<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20459
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997 , 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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $2.50 Par Value -- 35,988,729 shares outstanding as of
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April 25, 1997.
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<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
-----
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
(a) Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996....................................3
(b) Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996..............................4
(c) Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996..............................5
(d) Notes to Consolidated Financial Statements - March 31, 1997.............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................14
SIGNATURES..................................................................15
</TABLE>
2
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
----------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks ........................................................... $ 197,119 $ 175,376
Interest-bearing deposits with other banks ........................................ 1,571 2,053
Mortgage loans held for sale ...................................................... 144 125
Investment securities:
Held to maturity (Fair value: $366,065 in 1997 and $428,555 in 1996) ......... 369,231 428,793
Available for sale ........................................................... 367,522 331,082
Loans ............................................................................. 3,055,032 2,970,603
Less: Allowance for loan losses .............................................. (45,006) (43,829)
Unearned income .................................................... (7,851) (8,080)
--------------- --------------
Net Loans ...................................................... 3,002,175 2,918,694
--------------- --------------
Premises and equipment ............................................................ 57,532 56,948
Accrued interest receivable ....................................................... 25,268 26,340
Other assets ...................................................................... 77,360 82,103
--------------- --------------
Total Assets ................................................... $ 4,097,922 $ 4,021,514
=============== ==============
LIABILITIES
- -------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing .......................................................... $ 545,294 $ 529,117
Interest-bearing ............................................................. 2,837,816 2,757,548
--------------- --------------
--------------- --------------
Total Deposits ................................................. 3,383,110 3,286,665
--------------- --------------
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase.... 143,618 205,670
Demand notes of U.S. Treasury ................................................ 5,000 4,992
--------------- --------------
--------------- --------------
Total Short-Term Borrowings .................................... 148,618 210,662
--------------- --------------
Accrued interest payable .......................................................... 23,818 20,456
Other liabilities ................................................................. 64,737 44,397
Long-term debt .................................................................... 58,648 49,560
--------------- --------------
--------------- --------------
Total Liabilities .............................................. 3,678,931 3,611,740
--------------- --------------
SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------
Common stock ($2.50 par)
Shares: Authorized 100,000,000
Issued and Outstanding 35,973,781 (35,902,939 in 1996)................ 89,934 89,757
Capital surplus ................................................................... 216,008 215,638
Retained earnings ................................................................. 104,220 94,949
Net unrealized holding gains on securities available for sale...................... 8,829 9,430
--------------- --------------
Total Shareholders' Equity .................................... 418,991 409,774
--------------- --------------
Total Liabilities and Shareholders' Equity .................... $ 4,097,922 $ 4,021,514
=============== ==============
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements
3
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
Three Months Ended March 31
--------------------------------------
1997 1996
--------------------------------------
INTEREST INCOME
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans, including fees ............................................................. $ 63,357 $ 58,026
Investment securities:
Taxable ...................................................................... 9,507 9,744
Tax-exempt ................................................................... 719 937
Dividends .................................................................... 594 500
Federal funds sold ................................................................ 26 323
Interest-bearing deposits with other banks ........................................ 20 55
----------------- ----------------
Total Interest Income ........................................... 74,223 69,585
INTEREST EXPENSE
- ---------------------------------------------------------------------------------------------------------------------------
Deposits .......................................................................... 28,476 27,861
Short-term borrowings ............................................................. 2,143 1,597
Long-term debt .................................................................... 847 543
----------------- ----------------
Total Interest Expense ........................................... 31,466 30,001
Net Interest Income .............................................. 42,757 39,584
PROVISION FOR LOAN LOSSES ......................................................... 1,794 721
----------------- ----------------
Net Interest Income After Provision for Loan Losses .............. 40,963 38,863
----------------- ----------------
OTHER INCOME
- ---------------------------------------------------------------------------------------------------------------------------
Trust department .................................................................. 2,339 1,902
Service charges on deposit accounts ............................................... 3,613 3,172
Other service charges and fees .................................................... 2,033 2,108
Gain on sale of mortgage loans .................................................... 228 273
Investment securities gains ....................................................... 1,980 1,031
----------------- ----------------
10,193 8,486
OTHER EXPENSES
- ---------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits .................................................... 16,071 14,620
Net occupancy expense ............................................................. 2,617 2,599
Equipment expense ................................................................. 1,725 1,504
FDIC assessment expense ........................................................... 148 250
Special services .................................................................. 1,649 1,584
Other ............................................................................. 7,039 7,211
----------------- ----------------
29,249 27,768
Income Before Income Taxes ...................................... 21,907 19,581
INCOME TAXES....................................................................... 6,512 5,839
----------------- ----------------
Net Income ...................................................... $ 15,395 $ 13,742
================= ================
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA:
Net income ........................................................................ $ 0.43 $ 0.38
Cash dividends .................................................................... $ 0.170 $ 0.151
Weighted average shares outstanding ............................................... 35,948,228 35,771,715
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements
4
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------------
1997 1996
----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income...................................................................... $ 15,395 $ 13,742
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses ................................................. 1,794 721
Depreciation and amortization of premises and equipment ................... 1,707 1,477
Net amortization of investment security premiums .......................... 49 67
Gain on sale of investment securities ..................................... (1,980) (1,031)
Net (increase) decrease in mortgage loans held for sale.................... (19) 647
Amortization of intangible assets ......................................... 379 367
Decrease in accrued interest receivable ................................... 1,072 352
Decrease in other assets .................................................. 4,541 4,299
Increase in accrued interest payable ...................................... 3,362 2,034
Increase (decrease) in other liabilities................................... 5,723 (1,159)
-------------- --------------
Total adjustments.................................................... 16,628 7,774
-------------- --------------
Net cash provided by operating activities ............................ 32,023 21,516
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale ........................... 55,842 39,006
Proceeds from maturities of securities held to maturity ........................ 60,147 79,835
Proceeds from maturities of securities available for sale ...................... 4,827 4,544
Purchase of securities held to maturity ........................................ (601) (88,537)
Purchase of securities available for sale ...................................... (81,840) (80,555)
Decrease in short-term investments ............................................. 482 1,675
Net increase in loans .......................................................... (85,275) (40,321)
Purchase of premises and equipment.............................................. (2,291) (3,427)
-------------- --------------
Net cash used in investing activities ................................ (48,709) (87,780)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits .................................... 3,736 879
Net increase in time deposits .................................................. 92,709 56,756
Increase (decrease) in long-term debt........................................... 9,088 (5,938)
(Decrease) increase in short-term borrowings ................................... (62,044) 23,222
Dividends paid ................................................................. (5,607) (5,416)
Net proceeds from issuance of common stock ..................................... 547 1,125
Acquisition of treasury stock .................................................. - (1,217)
-------------- --------------
Net cash provided by financing activities............................. 38,429 69,411
-------------- --------------
Net Increase in Cash and Due From Banks ........................................ 21,743 3,147
Cash and Due From Banks at Beginning of Period ................................. 175,376 162,084
-------------- --------------
Cash and Due From Banks at End of Period ....................................... $ 197,119 $ 165,231
============== ==============
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest .................................................................. $ 28,104 $ 27,967
Income taxes .............................................................. $ - $ -
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements
5
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
NOTE B - Net Income Per Share
Net income per share is computed on the basis of the weighted average number of
common shares outstanding.
NOTE C - Mergers and Acquisitions
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 wholly-owned subsidiary of the Corporation
and each of the outstanding shares of Woodstown common stock was converted into
1.6 shares of the common stock of the Corporation.
The Corporation issued 2.9 million shares of its common stock in connection with
the merger. The transaction was accounted for as a pooling of interests and all
financial statements and financial information contained herein have been
restated to include the amounts and results of operations of Woodstown for all
periods presented.
Woodstown is headquartered in Woodstown, New Jersey and operates six branch
offices in Salem and Gloucester Counties. Woodstown had approximately $260
million in total assets as of February 28, 1997.
The following sets forth selected unaudited financial data for the Corporation
and Woodstown for the two months ended February 28, 1997:
<TABLE>
<CAPTION>
Corporation Woodstown
----------- ---------
<S> <C> <C>
Net interest income............. $ 25,105 $ 3,169
Other income.................... 6,513 224
----------------- -----------------
Total income.................... $ 31,618 $ 3,393
================= =================
Net income...................... $ 10,300 $ 628
================= =================
</TABLE>
The effect of the merger on the Corporation's previously reported revenues, net
income and net income per share for the three months ended March 31, 1996
follows:
6
<PAGE>
Three months ended March 31, 1996:
- ----------------------------------
<TABLE>
<CAPTION>
Corporation Woodstown Restated
----------- --------- --------
<S> <C> <C> <C>
Net interest income............. $ 37,021 $ 2,563 $ 39,584
Other income.................... 7,871 615 8,486
---------------- ---------------- ----------------
Total income.................... $ 44,892 $ 3,178 $ 48,070
================ ================ ================
Net income...................... $ 12,720 $ 1,022 $ 13,742
================ ================ ================
Net income per share............ $ 0.39 $ 0.57 $ 0.38
================ ================ ================
</TABLE>
The Peoples Bank of Elkton - On March 18, 1997, the Corporation entered into an
Affiliation and Merger Agreement with The Peoples Bank of Elkton (Elkton) under
the terms of which the Corporation will acquire each of the 231,000 outstanding
shares of the common stock of Elkton in exchange for 3.78 shares of the
Corporation's common stock.
The acquisition is subject to approval by bank regulatory authorities and Elkton
shareholders and is expected to close in the third or fourth quarter of 1997.
The acquisition will be accounted for as a pooling of interests.
Elkton is located in Elkton, Maryland and operates two branch offices. As of
March 31, 1997, Elkton had approximately $92 million in assets. Elkton will be
the Corporation's second banking affiliate in the State of Maryland.
NOTE D - New Accounting Standards
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 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 the
applicable provisions of Statement 125, on January 1, 1997 and intends to adopt
the remaining provisions on January 1, 1998. No material financial statement
impact is expected.
Earnings Per Share: Statement of Financial Accounting Standards No. 128,
- ------------------
"Earnings Per Share" (Statement 128) was issued in February, 1997. Statement 128
simplifies the standards for computing earnings per share (EPS) previously found
in Accounting Principles Board Opinion No. 15 and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures. It also requires a reconciliation of the numerator and denominator
of basic and diluted EPS. Statement 128 is effective for periods ending after
December 15, 1997 and requires restatement of all prior-period EPS data
presented. Statement 128 will not have a significant impact on the earnings per
share of the Corporation.
7
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
MERGER AND ACQUISITIONS
- -----------------------
In recent years, the Corporation has engaged in the strategic acquisition of
banks with similar operating philosophies located in desirable suburban or rural
markets. This external growth strategy, coupled with the internal growth of the
Corporation's existing franchise, is intended to increase the value of the
Corporation to customers, employees and shareholders. During the first quarter
of 1997, the Corporation completed one previously announced acquisition and
announced a second.
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) of Woodstown, New Jersey. 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 Woodstown
common stock was exchanged for 1.6 shares of the common stock of the
Corporation. The Corporation issued 2.9 million shares of its common stock in
conjunction with the merger. Woodstown, with approximately $260 million in
assets, became the Corporation's tenth banking subsidiary and second located in
New Jersey.
The transaction was accounted for as a pooling of interests. All of the
financial information contained herein has been restated to reflect the
financial condition and results of operations of Woodstown.
The Peoples Bank of Elkton - On March 18, 1997, the Corporation entered into an
Affiliation and Merger Agreement with The Peoples Bank of Elkton (Elkton) under
the terms of which the Corporation will acquire each of the 231,000 outstanding
shares of the common stock of Elkton in exchange for 3.78 shares of the
Corporation's common stock. The acquisition is subject to approval by bank
regulatory authorities and Elkton shareholders and is expected to close in the
third or fourth quarter of 1997. The acquisition will be accounted for as a
pooling of interests.
Elkton is located in Elkton, Maryland and operates two branch offices. As of
March 31, 1997, Elkton had approximately $92 million in assets. The acquisition
will be the Corporation's second in the State of Maryland.
RESULTS OF OPERATIONS
- ---------------------
Quarter ended March 31, 1997 versus Quarter ended March 31, 1996
- ----------------------------------------------------------------
Fulton Financial Corporation's net income for the first quarter of 1997
increased $1.7 million, or 12.0%, in comparison to the net income for the first
quarter in 1996. First quarter net income of $15.4 million, or $0.43 per share,
represented a return on average assets (ROA) of 1.56% and a return on average
equity (ROE) of 15.04%. This compares to 1996 net income of $13.7 million, or
$0.38 per share (1.49% ROA and 14.66% ROE).
The increase in net income was a result of the continued steady growth of net
interest income and significantly higher non interest income. In addition,
increases in both income categories continued to outpace the growth rate of
operating expenses.
Net Interest Income
- -------------------
Net interest income increased $3.2 million, or 8.0%, for the quarter. Overall,
this increase was a result of growth in the Corporation's balance sheet coupled
with a slightly higher net interest margin. The following tables
8
<PAGE>
summarize the components of this increase as well as the changes in average
interest-earning assets and interest-bearing liabilities and the average
interest rates thereon. All dollar amounts are in thousands.
<TABLE>
<CAPTION>
Change
--------------------------------
1997 1996 Dollar Percent
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Interest income ......... $ 74,223 $ 69,585 $ 4,638 6.7%
Interest expense......... 31,466 30,001 1,465 4.9
-------------- -------------- ------------- --------------
Net interest income...... $ 42,757 $ 39,584 $ 3,173 8.0
- --------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 % Change
---------------- ----------------- ---------------
<S> <C> <C> <C>
Average interest-earning assets........ $ 3,719,280 $ 3,473,216 7.1%
Yield on earning assets................ 8.13% 8.16% (0.4%)
Average interest-bearing liabilities... $ 3,040,624 $ 2,869,713 6.0%
Cost of interest-bearing liabilities... 4.19% 4.23% (0.9%)
</TABLE>
The 6.7% increase in interest income was due primarily to an increase in average
interest-earning assets during the period, partially offset by a small decrease
in yield. The majority of the growth in interest-earning assets was realized in
the loan portfolio, which grew 11.8% compared to the first quarter of 1996. Loan
growth was generated primarily by consumer installment and home equity loans
($157 million, or 29.4%, increase), and commercial mortgages ($83 million, or
25.6%, increase). Consumer loans grew as a result of the Corporation's expansion
of its dealer programs. The home equity loan increase was generated from several
promotions occurring in early 1996. Commercial loan growth was a result of
improved calling and marketing efforts and also reflected the economic stability
in the Corporation's markets.
The 4.9% increase in interest expense was a result of an increase in average
interest-bearing liabilities offset by a small decline in rates. Average
deposits increased $147 million or 4.7%. Almost all of this growth has been in
certificates of deposit with maturities of less than two years ($132 million, or
20.4%, increase) and non-interest bearing demand deposits ($49 million, or
12.5%, increase).
Provision and Allowance for Loan Losses
- ---------------------------------------
The following table shows the activity in the Corporation's allowance for loan
losses:
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
(In thousands) 1997 1996
---------- -----------
<S> <C> <C>
Balance, beginning of period........... $ 43,829 $ 40,457
Provision for loan losses.............. 1,794 721
Charge-offs............................ (1,268) (927)
Recoveries............................. 651 626
---------- -----------
Net charge-offs................... (617) (301)
---------- -----------
Balance, end of period................. $ 45,006 $ 40,877
========== ===========
</TABLE>
9
<PAGE>
The provision for loan losses for the quarter ended March 31, 1997 was $1.8
million compared to $721,000 for the same period of 1996. The increase in the
provision was primarily a result of the growth in the Corporation's loan
portfolio. The allowance for loan losses as a percentage of gross loans (net of
unearned income) remained constant at 1.48% at both March 31, 1997 and December
31, 1996. In addition, as shown by the following table, non-performing assets
also remained stable:
<TABLE>
<CAPTION>
March 31 Dec. 31
(Dollars in thousands) 1997 1996
------------ ------------
<S> <C> <C>
Nonaccrual loans......................... $ 15,719 $ 15,183
Loans 90 days past due and accruing...... 7,486 6,843
Other real estate owned.................. 1,501 2,126
============ ===========
Total non-performing assets.............. $ 24,706 $ 24,152
============ ===========
Non-performing assets/Total assets....... 0.60% 0.60%
Non-performing assets/Gross loans........ 0.81% 0.81%
</TABLE>
Other Income
- ------------
Other income for the quarter ended March 31, 1997 was $10.2 million. This was an
increase of $1.7 million or 20.1%, over the comparable period in 1996. Of this
increase, $949,000 was a result of higher investment security gains. Management
monitors the Corporation's available for sale securities and makes periodic
purchase and sale decisions based on current and expected market conditions. In
the first quarter of 1997, certain investments in stock of other financial
institutions were sold due to management's assessment of current market
conditions.
Excluding investment security gains, other income increased $758,000 or 10.2%.
Trust department income ($437,000, or 23.0%, increase) and service charges on
deposit accounts ($441,000, or 13.9%, increase) accounted for all of this growth
as a result of the continued expansion of investment management and trust
services and changes in deposit fee structures over the past year.
Other Expenses
- --------------
Total other expenses for the first quarter of 1997 increased $1.5 million, or
5.3%, to $29.2 million from $27.8 million in the comparable period of 1996. The
majority of this increase was in salaries and benefits, which increased $1.5
million or 9.9% in comparison to the first quarter of 1996. This increase was
due to several unusual items. In 1996, accruals of expense for certain employee
benefit plans were reduced, resulting in a reduction of 1996 benefits expense of
approximately $250,000. In 1997, the Corporation accrued an additional expense
of approximately $600,000 related to certain post-employment benefits plans
accounted for under the provisions of Statement of Financial Accounting
Standards No. 112. Excluding these two factors, salaries and benefits expense
increased $601,000 or 4.1%. This growth rate was consistent with management's
goals and reflects the continued growth of the Corporation.
Excluding the increase in salaries and benefits expenses, other expenses
remained flat ($13.2 million in 1997 and $13.1 million in 1996). Expenses were
positively impacted by the recovery of $230,000 of certain operating risk losses
written off in 1996 and a $300,000 increase in the cash surrender value of the
corporate-owned life insurance plan as a result of modifying the type of
insurance policies underlying the plan. In addition, the Corporation continued
to monitor expenses for additional cost saving opportunities.
10
<PAGE>
Income Taxes
- ------------
Income tax expense for the quarter was $6.5 million as compared to $5.8 million
for the comparable period in 1996. This $673,000, or 11.5%, increase was
consistent with the increase in pre-tax income of 11.9%.
FINANCIAL CONDITION
- -------------------
At March 31, 1997, the Corporation had total assets of $4.1 billion, reflecting
an increase of $76.4 million, or 1.9%, over December 31, 1996. In general, this
growth was driven by an increase in loans.
Loans, net of unearned income and the allowance for loan losses, increased $83.5
million, or 2.9%, to $3.0 billion. As noted in the net interest income
discussion, this increase was attributable primarily to installment loans and
commercial mortgages.
Loan growth was funded by maturing investment securities (decrease of $23.1
million or 3.0%), growth in deposits and long-term borrowings. Since December
31, 1996, deposits increased $96.4 million, or 2.9%, primarily in certificates
of deposit with maturities of less than two years. Long-term borrowings
increased $9.1 million or 18.3% as certain short-term borrowings were converted
to longer terms.
Additional funds available from investment maturities and deposit growth were
used to reduce the Corporation's need for short-term borrowings. Such borrowings
decreased $62.0 million or 29.5% since December 31, 1996.
Other liabilities increased $20.3 million or 45.8% due to purchases of
investment securities which did not settle until after the end of the quarter.
Such purchases totaled approximately $14 million.
Liquidity and Interest Rate Sensitivity Management
- --------------------------------------------------
The goals of the Corporation's asset/liability management function are to ensure
adequate liquidity while maintaining an appropriate balance between the relative
sensitivity of interest-earning assets and interest-bearing liabilities.
Adequate liquidity is provided by cash, short-term investments, securities
available for sale and scheduled payments and maturities of loans receivable and
securities held to maturity. Liquidity is also provided by deposits and
short-term borrowings.
While the interest rate sensitivity gap (the difference between repricing
opportunities available for interest-earning assets and interest-bearing
liabilities) must be managed over all periods, the Corporation focuses on the
six-month period as the key interval affecting net interest income. This shorter
period is monitored as a large percentage of the Corporation's assets and
liabilities reprice within this period. In addition, short-term rate swings can
be more pronounced and provide a shorter time for reaction and strategy
adjustment.
The Corporation's policy provides for the six-month gap position to be
maintained between 0.85 and 1.15. The Corporation was positioned within this
range throughout the first three months of 1997.
Capital Resources
- -----------------
Shareholders' equity increased $9.2 million or 2.2% during the first quarter of
1997. This growth is a result of net income for the quarter offset by the normal
quarterly dividend to shareholders.
Current capital guidelines measure the adequacy of a bank holding company's
capital by taking into consideration the differences in risk associated with
holding various types of assets as well as exposure to off-balance sheet
11
<PAGE>
commitments. The guidelines call for a minimum risk-based Tier I capital
percentage of 4.0% and a minimum risk-based total capital of 8.0%. Tier I
capital includes common shareholders' equity less goodwill and non-qualified
intangible assets. Total capital includes all Tier I capital components plus the
allowance for loan losses.
The Corporation is also subject to a "leverage capital" requirement, which
compares capital (using the definition of Tier I capital) to total balance sheet
assets and is intended to supplement the risk based capital ratios in measuring
capital adequacy. The minimum acceptable leverage capital ratio is 3% for
institutions which are highly-rated in terms of safety and soundness and which
are not experiencing or anticipating any significant growth. Other institutions
are expected to maintain capital levels at least one or two percent above the
minimum.
As of March 31, 1997, the Corporation's capital ratios exceeded all of the
minimum ratios as set forth above.
12
<PAGE>
PART II -- OTHER INFORMATION
-----------------------------
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits -- The following is a list of the exhibits required by Item
601 of Regulation S-K and filed as part of this report:
(1) Articles of incorporation as amended on April 13, 1990 and
Bylaws of Fulton Financial Corporation as amended on April 17,
1990 - Incorporated by reference from Exhibits 19(a) and 19(b)
of the Fulton Financial Corporation Quarterly Report on Form
10-Q for the quarter ended March 31, 1990.
(2) Instruments defining the right of securities holders, including
indentures:
(a) Rights Agreement dated June 20, 1989 between Fulton
Financial Corporation and Fulton Bank - Incorporated by
reference to Exhibit 1 of the Fulton Financial Corporation
Current Report on Form 8-K dated June 21, 1989.
(3) Material Contracts - Executive Compensation Agreements and
Plans:
(a) Severance Agreements entered into as of April 17, 1984 and
as of May 17, 1988 between Fulton Financial Corporation and
the following executive officers: Robert D. Garner, Rufus A.
Fulton, Jr., James K. Sperry and R. Scott Smith, Jr. -
Incorporated by reference from Exhibit 28(a) of the Fulton
Financial Corporation Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
(b) Incentive Stock Option Plan adopted September 19, 1995 -
Incorporated by reference from Exhibit A of Fulton Financial
Corporation's 1996 Proxy Statement.
(c) Severance Agreement entered into as of November 19, 1992
between Fulton Financial Corporation and Charles J. Nugent,
Executive Vice President and Chief Financial Officer,
incorporated by reference from Exhibit 10(c) to the Fulton
Financial Corporation Annual Report on Form 10-K for the
year ended December 31, 1992.
(4) Financial Data Schedule - March 31, 1997
(b) Reports on Form 8-K:
(1) Form 8-K dated March 7, 1997 reporting the merger of Fulton
Financial Corporation and The Woodstown National Bank & Trust
Company.
(2) Form 8-K dated March 31, 1997 reporting execution of a Merger
Agreement between Fulton Financial Corporation and The Peoples
Bank of Elkton.
13
<PAGE>
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: April 25, 1997 /s/ Rufus A. Fulton, Jr.
------------------ ---------------------------
Rufus A. Fulton, Jr.
President and Chief Executive Office
Date: April 25, 1997 /s/ Beth Ann L. Chivinski
------------------ ---------------------------
Beth Ann L. Chivinski
Senior Vice President-Controller
(Chief Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibits Required Pursuant
to Item 601 of Regulation S-K
-----------------------------
3. Articles of Incorporation as amended on April 30, 1990, and Bylaws of Fulton
Financial Corporation as amended on April 17, 1990 - Incorporated by
reference from Exhibits 19(a) and 19(b) of the Fulton Financial Corporation
Quarterly Report on Form 10-Q for the quarter ended March 31, 1990.
4. Instruments defining the rights of security holders, including indentures.
(a) Rights Agreement dated June 20, 1989 between Fulton Financial
Corporation and Fulton Bank- Incorporated by reference to Exhibit 1 of
the Fulton Financial Corporation Current Report on Form 8-K dated June
21, 1989.
10. Material Contracts
(a) Severance Agreements entered into as of April 17, 1984 and as of May 17,
1988 between Fulton Financial Corporation and the following executive
officers: Robert D. Garner, Rufus A. Fulton, Jr., James K. Sperry and R.
Scott Smith, Jr. - Incorporated by reference from Exhibit 28(a) of the
Fulton Financial Corporation Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
(b) Incentive Stock Option Plan adopted September 19, 1995 - Incorporated by
reference from Exhibit A of Fulton Financial Corporation's 1996 Proxy
Statement.
(c) Severance Agreement entered into as of November 19, 1992 between Fulton
Financial Corporation and Charles J. Nugent, Executive Vice President
and Chief Financial Officer, filed as Exhibit 10(c) to the Fulton
Financial Corporation Annual Report on Form 10-K for the year ended
December 31, 1992.
27. Financial data schedule - March 31, 1997.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FULTON
FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND THE
RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE QUARTER ENDED MARCH 31, 1997
AND OTHER FINANCIAL DATA INCLUDED WITHIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS AS OF AND FOR THE QUARTER ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 197,119
<INT-BEARING-DEPOSITS> 1,571
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 367,522
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<LOANS> 3,047,181
<ALLOWANCE> 45,006
<TOTAL-ASSETS> 4,097,922
<DEPOSITS> 3,383,110
<SHORT-TERM> 148,618
<LIABILITIES-OTHER> 88,555
<LONG-TERM> 58,648
0
0
<COMMON> 89,934
<OTHER-SE> 329,057
<TOTAL-LIABILITIES-AND-EQUITY> 4,097,922
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