested in guaranteed investment contracts,
U.S. Treasury securities, money market funds and common stock investment funds.
For employees covered under the defined benefit plan, the Corporation
provides an optional 401(k) plan. The terms of the plan allow eligible employees
to defer up to 10% of their pre-tax salary on an annual basis. On a
discretionary basis, the Corporation may also make a matching contribution which
is limited to a maximum of 3%.
The following summarizes the Corporation's expense under the above plans
for the years ended December 31:
1996 1995 1994
-------------- -------------- ---------------
(in thousands)
Profit-sharing plan.................... $ 3,089 $ 2,969 $ 3,340
Defined benefit plan................... 1,159 947 812
401(k) plan............................ 393 355 273
-------------- -------------- ---------------
$ 4,641 $ 4,271 $ 4,425
============== ============== ===============
Defined Benefit Pension Plan
The net periodic pension cost for the Corporation's defined benefit
plan, as determined by consulting actuaries, consisted of the following
components for the years ended December 31:
1996 1995 1994
-------------- -------------- ---------------
(in thousands)
Service cost-benefits earned
during period..................... $ 927 $ 657 $ 569
Interest cost on projected
benefit obligation................ 899 806 748
Actual return on assets................ (808) (1,784) 13
Net amortization and deferral.......... 141 1,268 (518)
-------------- -------------- ---------------
Net periodic pension cost.............. $ 1,159 $ 947 $ 812
============== ============== ===============
In 1996, the Corporation changed the valuation date of the defined
benefit plan from December 31 to September 30. The accumulated plan benefits and
funded status of the Corporation's defined benefit plan are as follows:
9/30/96 12/31/95
-------------- --------------
(in thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation........................... $ 9,436 $ 8,971
-------------- --------------
Accumulated benefit obligation...................... $ 9,683 $ 9,158
-------------- --------------
Projected benefit obligation........................ $ 14,015 $ 12,417
Plan assets at fair value................................ 11,546 9,841
-------------- --------------
Projected benefit obligation in excess of
plan assets......................................... (2,469) (2,576)
Unrecognized net loss.................................... 382 154
Service cost not yet recognized in net
periodic pension cost............................... 39 45
Unrecognized net obligation at transition................ 690 825
-------------- --------------
Pension liability recognized in the
consolidated balance sheets......................... $ (1,358) $ (1,552)
============== ==============
The following rates were used in calculating net periodic pension cost
and the actuarial present value of benefit obligations:
1996 1995 1994
----------- ----------- -----------
Discount rate-projected benefit obligation....................... 7.25% 7.00% 8.00%
Rate of increase in compensation level........................... 4.75 5.00 6.00
Expected long-term rate of return on plan assets................. 8.00 8.00 8.00
Postretirement Benefits
The Corporation currently provides medical and life insurance benefits
to retired full-time employees. Substantially all of the Corporation's full-time
employees, except for employees of The Bank of Gloucester County, may become
eligible for these discretionary benefits if they reach normal retirement age
while working for the Corporation. Effective January 1, 1994, the Corporation
made certain changes in the level of postretirement benefits which would be
provided to future retirees, the most significant of which was a change in the
vesting schedule.
The components of the expense for postretirement benefits other than
pensions are as follows for the years ended December 31:
1996 1995 1994
-------------- --------------- --------------
(in thousands)
Service cost-benefits earned during the period............ $ 230 $ 189 $ 221
Interest cost on accumulated benefit obligation........... 367 377 302
Actual return on plan assets.............................. (6) (10) (7)
Net amortization and deferral............................. (269) (279) (225)
-------------- --------------- --------------
Net nonpension postretirement benefit cost................ $ 322 $ 277 $ 291
============== =============== ==============
The following table presents the status of the postretirement benefits
plan at December 31:
1996 1995
---------------- ---------------
(in thousands)
Accumulated postretirement benefit obligation:
Fully eligible active and former members............ $ (1,019) $ (1,108)
Other active members................................ (1,367) (1,162)
Retired members..................................... (3,193) (3,273)
---------------- ---------------
(5,579) (5,543)
Plan assets at fair value................................ 189 186
Unrecognized prior service cost.......................... (2,489) (2,716)
Unrecognized net gain.................................... (1,138) (845)
---------------- ---------------
Accrued postretirement benefit obligation................ $ (9,017) $ (8,918)
================ ===============
For measuring the postretirement benefits obligation, a 9.5% increase in
the per capita cost of health care benefits (6% for administrative costs) was
assumed for 1996. This rate was assumed to gradually decline to 6.0% in 2000 and
remain at that level thereafter. This health care cost trend rate has a
significant impact on the amounts reported. Assuming a 1% change in the health
care cost trend rate, the accumulated postretirement benefit obligation would
increase or decrease by approximately $709,000 and the current period expense
would increase or decrease by approximately $96,000. The discount rate used in
determining the accumulated postretirement benefit obligation was 7.25% and 7.0%
at December 31, 1996 and 1995, respectively.
NOTE J - STOCK-BASED COMPENSATION PLANS AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Incentive Stock Option Plan and Employee Stock Purchase Plan
The Corporation has an Incentive Stock Option Plan (Option Plan) and an
employee stock purchase plan (ESPP). The Option Plan, which was adopted in 1996,
replaces a prior plan that originated in 1986 and expired in 1996. The terms of
the plans are substantially the same. Under the Option Plan, options are granted
to key personnel for terms of up to 10 years at option prices equal to the fair
market value of the Corporation's stock on the date of grant. Options granted
are 100% vested immediately upon grant. The Plan has reserved 1.65 million
shares for grant under this plan through 2006. The number of options granted in
any year is dependent upon the Corporation's performance relative to that of a
self-defined peer group. A summary of stock option activity under the current
and prior plan follows:
Option Price Per Share
-----------------------------------------------
Stock Weighted
Options Range Average
------------- --------------------------- ------------------
Balance at January 1, 1994.................. 964,729 $ 5.27 - $ 14.63 $ 9.98
Granted................................... 139,590 6.68 - 18.08 15.67
Exercised................................. (142,212) 5.57 - 14.06 9.44
-------------
Balance at December 31, 1994................ 962,107 5.27 - 18.08 10.89
Granted................................... 123,420 16.48 16.48
Exercised................................. (112,419) 5.57 - 18.08 10.87
Canceled.................................. (5,508) 5.57 5.57
-------------
Balance at December 31, 1995................ 967,600 5.27 - 18.08 11.67
Granted................................... 115,125 19.13 19.13
Exercised................................. (245,384) 5.27 - 18.08 8.92
Canceled.................................. (62) 13.81 13.81
-------------
Balance at December 31, 1996................ 837,279 $ 5.27 - $ 19.13 $ 13.50
=============
The following table summarizes information concerning options
outstanding at December 31, 1996:
Weighted Weighted
Range of Unexercised Average Average
Exercise Stock Remaining Exercise
Prices Options Life (Years) Price
--------------- ----------- ------------ -----------
$5.00 - $10.00 220,461 5.12 $ 7.41
$10.00 - $15.00 282,145 4.38 13.05
$15.00 - $20.00 334,673 8.62 17.88
----------- ------------ -----------
837,279 6.27 $ 13.50
=========== ============ ===========
The ESPP allows eligible employees to purchase stock in the Corporation
at 85% of the fair market value of the stock on the date of exercise. Under the
terms of the ESPP, 52,722 shares, 53,363 shares and 45,871 shares were issued in
1996, 1995 and 1994, respectively. A total of 329,989 shares have been issued
since the inception of the ESPP in 1986. As of December 31, 1996, 157,190 shares
have been reserved for future issuances under the ESPP.
The Corporation accounts for both the Option Plan and the ESPP under
Accounting Principles Board Opinion No. 25, and, accordingly, no compensation
expense has been recognized in the financial statements of the Corporation. Had
compensation cost for these plans been recorded in the financial statements of
the Corporation consistent with the provisions of Statement 123, the
Corporation's net income and earnings per share would have been reduced to the
following pro-forma amounts (in thousands, except per-share data):
1996 1995
--------------- ---------------
Net income: As reported................ $ 52,018 $ 47,312
Proforma................... 51,364 46,775
Earnings per share: As reported................ $ 1.58 $ 1.44
Proforma................... 1.56 1.42
Weighted average fair value of options granted............ $ 4.51 $ 3.73
Because the Statement 123 method has not been applied to options
granted prior to January 1, 1995, the resulting pro-forma compensation cost may
not be representative of that to be expected in future years. The fair
value of each option grant is estimated on the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions
used for grants in 1996 and 1995, respectively: risk-free interest rates of
6.74% and 6.65% and expected volatility of the Corporation's stock of 20.3% and
19.1%. The expected dividend yield was 3.2% and the expected option life was 6
years in both 1996 and 1995.
Shareholder Rights
In 1989, the Corporation declared a dividend distribution of one
Right for each outstanding share of common stock to existing shareholders of
record. In addition, each share of common stock issued subsequent to the record
date of the dividend also entitles the holder to one Right. Upon distribution,
each Right entitles the holder to purchase one share of common stock or
depending on events, receive common stock having a value equal to two times the
exercise price of the Right. The purchase price was $90 per share in 1989 and is
currently $44.71 due to stock dividends and splits. The Rights are not
exercisable or transferable apart from the common stock prior to distribution.
Distribution of the Rights will occur ten business days following (1) a public
announcement that a person or group of persons ("Acquiring Person") has acquired
or obtained the right to acquire beneficial ownership of 20% or more of the
outstanding shares of common stock (the "Stock Acquisition Date") or (2) the
commencement of a tender offer or exchange offer that would result in a person
or group beneficially owning 25% or more of such outstanding shares of common
stock. The Rights are redeemable in full, but not in part, by the Corporation at
any time until ten business days following the Stock Acquisition Date, at a
price of $0.01 per Right. The Rights will expire at the close of business on
June 20, 1999, unless earlier redeemed.
NOTE K-LEASES
- --------------------------------------------------------------------------------
Certain branch offices and equipment are leased under agreements which
expire at varying dates through 2025. Most leases contain renewal provisions at
the Corporation's option. Total rental expense was approximately $2.1 million in
1996 and 1995 and $1.7 million in 1994. Future minimum payments as of December
31, 1996 under noncancelable operating leases are as follows:
Minimum
Year Rent
------------------- --------------
(in thousands)
1997............... $ 1,999
1998............... 1,846
1999............... 1,852
2000............... 1,852
2001............... 1,819
Thereafter......... 33,362
--------------
$ 42,730
==============
NOTE L - COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
The Corporation has not engaged in the practice of trading, issuing or
holding derivative financial instruments such as futures, forward, swap, or
option contracts. The Corporation is, however, a party to financial instruments
with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit, letters of credit, and guarantees which involve,
to varying degrees, elements of credit and interest rate risk that are not
recognized in the consolidated balance sheets.
Exposure to credit loss in the event of non-performance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Corporation uses the same credit policies in making commitments as it does for
on-balance-sheet instruments. The Corporation had the following outstanding
commitments to fund loans as of December 31:
1996 1995
---------- ----------
(in thousands)
Fixed rate:
Less than 8.00%................... $ 15,454 $ 8,244
8.00% - 8.99%.................... 24,164 3,641
9.00% - 9.99%.................... 6,926 10,500
10.00% - 10.99%.................... 30 346
11.00% - 18.00%.................... 2,314 2,028
----------- -----------
Total fixed rate..................... 48,888 24,759
Floating rate........................ 834,582 708,575
----------- -----------
$ 883,470 $ 733,334
=========== ===========
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments is expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained upon extension of credit is based on management's credit evaluation of
the customer. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment and income producing commercial
properties. Commitments under outstanding standby letters of credit were $71.9
million at December 31, 1996 and $75.4 million at December 31, 1995.
The Corporation, from time to time, may be a defendant in legal proceedings
relating to the conduct of its banking business. Most of such legal proceedings
are a normal part of the banking business, and in management's opinion, the
financial position and results of operations of the Corporation would not be
affected materially by the outcome of such legal proceedings.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The following are the estimated fair values of the Corporation's financial
instruments as of December 31 followed by a general description of the methods
and assumptions used to estimate such fair values. These fair values are
significantly affected by assumptions used, principally the timing of future
cash flows and the discount rate. Because assumptions are inherently subjective
in nature, the estimated fair values cannot be substantiated by comparison to
independent market quotes and, in many cases, the estimated fair values could
not necessarily be realized in an immediate sale or settlement of the
instrument. Further, certain financial instruments and all nonfinancial
instruments are excluded. Accordingly, the aggregate fair value amounts
presented do not necessarily represent management's estimation of the underlying
value of the Corporation.
1996 1995
----------------------- -----------------------
Estimated Estimated
FINANCIAL ASSETS Book Value Fair Value Book Value Fair Value
--------------------------------------------- ---------- ---------- ---------- ----------
(in thousands)
Cash and due from banks..................... $ 164,975 $ 164,975 $ 152,143 $ 152,143
Interest-bearing deposits
with other banks......................... 2,028 2,028 4,425 4,425
Mortgage loans held for sale................ 125 125 613 613
Securities held to maturity................. 393,708 393,695 503,926 506,359
Securities available for sale............... 317,109 317,109 256,380 256,380
Net loans................................... 2,735,418 2,733,859 2,455,050 2,470,347
Accrued interest receivable................. 24,725 24,725 25,275 25,275
Other financial assets...................... - - 264 264
1996 1995
------------------------- -------------------------
Estimated Estimated
FINANCIAL LIABILITIES Book Value Fair Value Book Value Fair Value
--------------------------------------------- ----------- ----------- ----------- -----------
(in thousands)
Demand and savings deposits................. $ 1,602,811 $ 1,602,811 $ 1,552,954 $ 1,552,954
Time deposits............................... 1,451,363 1,456,035 1,362,315 1,373,850
Short-term borrowings....................... 216,432 216,432 131,430 131,430
Accrued interest payable.................... 19,741 19,741 19,357 19,357
Other financial liabilities................. 18,400 18,400 43,670 43,670
Long-term debt.............................. 49,160 49,129 34,689 34,939
For short-term financial instruments, defined as those with remaining
maturities of 90 days or less, the carrying amount was considered to be a
reasonable estimate of fair value. The following instruments are predominantly
short-term:
Assets Liabilities
- ---------------------------------------------------------------------------------------------------------------
Cash and due from banks Demand and savings deposits
Interest-bearing deposits with Short-term borrowings
other banks Accrued interest payable
Accrued interest receivable Other financial liabilities
Other financial assets
- ---------------------------------------------------------------------------------------------------------------
For those components of the above-listed financial instruments with
remaining maturities greater than 90 days, fair values were determined by
discounting contractual cash flows using rates which could be earned for assets
with similar remaining maturities and, in the case of liabilities, rates at
which the liabilities with similar remaining maturities could be issued as of
the balance sheet date.
As indicated in Note A, securities available for sale are carried at their
estimated fair values. The estimated fair values of securities held to maturity
as December 31, 1996 and 1995 were generally based on quoted market prices,
broker quotes or dealer quotes.
For short-term loans and variable rate loans which reprice within 90 days,
the carrying value was considered to be a reasonable estimate of fair value. For
other types of loans, fair value was estimated by discounting future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. In addition, for
loans secured by real estate, appraisal values for the collateral were
considered in the fair value determination.
The fair value of long-term debt was estimated by discounting the remaining
contractual cash flows using a rate at which the Corporation could issue debt
with a similar remaining maturity as of the balance sheet date.
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of standby letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations.
NOTE N - MERGERS
- --------------------------------------------------------------------------------
Gloucester County Bankshares, Inc.
On February 29, 1996, the Corporation completed its 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 the common stock of Gloucester
County was converted into 1.74 shares of common stock of the Corporation.
The Corporation issued approximately 1.8 million shares of its common stock
in connection with the Gloucester County merger in a transaction accounted for
as a pooling of interests. Through this transaction, the Corporation acquired
The Bank of Gloucester County, headquartered in Woodbury, New Jersey. The Bank
of
Gloucester County, with approximately $235 million in assets as of December 31,
1996 operates seven branch offices in Gloucester County, New Jersey.
The following sets forth for the period prior to the merger selected items
for the Corporation and Gloucester County (in thousands):
Two months ended
February 29, 1996
-------------------------
Gloucester
Corporation County
----------- ------------
Net interest income..................... $ 22,575 $ 1,723
Non-interest income..................... 5,261 186
----------- ------------
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 follows:
Gloucester
1995 Corporation County Restated
------------------------------------------ ----------- ------------ ------------
(in thousands, except per-share data)
Net interest income..................... $ 133,790 $ 9,984 $ 143,774
Non-interest income..................... 28,961 928 29,889
----------- ------------ ------------
Total income.......................... $ 162,751 $ 10,912 $ 173,663
=========== ============ ============
Net income.............................. $ 45,580 $ 1,732 $ 47,312
=========== ============ ============
Net income per share.................... $ 1.46 $ 1.79 $ 1.44
=========== ============ ============
Gloucester
1994 Corporation County Restated
------------------------------------------ ----------- ------------ ------------
(in thousands, except per-share data)
Net interest income..................... $ 124,171 $ 7,759 $ 131,930
Non-interest income..................... 25,801 596 26,397
----------- ------------ ------------
Total income.......................... $ 149,972 $ 8,355 $ 158,327
=========== ============ ============
Net income.............................. $ 40,480 $ 2,037 $ 42,517
=========== ============ ============
Net income per share.................... $ 1.31 $ 2.10 $ 1.30
=========== ============ ============
Central Pennsylvania Financial Corporation
On October 1, 1994, the Corporation completed its acquisition of Central
Pennsylvania Financial Corp. (CPFC). CPFC was headquartered in Shamokin,
Pennsylvania and, as of the acquisition date, its subsidiary, Central
Pennsylvania Savings Association, had approximately $260 million in assets
within its ten branches located in Cumberland, Dauphin, Lycoming, Montour, North
Cumberland, Snyder and Union counties, Pennsylvania. These branches were
distributed among the Corporation's affiliate banks.
The Corporation acquired all of the outstanding shares of CPFC for cash in
the amount of $23 per share. The total purchase price was approximately $45.9
million. This transaction was accounted for as a purchase of assets and
assumption of liabilities therefore, the results of CPFC are included in the
accompanying consolidated financial statements beginning on October 1, 1994. The
purchase price exceeded the fair value of net assets acquired which resulted in
the Corporation recording goodwill of approximately $16.0 million which is being
amortized on a straight-line basis over 15 years.
The following sets forth selected unaudited financial data as though the
acquisition occurred at the beginning of 1994. During 1994, CPFC sold 13 branch
offices to unrelated third parties. The proforma adjustments reflect these
dispositions as well as the effect of purchase accounting on operations.
CPFC
9 Months -- Proforma Proforma
1994 Corporation 9/30/94 Adjustments Combined
-------------------------------- ------------- --------------- ------------- ----------
(in thousands, except per-share data)
Net interest income........... $ 131,930 $ 8,904 $ (12) $ 140,822
Non-interest income........... 26,397 2,548 (2,549) 26,396
------------- --------------- ------------- ----------
Total income................ $ 158,327 $ 11,452 $ (2,561) $ 167,218
============= =============== ============= ==========
Net income.................... $ 42,517 $ 426 $ 1,513 $ 44,456
============= =============== ============= ==========
Net income per share.......... $ 1.30 $ .22 $ 1.36
============= =============== ==========
The Woodstown National Bank & Trust Company
On February 28, 1997, the Corporation completed the previously announced
acquisition of The Woodstown National Bank & Trust Company (Woodstown). As
provided under the terms of the Merger Agreement, Woodstown became a subsidiary
of the Corporation and each of the outstanding shares of the common stock of
Woodstown was converted into 1.6 shares of the common stock of the Corporation.
The Corporation issued approximately 2.9 million shares of its common stock
in connection with the Woodstown merger. The transaction was accounted for as a
pooling of interests. Since consummation of the merger occurred subsequent to
December 31, 1996, the consolidated financial statements do not include the
accounts of Woodstown.
Woodstown, with approximately $270 million in assets, is headquartered in
Woodstown, NJ and operates four branches in Salem County and two branches in
Gloucester County. Woodstown's net interest income and net income for the year
ended December 31, 1996 were approximately $10.9 million and $2.8 million,
respectively.
NOTE O - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
- --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
------------------------
December 31
------------------------
1996 1995
---------- ----------
(in thousands)
ASSETS
------
Cash, securities, and other assets........................ $ 40,938 $ 38,550
Receivable from:
Bank subsidiaries....................................... 822 7,227
Nonbank subsidiaries.................................... 753 672
Investment in:
Bank subsidiaries....................................... 346,701 325,679
Nonbank subsidiaries.................................... 21,497 17,633
----------- -----------
Total Assets............................................ $ 410,711 $ 389,761
=========== ===========
LIABILITIES
-----------
Short-term borrowings..................................... $ 15,111 $ 20,500
Other liabilities......................................... 9,922 15,247
----------- -----------
Total Liabilities....................................... 25,033 35,747
Shareholders' equity...................................... 385,678 354,014
----------- -----------
Total Liabilities and Shareholders' Equity.............. $ 410,711 $ 389,761
=========== ===========
CONDENSED STATEMENTS OF INCOME
------------------------------
Year ended December 31
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(in thousands)
Income:
Dividends from bank subsidiaries................. $ 30,936 $ 35,653 $ 24,747
Other............................................ 8,432 8,764 7,259
----------- ----------- -----------
39,368 44,417 32,006
Expenses............................................ 11,984 12,824 10,873
----------- ----------- -----------
Income before income taxes and equity in
undistributed net income (loss) of 27,384 31,593 21,133
subsidiaries........................................
Income tax benefit.................................. (3,483) (3,249) (3,016)
----------- ----------- -----------
30,867 34,842 24,149
Equity in undistributed net income (loss) of:
Bank subsidiaries................................. 21,965 12,073 18,129
Nonbank subsidiaries.............................. (814) 397 239
----------- ----------- -----------
Net Income...................................... $ 52,018 $ 47,312 $ 42,517
=========== =========== ===========
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
Year Ended December 31
------------------------------------
1996 1995 1994
---------- ---------- ---------
(in thousands)
Cash Flows From Operating Activities:
Net Income.............................................................. $ 52,018 $ 47,312 $ 42,517
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Deferred income tax (expense) benefit.................................. (211) 172 (254)
Gain on sale of investment securities.................................. (2,801) (3,151) (2,242)
Decrease (increase) in other assets.................................... 2,708 (2,223) (532)
Increase in investment in subsidiaries................................. (21,151) (12,470) (18,368)
Increase in other liabilities.......................................... 191 2,486 12,387
----------- ----------- -----------
Total adjustments.................................................... (21,264) (15,186) (9,009)
----------- ----------- -----------
Net cash provided by operating activities............................ 30,754 32,126 33,508
----------- ----------- -----------
Cash Flows From Investing Activities:
Investment in subsidiaries............................................. (4,025) (12,851) (24,133)
Investment in real estate partnerships................................. (296) (770) (782)
Proceeds from sales of investment securities........................... 5,827 6,333 4,212
Purchase of investment securities...................................... (6,331) (5,767) (5,917)
Proceeds from sales of fixed assets.................................... - 1,090 -
Payment for purchase of CPFC, net of
contributions from subsidiaries....................................... - - (6,869)
----------- ----------- -----------
Net cash used in investing activities................................ (4,825) (11,965) (33,489)
----------- ----------- -----------
Cash Flows From Financing Activities:
Net (decrease) increase in short-term borrowings....................... (5,389) (2,500) 20,500
Decrease in long-term debt............................................. - - (200)
Dividends paid......................................................... (21,126) (18,215) (15,773)
Net proceeds from issuance of common stock............................. 2,171 3,714 1,700
Acquisition of treasury stock.......................................... (1,482) (5,979) (3,978)
----------- ----------- -----------
Net cash (used in) provided by financing activities................. (25,826) (22,980) 2,249
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents...................... 103 (2,819) 2,268
Cash and Cash Equivalents at Beginning of Year............................ (98) 2,721 453
----------- ----------- -----------
Cash and Cash Equivalents at End of Year.................................. $ 5 $ (98) $ 2,721
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest............................................................... $ 3,508 $ 4,289 $ 2,604
Income taxes........................................................... $ 16,861 $ 14,444 $ 15,280
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Fulton Financial Corporation:
We have audited the accompanying consolidated balance sheets of Fulton Financial
Corporation (a Pennsylvania corporation) and subsidiaries as of December 31,
1996 and 1995 and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fulton Financial Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Lancaster, Pennsylvania
January 24, 1997
(Except Note N for which the date is February 28, 1997)
FULTON FINANCIAL CORPORATION
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS
(In thousands, except per-share data)
Three Months Ended
-------------------------------------------------------------------------
For the Year 1996 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------- ----------- ---------- ----------- ----------
Interest income.................... $ 64,834 $ 66,151 $ 68,165 $ 69,507
Interest expense................... 27,813 27,878 28,600 29,511
----------- ---------- ----------- ----------
Net interest income................ 37,021 38,273 39,565 39,996
Provision for loan losses.......... 676 965 1,153 1,398
Other income....................... 7,871 7,511 8,220 9,201
Other expenses..................... 26,242 26,412 29,113 28,384
----------- ---------- ----------- ----------
Income before income taxes......... 17,974 18,407 17,519 19,415
Income taxes....................... 5,253 5,372 4,930 5,742
----------- ---------- ----------- ----------
Net income......................... $ 12,721 $ 13,035 $ 12,589 $ 13,673
=========== ========== =========== ==========
Per-share data:
Net income.................... $ .39 $ .40 $ .38 $ .41
Cash dividends................ $ .155 $ .170 $ .170 $ .170
Three Months Ended
-------------------------------------------------------------------------
For the Year 1995 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------- ----------- ---------- ------------ ----------
Interest income.................... $ 60,499 $ 62,218 $ 63,863 $ 65,089
Interest expense................... 25,250 26,587 27,663 28,395
----------- ---------- ----------- ----------
Net interest income................ 35,249 35,631 36,200 36,694
Provision for loan losses.......... 680 653 688 1,812
Other income....................... 6,725 7,354 7,192 8,618
Other expenses..................... 25,420 26,195 25,599 27,382
----------- ---------- ----------- ----------
Income before income taxes......... 15,874 16,137 17,105 16,118
Income taxes....................... 4,220 4,440 4,786 4,476
----------- ---------- ----------- ----------
Net income......................... $ 11,654 $ 11,697 $ 12,319 $ 11,642
=========== ========== =========== ==========
Per-share data:
Net income.................... $ .35 $ .36 $ .37 $ .35
Cash dividends................ $ .132 $ .142 $ .146 $ .146
Item 9. Changes in and Disagreements with Accountants on
- --------------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
Incorporated by reference herein is the information appearing under the
heading "Information about Nominees and Continuing Directors" on pages 5
through 11 of the 1997 Proxy Statement and under the heading "Executive
Officers" on page 12 of the 1997 Proxy Statement.
Item 11. Executive Compensation
- -------------------------------
Incorporated by reference herein is the information appearing under the
heading "Executive Compensation" on pages 12 through 15 of the 1997 Proxy
Statement and under the heading "Compensation of Directors" on page 12 of the
1997 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
Incorporated by reference herein is the information appearing under the
heading "Voting of Shares and Principal Holders Thereof" on page 3 of the 1997
Proxy Statement and under the heading "Information about Nominees and Continuing
Directors" on pages 5 through 11 of the 1997 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
Incorporated by reference herein is the information appearing under the
heading "Transactions with Directors and Executive Officers" on page 17 of the
1997 Proxy Statement, and the information appearing in Note D - Loans and
Allowance for Loan Losses, of the Notes to Consolidated Financial Statements in
Item 8, "Financial Statements and supplementary data".
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements -- The following consolidated financial statements
of Fulton Financial Corporation and subsidiaries are incorporated herein
by reference in response to Item 8 above:
(i) Consolidated Balance Sheets - December 31, 1996 and 1995.
(ii) Consolidated Statements of Income - Years ended December 31,
1996, 1995 and 1994.
(iii) Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1996, 1995 and 1994.
(iv) Consolidated Statements of Cash Flows - Years ended December 31,
1996, 1995 and 1994.
(v) Notes to Consolidated Financial Statements
(vi) Report of Independent Public Accountants.
2. Financial Statement Schedules -- All financial statement schedules for
which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable and have therefore been omitted.
3. Exhibits -- The following is a list of the Exhibits required by Item 601
of Regulation S-K and filed as part of this report:
(i) Articles of Incorporation as amended 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.
(ii) Rights Amendment dated June 20, 1989 between Fulton Financial
Corporation and Fulton Bank - Incorporated by reference from
Exhibit 1 of the Fulton Financial Corporation Current Report on
Form 8-K dated June 21, 1989.
(iii) 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) of the Fulton
Financial Corporation Annual Report on Form 10-K for the
year ended December 31, 1992.
(iv) Subsidiaries of the Registrant.
(v) Consents of Independent Public Accountants
(vi) Financial Data Schedule
(b) Reports on Form 8-K --
1. Form 8-K dated February 29, 1996 reporting consummation of the
Corporation's merger with Gloucester County Bankshares, Inc.
2. Form 8-K dated April 16, 1996 reporting results of combined operations
of Fulton Financial Corporation and Gloucester County Bankshares, Inc.
3. Form 8-K dated October 7, 1996 reporting execution of a Merger Agreement
between Fulton Financial Corporation and The Woodstown National Bank &
Trust Company.
(c) Exhibits -- The exhibits required to be filed as part of this report are
submitted as a separate section of this report.
(d) Financial Statement Schedules -- None required.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FULTON FINANCIAL CORPORATION
(Registrant)
Dated: March 18, 1997 By: /s/ Rufus A. Fulton, Jr.
----------------------------
Rufus A. Fulton, Jr.,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been executed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Jeffrey G. Albertson Director March 18, 1997
- -----------------------------------
Jeffrey G. Albertson
/s/ James P. Argires, M.D. Director March 18, 1997
- -----------------------------------
James P. Argires, M.D.
Director March 18, 1997
- -----------------------------------
Donald M. Bowman, Jr.
Director March 18, 1997
- -----------------------------------
Thomas D. Caldwell, Jr., Esq.
/s/ Beth Ann L. Chivinski Senior Vice President March 18, 1997
- -----------------------------------
Beth Ann L. Chivinski and Controller
(Principal Accounting Officer)
/s/ Harold D. Chubb Director March 18, 1997
- -----------------------------------
Harold D. Chubb
Director March 18, 1997
- -----------------------------------
William H. Clark, Jr.
/s/ Frederick B. Fichthorn Director March 18, 1997
- -----------------------------------
Frederick B. Fichthorn
/s/ Patrick J. Freer.... Director March 18, 1997
- -----------------------------------
Patrick J. Freer
Signature Capacity Date
- --------- -------- ----
/s/ Rufus A. Fulton, Jr. President, Chief Executive March 18, 1997
- -----------------------------------
Rufus A. Fulton, Jr. Officer, and Director
(Principal Executive Officer)
/s/ Eugene H. Gardner Director March 18, 1997
- -----------------------------------
Eugene H. Gardner
/s/ Robert D. Garner Chairman of the Board and March 18, 1997
- -----------------------------------
Robert D. Garner Director
/s/ Daniel M. Heisey Director March 18, 1997
- -----------------------------------
Daniel M. Heisey
/s/ J. Robert Hess Director March 18, 1997
- -----------------------------------
J. Robert Hess
/s/ Carolyn R. Holleran Director March 18, 1997
- -----------------------------------
Carolyn R. Holleran
/s/ Clyde W. Horst Director March 18, 1997
- -----------------------------------
Clyde W. Horst
/s/ Samuel H. Jones, Jr. Director March 18, 1997
- -----------------------------------
Samuel H. Jones, Jr.
/s/ Bernard J. Metz, Sr. Director March 18, 1997
- -----------------------------------
Bernard J. Metz, Sr.
/s/ Charles J. Nugent Executive Vice President and March 18, 1997
- -----------------------------------
Charles J. Nugent Chief Financial Officer
(Principal Financial Officer)
/s/ Arthur M. Peters, Jr., Esq. Director March 18, 1997
- -----------------------------------
Arthur M. Peters, Jr., Esq.
/s/ Stuart H. Raub, Jr. Director March 18, 1997
- -----------------------------------
Stuart H. Raub, Jr.
/s/ Donald E. Ruhl Director March 18, 1997
- -----------------------------------
Donald E. Ruhl
/s/ William E. Rusling Director March 18, 1997
- -----------------------------------
William E. Rusling
Signature Capacity Date
- --------- -------- ----
/s/ Mary Ann Russell Director March 18, 1997
- -----------------------------------
Mary Ann Russell
/s/ John O. Shirk, Esq. Director March 18, 1997
- -----------------------------------
John O. Shirk, Esq.
/s/ James K. Sperry Executive Vice President and March 18, 1997
- -----------------------------------
James K. Sperry Director
Director March 18, 1997
- -----------------------------------
Kenneth G. Stoudt
EXHIBIT INDEX
-------------
Exhibits Required Pursuant
to Item 601 of Regulation S-K
- -----------------------------
3. 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.
4. (a) Rights Agreement dated June 20, 1989 between Fulton Financial
Corporation and Fulton Bank - Incorporated by reference from
Exhibit 1 of the Fulton Financial Corporation Current Report on
Form 8-K dated June 21, 1989.
10. 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) of the Fulton Financial Corporation
Annual Report on Form 10-K for the year ended December 31, 1992.
13. Annual Report to Shareholders for the year ended December 31, 1996.
21. Subsidiaries of the Registrant.
23. Consents of Independent Public Accountants.
27. Financial Data Schedule.
63