<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 June 30, 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
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2195389
----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Penn Square, P.O. Box 4887 Lancaster, Pennsylvania 17604
--------------------------------------------------------------------
(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 -- 39,618,387 shares outstanding as of
--------------------------------------------------------------------
August 1, 1997.
--------------
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
-----
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
(a) Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996.................................3
(b) Consolidated Statements of Income -
Three and six months ended June 30, 1997 and 1996...................4
(c) Consolidated Statements of Cash Flows -
Six months ended June 30, 1997 and 1996.............................5
(d) Notes to Consolidated Financial Statements - June 30, 1997..........6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................15
SIGNATURES.............................................................16
</TABLE>
2
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
-------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks ........................................................ $ 208,519 $ 175,376
Interest-bearing deposits with other banks ..................................... 1,109 2,053
Mortgage loans held for sale ................................................... 638 125
Investment securities:
Held to maturity (Fair value: $333,537 in 1997 and $428,555 in 1996) ......... 334,479 428,793
Available for sale ........................................................... 449,260 331,082
Loans .......................................................................... 3,093,836 2,970,603
Less: Allowance for loan losses .............................................. (45,221) (43,829)
Unearned income ........................................................ (7,490) (8,080)
------------ ------------
Net Loans ...................................................... 3,041,125 2,918,694
------------ ------------
Premises and equipment ......................................................... 57,649 56,948
Accrued interest receivable .................................................... 25,241 26,340
Other assets ................................................................... 83,009 82,103
------------ ------------
Total Assets ................................................... $ 4,201,029 $ 4,021,514
============ ============
<CAPTION>
LIABILITIES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deposits:
Noninterest-bearing .......................................................... $ 583,494 $ 529,117
Interest-bearing ............................................................. 2,862,958 2,757,548
------------ ------------
Total Deposits ................................................. 3,446,452 3,286,665
------------ ------------
Short-term borrowings:
Securities sold under agreements to repurchase ............................... 135,731 139,670
Federal funds purchased....................................................... 48,585 66,000
Demand notes of U.S. Treasury ................................................ 5,000 4,992
------------ ------------
Total Short-Term Borrowings .................................... 189,316 210,662
------------ ------------
Accrued interest payable ....................................................... 23,762 20,456
Other liabilities .............................................................. 51,888 44,397
Long-term debt ................................................................. 56,719 49,560
------------ ------------
Total Liabilities .............................................. 3,768,137 3,611,740
------------ ------------
<CAPTION>
SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock ($2.50 par)
Shares: Authorized 200,000,000
Issued and Outstanding 39,618,387 (39,489,169 in 1996)................ 99,046 89,757
Capital surplus ................................................................ 290,376 215,638
Retained earnings .............................................................. 30,165 94,949
Net unrealized holding gains on securities available for sale................... 13,305 9,430
------------ ------------
Total Shareholders' Equity ........................................... 432,892 409,774
------------ ------------
Total Liabilities and Shareholders' Equity ........................... $ 4,201,029 $ 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 June 30 Six Months Ended June 30
------------------------------- -------------------------------
1997 1996 1997 1996
------------------------------- -------------------------------
INTEREST INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans, including fees ............................................ $ 65,936 $ 58,857 $ 129,293 $ 116,883
Investment securities:
Taxable ........................................................ 10,046 10,493 19,553 20,237
Tax-exempt ..................................................... 590 867 1,309 1,804
Dividends ...................................................... 609 509 1,203 1,009
Federal funds sold ............................................... 43 109 69 432
Interest-bearing deposits with other banks ....................... 20 34 40 89
------------ ------------ ------------ -------------
Total Interest Income ............................ 77,244 70,869 151,467 140,454
INTEREST EXPENSE
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits ......................................................... 29,820 27,685 58,296 55,546
Short-term borrowings ............................................ 1,984 1,819 4,127 3,416
Long-term debt ................................................... 878 459 1,725 1,002
------------ ------------ ------------ -------------
Total Interest Expense ........................... 32,682 29,963 64,148 59,964
------------ ------------ ------------ -------------
Net Interest Income .............................. 44,562 40,906 87,319 80,490
PROVISION FOR LOAN LOSSES ........................................ 1,617 1,010 3,411 1,731
------------ ------------ ------------ -------------
Net Interest Income After
Provision for Loan Losses .................... 42,945 39,896 83,908 78,759
------------ ------------ ------------ -------------
OTHER INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
Trust department ................................................. 2,295 1,912 4,634 3,814
Service charges on deposit accounts .............................. 3,785 3,423 7,398 6,595
Other service charges and fees ................................... 2,046 1,868 4,079 3,976
Gain on sale of mortgage loans ................................... 286 161 514 434
Investment securities gains ...................................... 594 509 2,574 1,540
------------ ------------ ------------ -------------
Total Other Income ............................... 9,006 7,873 19,199 16,359
OTHER EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits ................................... 15,688 14,741 31,759 29,361
Net occupancy expense ............................................ 2,513 2,390 5,130 4,989
Equipment expense ................................................ 1,749 1,463 3,474 2,967
FDIC assessment expense .......................................... 170 239 318 489
Special services ................................................. 1,620 1,643 3,269 3,227
Other ............................................................ 6,995 7,431 14,034 14,642
------------ ------------ ------------ -------------
Total Other Expenses ............................. 28,735 27,907 57,984 55,675
Income Before Income Taxes ....................... 23,216 19,862 45,123 39,443
INCOME TAXES...................................................... 7,503 5,896 14,015 11,735
------------ ------------ ------------ -------------
Net Income ....................................... $ 15,713 $ 13,966 $ 31,108 $ 27,708
============ ============ ============ =============
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA:
Net income ....................................................... $ 0.40 $ 0.35 $ 0.79 $ 0.70
Cash dividends ................................................... $ 0.170 $ 0.150 $ 0.325 $ 0.288
Weighted average shares outstanding .............................. 39,593,288 39,411,613 39,566,285 39,378,226
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30
--------------------------------
1997 1996
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income....................................................................... $ 31,108 $ 27,708
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses ..................................................... 3,411 1,731
Depreciation and amortization of premises and equipment ....................... 3,437 2,965
Net amortization of investment security premiums .............................. 104 251
Gain on sale of investment securities ......................................... (2,574) (1,540)
Net (increase) decrease in mortgage loans held for sale........................ (513) 178
Amortization of intangible assets ............................................. 760 733
Decrease in accrued interest receivable ....................................... 1,099 93
(Increase) decrease in other assets ........................................... (3,902) 4,105
Increase in accrued interest payable .......................................... 3,306 1,213
Increase (decrease) in other liabilities....................................... 6,368 (3,254)
------------ -----------
Total adjustments.......................................................... 11,496 6,475
------------ -----------
Net cash provided by operating activities .................................. 42,604 34,183
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale ............................ 57,117 39,200
Proceeds from maturities of securities held to maturity ......................... 93,695 124,314
Proceeds from maturities of securities available for sale ....................... 22,568 14,959
Purchase of securities held to maturity ......................................... (1,275) (96,924)
Purchase of securities available for sale ....................................... (187,388) (108,546)
Decrease in short-term investments .............................................. 944 1,867
Net increase in loans ........................................................... (125,842) (140,596)
Purchase of premises and equipment............................................... (4,138) (6,145)
------------ -----------
Net cash used in investing activities ...................................... (144,319) (171,871)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits ..................................... 30,416 879
Net increase in time deposits ................................................... 129,371 87,512
Increase (decrease) in long-term debt............................................ 7,159 (13,354)
(Decrease) increase in short-term borrowings .................................... (21,346) 81,784
Dividends paid .................................................................. (11,723) (10,563)
Net proceeds from issuance of common stock ...................................... 981 1,401
Acquisition of treasury stock ................................................... - (1,387)
------------ -----------
Net cash provided by financing activities.............................. 134,858 146,272
------------ -----------
Net Increase in Cash and Due From Banks ......................................... 33,143 8,584
Cash and Due From Banks at Beginning of Period .................................. 175,376 162,084
------------ -----------
Cash and Due From Banks at End of Period ........................................ $ 208,519 $ 170,668
============ ===========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest ..................................................................... $ 60,842 $ 58,751
Income taxes ................................................................. $ 10,478 $ 8,139
</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 and six month periods ended June
30, 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 - Stock Dividend
The Board of Directors declared a 10% stock dividend on May 1, 1997 which was
paid on June 13, 1997 to shareholders of record as of May 23, 1997. All share
and per-share information has been restated to reflect the effect of the stock
dividend.
NOTE D - Mergers and Acquisitions
The Woodstown National Bank & Trust Company - On February 28, 1997, the
Corporation completed its acquisition of The Woodstown National Bank & Trust
Company (Woodstown). As provided under the terms of the merger agreement,
Woodstown became a wholly-owned subsidiary of the Corporation and each of the
outstanding shares of Woodstown common stock was converted into 1.76 shares of
the common stock of the Corporation.
The Corporation issued 3.2 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 accounts and results of operations of Woodstown for all
periods presented.
Woodstown is headquartered in Woodstown, New Jersey and operates seven 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>
6
<PAGE>
The effect of the merger on the Corporation's previously reported revenues, net
income and net income per share for the three and six months ended June 30, 1996
follows:
<TABLE>
<CAPTION>
Three months ended June 30, 1996:
- --------------------------------
Corporation Woodstown Restated
----------- --------- --------
<S> <C> <C> <C>
Net interest income................... $ 38,273 $ 2,633 $ 40,906
Other income.......................... 7,511 362 7,873
---------- -------- --------
Total income.......................... $ 45,784 $ 2,995 $ 48,779
========== ======== ========
Net income............................ $ 13,035 $ 931 $ 13,966
========== ======== ========
Net income per share.................. $ 0.36 $ 0.52 $ 0.35
========== ======== ========
<CAPTION>
Six months ended June 30, 1996:
- ------------------------------
Corporation Woodstown Restated
----------- --------- --------
<S> <C> <C> <C>
Net interest income................... $ 75,294 $ 5,196 $ 80,490
Other income.......................... 15,382 977 16,359
---------- -------- --------
Total income.......................... $ 90,676 $ 6,173 $ 96,849
========== ======== ========
Net income............................ $ 25,756 $ 1,952 $ 27,708
========== ======== ========
Net income per share.................. $ 0.71 $ 1.08 $ 0.70
========== ======== ========
</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 4.158 shares of the
Corporation's common stock.
The acquisition has been approved by Elkton's shareholders. Certain regulatory
approvals are pending, but the transaction is expected to close in the second
half 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
June 30, 1997, Elkton had approximately $92 million in assets. Elkton will be
the Corporation's second banking subsidiary 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.
7
<PAGE>
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 net income
per share of the Corporation.
Reporting Comprehensive Income: Statement of Financial Accounting Standards No.
- ------------------------------
130 "Reporting Comprehensive Income" (Statement 130) was issued in July, 1997.
Statement 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The objective of Statement 130 is to report a measure of all changes in equity
that result from economic events of the period other than transactions with
owners. Comprehensive income is the total of net income and all other non-owner
changes in equity. Statement 130 is effective for fiscal years beginning after
December 15, 1997. Adoption of the statement will require the Corporation to
include all non-owner changes in equity as components of comprehensive income.
Currently, such non-owner changes in equity include only unrealized gains and
losses on available for sale investment securities.
8
<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, as well as the continued internal growth
of the Corporation's existing franchise, is intended to increase the value of
the Corporation to customers, employees and shareholders.
The Woodstown National Bank & Trust Company - On February 28, 1997, the
Corporation completed its 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
1.76 shares of the common stock of the Corporation. The Corporation issued 3.2
million shares of its common stock in connection 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 include the accounts and results of
operations of Woodstown for all periods presented.
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 4.158 shares of the
Corporation's common stock. The acquisition has been approved by Elkton's
shareholders. Certain regulatory approvals are pending, but the transaction is
expected to close in the second half 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 June 30, 1997, Elkton had approximately $92
million in assets. Elkton will be the Corporation's second banking subsidiary in
the State of Maryland.
RESULTS OF OPERATIONS
- ---------------------
Quarter ended June 30, 1997 versus Quarter ended June 30, 1996
- --------------------------------------------------------------
The Corporation's net income for the second quarter of 1997 increased $1.7
million, or 12.5%, in comparison to net income for the second quarter of 1996.
Second quarter net income of $15.7 million, or $0.40 per share, represented a
return on average assets (ROA) of 1.54% and a return on average equity (ROE) of
14.88%. This compares to 1996 net income of $14.0 million, or $0.35 per share
(1.46% ROA and 14.43% ROE).
The increase in net income was a result of the continued steady growth of both
net interest income and non interest income. Increases in both income categories
continued to outpace the growth rate of operating expenses.
Net Interest Income
- -------------------
Net interest income increased $3.7 million, or 8.9%, for the quarter. Overall,
this increase was a result of growth in the Corporation's balance sheet coupled
with a higher net interest margin. The following tables summarize the components
of this increase as well as the changes in average interest-earning assets and
interest-bearing liabilities and the average interest rates thereon. All dollar
amounts are in thousands.
9
<PAGE>
<TABLE>
<CAPTION>
Change
--------------------------
1997 1996 Dollar Percent
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Interest income ................................ $ 77,244 $ 70,869 $ 6,375 9.0%
Interest expense................................ 32,682 29,963 2,719 9.1%
----------- ----------- --------- ----------
Net interest income............................. $ 44,562 $ 40,906 $ 3,656 8.9%
=========== =========== ========= ==========
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 % Change
------------- ------------ -----------
<S> <C> <C> <C>
Average interest-earning assets.............................. $ 3,802,186 $ 3,567,855 6.6%
Yield on interest-earning assets............................. 8.13% 7.95% 2.3
Average interest-bearing liabilities......................... $ 3,086,756 $ 2,930,744 5.3
Cost of interest-bearing liabilities......................... 4.24% 4.09% 3.7
Net interest margin (fully taxable-equivalent)............... 4.78% 4.69% 1.9
</TABLE>
The 9.0% increase in interest income was due to both an increase in average
interest-earning assets and an increase in yields. The majority of the growth in
interest-earning assets was realized in the loan portfolio, which grew 11.5%
compared to the second quarter of 1996. Loan growth was generated primarily by
consumer installment and home equity loans ($146 million, or 25.5%, increase),
and commercial mortgages ($86 million, or 25.5%, increase). Consumer loans
increased as a result of the expansion of indirect automobile lending. The home
equity loan increase was generated from several promotions occurring in 1996.
Commercial loan growth reflects focused calling and marketing efforts and the
economic stability in the Corporation's markets.
The yield increase was a result of the Federal Reserve Board raising short-term
rates by 25 basis points in March, 1997. As a result, the prime lending rate of
the Corporation's banks was increased from 8.25% to 8.50%.
The 9.1% increase in interest expense was a result of an increase in average
interest-bearing liabilities and an increase in rates. Average deposits
increased $158 million, or 4.9%. Almost all of this growth was in certificates
of deposit with maturities of one to two years ($154 million, or 76%, increase)
and non-interest bearing demand deposits ($46 million, or 10.7%, increase). In
the past year, the Corporation has focused on CD promotions to support deposit
growth, realizing greater success in the shorter terms. Additional core deposit
accounts were also generated. As with interest-earning assets, the cost of funds
increased as a result of the short-term rate change in March, 1997, as well as
continuing competition from both bank and non-bank sources.
Provision and Allowance for Loan Losses
- ---------------------------------------
The following table summarizes the activity in the Corporation's allowance for
loan losses:
<TABLE>
<CAPTION>
Three Months Ended June 30
---------------------------
(In thousands) 1997 1996
----------- -----------
<S> <C> <C>
Balance, beginning of period.................. $ 45,006 $ 40,877
Provision for loan losses..................... 1,617 1,010
Charge-offs................................... (2,148) (1,378)
Recoveries.................................... 746 653
----------- -----------
Net charge-offs.......................... (1,402) (725)
----------- -----------
Balance, end of period........................ $ 45,221 $ 41,162
=========== ===========
</TABLE>
10
<PAGE>
The provision for loan losses for the quarter ended June 30, 1997 was $1.6
million compared to $1.0 million 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 stable from December 31, 1996 (1.48%) to June 30, 1997
(1.47%). In addition, as shown by the following table, the overall level of
non-performing assets also remained fairly consistent:
<TABLE>
<CAPTION>
June 30 Dec. 31
(Dollars in thousands) 1997 1996
----------- ------------
<S> <C> <C>
Nonaccrual loans................................ $ 16,622 $ 15,183
Loans 90 days past due and accruing............. 9,431 6,843
Other real estate owned......................... 1,336 2,126
----------- ------------
$ 27,389 $ 24,152
=========== ============
Non-performing assets/Total assets.............. 0.65% 0.60%
Non-performing loans/Gross loans................ 0.84% 0.74%
</TABLE>
Other Income
- ------------
Other income for the quarter ended June 30, 1997 was $9.0 million. This was an
increase of $1.1 million, or 14.4%, over the comparable period in 1996. Trust
department income ($383,000, or 20.0%, increase) and service charges on deposit
accounts ($362,000, or 10.6%, increase) accounted for the majority of this
growth due to the expansion of investment management and trust services and
changes in fee structures over the past year.
Other Expenses
- --------------
Total other expenses for the second quarter of 1997 increased $828,000, or 3.0%,
to $28.7 million from $27.9 million in the comparable period of 1996. The
majority of this increase was in salaries and benefits, which increased
$947,000, or 6.4%, in comparison to the second quarter of 1996. This increase
was a result of normal merit increases, which the Corporation has targeted at
approximately 4.0% for 1997, and an increase in average full-time equivalent
employees from 1,811 in 1996 to 1,838 in 1997. This slight increase in number of
employees has resulted from the strong growth of certain affiliate banks.
Net occupancy and equipment expenses increased moderately (409,000, or 10.6%,
increase) to support the Corporation's technology initiatives as well as its
branch network. The Corporation continues to invest in technology to improve
customer service and to offer alternative products. The technology investment
has been carefully balanced with the Corporation's branch network, which
continues to be the preferred delivery channel in the Corporation's markets.
Other non-interest expense decreased by $436,000, or 5.9%, in the second quarter
of 1997 as compared to the same period in 1996. This was due to the 1996 expense
including fraud loss of approximately $320,000. In addition, in 1997 the
increase in cash surrender value of certain corporate owned life insurance
policies increased by approximately $300,000, due to changes in the policies'
structures.
Income Taxes
- ------------
Income tax expense for the quarter was $7.5 million as compared to $5.9 million
for the comparable period in 1996. This translates to an effective tax rate of
32.3% in 1997 and 29.7% in 1996. In general, the increase in the effective tax
rate was a result of fewer investments in tax-free municipal securities
11
<PAGE>
Six months ended June 30, 1997 versus Six months ended June 30, 1996
- --------------------------------------------------------------------
The Corporation's net income for the first six months of 1997 increased $3.4
million, or 12.3%, in comparison to net income for the same period in 1996. Net
income of $31.1 million, or $0.79 per share, represented an ROA of 1.55% and an
ROE of 14.96%. This compares to 1996 net income of $27.7 million, or $0.70 per
share (1.47% ROA and 14.55% ROE).
Net Interest Income
- -------------------
Net interest income increased $6.8 million, or 8.5%, for the first half of 1997
as compared to 1996. This increase was a result of the growth in the
Corporation's balance sheet as well as a higher net interest margin. The
following tables summarize the components of this increase as well as the
changes in average interest-earning assets and interest-bearing liabilities and
the average interest rates thereon. All dollar amounts are in thousands.
<TABLE>
<CAPTION>
Change
-----------------------
1997 1996 Dollar Percent
----------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 151,467 $ 140,454 $ 11,013 7.8%
Interest expense.......................................... 64,148 59,964 4,184 7.0%
---------- --------- --------- --------
Net interest income....................................... $ 87,319 $ 80,490 $ 6,829 8.5%
========== ========= ========= ========
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1997 1996 % Change
------------ ------------- -----------
<S> <C> <C> <C>
Average interest-earning assets.............................. $ 3,760,733 $ 3,520,536 6.8%
Yield on interest-earning assets............................. 8.06% 7.98% 1.0
Average interest-bearing liabilities......................... $ 3,063,690 $ 2,900,228 5.6
Cost of interest-bearing liabilities......................... 4.19% 4.14% 1.2
Net interest margin (fully taxable equivalent)............... 4.75% 4.69% 1.3
</TABLE>
The 7.8% increase in interest income was due primarily to an increase in average
interest-earning assets during the period and a slight increase in yields. The
average balance of the loan portfolio grew 11.7% compared to the same period in
1996. As with the second quarter, loan growth was realized generally in consumer
installment and home equity loans ($151 million, or 27.4%, increase), and
commercial mortgages ($84 million, or 25.5%, increase).
The 7.0% increase in interest expense was a result of an increase in average
interest-bearing liabilities and a small increase in rates. Average deposits
increased $152 million, or 4.8%. Almost all of this growth has been in
certificates of deposit with maturities of less than two years ($130 million, or
19.7%, increase) and non-interest bearing demand deposits ($47 million, or
11.6%, increase).
The impact of the increase in short-term rates was not as pronounced over the
six-month period as it was in the second quarter. Since the rate change occurred
in March, only the second quarter was fully affected. However, the slight rate
increase over the first half of 1997 should continue over the remainder of 1997
in the absence of another rate adjustment.
12
<PAGE>
Provision and Allowance for Loan Losses
- ---------------------------------------
The provision for loan losses for the first six months of 1997 was $3.4 million
compared to $1.7 million for the same period of 1996. The increase in the
provision was primarily a result of the growth in the Corporation's loan
portfolio. Overall asset quality during the first half of the year continued to
be strong. Nonperforming assets to total assets were 0.65% at June 30, 1997 as
compared to 0.60% at December 31, 1996.
Other Income
- ------------
Other income for the six months ended June 30, 1997 was $19.2 million. This was
an increase of $2.8 million, or 17.4%, over the comparable period in 1996. Of
this increase, $1.0 million 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 $1.8 million, or
12.2%. Trust department income ($820,000, or 21.5%, increase) and service
charges on deposit accounts ($803,000, or 12.2%, increase) accounted for all of
this growth as a result of the growth of investment management and trust
services and changes in deposit fee structures over the past year.
Other Expenses
- --------------
Total other expenses for the first six months of 1997 increased $2.3 million, or
4.1%, to $58.0 million from $55.7 million in the first half of 1996. The
majority of this increase was in salaries and benefits, which increased $2.4
million, or 8.2%. This increase was due to several unusual items which mainly
impacted the first quarter of 1997. In 1996, accruals of expense for certain
employee benefit plans were reduced, resulting in a reduction of 1996 benefits
expenses 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
expenses increased $1.5 million, or 5.2%. 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
decreased $89,000 or 0.3% to $26.2 million in 1997 from $26.3 million in 1996.
Expenses in 1997 were positively impacted by the recovery of $230,000 of certain
operating risk losses written off in 1996 and a $600,000 increase in the cash
surrender value of certain corporate-owned life insurance policies. In addition,
the Corporation continued to monitor expenses for additional cost saving
opportunities.
Income Taxes
- ------------
Income tax expense for the six months ended June 30, 1997 was $14.0 million as
compared to $11.7 million for the comparable period in 1996, resulting in an
effective tax rate of 31.1% in 1997 and 29.8% in 1996. In general, this
effective tax rate increase was due to fewer investments in tax-free municipal
securities.
FINANCIAL CONDITION
- -------------------
At June 30, 1997, the Corporation had total assets of $4.2 billion, an increase
of $179.5 million, or 4.5%, over $4.0 billion in assets December 31, 1996. In
general, this growth was driven by an increase in loans.
13
<PAGE>
Loans, net of unearned income and the allowance for loan losses, increased
$122.4 million, or 4.2%, to $3.0 billion. As noted in the net interest income
discussion, this increase was attributable primarily to installment loans and
commercial mortgages.
In the first half of 1997, investment security purchases were generally
classified as available for sale in order to provide the Corporation with more
flexibility in its securities transactions. Funds for investment security
purchases were mainly provided by maturities and sales of existing investments.
Loan growth was funded primarily through growth in deposits and decreases in
investment securities. Since December 31, 1996, deposits increased $159.8
million, or 4.9%, primarily in certificates of deposit with maturities of less
than two years.
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 six months of 1997.
Capital Resources
- -----------------
Shareholders' equity increased $23.1 million or 5.6% during the first half of
1997. This growth is a result of net income offset by normal quarterly dividends
to shareholders. In addition, the appreciation in the value of the Corporation's
available for sale investments contributed $3.9 million to the increase in
shareholders' equity. As a result of the 10% stock dividend paid on June 13,
1997, approximately $83 million of the Corporation's retained earnings was
transferred to common stock and capital surplus.
Current capital guidelines measure the adequacy of a bank holding company's
capital by taking into consideration the differences in risk associated with
holding various types of assets as well as exposure to off-balance sheet
commitments. The guidelines call for a minimum risk-based Tier I capital
percentage of 4.0% and a minimum risk-based total capital of 8.0%. Tier I
capital includes common shareholders' equity less goodwill and non-qualified
intangible assets. Total capital includes all Tier I capital components plus the
allowance for loan losses.
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.
14
<PAGE>
As of June 30, 1997, the Corporation's capital ratios exceeded all of the
minimum ratios as set forth above.
15
<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 - June 30, 1997
(b) Reports on Form 8-K:
(1) Form 8-K dated March 7, 1997 (as amended by Form 8-K/A dated
May 12, 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.
16
<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: August 5, 1997 /s/ Rufus A. Fulton, Jr.
----------------- --------------------------------------
Rufus A. Fulton, Jr.
President and Chief Executive Officer
Date: August 5, 1997 /s/ Beth Ann L. Chivinski
----------------- --------------------------------------
Beth Ann L. Chivinski
Senior Vice President-Controller
(Chief Accounting Officer)
17
<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 - June 30, 1997.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FULTON
FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND THE
RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND OTHER FINANCIAL DATA INCLUDED WITHIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF AND FOR THE THREE AND SIX
MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 208,519
<INT-BEARING-DEPOSITS> 1,109
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 449,260
<INVESTMENTS-CARRYING> 334,479
<INVESTMENTS-MARKET> 333,537
<LOANS> 3,086,346
<ALLOWANCE> 45,221
<TOTAL-ASSETS> 4,201,029
<DEPOSITS> 3,446,452
<SHORT-TERM> 189,316
<LIABILITIES-OTHER> 75,650
<LONG-TERM> 56,719
0
0
<COMMON> 99,046
<OTHER-SE> 333,846
<TOTAL-LIABILITIES-AND-EQUITY> 4,201,029
<INTEREST-LOAN> 129,293
<INTEREST-INVEST> 22,065
<INTEREST-OTHER> 109
<INTEREST-TOTAL> 151,467
<INTEREST-DEPOSIT> 58,296
<INTEREST-EXPENSE> 64,148
<INTEREST-INCOME-NET> 87,319
<LOAN-LOSSES> 3,411
<SECURITIES-GAINS> 2,574
<EXPENSE-OTHER> 57,984
<INCOME-PRETAX> 45,123
<INCOME-PRE-EXTRAORDINARY> 31,108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,108
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
<YIELD-ACTUAL> 4.75
<LOANS-NON> 16,622
<LOANS-PAST> 9,431
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 43,829
<CHARGE-OFFS> 2,148
<RECOVERIES> 746
<ALLOWANCE-CLOSE> 45,221
<ALLOWANCE-DOMESTIC> 45,221
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
