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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20459
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003, or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 0-10587
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FULTON FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2195389
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Penn Square, P.O. Box 4887 Lancaster, Pennsylvania 17604
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(Address of principal executive offices) (Zip Code)
(717)291-2411
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(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $2.50 Par Value - 105,219,000 shares outstanding as
of July 31, 2003.
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1
FULTON FINANCIAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2003
INDEX
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Description Page
- ----------- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
(a) Consolidated Balance Sheets -
June 30, 2003 and December 31, 2002 ......................................3
(b) Consolidated Statements of Income -
Three and six months ended June 30, 2003 and 2002 ........................4
(c) Consolidated Statements of Shareholders' Equity -
Six months ended June 30, 2003 and 2002 ..................................5
(d) Consolidated Statements of Cash Flows -
Six months ended June 30, 2003 and 2002 ..................................6
(e) Notes to Consolidated Financial Statements - June 30, 2003 ...............7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk ...........23
Item 4. Controls and Procedures ..............................................26
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .....................................27
Signatures ...................................................................28
Exhibit Index ................................................................29
2
Item 1. Financial Statements
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FULTON FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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(Dollars in thousands, except per-share data)
June 30 December 31
2003 2002
------------ ------------
ASSETS
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Cash and due from banks ....................... $ 354,238 $ 314,857
Interest-bearing deposits with other banks .... 5,737 7,899
Mortgage loans held for sale .................. 59,874 70,475
Investment securities:
Held to maturity (Fair value: $31,738
in 2003 and $34,135 in 2002) .............. 30,620 32,684
Available for sale ......................... 2,518,169 2,383,607
Loans, net of unearned income ................. 5,391,398 5,317,068
Less: Allowance for loan losses ............ (72,240) (71,920)
------------ ------------
Net Loans ............................... 5,319,158 5,245,148
------------ ------------
Premises and equipment ........................ 121,367 123,450
Accrued interest receivable ................... 31,969 35,527
Goodwill ...................................... 61,048 61,048
Other assets .................................. 117,107 113,083
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Total Assets ............................ $ 8,619,287 $ 8,387,778
============ ============
LIABILITIES
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Deposits:
Noninterest-bearing ........................ $ 1,295,098 $ 1,118,227
Interest-bearing ........................... 5,141,925 5,127,301
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Total Deposits .......................... 6,437,023 6,245,528
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Short-term borrowings:
Securities sold under agreements
to repurchase ............................. 347,361 297,556
Federal funds purchased .................... 250,000 330,000
Demand notes of U.S. Treasury .............. 2,634 4,638
------------ ------------
Total Short-Term Borrowings ............. 599,995 632,194
------------ ------------
Accrued interest payable ...................... 24,290 27,608
Other liabilities ............................. 144,364 77,651
Federal Home Loan Bank Advances and
long-term debt ............................... 534,456 535,555
Corporation-obligated mandatorily
redeemable capital securities of
subsidiary trust ............................. 5,500 5,500
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Total Liabilities ....................... 7,745,628 7,524,036
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SHAREHOLDERS' EQUITY
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Common stock, $2.50 par value, 400 million
shares authorized, 109.2 million shares
issued ....................................... 272,941 259,943
Additional paid-in capital .................... 558,087 481,028
Retained earnings ............................. 82,091 138,501
Accumulated other comprehensive income ........ 25,929 34,801
Treasury stock (3.8 million shares in
2003 and 3.0 million shares in 2002) ........ (65,389) (50,531)
------------ ------------
Total Shareholders' Equity .............. 873,659 863,742
------------ ------------
Total Liabilities and Shareholders'
Equity ................................. $ 8,619,287 $ 8,387,778
============ ============
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See Notes to Consolidated Financial Statements
3
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per-share data)
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
2003 2002 2003 2002
-------------- ------------- -------------- -------------
INTEREST INCOME
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Loans, including fees ....................... $ 84,541 $ 94,246 $ 169,653 $ 188,905
Investment securities:
Taxable .................................. 18,390 21,185 39,124 40,814
Tax-exempt ............................... 2,526 2,491 5,046 4,872
Dividends ................................ 1,153 902 2,301 1,956
Other interest income........................ 556 63 1,226 139
-------------- ------------- -------------- -------------
Total Interest Income ................. 107,166 118,887 217,350 236,686
INTEREST EXPENSE
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Deposits .................................... 24,000 30,840 49,707 64,414
Short-term borrowings ....................... 1,692 2,057 3,445 3,570
Long-term debt .............................. 7,104 6,432 14,190 12,814
-------------- ------------- -------------- -------------
Total Interest Expense ................ 32,796 39,329 67,342 80,798
-------------- ------------- -------------- -------------
Net Interest Income ................... 74,370 79,558 150,008 155,888
PROVISION FOR LOAN LOSSES ................... 2,490 2,680 5,325 5,460
-------------- ------------- -------------- -------------
Net Interest Income After
Provision for Loan Losses ............ 71,880 76,878 144,683 150,428
-------------- ------------- -------------- -------------
OTHER INCOME
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Investment management and trust services .... 8,809 7,583 17,152 14,743
Service charges on deposit accounts ......... 9,501 9,300 18,717 18,084
Other service charges and fees .............. 4,708 4,273 9,294 8,378
Mortgage banking income ..................... 5,841 2,782 11,792 6,064
Investment securities gains ................. 4,809 1,972 7,038 3,370
Other ....................................... 866 809 2,206 2,763
-------------- ------------- -------------- -------------
Total Other Income .................... 34,534 26,719 66,199 53,402
OTHER EXPENSES
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Salaries and employee benefits .............. 34,494 32,618 67,814 63,665
Net occupancy expense ....................... 4,807 4,263 9,887 8,555
Equipment expense ........................... 2,588 2,716 5,268 5,515
Data processing ............................. 2,776 2,950 5,640 6,163
Advertising ................................. 1,787 1,860 3,019 3,653
Intangible amortization ..................... 360 360 719 719
Other ....................................... 11,253 11,737 21,600 23,162
-------------- ------------- -------------- -------------
Total Other Expenses .................. 58,065 56,504 113,947 111,432
-------------- ------------- -------------- -------------
Income Before Income Taxes ............ 48,349 47,093 96,935 92,398
INCOME TAXES ................................ 14,287 14,103 28,830 27,178
-------------- ------------- -------------- -------------
Net Income ............................ $ 34,062 $ 32,990 $ 68,105 $ 65,220
============== ============= ============== =============
PER-SHARE DATA:
Net income (basic) .......................... $ 0.32 $ 0.30 $ 0.64 $ 0.60
Net income (diluted) ........................ 0.32 0.30 0.64 0.60
Cash dividends .............................. 0.160 0.143 0.303 0.272
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See Notes to Consolidated Financial Statements
4
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
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(Dollars in thousands, except per-share data)
Accumulated
Other
Number of Additional Comprehen-
Shares Common Paid-In Retained sive Income Treasury
Outstanding Stock Capital Earnings (Loss) Stock Total
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Balance at December 31, 2002 ............ 106,162,000 $ 259,943 $ 481,028 $ 138,501 $ 34,801 $ (50,531) $ 863,742
Comprehensive Income:
Net income ........................ 68,105 68,105
Other - net unrealized loss
on securities (net of $2.3
million tax benefit) ............. (4,297) (4,297)
Less - reclassification
adjustment for gains
included in net income
(net of $2.5 million tax expense) .. (4,575) (4,575)
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Total comprehensive income ..... 59,233
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Stock issued ...................... 378,000 (2,432) 6,461 4,029
Stock dividend - 5% ............... 12,998 79,491 (92,526) (37)
Acquisition of treasury stock ..... (1,181,000) (21,319) (21,319)
Cash dividends - $0.303 per share . (31,989) (31,989)
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Balance at June 30, 2003 ................ 105,359,000 $ 272,941 $ 558,087 $ 82,091 $ 25,929 $ (65,389) $ 873,659
----------- ---------- ---------- ---------- ----------- ---------- ----------
Balance at December 31, 2001 ............ 108,429,000 $ 207,962 $ 536,235 $ 65,649 $ 12,970 $ (11,362) $ 811,454
Comprehensive Income:
Net income ........................ 65,220 65,220
Other - net unrealized gain
on securities (net of $ 10.8
million tax expense) ............. 19,997 19,997
Less - reclassification
adjustment for gains
included in net income (net
of $1.2 million tax expense) ....... (2,191) (2,191)
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Total comprehensive income...... 83,026
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Stock issued ......................... 342,000 (2,551) 5,005 2,454
Stock split paid in the form of a
25% stock dividend .................. -- 51,981 (52,050) (69)
Acquisition of treasury stock ........ (350,000) (6,068) (6,068)
Cash dividends - $0.272 per share .... (29,535) (29,535)
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Balance at June 30, 2002 ................ 108,421,000 $ 259,943 $ 481,634 $ 101,334 $ 30,776 $ (12,425) $ 861,262
=========== ========== ========== ========== =========== ========== ==========
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See Notes to Consolidated Financial Statements
5
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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(In thousands)
Six Months Ended
June 30
-----------------------
2003 2002
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ........................................ $ 68,105 $ 65,220
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses ...................... 5,325 5,460
Depreciation and amortization of premises and
equipment ..................................... 6,232 6,314
Net amortization of investment security
premiums ...................................... 9,195 660
Investment security gains ...................... (7,038) (3,370)
Net decrease (increase) in mortgage loans
held for sale ................................. 10,601 (28,753)
Amortization of intangible assets .............. 719 719
Decrease in accrued interest receivable ........ 3,558 3,327
Decrease (increase) in other assets ............ 32 (2,904)
Decrease in accrued interest payable ........... (3,318) (7,979)
(Decrease) increase in other liabilities ....... (6,713) 1,780
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Total adjustments .......................... 18,593 (24,746)
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Net cash provided by operating activities ... 86,698 40,474
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available
for sale ......................................... 295,665 17,067
Proceeds from maturities of securities held
to maturity ...................................... 9,404 10,281
Proceeds from maturities of securities
available for sale ............................... 777,870 263,605
Purchase of securities held to maturity ........... (7,375) (1,672)
Purchase of securities available for sale ......... (1,152,114) (477,579)
Decrease in short-term investments ................ 2,162 3,850
Net increase in loans ............................. (79,337) (5,723)
Net purchases of premises and equipment ........... (4,149) (4,633)
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Net cash used in investing activities ....... (157,874) (194,804)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in demand and savings deposits ........... 282,544 146,505
Decrease in time deposits ........................ (91,049) (104,444)
Decrease in long-term debt ........................ (1,099) (7,522)
(Decrease) increase in short-term borrowings ...... (32,199) 77,245
Dividends paid .................................... (30,350) (28,147)
Net proceeds from issuance of common stock ........ 4,029 2,454
Acquisition of treasury stock ..................... (21,319) (6,068)
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Net cash provided by financing activities ... 110,557 80,023
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Net Increase (Decrease) in Cash and Due From Banks. 39,381 (74,307)
Cash and Due From Banks at Beginning of Period .... 314,857 356,539
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Cash and Due From Banks at End of Period .......... $ 354,238 $ 282,232
========== ==========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest ....................................... $ 70,660 $ 88,777
Income taxes ................................... 27,645 25,225
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See Notes to Consolidated Financial Statements
6
FULTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six-month periods ended June
30, 2003 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2003.
NOTE B - Net Income Per Share
The Corporation's basic net income per share is calculated as net income divided
by the weighted average number of shares outstanding. For diluted net income per
share, net income is divided by the weighted average number of shares
outstanding plus the incremental number of shares added as a result of
converting common stock equivalents, calculated using the treasury stock method.
The Corporation's common stock equivalents consist solely of outstanding stock
options.
A reconciliation of the weighted average shares outstanding used to calculate
basic net income per share and diluted net income per share follows:
Three months Six months
ended June 30 ended June 30
-----------------------------------------
2003 2002 2003 2002
-------- -------- -------- --------
Weighted average shares
outstanding (basic) .......... 105,437 108,350 105,678 108,344
Impact of common stock
equivalents .................. 741 758 727 750
-------- -------- -------- --------
Weighted average shares
outstanding (diluted) ........ 106,178 109,108 106,405 109,094
======== ======== ======== ========
NOTE C - Stock Dividend
The Corporation declared a 5% stock dividend on April 15, 2003, which was paid
on May 23, 2003 to shareholders of record on April 30, 2003. All share and
per-share information has been restated to reflect the impact of this stock
dividend.
NOTE D - Disclosures about Segments of an Enterprise and Related Information
The Corporation does not have any operating segments which require disclosure of
additional information. While the Corporation owns ten separate banks, each
engages in similar activities, provides similar products and services, and
operates in the same general geographical area. The Corporation's non-banking
activities are immaterial and, therefore, separate information has not been
disclosed.
NOTE E - Goodwill and Intangible Assets
In October 2002, the Corporation adopted Statement of Financial Accounting
Standards No. 147 "Acquisitions of Certain Financial Institutions" (Statement
147). Statement 147 changed the accounting for certain branch acquisitions to
allow the purchase price paid in excess of net assets acquired to be accounted
for as goodwill. Per Statement of Financial Accounting Standards No. 142,
"Goodwill and Intangible Assets", goodwill is not amortized, but is tested at
least annually for impairment. Adoption of Statement 147 resulted in the
restatement of results for the three and six-month periods ended 2002. The
following table summarizes the results of this restatement (in thousands, except
per share amounts):
7
Three
Six Months Months
Ended June Ended June
30, 2002 30, 2002
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Net income, originally reported ................ $ 64,937 $ 32,848
Amortization of goodwill, net of taxes ......... 283 142
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Net income, as restated ........................ $ 65,220 $ 32,990
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Basic net income per share, originally
reported (1) .................................. $ 0.60 $ 0.30
Amortization of goodwill, net of taxes ......... -- --
---------- ----------
Basic net income per share, as restated ........ $ 0.60 $ 0.30
---------- ----------
Diluted net income per share, originally
reported (1) .................................. $ 0.60 $ 0.30
Amortization of goodwill, net of taxes ......... -- --
---------- ----------
Diluted net income per share, as adjusted ...... $ 0.60 $ 0.30
---------- ----------
(1) As restated for the impact of stock dividends and splits.
In prior filings, goodwill and intangible assets were combined for presentation
purposes in the consolidated balance sheets. Goodwill is now presented as a
separate line item and intangible assets totaling $10.5 million in 2003 and
$11.2 million in 2002 are included with other assets.
NOTE F - Acquisition of Premier Bancorp, Inc.
On August 1, 2003, the Corporation completed its acquisition of Premier Bancorp,
Inc. (Premier), of Doylestown, Pennsylvania. Premier was a $600 million
financial holding company whose primary subsidiary was Premier Bank, which
operates eight community banking offices in Bucks, Northampton and Montgomery
Counties, Pennsylvania.
Under the terms of the merger agreement, each of the approximately 3.5 million
shares of Premier's common stock was exchanged for 1.407 shares of the
Corporation's common stock. In addition, each of the options to acquire
Premier's stock was converted to options to purchase the Corporation's stock. As
a result of the acquisition, Premier was merged into the Corporation and Premier
Bank became a wholly owned subsidiary. In connection with the transaction, the
outstanding shares of Premier's preferred stock was redeemed and the Corporation
assumed Premier's trust preferred securities.
The acquisition is being accounted for as a purchase. Purchase accounting
requires the Corporation to allocate the total purchase price of the acquisition
to the assets acquired and liabilities assumed, based on their respective fair
values at the acquisition date, with any remaining acquisition cost being
recorded as goodwill. Resulting goodwill balances are then subject to an
impairment review on at least an annual basis. The results of Premier's
operations will be included in the Corporation's financial statements
prospectively from the date of the acquisition.
The total purchase price of approximately $90 million includes the value (based
on the price as of the announcement date) of the Corporation's stock issued,
Premier options converted, and certain acquisition related costs. The carrying
value of the net assets of Premier as of August 1, 2003 was approximately $40.6
million and accordingly, the purchase price exceeds the carrying value of the
net assets by $49.4 million. The total purchase price will be allocated to the
net assets acquired, based on fair market values. The Corporation expects to
record a core deposit intangible asset and goodwill as a result of the
acquisition accounting. The Corporation is in the process of completing its fair
value analysis and will determine the allocation of the purchase price to the
fair value of net assets acquired and goodwill during the third quarter of 2003.
8
NOTE G - Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" (Statement 148). Statement 148
clarifies the accounting for options issued in prior periods when a company
elects to transition from Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) accounting to Statement 123,
"Accounting for Stock-Based Compensation" (Statement 123) accounting. It also
requires additional disclosures with respect to accounting for stock-based
compensation. Finally, Statement No. 148 amends Accounting Principles Board
Opinion No. 28, "Interim Financial Reporting," to require disclosure about those
effects in interim financial information.
The Corporation has elected to continue application of APB 25 and related
interpretations in accounting for its stock-based employee compensation plans
and, accordingly, no compensation expense is reflected in net income. The
Corporation did not grant any stock options during the first six months of 2003
or 2002. As such, had stock-based compensation expense been recognized using the
fair value method consistent with Statements 123 and 148, there would have been
no impact on net income or net income per share for these periods as stock
options vest immediately upon grant.
NOTE H - Reclassifications
Certain amounts in the 2002 consolidated financial statements and notes have
been reclassified to conform to the 2003 presentation.
NOTE I - New Accounting Pronouncement
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity" (Statement 150). Statement 150 establishes standards for
how an issuer classifies and measures certain financial instruments with
characteristics of both debt and equity. The Statement requires an issuer to
classify certain instruments as liabilities (or assets in some circumstances)
that were previously required to be reported as equity.
The Statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning on or after June 15, 2003. The Corporation does not
expect the implementation of Statement 150 to have any material impact on its
financial statements.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
- ---------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Management's Discussion) concerns Fulton Financial Corporation (the
Corporation), a financial 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.
FORWARD LOOKING STATEMENTS
- --------------------------
The Corporation has made, and may continue to make, certain forward-looking
statements with respect to its management of net interest income and margin,
mergers and acquisitions, the ability to realize gains on equity investments,
allowance and provision for loan losses, expected levels of certain non-interest
expenses and the liquidity position of the Corporation and Parent Company. The
Corporation cautions that these forward-looking statements are subject to
various assumptions, risks and uncertainties. Because of the possibility of
changes in these assumptions, risks and uncertainties, actual results could
differ materially from forward-looking statements.
In addition to the factors identified herein, the following could cause actual
results to differ materially from such forward-looking statements: pricing
pressures on loan and deposit products, actions of bank and nonbank competitors,
changes in local and national economic conditions, changes in regulatory
requirements and regulatory oversight of the Corporation, actions of the Federal
Reserve Board (FRB) and the Corporation's success in merger and acquisition
integration.
The Corporation's forward-looking statements are relevant only as of the date on
which such statements are made. By making any forward-looking statements, the
Corporation assumes no duty to update them to reflect new, changing or
unanticipated events or circumstances.
RESULTS OF OPERATIONS
- ---------------------
Quarter ended June 30, 2003 versus Quarter ended June 30, 2002
- ---------------------------------------------------------------
Fulton Financial Corporation's net income for the second quarter of 2003
increased $1.1 million, or 3.2%, in comparison to net income for the second
quarter of 2002. Diluted net income per share increased $0.02, or 6.7%, compared
to 2002. The increase from 2002 resulted from increases in other income and
investment securities gains and a lower loan loss provision, offset by a
decrease in net interest income and increases in expenses.
Net Interest Income
- -------------------
Net interest income decreased $5.2 million, from $79.6 million in 2002 to $74.4
million in 2003. This decrease was due to continued low interest rates and slow
overall loan growth. The Corporation's average prime lending rate decreased from
4.75% in the second quarter of 2002 to 4.24% in the second quarter of 2003 as a
result of the FRB reducing short-term interest rates in November, 2002 and June,
2003. These reductions in an already low interest rate environment negatively
impacted the Corporation's net interest margin as average yields on
earning-assets decreased faster than the average cost of deposits. The June,
2003 reduction by the FRB may result in further net interest margin compression
in the third quarter of 2003.
The average yield on earning assets decreased 104 basis points (a 16.0% decline)
during the period while the cost of interest-bearing liabilities decreased 60
basis points (a 22.3% decline). This resulted in a 57 basis point decrease in
net interest margin compared to the same period in 2002. The Corporation
continues to manage its asset/liability position and interest rate risk through
the methods discussed in the "Market Risk" section of this document.
The following table provides a comparative average balance sheet and net
interest income analysis for the second quarter of 2003 as compared to the same
period in 2002. All dollar amounts are in thousands.
10
Quarter Ended June 30, 2003 Quarter Ended June 30, 2002
-------------------------------------- --------------------------------------
Average Yield/ Average Yield/
ASSETS Balance Interest Rate (1) Balance Interest Rate (1)
- ---------------------------------------- ------------- ---------- --------- ------------- ----------- --------
Interest-earning assets:
Loans and leases .................... $ 5,384,692 $ 84,541 6.30% $ 5,426,851 $ 94,246 6.97%
Taxable investment securities ....... 2,044,602 18,390 3.61 1,529,697 21,185 5.55
Tax-exempt investment securities .... 251,813 2,526 4.02 232,691 2,491 4.29
Equity securities ................... 128,378 1,153 3.60 109,048 902 3.32
------------- ---------- --------- ------------- ----------- --------
Total Investment securities ............ 2,424,793 22,069 3.65 1,871,436 24,578 5.27
Short-term investments .............. 40,526 556 5.50 16,755 63 1.51
------------- ---------- --------- ------------- ----------- --------
Total interest-earning assets .......... 7,850,011 107,166 5.48% 7,315,042 118,887 6.52%
Noninterest-earning assets:
Cash and due from banks ............. 278,657 238,775
Premises and equipment .............. 121,811 124,501
Other assets ........................ 245,293 233,272
Less: Allowance for loan losses ..... (72,787) (73,058)
------------- -------------
Total Assets ..................... 8,422,985 $ 7,838,532
============= =============
Quarter Ended June 30, 2003 Quarter Ended June 30, 2002
-------------------------------------- --------------------------------------
Average Yield/ Average Yield/
LIABILITIES AND EQUITY Balance Interest Rate (1) Balance Interest Rate (1)
- ---------------------------------------- ------------- ---------- --------- ------------- ----------- -------
Interest-bearing liabilities:
Demand deposits ..................... $ 1,085,855 $ 1,496 0.55% $ 848,303 $ 1,368 0.65%
Savings deposits .................... 1,596,578 2,744 0.69 1,529,307 4,293 1.13
Time deposits ....................... 2,461,038 19,760 3.22 2,529,819 25,179 3.99
------------- ---------- --------- ------------- ----------- --------
Total Interest-bearing deposits ........ 5,143,471 24,000 1.87 4,907,429 30,840 2.52
Short-term borrowings ............... 596,312 1,692 1.14 503,366 2,057 1.64
Long-term debt ...................... 540,413 7,104 5.27 457,977 6,432 5.63
------------- ---------- --------- ------------- ----------- --------
Total interest-bearing liabilities ..... 6,280,196 32,796 2.09% 5,868,772 39,329 2.69%
Noninterest-bearing liabilities:
Demand deposits ..................... 1,181,072 1,042,356
Other ............................... 96,381 97,135
------------- -------------
Total Liabilities ................ 7,557,649 7,008,263
Shareholders' equity ................... 865,336 830,269
------------- -------------
Total Liabilities and
Shareholders' Equity ............ $ 8,422,985 $ 7,838,532
============= =============
Net interest income .................... $ 74,370 $ 79,558
========== ===========
Net interest margin (FTE) .............. 3.91% 4.48%
========= ========
<FN>
<F1>
(1) Yields on tax-exempt securities are not fully taxable equivalent (FTE).
</FN>
11
The following table summarizes the changes in interest income and expense due to
changes in average balances (volume) and changes in rates.
2003 vs. 2002 Increase
(decrease) due To change in
Volume Rate Net
-------- -------------- ---------
(in thousands)
Interest income on:
Loans and leases ................... $ (743) $ (8,962) $ (9,705)
Taxable investment securities ...... 6,911 (9,706) (2,795)
Tax-exempt investment securities ... 218 (183) 35
Equity securities .................. 163 88 251
Short-term investments ............. 90 403 493
-------- -------------- ---------
Total interest-earning assets ... $ 6,639 $ (18,360) $ (11,721)
======== ============== =========
Interest expense on:
Demand deposits .................... $ 356 $ (228) $ 128
Savings deposits ................... 193 (1,742) (1,549)
Time deposits ...................... (692) (4,727) (5,419)
Short-term borrowings .............. 378 (743) (365)
Long-term debt ..................... 1,192 (520) 672
-------- -------------- ---------
Total interest-bearing
liabilities .................... $ 1,427 $ (7,960) $ (6,533)
======== ============== =========
Interest income decreased $11.7 million, or 9.9%, mainly as a result of the 104
basis point decrease in average yields on earning assets, which accounted for an
$18.4 million decline in interest income. This decrease was partially offset by
an increase in interest income due to growth in average investment securities
balances, mainly in taxable investment securities. The interest income increase
attributable to volume was $6.6 million.
The decrease in the average yield on earning assets from the second quarter of
2002 was due to several factors. First was the general decrease in interest
rates as a result of the previously mentioned actions of the FRB. Second, an
approximately $250 million change in the mix of the loan portfolio from fixed
rate to floating rate loans occurred which trended the Corporation toward
greater asset sensitivity to interest-rate changes. Finally, investment
securities - which generally have lower yields than loans - became a larger
component of total average earning assets.
Average investment securities increased $553.4 million, or 29.6%, as the growth
in deposits and borrowings exceeded loan growth. The Corporation used the excess
funds to purchase investment securities, particularly mortgage-backed
securities, which grew $517.4 million, or 37.7%. The average yield on investment
securities declined 162 basis points from 5.27% in 2002 to 3.65% in 2003.
The Corporation's average loan portfolio decreased $42.2 million as increases in
commercial mortgages ($87.8 million, or 5.9%), and commercial loans ($158.7
million, or 10.2%) were more than offset by decreases in consumer loans ($69.2
million, or 11.6%) and residential mortgages ($226.0 million, or 15.6%).
Residential mortgages continued to decline as low mortgage rates fueled
refinance activity and most qualifying originated fixed rate mortgages were sold
in the secondary market. In addition, in August 2002 the Corporation sold
approximately $96 million of existing residential mortgages for asset/liability
management purposes. Consumer loans decreased due to payoffs as consumer debt
was replaced with mortgage debt and the Corporation electing not to compete with
manufacturer-sponsored automobile loan rate incentives.
Interest expense decreased $6.5 million, or 16.6%, mainly due to the decline in
interest rates. The 60 basis point decline in the average cost of
interest-bearing funds resulted in an $8.0 million decrease in interest expense.
The net $411.4 million, or 7.0%, increase in average interest-bearing
liabilities resulted in only a
12
$1.4 million increase in interest expense due to the change in the composition
of these liabilities from higher rate time deposits to lower rate demand and
savings accounts.
Interest bearing demand and savings deposits increased $304.8 million, or 12.8%,
while time deposits decreased $68.8 million, or 2.7%. This change in the deposit
mix reflects depositors' reluctance to reinvest maturing time deposits at the
current low rates. Short-term borrowings increased $92.9 million, or 18.5%, and
long-term debt increased $82.4 million, or 18.0%.
The increase in average short-term borrowings was realized in customer
repurchase agreements ($31.0 million, or 11.1%) and Federal funds purchased
($62.6 million, or 28.3%). Federal funds purchased were used to reduce interest
rate sensitivity to the previously mentioned change in the loan mix from fixed
to floating rates. Long-term debt increased $82.4 million, or 18.0%, from the
same period in 2002. The Corporation locked in longer term funding through the
use of advances from the Federal Home Loan Bank (FHLB) in order to take
advantage of the low interest rate environment.
Provision and Allowance for Loan Losses
- ---------------------------------------
The following table summarizes loans outstanding (including unearned income) as
of the dates shown:
June 30 December 31 June 30
2003 2002 2002
------------- -------------- -------------
(in thousands)
Commercial, financial and
agricultural ........................ $ 1,713,529 $ 1,679,100 $ 1,551,856
Real estate - construction ........... 270,468 248,565 241,769
Real estate - residential mortgage ... 1,216,674 1,244,781 1,403,604
Real estate - commercial mortgage .... 1,596,368 1,527,144 1,517,856
Consumer ............................. 523,196 543,040 585,288
Leasing and other .................... 71,163 74,438 73,839
------------- -------------- -------------
Total Loans ....................... $ 5,391,398 $ 5,317,068 $ 5,374,212
============= ============== =============
13
The following table summarizes the activity in the Corporation's allowance for
loan losses:
Three Months Ended
June 30
---------------------------
2003 2002
------------ ------------
(dollars in thousands)
Loans outstanding at end of period
(net of unearned) .............................. $ 5,391,398 $ 5,374,212
============ ============
Daily average balance of loans and leases ....... $ 5,384,692 $ 5,426,851
============ ============
Balance at beginning of period ................. $ 71,786 $ 72,083
Loans charged-off:
Commercial, financial and agricultural ....... 1,127 1,548
Real estate - mortgage ....................... 659 156
Consumer ..................................... 1,109 1,199
Leasing and other ............................ 67 132
------------ ------------
Total loans charged-off ...................... 2,962 3,035
------------ ------------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural ....... 224 100
Real estate - mortgage ....................... 156 191
Consumer ..................................... 509 740
Leasing and other ............................ 37 42
------------ ------------
Total recoveries ............................. 926 1,073
------------ ------------
Net loans charged-off ........................... 2,036 1,962
Provision for loan losses ....................... 2,490 2,680
------------ ------------
Balance at end of period ........................ $ 72,240 $ 72,801
============ ============
Net charge-offs to average loans (annualized) ... 0.15% 0.14%
============ ============
Allowance for loan losses to loans outstanding .. 1.34% 1.35%
============ ============
The following table summarizes the Corporation's non-performing assets as of the
indicated dates.
June 30 Dec. 31 June 30
2003 2002 2002
--------- --------- ---------
Nonaccrual loans ..................... $ 26,811 $ 24,090 $ 20,983
Loans 90 days past due and accruing .. 11,266 14,095 10,588
Other real estate owned (OREO) ....... 808 938 1,373
--------- --------- ---------
Total non-performing assets .......... $ 38,885 $ 39,123 $ 32,944
========= ========= =========
Non-accrual loans/Total loans ........ 0.50% 0.45% 0.39%
Non-performing assets/Total assets ... 0.45% 0.47% 0.42%
Allowance/Non-performing loans ....... 190% 188% 231%
The provision for loan losses for the second quarter of 2003 totaled $2.5
million, a decrease of $190,000, or 7.1%, from the same period in 2002. Net
charge-offs totaled $2.0 million, or 0.15% of average loans on an annualized
basis, during the second quarter of 2003, a $74,000, or 3.8% increase from $2.0
million, or 0.14%, in net charge-offs for the second quarter of 2002.
Non-performing assets increased to $38.9 million, or 0.45% of total assets, at
June 30, 2003, from $32.9 million, or 0.42% of total assets, at June 30, 2002.
14
The provision for loan losses resulted from the Corporation's allowance
allocation procedures. Trends that would indicate the need for a higher
provision include the general national and regional economies and the continued
growth in the Corporation's commercial loan and commercial mortgage portfolios,
which are inherently more risky than residential mortgages. Despite these
factors, the Corporation's asset quality measures have remained consistent over
the past several years.
Total non-performing assets decreased slightly from year-end and increased from
June 30, 2002 as a result of one commercial account for which an appropriate
allocation of the allowance has been made. Despite a consistent level of net
charge-offs compared to 2002, a decrease in the provision was appropriate based
on the Corporation's estimates of credit loss exposure in the loan portfolio.
Management believes that the allowance balance of $72.2 million at June 30, 2003
is sufficient to cover losses inherent in the loan portfolio on that date and is
appropriate based on accounting standards for the allowance and provision for
loan losses.
Other Income
- ------------
Other income for the quarter ended June 30, 2003 was $34.5 million, an increase
of $7.8 million, or 29.2%, over the comparable period in 2002. Excluding
investment securities gains, which increased from $2.0 million in 2002 to $4.8
million in 2003, other income increased $5.0 million, or 20.1%.
The most significant increase was realized in mortgage banking income, which
increased $3.1 million, or 110.0%, to $5.8 million. In the past year, the
Corporation has devoted additional resources to mortgage banking activities to
provide enhanced mortgage lending services throughout its geographic markets. In
addition, the national average rate for 30-year fixed rate mortgage loans
decreased 129 basis points from 6.72% in June of 2002 to 5.43% in June of 2003.
These factors resulted in an increase in mortgage loan originations of $176.5
million for a total of $336.1 million in the second quarter of 2003, as compared
to $159.6 million in the second quarter of 2002. In order to limit interest rate
risk, the Corporation generally sells the qualifying fixed rate mortgage loans
it originates. These sales resulted in gains of $6.0 million in the second
quarter of 2003, compared to $2.4 million in the second quarter of 2002. The
national average rate for 30-year fixed rate mortgage loans increased to 5.80%
in July of 2003. A sustained increase in mortgage rates may result in a
reduction in mortgage banking income in the future.
Investment management and trust services income increased $1.2 million, or
16.2%, due to an increase in brokerage service fee income, particularly on
fixed-rate annuity sales which have become popular in the current rate and
economic environment. In addition, the Corporation has increased its investment
and trust services practice through its subsidiary, Fulton Financial Advisors.
Service charges on deposit accounts increased $201,000, or 2.2%, due to growth
in transaction accounts, such as savings and demand deposits. Other service
charges and fees increased $435,000, or 10.2%, as the scope and penetration of
the Corporation's other services continued to expand.
Investment securities gains increased $2.8 million, or 143.9%, during the
period. Improvements in the equity markets bolstered the value of the
Corporation's equity portfolio during the quarter, resulting in increased
realized security gains.
Other Expenses
- --------------
Total other expenses for the second quarter of 2003 were $58.1 million,
representing an increase of $1.6 million, or 2.8%, from 2002. The increase was
due to a $1.9 million, or 5.8%, increase in salaries and benefits, and an
increase in occupancy expenses of $544,000, or 12.8%. Partially offsetting these
increases was a decrease in equipment expense of $128,000, or 4.7%, a decrease
in data processing expense of $174,000, or 5.9%, a decrease in advertising
expense of $73,000, or 3.9%, and a decrease in other expense of $484,000, or
4.1%.
Salary expense, excluding benefits, increased $1.6 million, or 5.6%, driven by
an increase in commissions for mortgage originators and investment brokerage
professionals as well as normal salary increases for
15
existing employees. Employee benefits expense increased $542,000, or 9.4% due
mainly to rising retirement plan expenses.
Net occupancy expense increased $544,000, or 12.8%, over the same period in
2002, due to general increases in rental expenses and real estate taxes as a
result of growth in the Corporation's branch network. Equipment expense
decreased $128,000, or 4.7%, due to a reduction in depreciation expense as
certain equipment became fully depreciated during 2002.
The 5.9% decrease in data processing expense was due to favorable renegotiations
of certain contracts for data processing services. Advertising expense decreased
$73,000, or 3.9%, and other expense decreased $484,000, or 4.1%, to $11.3
million in 2003.
Income Taxes
- ------------
Income tax expense for the second quarter of 2003 was $14.3 million, a $184,000,
or 1.3%, increase from $14.1 million in 2002. The Corporation's effective tax
rate was approximately 29.5% in 2003 as compared to 30.0% in 2002. The effective
rate is lower than the federal statutory rate of 35% due mainly to investments
in tax-free municipal securities and Federal tax credits from investments in low
and moderate income housing partnerships.
Six Months ended June 30, 2003 versus Six months ended June 30, 2002
- --------------------------------------------------------------------
The Corporation's net income for the first six months of 2003 increased $2.9
million, or 4.4%, in comparison to net income for the same period in 2002.
Diluted net income per share increased $0.04, or 6.7%, compared to 2002. Net
income for the first six months of 2003 of $68.1 million, or $0.64 per share
(basic and diluted), represented an annualized return on average assets (ROA) of
1.64% and an annualized return on average equity (ROE) of 15.88%.
Net Interest Income
- -------------------
For the first six months of 2003, net interest income decreased $5.9 million, or
3.8%. This decrease was due to decreasing interest rates and slow overall loan
growth. The Corporation's average prime lending rate decreased from 4.75% for
the first six months of 2002 to 4.25% during the same period in 2003 as a result
of the FRB reducing short-term interest rates in November, 2002 and June, 2003.
This reduction in an already low interest rate environment negatively impacted
the Corporation's net interest margin as average yields on earning-assets
decreased faster than the average cost of deposits. The June, 2003 reduction by
the FRB may result in further net interest margin compression in the third
quarter of 2003.
The following table provides a comparative average balance sheet and net
interest income analysis for the first six months of 2003 as compared to the
same period in 2002. All dollar amounts are in thousands.
16
Six Months Ended June 30, 2003 Six Months Ended June 30, 2002
----------------------------------------- ----------------------------------------
Average Yield/ Average Yield/
ASSETS Balance Interest Rate (1) Balance Interest Rate (1)
- -------------------------------------- ------------ ------------ --------- ------------ ------------ --------
Interest-earning assets:
Loans and leases .................. $ 5,365,939 $ 169,653 6.38% $ 5,408,413 $ 188,905 7.04%
Taxable investment securities ..... 2,002,056 39,124 3.94 1,464,280 40,814 5.62
Tax-exempt investment securities .. 246,526 5,046 4.13 226,217 4,872 4.34
Equity securities ................. 130,825 2,301 3.55 106,050 1,956 3.72
------------ ------------ --------- ------------ ------------ --------
Total investment securities .......... 2,379,407 46,471 3.94 1,796,547 47,642 5.35
Short-term investments ............ 47,720 1,226 5.18 15,371 139 1.82
------------ ------------ --------- ------------ ------------ --------
Total interest-earning assets ........ 7,793,066 217,350 5.62 7,220,331 236,686 6.61
Noninterest-earning assets:
Cash and due from banks ........... 268,164 241,845
Premises and equipment ............ 122,589 123,863
Other assets ...................... 241,731 230,316
Less: Allowance for loan losses ... (72,879) (72,751)
------------ ------------
Total Assets ................... $ 8,352,671 $ 7,743,604
============ ============
Interest-bearing liabilities:
Demand deposits ................... $ 1,067,839 $ 3,119 0.59% $ 834,698 $ 2,643 0.64%
Savings deposits .................. 1,566,393 5,623 0.72 1,492,423 8,407 1.14
Time deposits ..................... 2,486,483 40,965 3.32 2,567,157 53,364 4.19
------------ ------------ --------- ------------ ------------ --------
Total interest-bearing deposits ...... 5,120,715 49,707 1.96 4,894,278 64,414 2.65
Short-term borrowings ............. 603,838 3,445 1.15 444,657 3,570 1.62
Long-term debt .................... 540,659 14,190 5.29 460,825 12,814 5.61
------------ ------------ --------- ------------ ------------ --------
Total interest-bearing liabilities ... 6,265,212 67,342 2.17 5,799,760 80,798 2.81
Noninterest-bearing liabilities:
Demand deposits ................... 1,126,432 1,021,418
Other ............................. 96,036 100,316
------------ ------------
Total Liabilities .............. 7,487,680 6,921,494
Shareholders' equity ................. 864,991 822,110
------------ ------------
Total Liabilities and
Shareholders' Equity .......... $ 8,352,671 $ 7,743,604
============ ------------
Net interest income .................. $ 150,008 $ 155,888
============ ============
Net interest margin (FTE) ............ 3.99% 4.46%
========= ========
<FN>
<F1>
(1) Yields on tax-exempt securities are not fully taxable equivalent (FTE).
</FN>
17
The following table summarizes the changes in interest income and expense due to
changes in average balances (volume) and changes in rates.
Six Months Ended 2003 vs. 2002
Increase (decrease) due to change in
--------------------------------------------
Volume Rate Net
------------ -------------- ------------
(in thousands)
Interest income on:
Loans and leases ............ $ (2,298) $ (16,954) $ (19,252)
Taxable investment
securities ................. 51,657 (53,347) (1,690)
Tax-exempt investment
securities ................. 1,033 (859) 174
Equity securities ........... 967 (622) 345
Short-term investments ...... 493 594 1,087
------------ -------------- ------------
Total interest-earning
assets .................. $ 51,852 $ (71,188) $ (19,336)
============ ============== ============
Interest expense on:
Demand deposits ............. $ 1,608 $ (1,132) $ 476
Savings deposits ............ 594 (3,378) (2,784)
Time deposits ............... (2,691) (9,708) (12,399)
Short-term borrowings 4,320 (4,445) (125)
Long-term debt .............. 4,850 (3,474) 1,376
------------ -------------- ------------
Total interest-bearing
liabilities ............. $ 8,681 $ (22,137) $ (13,456)
============ ============== ============
Interest income decreased $19.3 million, or 8.2%, as a result of the 99 basis
point decrease in average yields, which caused a $71.2 million decline in
interest income. This was offset by a $51.9 million increase in interest income
mainly due to growth in average investment securities balances.
Average investment securities increased $582.9 million, or 32.4%, as the growth
in deposits and borrowings exceeded loan growth. The Corporation used the excess
funds to purchase investment securities, particularly mortgage-backed
securities, which grew $549.8 million, or 42.1%. The average yield on investment
securities declined 141 basis points from 5.35% in 2002 to 3.94% in 2003.
The Corporation's average loan portfolio decreased by approximately $42.5
million, or 0.8%. Growth in commercial mortgages ($95.7 million, or 6.5%) and
commercial loans ($169.2 million, or 11.0%) was more than offset by declines in
consumer loans ($76.7 million, or 12.6%) and residential mortgages ($224.7
million, or 15.4%). Residential mortgages continued to decline, as low mortgage
rates fueled refinance activity and most qualifying originated fixed rate
mortgages were sold in the secondary market. Consumer loans decreased due to
payoffs as consumer debt was replaced with mortgage debt and the runoff of
automobile loans as the Corporation elected not to compete on rate.
Interest expense decreased $13.5 million, or 16.7%, due to the decline in
interest rates. The 64 basis point decline in the average cost of
interest-bearing funds resulted in an $22.1 million decrease in interest
expense. The net $465.5 million, or 8.0%, increase in average interest-bearing
liabilities resulted in only a $8.7 million increase in interest expense due to
the change in the composition of these liabilities.
Interest bearing demand and savings deposits increased $307.1 million, or 13.2%,
while time deposits decreased $80.7 million, or 3.1%. This change in the deposit
mix reflects depositors' reluctance to reinvest maturing time deposits at the
current low rates. Short-term borrowings increased $159.2 million, or 35.8%, and
long-term debt increased $79.8 million, or 17.3%.
The increase in average short-term borrowings was realized in customer
repurchase agreements ($25.8 million, or 9.24%) and Federal funds purchased
($135.2 million or 83.8%). Federal funds purchased were
18
used to reduce interest rate sensitivity to the change in the loan mix from
fixed to floating rates. Long-term debt increased $79.8 million, or 17.3%, from
the same period in 2002.
Provision for Loan Losses
- -------------------------
The following table summarizes the activity in the Corporation's allowance for
loan losses:
Six Months Ended
June 30
---------------------------
2003 2002
------------ ------------
(dollars in thousands)
Loans outstanding at end of period
(net of unearned) .............................. $ 5,391,398 $ 5,374,210
============ ============
Daily average balance of loans and leases ....... $ 5,365,939 $ 5,408,413
============ ============
Balance of allowance for loan losses
at beginning of period ......................... $ 71,920 $ 71,872
Loans charged-off:
Commercial, financial and agricultural ....... 2,936 2,353
Real estate - mortgage ....................... 1,303 966
Consumer ..................................... 2,445 2,923
Leasing and other ............................ 227 321
------------ ------------
Total loans charged-off ...................... 6,911 6,563
------------ ------------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural ....... 534 478
Real estate - mortgage ....................... 371 229
Consumer ..................................... 952 1,282
Leasing and other ............................ 49 43
------------ ------------
Total recoveries ............................. 1,906 2,032
------------ ------------
Net loans charged-off ........................... 5,005 4,531
Provision for loan losses ....................... 5,325 5,460
------------ ------------
Balance at end of period ........................ $ 72,240 $ 72,801
============ ============
Net charge-offs to average loans (annualized) ... 0.19% 0.17%
============ ============
Allowance for loan losses to loans outstanding .. 1.34% 1.35%
============ ============
The provision for loan losses for the first six months of 2003 totaled $5.3
million, a decrease of $135,000, or 2.5%, from the same period in 2002. Net
charge-offs totaled $5.0 million, or 0.19% of average loans on an annualized
basis, during the first six months of 2003, a $474,000, or 10.5% increase from
$4.5 million, or 0.17%, in net charge-offs for the first six months of 2002.
Non-performing assets increased to $38.9 million, or 0.45% of total assets, at
June 30, 2003, from $32.9 million, or 0.42% of total assets, at June 30, 2002.
The provision for loan losses resulted from the Corporation's allowance
allocation procedures. Trends that would indicate the need for a higher
provision include the general national and regional economies and the continued
growth in the Corporation's commercial loan and commercial mortgage portfolios,
which are inherently more risky than residential mortgages. Despite these
factors, the Corporation's asset quality measures have remained consistent over
the past several years.
Total non-performing assets decreased slightly from year-end and increased from
June 30, 2002 as a result of one commercial account for which an appropriate
allocation of the allowance has been made.
19
Despite a consistent level of net charge-offs compared to 2002, a decrease in
the provision was appropriate based on the Corporation's estimates of credit
loss exposure in the loan portfolio..
Other Income
- ------------
Other income for the six months ended June 30, 2003 was $66.2 million. This was
an increase of $12.8 million, or 24.0%, over the comparable period in 2002.
Excluding investment security gains, which increased $3.7 million, or 109.0%, to
$7.0 million in 2003, other income increased $9.1 million, or 18.2%.
The most significant increase in other income for the first six months of 2003
was realized in mortgage banking income, which increased $5.7 million, or 94.5%,
to $11.8 million. The Corporation has devoted additional resources to mortgage
banking activities to provide enhanced mortgage lending services throughout its
geographic markets. In addition, the national average rate for new fixed rate
mortgage loans decreased 173 basis points from 7.16% in January of 2002 to 5.43%
in June of 2003. These factors contributed to a $106.9 million increase in
mortgage loan originations to $594.9 million in the first six months of 2003 as
compared to $488.0 million in the first six months of 2002. In order to limit
interest rate risk, the Corporation generally sells the qualifying fixed rate
mortgage loans it originates. These sales resulted in gains of $11.7 million for
the first six months of 2003, compared to $5.3 million in the first six months
of 2002. The national average rate for 30-year fixed rate mortgage loans
increased to 5.80% in July of 2003. A sustained increase in mortgage rates may
result in a reduction in mortgage banking income in the future.
Investment management and trust services income increased $2.4 million, or
16.3%, due to an increase in brokerage service fee income, particularly on
fixed-rate annuities which have become popular in the current rate and economic
environment. Service charges on deposit accounts increased $633,000, or 3.5%,
mainly due to growth in savings and demand deposits. Other service charges and
fees increased $916,000, or 10.9%, as the scope and penetration of the
Corporation's other services continued to expand.
Income from debit card transactions increased $315,000, or 13.5%, to $2.6
million for the first six months of 2003 due to an increase in purchase volumes.
In response to recent legal settlements between VISA and MasterCard and a third
party, the earnings rate paid by these companies on debit card purchase volumes
is expected to decrease by at least one third from August 1, 2003 through the
end of 2003. Due to uncertainties created by the terms of these settlements, the
impact on debit card income for the Corporation beyond 2003 cannot reasonably be
projected.
Other income decreased $557,000 to $2.2 million, mainly due to a reversal of
$848,000 of negative goodwill during the first six months of 2002.
Investment securities gains increased $3.7 million, or 108.8%. Investment
securities gains during the first six months of 2003 consisted of realized gains
of $7.0 million on the sale of equity securities and $3.2 million on the sale of
available for sale debt securities. These gains were offset by $3.2 million of
losses recognized for equity securities exhibiting other than temporary
impairment. Improvements, in the equity markets, particularly in the second
quarter of 2003, bolstered the value of the Corporation's equity portfolio,
resulting in increased realized security gains.
Other Expenses
- --------------
Total other expenses for the first six months of 2003 were $113.9 million, a
$2.5 million, or 2.3%, increase over the same period in 2002. The largest
increases were in salaries and benefits, which increased $4.1 million, or 6.5%,
and occupancy expense, which increased $1.3 million, or 15.6%. These increases
were partially offset by decreases in equipment expense of $247,000, or 4.5%,
data processing expense of $523,000 or 8.5%, advertising of $634,000, or 17.4% ,
and other expense of $1.6 million, or 6.7%.
Salaries and employee benefits increased $4.1 million, or 6.5 %, to $67.8
million in comparison to the first six months of 2002 of $63.7 million. The
salary expense component increased $3.1 million, or 6.1%, driven by increases in
commissions paid in mortgage banking and trust services and normal salary
increases for
20
existing employees. The employee benefits component of the expense increased
$823,000, or 7.4%, due mainly to rising retirement plan expenses.
Net occupancy expense increased $1.3 million, or 15.6%, over the same period in
2002, due to general increases in rental costs and real estate taxes. In
addition, utilities expense and snow removal costs increased significantly
during the first quarter of 2003 due to the relatively harsh winter in the
Corporation's geographic locations.
Equipment expense decreased $247,000, or 4.5%, due to a reduction in
depreciation expense as certain equipment became fully depreciated during the
period. Data Processing expense decreased $523,000, or 8.5% due to favorable
renegotiations of certain third-party contracts. Advertising expense decreased
$634,000, or 17.4%, due to a significant branding campaign at the Corporation's
lead bank in 2002. Other expense decreased $1.6 million, or 6.7%, to $21.6
million in 2003.
Income Taxes
- ------------
Income tax expense for the six months ended June 30, 2003 was $28.8 million, a
$1.7 million, or 6.1%, increase from $27.2 million in 2002. The Corporation's
effective tax rate was approximately 29.7% in 2003 as compared to 29.4% in 2002.
The effective rate is lower than the federal statutory rate of 35%, due mainly
to investments in tax-free municipal securities and Federal tax credits from
investments in low and moderate income housing partnerships
FINANCIAL CONDITION
- -------------------
Total assets of the Corporation at June 30, 2003 increased $231.5 million, or
2.8%, to $8.6 billion at June 30, 2003 from $8.4 billion at December 31, 2002.
Investment securities increased $132.5 million, or 5.5%, as the growth in
deposits and borrowings exceeded loan growth. The Corporation used the excess
funds to purchase investment securities, particularly mortgage-backed
securities, which grew $92.8 million, or 5.0%.
Loans outstanding, net of unearned income, increased $74.3 million, or 1.4%,
during the period. Commercial loans and commercial mortgages increased $103.6
million, or 3.2%, offset by a decrease in residential mortgages ($28.1 million,
or 2.3%) as a result of refinance activity. In addition, consumer loans and
leases declined $23.1 million, or 3.7%.
Cash and due from banks increased $39.4 million, or 12.5%, during the period due
to fluctuations in the normal course of business. Accrued interest receivable
decreased $3.6 million to $32.0 million at June 30, 2003 as a result of
decreases in interest rates. Other assets increased $4.0 million to $117.1
million due to an increase in deferred tax assets as the net unrealized gain on
investment securities decreased.
Deposits increased $191.5. million, or 3.1%, from December 31, 2002. Savings
deposits and demand deposits increased by $215.1 million and $67.5 million,
respectively, while time deposits decreased $91.1 million. This reflects a
continuing sentiment in the financial community that interest rates will start
to rise in the future, leaving consumers reluctant to invest in time deposits at
the current lower rates.
Short-term borrowings, which consist mainly of Federal funds purchased and
customer cash management accounts, decreased $32.2 million, or 5.1%, during the
first six months of 2003. Federal funds purchased decreased $80 million, or
24.2%, while customer cash management accounts increased $49.8 million, or
16.7%. Federal funds purchased decreased as a result of the increase in deposits
exceeding the demand for loans. Long-term debt decreased $1.1 million, or 0.2%,
as a result of maturing Federal Home Loan Bank advances.
Other liabilities increased $66.7 million, or 85.9%, mainly due to $73.0 million
of investment securities which were purchased in June, but had not yet settled
at June 30, 2003.
21
Capital Resources
- -----------------
Total shareholders' equity increased $9.9 million during the first six months of
2003. Increases due to net income of $68.1 million and $4.0 million in issuances
of stock, were offset by $32.0 million in cash dividends to shareholders, $21.3
million of stock repurchases and $8.9 million in net unrealized losses on
securities.
The Corporation and its subsidiary banks are subject to various regulatory
capital requirements administered by banking regulators. Failure to meet minimum
capital requirements can initiate certain actions by regulators that could have
a material effect on the Corporation's financial statements. The regulations
require that banks maintain minimum amounts and ratios of total and Tier I
capital (as defined in the regulations) to risk weighted assets (as defined),
and Tier I capital to average assets (as defined). As of June 30, 2003, the
Corporation and each of its bank subsidiaries met the minimum capital
requirements. In addition, the Corporation and each of its bank subsidiaries'
capital ratios exceeded the amounts required to be considered "well-capitalized"
as defined in the regulations.
On December 17, 2002, the Board of Directors approved a program to repurchase up
to 3.2 million shares through June 30, 2003 (the plan was subsequently extended
to December 31, 2003). Stock repurchased was added to the Corporate treasury to
be used for general corporate purposes. During the first six months of 2003, the
Corporation repurchased 1.2 million shares under this plan.
Liquidity
- ---------
The Corporation must maintain a sufficient level of liquid assets to meet the
cash needs of its customers, who, as depositors, may want to withdraw funds or
who, as borrowers, need credit availability. Liquidity is provided through
scheduled and unscheduled principal and interest payments on outstanding loans
and investments and through the availability of deposits and borrowings. In
addition, the Corporation can borrow on a secured basis from the Federal Home
Loan Bank to meet short-term liquidity needs.
The Corporation's sources and uses of cash were discussed in general terms in
the net interest income section of Management's Discussion. The Consolidated
Statements of Cash Flows provide additional information. The Corporation
generated $86.7 million in cash from operating activities during the first six
months of 2003, mainly due to net income. Investing activities resulted in a net
cash outflow of $157.9 million, compared to a net cash outflow of $194.8 million
in 2002, as proceeds from sales and maturities of investment securities
increased in proportion to purchases, as compared to the prior year. Finally,
financing activities resulted in a net inflow of $110.6 million as excess funds
from net deposit growth exceeded payments of borrowings and net common stock
activity.
Liquidity must also be managed at the Fulton Financial Corporation Parent
Company level. For safety and soundness reasons, banking regulations limit the
amount of cash that can be transferred from subsidiary banks to the Parent
Company in the form of loans and dividends. Generally, these limitations are
based on the subsidiary banks' regulatory capital levels and their net income.
The Parent Company has historically been able to meet its cash needs through
normal, allowable dividends and loans. If additional cash needs arise that
cannot be met through such dividends and loans, the Parent Company may need to
pursue alternative funding sources, including stock or debt issuances.
22
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------------------
Market risk is the exposure to economic loss that arises from changes in the
values of certain financial instruments. The types of market risk exposures
generally faced by financial institutions include interest rate risk, equity
market price risk, foreign currency risk and commodity price risk. Due to the
nature of its operations, only equity market price risk and interest rate risk
are significant to the Corporation.
Equity Market Price Risk
- ------------------------
Equity market price risk is the risk that changes in the values of equity
investments could have a material impact on the financial position or results of
operations of the Corporation. The Corporation's equity investments consist
primarily of common stocks of publicly traded financial institutions with a cost
basis of approximately $73.8 million and a fair value of $82.9 million at June
30, 2003. The Corporation's financial institutions stock portfolio had gross
unrealized gains of approximately $11.0 million at June 30, 2003.
Although the carrying value of equity investments accounted for less than 1.0%
of the Corporation's total assets, the unrealized gains on the portfolio
represent a potential source of revenue. The Corporation has a history of
periodically realizing gains from this portfolio and, if values were to decline
significantly, this revenue source could be lost.
Management continuously monitors the fair value of its equity investments and
evaluates current market conditions and operating results of the companies.
Periodic sale and purchase decisions are made based on this monitoring process.
None of the Corporation's equity securities are classified as trading. Future
cash flows from these investments are not provided in the table on page 24, as
such investments do not have maturity dates.
Certain of the Corporation's equity investments had shown negative returns in
tandem with the general performance of equity markets, as of the end of the
first quarter of 2003. The Corporation had evaluated, based on current and
proposed accounting guidance, whether the decreases in value of any of these
investments constituted "other than temporary" impairment which would require a
write-down through a charge to earnings. During the first quarter of 2003, the
Corporation recorded a pre-tax charge of $3.2 million for specific equity
securities which were determined to exhibit "other than temporary" impairment in
value as of March 31, 2003. During the second quarter of 2003, these securities
showed unrealized gains of $600,000 compared to their adjusted carrying amounts.
The Corporation continues to monitor its portfolio and will record additional
impairment charges if appropriate.
In addition to its equity portfolio, the Corporation's investment management and
trust services revenue could be impacted by fluctuations in the securities
markets. A portion of the Corporation's trust revenue is based on the value of
the underlying investment portfolios. If securities markets contract, the
Corporation's revenue could be negatively impacted. In addition, the ability of
the Corporation to sell its equities brokerage services is dependent, in part,
upon consumers' level of confidence in the outlook for rising securities prices.
Interest Rate Risk
- ------------------
Interest rate risk creates exposure in two primary areas. First, changes in
rates have an impact on the Corporation's liquidity position and could affect
its ability to meet obligations and continue to grow. Second, movements in
interest rates can create fluctuations in the Corporation's net income and
changes in the economic value of its equity.
The Corporation employs various management techniques to minimize its exposure
to interest rate risk. An Asset/Liability Management Committee (ALCO),
consisting of key financial and senior management personnel, meets on a weekly
basis. The ALCO is responsible for reviewing the interest rate sensitivity
position of the Corporation, approving asset and liability management policies,
and overseeing the
23
formulation and implementation of strategies regarding balance sheet positions
and earnings. The primary goal of asset/liability management is to address the
liquidity and net income risks noted above.
The following table provides information about the Corporation's interest rate
sensitive financial instruments. The table provides expected cash flows and
weighted average rates for each significant interest rate sensitive financial
instrument, by expected maturity period. None of the Corporation's financial
instruments are classified as trading.
Expected Maturity Period
----------------------------------------------------------------------------- Estimated
2003 2004 2005 2006 2007 Beyond Total Fair Value
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
Fixed rate loans (1) .... $ 933,973 $ 624,337 $ 438,576 $ 295,556 $ 187,412 $ 448,648 $ 2,928,502 $ 3,168,897
Average rate ......... 6.76% 7.00% 6.95% 7.02% 6.95% 7.09% 6.93%
Floating rate loans (1) . 935,635 302,082 219,685 180,739 141,282 683,473 2,462,896 2,430,298
Average rate ......... 5.08% 5.27% 5.31% 5.34% 4.52% 4.33% 4.90%
Fixed rate
investments (2) ........ 1,267,779 526,641 222,952 123,332 110,653 128,290 2,379,647 2,410,429
Average rate ......... 3.89% 3.74% 3.91% 4.31% 4.53% 3.76% 3.90%
Floating rate
investments (2) ........ 1,000 -- -- -- -- 6,612 7,612 7,612
Average rate ......... 7.48% -- -- -- -- 3.35% 3.89%
Other interest-earning
assets ................. 65,611 -- -- -- -- -- 65,611 65,611
Average rate ......... 5.78% -- -- -- -- -- 5.78%
-------------------------------------------------------------------------------------------------------
Total ................... $ 3,203,998 $ 1,453,060 $ 881,213 $ 599,627 $ 439,347 $ 1,267,023 $ 7,844,268 $ 8,082,847
Average rate ......... 5.11% 5.46% 5.77% 5.96% 5.56% 5.24% 5.36%
-------------------------------------------------------------------------------------------------------
Fixed rate deposits (3) . $ 1,234,086 $ 517,051 $ 174,787 $ 177,079 $ 94,482 $ 74,293 $ 2,271,778 $ 2,335,977
Average rate ......... 2.56% 3.53% 3.58% 4.76% 4.29% 4.80% 3.18%
Floating rate
deposits (4) ........... 1,588,009 155,933 155,933 155,933 155,933 1,953,504 4,165,245 4,165,245
Average rate ......... 0.97% 0.12% 0.12% 0.12% 0.12% 0.11% 0.44%
Fixed rate
borrowings (5) ......... 41,281 5,262 78,257 10,272 140,417 258,967 534,456 580,683
Average rate ......... 4.61% 6.38% 6.29% 3.44% 4.72% 5.13% 5.13%
Floating rate
borrowings (6) ......... 599,995 -- -- -- -- -- 599,995 599,995
Average rate ......... 1.00% -- -- -- -- -- 1.00%
-------------------------------------------------------------------------------------------------------
Total ................... $ 3,463,371 $ 678,246 $ 408,977 $ 343,284 $ 390,832 $ 2,286,764 $ 7,571,474 $ 7,681,900
Average rate ......... 1.59% 2.77% 2.78% 2.61% 2.78% 0.83% 1.64%
-------------------------------------------------------------------------------------------------------
<FN>
Assumptions:
- -----------
<F1> (1) Based on contractual maturities, adjusted for expected prepayments.
<F2> (2) Based on contractual maturities, adjusted for expected prepayments on
mortgage-backed securities.
<F3> (3) Based on contractual maturities of time deposits.
<F4> (4) Money market and Super NOW deposits are shown in first year. NOW and
savings accounts are spread based on history of deposit flows.
<F5> (5) Amounts are based on expected payoffs and calls of Federal Home Loan
Bank advances.
<F6> (6) Amounts are Federal funds purchased and securities sold under
agreements to repurchase, which mature in less than 90 days.
</FN>
The Corporation uses three complementary methods to measure and manage interest
rate risk. They are static gap analysis, simulation of earnings, and estimates
of economic value of equity. Using these measurements in tandem provides a
reasonably comprehensive summary of the magnitude of interest rate risk in the
Corporation, level of risk as time evolves, and exposure to changes in interest
rate relationships.
Static gap provides a measurement of repricing risk in the Corporation's balance
sheet as of a point in time. This measurement is accomplished through
stratification of the Corporation's assets and liabilities into repricing
periods based on contractual repricings and maturities and other assumptions.
The assumptions used are monitored and periodically revised based on current
market conditions. Core deposits not having a contractual maturity are placed
into repricing periods based upon historical balance performance. Repricing for
mortgage loans held and for mortgage-backed securities reflect both
24
contractual maturities and estimated prepayments based upon industry projections
for prepayment speeds.
The Corporation's policy provides that the cumulative 6-month gap should be
managed to within plus or minus 15% of total earning assets. In the current
interest rate environment, the Corporation's gap has continued to trend positive
as the majority of the commercial loan growth has been floating rate and
significant amounts of long-term fixed rate residential mortgages have prepaid.
The Corporation will continue to focus on strategies to reduce the gap in the
third quarter.
Simulation of net interest income and of net income is performed for the next
twelve-month period. A variety of interest rate scenarios is used to measure the
effects of sudden and gradual movements upward and downward in the yield curve.
These results are compared to the results obtained in a flat or unchanged
interest rate scenario. Simulation of earnings is used primarily to measure the
Corporation's short-term earnings exposure to rate movements. The Corporation's
policy limits the potential exposure of net interest income to 10% of the base
case net interest income for every 100 basis point "shock" in interest rates. A
"shock' is an immediate upward or downward movement of interest rates across the
yield curve based upon changes in the prime rate. The following table summarizes
the expected impact of interest rate shocks on net interest income. These
results are not necessarily indicative of future operating results, nor do they
reflect certain actions that the Corporation may take in response to future
interest rate changes.
Annual change
in net interest
Rate Shock income % Change
- ---------- --------------- ---------
+300 bp +$ 34.6 million + 12.2%
+200 bp +$ 26.5 million + 9.4%
+100 bp +$ 16.7 million + 5.9%
-100 bp -$ 17.5million - 6.2%
Economic value of equity estimates the discounted present value of asset cash
flows and liability cash flows. Discount rates are based upon market prices for
like assets and liabilities. Upward and downward shocks of interest rates are
used to determine the comparative effect of such interest rate movements
relative to the unchanged environment. This measurement tool is used primarily
to evaluate the longer-term re-pricing risks and options in the Corporation's
balance sheet. A policy limit of 10% of economic equity may be at risk for every
100 basis point "shock" movement in interest rates. The following table
summarizes the expected impact of interest rate shocks on economic value of
equity.
Change in
economic value
Rate Shock of equity % Change
- ----------- --------------- ---------
+300 bp -$ 31.5million + 2.3%
+200 bp +$ 34.1million + 2.4%
+100 bp +$ 43.2million + 3.1%
-100 bp -$ 38.1million - 2.7%
25
Item 4. Controls and Procedures
- --------------------------------------------------------------------------------
The Corporation carried out an evaluation, under the supervision and with the
participation of the Corporation's management, including the Corporation's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15. Based upon that evaluation, the Corporation's Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of
the period covered by this quarterly report, the Corporation's disclosure
controls and procedures are effective. Disclosure controls and procedures are
controls and procedures that are designed to ensure that information required to
be disclosed in Corporation reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.
There have been no changes in our internal control over financial reporting
during the fiscal quarter covered by this quarterly report that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
26
PART II -- OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------------------------------------------
(a) Exhibits -- The following is a list of the exhibits required by Item
601 of Regulation S-K and filed as part of this report:
(1) Articles of incorporation, as amended and restated, and Bylaws of
Fulton Financial Corporation, as amended - Incorporated by
reference from Exhibit 3 of the Fulton Financial Corporation
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
(2) Instruments defining the right of securities holders, including
indentures:
(a) Rights Agreement dated June 20, 1989, as amended and
restated on April 27, 1999 between Fulton Financial
Corporation and Fulton Bank - Incorporated by reference from
Exhibit 1 of the Fulton Financial Corporation Current Report
on Form 8-K dated April 27, 1999.
(3) Material Contracts - Executive Compensation Agreements and Plans:
(a) Severance Agreements entered into between Fulton Financial
and: Rufus A. Fulton, Jr., as of April 17, 1984; R. Scott
Smith, Jr., as of May 17, 1988; Richard J Ashby, Jr., as of
May 17, 1988; and Charles J. Nugent, as of November 19, 1992
- Incorporated by reference from Exhibit 10(a) of the Fulton
Financial Corporation Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
(b) Incentive Stock Option Plan adopted September 19, 1995 -
Incorporated by reference from Exhibit A of Fulton Financial
Corporation's 1996 Proxy Statement.
(b) Reports on Form 8-K:
(1) Form 8-K dated April 15, 2003 reporting a presentation made at
Fulton Financial Corporation's Annual Meeting of Shareholders
which provided an overview of the Corporation's 2002 performance.
(2) Form 8-K dated April 15, 2003 filing the Corporation's press
release of financial results for the quarter-ended March 31,
2003.
(3) Form 8-K dated June 11, 2003 reporting a presentation at an
investor meeting to provide an overview of the Corporation's
strategy and performance.
(4) Form 8-K dated July 15, 2003 filing the Corporation's press
release of financial results for the quarter-ended June 30, 2003.
(5) Form 8-K dated July 29, 2003 reporting a presentation at an
investor meeting to provide an overview of the Corporation's
strategy and performance.
(6) Form 8-K dated August 4, 2003 reporting the effective date of the
Premier Bancorp, Inc. acquisition.
27
(7) FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FULTON FINANCIAL CORPORATION
Date: August 13, 2003 /s/ Rufus A. Fulton, Jr.
------------------------ --------------------------------------
Rufus A. Fulton, Jr.
Chairman and Chief Executive Officer
Date: August 13, 2003 /s/ Charles J. Nugent
------------------------ --------------------------------------
Charles J. Nugent
Senior Executive Vice President and
Chief Financial Officer
28
EXHIBIT INDEX
Exhibits Required Pursuant
to Item 601 of Regulation S-K
-----------------------------
3. Articles of incorporation, as amended and restated, and Bylaws of Fulton
Financial Corporation as amended.
4. Instruments defining the rights of security holders, including indentures.
(a) Rights Agreement dated June 20, 1989, as amended and restated on April
27, 1999 between Fulton Financial Corporation and Fulton Bank -
Incorporated by reference to Exhibit 1 of the Fulton Financial
Corporation Current Report on Form 8-K dated April 27, 1999.
10. Material Contracts
(a) Severance Agreements entered into between Fulton Financial and: Rufus
A. Fulton, Jr., as of April 17, 1984; R. Scott Smith, Jr., as of May
17, 1988; Charles J. Nugent, as of November 19, 1992; and Richard
J Ashby, Jr., as of May 17, 1988.
(b) Incentive Stock Option Plan adopted September 19, 1995 - Incorporated
by reference from Exhibit A of Fulton Financial Corporation's 1996
Proxy Statement.
31 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.1 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
29