<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, 1999, 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
-------
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
- --------------------------------------------------------------------------------
(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-69,055,017 shares outstanding as of July 30, 1999.
- --------------------------------------------------------------------------------
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
-----
Description Page
----------- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
(a) Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998.. ..................................3
(b) Consolidated Statements of Income -
Three and six months ended June 30, 1999 and 1998 ......................4
(c) Consolidated Statements of Shareholders' Equity -
Six months ended June 30, 1999 and 1998 ................................5
(d) Consolidated Statements of Cash Flows -
Six months ended June 30, 1999 and 1998 ................................6
(e) Notes to Consolidated Financial Statements - June 30, 1999 .............7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .....................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk ........21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ..................................25
SIGNATURES .................................................................26
2
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
--------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks......................................................... $ 228,419 $ 247,558
Interest-bearing deposits with other banks...................................... 2,763 2,975
Mortgage loans held for sale.................................................... 3,390 7,987
Investment securities:
Held to maturity (Fair value: $112,041 in 1999 and $177,939 in 1998)....... 112,139 176,623
Available for sale......................................................... 1,267,882 1,206,121
Loans........................................................................... 4,182,103 4,040,455
Less: Allowance for loan losses........................................... (58,942) (57,415)
Unearned income.................................................. (9,543) (10,064)
------------- ------------
Net Loans.............................................. 4,113,618 3,972,976
------------- ------------
Premises and equipment.......................................................... 76,961 75,715
Accrued interest receivable..................................................... 33,125 34,942
Other assets.................................................................... 115,012 113,766
------------- ------------
Total Assets........................................... $ 5,953,309 $ 5,838,663
============= ============
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing........................................................ $ 728,215 $ 759,585
Interest-bearing........................................................... 3,766,913 3,833,384
------------- ------------
Total Deposits......................................... 4,495,128 4,592,969
------------- ------------
Short-term borrowings:
Securities sold under agreements to repurchase............................. 247,478 212,225
Federal funds purchased.................................................... 132,200 19,521
Demand notes of U.S. Treasury.............................................. 5,349 3,839
------------- ------------
Total Short-Term Borrowings............................ 385,027 235,585
------------- ------------
Accrued interest payable........................................................ 31,358 34,255
Other liabilities............................................................... 82,419 71,502
Long-term debt.................................................................. 348,069 296,018
------------- ------------
Total Liabilities...................................... 5,342,001 5,230,329
------------- ------------
SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
Common stock ($2.50 par)
Shares: Authorized 400,000,000
Issued 69,356,609 (69,356,609 in 1998)
Outstanding 69,090,017 (69,185,204 in 1998)...................... 173,392 157,638
Capital surplus................................................................. 394,766 293,897
Retained earnings............................................................... 46,538 136,668
Accumulated other comprehensive income.......................................... 2,084 23,619
Treasury stock, at cost (266,592 shares in 1999 and 171,405 shares in 1998)..... (5,472) (3,488)
------------- ------------
Total Shareholders' Equity............................. 611,308 608,334
------------- ------------
Total Liabilities and Shareholders' Equity............. $ 5,953,309 $ 5,838,663
============= ============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------- ---------------------------------------
1999 1998 1999 1998
------------------------------------- ---------------------------------------
INTEREST INCOME
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans, including fees....................... $ 84,274 $ 84,566 $ 166,554 $ 168,811
Investment securities:
Taxable.................................... 15,990 14,226 32,209 27,934
Tax-exempt................................. 2,056 1,064 3,848 1,956
Dividends.................................. 1,020 860 2,013 1,704
Federal funds sold.......................... 103 824 140 1,049
Interest-bearing deposits with other banks.. 32 42 61 112
----------- ----------- ----------- -----------
Total Interest Income.................... 103,475 101,582 204,825 201,566
INTEREST EXPENSE
- -------------------------------------------------------------------------------------------------------------------------------
Deposits.................................... 35,310 40,164 71,340 79,916
Short-term borrowings....................... 3,229 2,000 6,099 4,270
Long-term debt.............................. 3,890 1,936 7,672 3,187
----------- ----------- ----------- -----------
Total Interest Expense................... 42,429 44,100 85,111 87,373
----------- ----------- ----------- -----------
Net Interest Income...................... 61,046 57,482 119,714 114,193
PROVISION FOR LOAN LOSSES................... 2,085 1,621 4,052 3,232
----------- ----------- ----------- -----------
Net Interest Income After
Provision for Loan Losses............... 58,961 55,861 115,662 110,961
----------- ----------- ----------- -----------
OTHER INCOME
- -------------------------------------------------------------------------------------------------------------------------------
Investment management and trust services.... 4,014 3,202 7,431 6,239
Service charges on deposit accounts......... 5,177 4,759 9,947 9,118
Other service charges and fees.............. 3,303 2,720 6,372 5,422
Mortgage banking income..................... 1,218 1,224 2,501 2,380
Investment securities gains................. 1,669 4,613 4,726 7,995
----------- ----------- ----------- -----------
Total Other Income....................... 15,381 16,518 30,977 31,154
OTHER EXPENSES
- -------------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits.............. 22,105 20,699 43,467 41,667
Net occupancy expense....................... 3,167 3,175 6,442 6,313
Equipment expense........................... 2,385 2,376 4,678 4,804
Special services............................ 2,774 2,699 5,654 4,984
Other....................................... 9,796 11,764 19,009 21,944
----------- ----------- ----------- -----------
Total Other Expenses..................... 40,227 40,713 79,250 79,712
----------- ----------- ----------- -----------
Income Before Income Taxes............... 34,115 31,666 67,389 62,403
INCOME TAXES................................ 10,072 10,085 19,819 19,649
----------- ----------- ----------- -----------
Net Income............................... $ 24,043 $ 21,581 $ 47,570 $ 42,754
=========== =========== =========== ===========
- -------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA:
Net income (basic).......................... $ 0.35 $ 0.31 $ 0.69 $ 0.62
Net income (diluted)........................ $ 0.35 $ 0.31 $ 0.68 $ 0.61
Cash dividends.............................. $ 0.150 $ 0.131 $ 0.286 $ 0.255
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Common Capital Retained
(Dollars in thousands, except per-share data) Stock Surplus Earnings
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1998................................ $ 157,638 $ 293,897 $ 136,668
Comprehensive income:
Net income............................................. 47,570
Other-net unrealized loss on securities (net of $11.6
million tax benefit)..................................
Total comprehensive income........................
Stock dividends issued-10% (6,302,309 shares)............... 15,754 102,099 (117,917)
Stock issued (122,713 shares of treasury stock)............. (1,230)
Acquisition of treasury stock (217,900 shares)..............
Cash dividends - $0.286 per share........................... (19,783)
--------------------------------------------
Balance at June 30, 1999.................................... $ 173,392 $ 394,766 $ 46,538
============================================
Balance at December 31, 1997................................ $ 126,497 $ 326,402 $ 84,634
Comprehensive income:
Net income............................................. 42,752
Other-net unrealized gain on securities (net of
$48,000 tax expense)..................................
Total comprehensive income........................
Stock split-5 for 4 (13,183,897 shares)..................... 29,963 (30,088)
Stock issued (175,200 shares, including 121,590 shares of
treasury stock)......................................... 153 68
Acquisition of treasury stock (98,093 shares)...............
Cash dividends - $0.255 per share........................... (17,577)
--------------------------------------------
Balance at June 30, 1998.................................... $ 156,613 $ 296,382 $ 109,809
============================================
<CAPTION>
Accumulated
Other
Comprehen-
sive Treasury
(Dollars in thousands, except per-share data) Income Stock Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1998................................ $ 23,619 $ (3,488) $ 608,334
Comprehensive income:
Net income............................................. 47,570
Other-net unrealized loss on securities (net of $11.6
million tax benefit).................................. (21,535) (21,535)
-----------
Total comprehensive income........................ 26,035
-----------
Stock dividends issued-10% (6,302,309 shares)............... (64)
Stock issued (122,713 shares of treasury stock)............. 2,733 1,503
Acquisition of treasury stock (217,900 shares).............. (4,717) (4,717)
Cash dividends - $0.286 per share........................... (19,783)
--------------------------------------------
Balance at June 30, 1999.................................... $ 2,084 $ (5,472) $ 611,308
============================================
Balance at December 31, 1997................................ $ 28,257 $ (1,299) $ 564,491
Comprehensive income:
Net income............................................. 42,752
Other-net unrealized gain on securities (net of
$48,000 tax expense).................................. 89 89
-----------
Total comprehensive income........................ 42,841
-----------
Stock split-5 for 4 (13,183,897 shares)..................... (125)
Stock issued (175,200 shares, including 121,590 shares of
treasury stock)......................................... 2,411 2,632
Acquisition of treasury stock (98,093 shares)............... (2,130) (2,130)
Cash dividends - $0.255 per share........................... (17,577)
--------------------------------------------
Balance at June 30, 1998.................................... $ 28,346 $ (1,018) $ 590,132
============================================
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
(In thousands)
Six Months Ended
June 30
--------------------------
1999 1998
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income........................................... $ 47,570 $ 42,754
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses .......................... 4,052 3,232
Depreciation and amortization of premises and
equipment ........................................ 4,794 4,672
Net amortization of investment security premiums ... 726 110
Investment security gains .......................... (4,726) (7,995)
Net decrease in mortgage loans held or sale ........ 4,597 386
Amortization of intantangible assets ............... 649 663
Decrease (increase) in accrued interest receivable . 1,817 (1,989)
Decrease in other assets ........................... 9,374 14,551
(Decrease) increase in accrued interest payable .... (2,897) 2,263
Increase in other liabilities....................... 4,938 253
----------- -----------
Total adjustments.................................. 23,324 16,146
----------- -----------
Net cash provided by operating activities.......... 70,894 58,900
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale. 11,138 16,747
Proceeds from maturities of securities held to
maturity........................................... 64,836 88,301
Proceeds from maturities of securities
available for sale ................................ 150,385 105,604
Purchase of securities held to maturity ............. (357) (4,341)
Purchase of securities available for sale ........... (246,104) (348,931)
Decrease (increase) in short-term investments........ 212 (1,563)
Net (increase) decrease in loans .................... (144,694) 22,288
Purchase of premises and equipment .................. (6,040) (6,300)
---------- ----------
Net cash provided by (used in) investing activities (170,624) (128,195)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand and savings
deposits.. ....................................... (59,746) 49,945
Net (decrease) increase in time deposits............. (38,095) 34,260
Increase in long-term debt........................... 52,051 75,734
Increase (decrease) in short-term borrowings......... 149,442 (48,880)
Dividends paid....................................... (19,783) (15,497)
Net proceeds from issuance of common stock........... 1,439 2,507
Acquisition of treasury stock........................ (4,717) (2,130)
---------- ----------
Net cash provided by financing activities........... 80,591 95,939
---------- ----------
Net (Decrease) Increase in Cash and Due From Banks... (19,139) 26,644
Cash and Due From Banks at Beginning of Period....... 247,558 208,289
---------- ----------
Cash and Due From Banks at End of Period............. $ 228,419 $ 234,933
========== ==========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest .......................................... $ 88,008 $ 85,110
Income taxes ...................................... $ 14,092 $ 15,637
- --------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<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, 1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999.
NOTE B - 10% Stock Dividend
The Corporation issued a 10% stock dividend on June 1, 1999. All share and per-
share information has been restated to reflect the effect of this stock
dividend.
NOTE C - Net Income Per Share
The Corporation's basic net income per share is calculated as net income divided
by the weighted average number of shares outstanding. For diluted net income per
share, net income is divided by the weighted average number of shares
outstanding plus the incremental number of shares added as a result of
converting common stock equivalents, calculated using the treasury stock method.
The Corporation's common stock equivalents consist solely of outstanding stock
options.
A reconciliation of the weighted average shares outstanding used to calculate
basic net income per share and diluted net income per share follows (in
thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding (basic).... 69,145 68,884 69,157 68,853
Impact of common stock equivalents............. 412 1,037 397 1,022
--------- --------- --------- ---------
Weighted average shares outstanding (diluted).. 69,557 69,921 69,554 69,875
========= ========= ========= =========
</TABLE>
NOTE D - Mergers and Acquisitions
Ambassador Bank of the Commonwealth. - On September 11, 1998, the Corporation
completed its acquisition of Ambassador Bank of the Commonwealth (Ambassador), a
$275 million bank located in Allentown, Pennsylvania. As provided under the
terms of the merger agreement, each of the 1.9 million shares of Ambassador's
common stock were exchanged for 1.54 shares of the Corporation's common stock.
In addition, the 417,000 options and warrants to acquire Ambassador stock were
exchanged for approximately 450,000 shares of the Corporation's common stock.
The Corporation issued approximately 3.4 million shares of its common stock in
connection with the merger, which was accounted for as a pooling of interests.
As a result of the acquisition, Ambassador was merged with and into Lafayette
Bank, one of the Corporation's existing affiliate banks, which thereupon changed
its name to "Lafayette Ambassador Bank."
7
<PAGE>
Keystone Heritage Group, Inc. - On March 27, 1998, the Corporation completed its
acquisition of Keystone Heritage Group, Inc. (Keystone Heritage), a $650 million
bank holding company located in Lebanon, Pennsylvania. As provided under the
terms of the merger agreement, each of the approximately 4.0 million shares of
Keystone Heritage's common stock was exchanged for 2.517 shares of the
Corporation's common stock. In addition, each of the 70,000 options to acquire
Keystone Heritage stock was converted to options to acquire the Corporation's
stock. The Corporation issued 10.0 million shares of its common stock in
connection with the merger, which was accounted for as a pooling of interests.
In order to effect the acquisition, Keystone Heritage was merged with and into
the Corporation. Its sole banking subsidiary, Lebanon Valley National Bank
(Lebanon Valley), was merged with and into Farmers Trust Bank, one of the
Corporation's existing affiliate banks, which changed its name to "Lebanon
Valley Farmers Bank." Lebanon Valley's deposits, loans and branches located in
Lancaster and Dauphin Counties were transferred by Lebanon Valley Farmers Bank
to Fulton Bank, the Corporation's Lancaster-based affiliate bank, immediately
after the merger was completed.
NOTE E - New Accounting Standards
Accounting for Derivative Instruments and Hedging Activities: Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and for Hedging Activities" (Statement 133), was issued in July, 1998. Statement
133 replaces existing accounting practices with a single, integrated accounting
framework for derivatives and hedging activities. Under Statement 133, every
derivative is recorded in the balance sheet as either an asset or liability
measured at its fair value and changes in fair value are recognized currently in
earnings unless specific hedge accounting criteria are met. Statement 133 is
effective for years beginning after June 15, 1999. The Corporation does not
expect the adoption of Statement 133 to have a material impact on its balance
sheet or net income.
Reporting Comprehensive Income: The Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (Statement 130)
in 1998. Statement 130 establishes standards for the 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. Currently, other non-owner changes in
equity include only unrealized gains and losses on available for sale investment
securities.
The following table summarizes the reclassification adjustment for realized
security gains (net of taxes) for the first six months of 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Unrealized holding (losses) gains arising during period...... $ (18,463) $ 5,286
Less: reclassification adjustment for gains included
in net income........................................ 3,072 5,197
------------ ----------
Net unrealized (losses) gains on securities.................. $ (21,535) $ 89
============ ==========
</TABLE>
8
<PAGE>
NOTE F Shareholder Rights
On June 20, 1989, the Board of Directors of the Corporation declared a dividend
of one common share purchase right (Original Rights) for each outstanding share
of common stock, par value $2.50 per share of the Corporation. The dividend was
paid to the shareholders of record as of the close of business on July 6, 1989.
On April 27, 1999, the Board of Directors approved an amendment to the Original
Rights and the agreement. The significant terms of the amendment included
extending the expiration date from June 20, 1999 to April 27, 2009 and resetting
the purchase price to $90.00 per share.
The Rights are not exercisable or transferable apart from the common stock prior
to distribution. Distribution of the Rights will occur ten business days
following (1) a public announcement that a person or group of persons
("Acquiring Person") has acquired or obtained the right to acquire beneficial
ownership of 20% or more of the outstanding shares of common stock (the "Stock
Acquisition Date") or (2) the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 25% or more of such
outstanding shares of common stock. The Rights are redeemable in full, but not
in part, by the Corporation at any time until ten business days following the
Stock Acquisition Date, at a price of $0.01 per Right.
9
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
This discussion concerns Fulton Financial Corporation (the Corporation), a bank
holding company incorporated under the laws of the Commonwealth of Pennsylvania
in 1982, and its wholly-owned subsidiaries. This discussion and analysis should
be read in conjunction with the consolidated financial statements and other
financial information presented in this report.
The Corporation has made, and may continue to make, certain forward-looking
statements with respect to its management of net interest income and margin,
allowance and provision for loan losses and its progress in addressing Year 2000
issues. The Corporation cautions that these forward-looking statements are
subject to various assumptions, risks and uncertainties. Because of the
possibility of changes in these assumptions, risks and uncertainties, actual
results could differ materially from forward-looking statements.
In addition to the factors identified herein, the following could cause actual
results to differ materially from such forward looking statements: pricing
pressures on loan and deposit products, actions of bank and nonbank competitors,
changes in local and national economic conditions, changes in regulatory
requirements and regulatory oversight of the Corporation, actions of the Federal
Reserve Board, the Corporation's success in merger and acquisition integration
and the progress of the Corporation in its efforts to ensure Year 2000
compliance.
The Corporation's forward-looking statements are relevant only as of the date on
which such statements are made. By making any forward-looking statements, the
Corporation assumes no duty to update them to reflect new, changing or
unanticipated events or circumstances.
MERGER AND ACQUISITIONS
- -----------------------
Ambassador Bank of the Commonwealth. - On September 11, 1998, the Corporation
completed its acquisition of Ambassador Bank of the Commonwealth (Ambassador), a
$275 million bank located in Allentown, Pennsylvania. As provided under the
terms of the merger agreement, each of the 1.9 million shares of Ambassador's
common stock were exchanged for 1.54 shares of the Corporation's common stock.
In addition, the 417,000 options and warrants to acquire Ambassador stock were
exchanged for approximately 450,000 shares of the Corporation's common stock.
The Corporation issued approximately 3.4 million shares of its common stock in
connection with the merger, which was accounted for as a pooling of interests.
As a result of the acquisition, Ambassador was merged with and into Lafayette
Bank, one of the Corporation's existing affiliate banks, which thereupon changed
its name to "Lafayette Ambassador Bank."
Keystone Heritage Group, Inc. - On March 27, 1998, the Corporation completed its
acquisition of Keystone Heritage Group, Inc. (Keystone Heritage), a $650 million
bank holding company located in Lebanon, Pennsylvania. As provided under the
terms of the merger agreement, each of the approximately 4.0 million shares of
Keystone Heritage's common stock was exchanged for 2.517 shares of the
Corporation's common stock. In addition, each of the 70,000 options to acquire
Keystone Heritage stock was converted to options to acquire the Corporation's
stock. The Corporation issued 10.0 million shares of its common stock in
connection with the merger, which was accounted for as a pooling of interests.
In order to effect the acquisition, Keystone Heritage was merged with and into
the Corporation. Its sole banking subsidiary, Lebanon Valley National Bank
(Lebanon Valley), was merged with and into Farmers Trust Bank, one of the
Corporation's existing affiliate banks, which changed its name to "Lebanon
Valley Farmers Bank." Lebanon Valley's deposits, loans and branches located in
Lancaster and Dauphin Counties were transferred by Lebanon Valley Farmers Bank
to Fulton Bank, the Corporation's Lancaster-based affiliate bank, immediately
after the merger was completed.
10
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Quarter ended June 30, 1999 versus Quarter ended June 30, 1998
- ----------------------------------------------------------------
Fulton Financial Corporation's net income for the second quarter of 1999
increased $2.5 million, or 11.4%, in comparison to net income for the second
quarter of 1998. Diluted net income per share increased $0.04, or 12.9%,
compared to 1998. Second quarter net income of $24.0 million, or $0.35 per share
(basic and diluted), represented a return on average assets (ROA) of 1.65% and a
return on average equity (ROE) of 15.45%. This compares to 1998 net income of
$21.6 million, or $0.31 per share (basic and diluted) (1.59% ROA and 14.83%
ROE). Excluding the impact of unrealized gains on investment securities, return
on average equity was 15.97% in 1999 and 15.66% in 1998.
The increase in net income in 1999 was a result of continued expansion of the
Corporation's core banking business, as shown by increases in both net interest
income and non-interest income. The Corporation's expenses also declined
slightly in comparison to prior year and income taxes remained flat. Offsetting
these were a decrease in investment securities gains and an increase in the
provision for loan losses.
Net Interest Income
- -------------------
Net interest income increased $3.6 million, or 6.2%, for the quarter. Overall,
this increase was a result of growth in the Corporation's balance sheet, offset
by declines in interest rates. The following tables summarize the components of
the increase in net interest income as well as the changes in average balances
of interest-earning assets and interest-bearing liabilities from the second
quarter of 1998 to the second quarter of 1999 and the average interest rates
thereon. All dollar amounts are in thousands.
<TABLE>
<CAPTION>
Three Months Ended June 30 Change
-------------------------------- ---------------------------------
1999 1998 $ %
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Interest income............... $ 103,475 $ 101,582 $ 1,893 1.9%
Interest expense.............. 42,429 44,100 (1,671) (3.8%)
------------ ------------ ------------- ------------
Net interest income........... $ 61,046 $ 57,482 $ 3,564 6.2%
============ ============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30
-------------------------------------
1999 1998 % Change
-------------- -------------- ---------------
<S> <C> <C> <C>
Average interest-earning assets................. $ 5,457,110 5,086,090 7.3%
Yield on earning assets......................... 7.61% 8.01% (5.0%)
Average interest-bearing liabilities............ $ 4,407,225 $ 4,120,582 7.0%
Cost of interest-bearing liabilities............ 3.86% 4.29% (10.0%)
Net interest margin (fully taxable equivalent).. 4.59% 4.61% (0.4%)
</TABLE>
The 7.3% increase in average earning assets accounted for an interest income
increase of approximately $7.4 million. This was offset by a $5.6 million
reduction due to the 40 basis point decline in yield. Overall yields on earning
assets declined from the second quarter of 1998 to the second quarter of 1999 as
a result of several factors. First, interest rates in general declined as
evidenced by the decrease in the Fulton Bank prime lending rate from 8.50% in
1998 to 7.75% in 1999. Second, the mix of earning assets changed from 79% loans
and 21% investments in 1998 to 75% loans and 25% investments in 1999. In
general, the yields on investments are lower.
11
<PAGE>
The Corporation's average loan portfolio grew by approximately $158 million, or
4.0%, mainly in commercial loans ($64 million, or 7.2% increase), commercial
mortgages ($65 million, or 6.2% increase) and home equity loans ($86 million, or
37.2% increase). These increases were offset by declines in both indirect and
direct consumer loans (total decrease of $38 million, or 6.0%), and residential
mortgages ($21 million, or 2.6% decrease). Residential mortgages declined as
refinance activity continued and the resulting fixed rate loans were sold in the
secondary market.
The 7.0% increase in average interest-bearing liabilities resulted in a $3.1
million increase in interest expense. This was offset by a $4.8 million decrease
in interest expense as a result of a 43 basis point decrease in the overall cost
of interest-bearing liabilities. The majority of the increase in interest-
bearing liabilities occurred in long-term debt, which grew $165 million or 122%,
as the Corporation borrowed from the Federal Home Loan Bank to take advantage of
relatively lower fixed interest rates.
Overall, the Corporation's net interest margin on a fully taxable equivalent
basis decreased two basis points to 4.59% in 1999 from 4.61% in 1998. This
stable margin reflects the Corporation's success in asset/liability management
in the declining rate environment.
Provision and Allowance for Loan Losses
- ---------------------------------------
The following table summarizes loans outstanding (including unearned income) as
of the dates shown:
June 30 December 31
1999 1998
----------- -----------
(in thousands)
Commercial, financial and agricultural..... $ 590,992 $ 559,517
Real estate - construction.................. 145,030 130,051
Real estate - mortgage..................... 2,694,418 2,596,364
Consumer................................... 690,337 698,323
Leasing and other.......................... 61,326 56,200
----------- -----------
Totals.................................. $ 4,182,103 $ 4,040,455
=========== ===========
12
<PAGE>
The following table summarizes the activity in the Corporation's allowance for
loan losses:
<TABLE>
<CAPTION>
Three Months Ended June 30
---------------------------------
1999 1998
---------- ----------
<S> <C> <C>
(dollars in thousands)
Loans outstanding at end of period (net of unearned)...... $ 4,172,560 $ 3,937,112
=========== ===========
Daily average balance of loans and leases................. $ 4,106,062 $ 3,948,621
=========== ===========
Balance of allowance for loan losses
at beginning of period............................... $ 58,440 $ 58,078
Loans charged-off:
Commercial, financial and agricultural................ 148 340
Real estate - mortgage................................. 436 359
Consumer.............................................. 2,458 1,283
Leasing and other..................................... 51 7
----------- -----------
Total loans charged-off............................... 3,093 1,989
----------- -----------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural................ 791 269
Real estate - mortgage................................. 187 267
Consumer.............................................. 532 289
Leasing and other..................................... - 6
----------- ------------
Total recoveries...................................... 1,510 831
----------- ------------
Net loans charged-off..................................... 1,583 1,158
Provision for loan losses................................. 2,085 1,621
----------- ------------
Balance at end of period.................................. $ 58,942 $ 58,541
=========== ============
Net charge-offs to average loans (annualized)............. 0.15% 0.12%
=========== ============
Allowance for loan losses to loans outstanding............ 1.41% 1.49%
=========== ============
</TABLE>
The following table summarizes the Corporation's non-performing assets as of the
indicated dates.
<TABLE>
<CAPTION>
June 30 Dec. 31 June 30
(Dollars in thousands) 1999 1998 1998
------------- ------------ ------------
<S> <C> <C> <C>
Nonaccrual loans........................... $ 17,974 $ 19,281 $ 20,612
Loans 90 days past due and accruing........ 7,528 11,109 9,245
Other real estate owned (OREO)............. 1,442 1,420 1,642
------------- ------------- -------------
Total non-performing assets................ $ 26,944 $ 31,810 $ 31,499
============= ============= =============
Non-performing loans/Total loans........... 0.61% 0.75% 0.76%
Non-performing assets/Total assets......... 0.45% 0.54% 0.57%
Non-performing assets/Gross loans and OREO. 0.65% 0.81% 0.80%
</TABLE>
13
<PAGE>
Additions to the allowance for loan losses are charged to income through the
provision for loan losses when, in the opinion of management and based on
continuing analyses of the loan portfolio, it is believed that the allowance is
not adequate. Management considers various factors in assessing the adequacy of
the allowance for loan losses and determining the provision for the period.
Among these are charge-off history and trends, risk classification of
significant credits, adequacy of collateral, the mix and risk characteristics of
loan types in the portfolio, and the balance of the allowance relative to total
and nonperforming loans. Additional consideration is given to local and national
economic conditions. The Corporation's policy is individually applied to each of
the eleven affiliate banks. Resulting provisions and allowances are aggregated
for consolidated financial reporting.
For the second quarter of 1999, net charge-offs totaled $1.6 million, or 0.15%,
of average loans on an annualized basis. This compares to $1.2 million, or
0.12%, for the second quarter of 1998. Non-performing loans to total loans were
0.61% at June 30, 1999 as compared to 0.75% at December 31, 1998 and 0.76% at
June 30, 1998.
The provision for loan losses increased $464,000 or 28.6% to $2.1 million as
compared to $1.6 million in the second quarter of 1998. This increase was due to
several factors. First, the $1.6 million in charge-offs for the second quarter
of 1999 included one commercial loan recovery totaling approximately $700,000.
Excluding this item, which is considered to be a non-recurring item, net charge-
offs would have totaled $2.4 million for an annualized net charge-offs to
average loans ratio of 0.22%.
Second, charge-offs of consumer loans continued to increase. In the second
quarter of 1998, the ratio of annualized net charge-offs of consumer loans to
average balances of consumer loans was 0.45%. In the second quarter of 1999,
this ratio increased to 0.92%. While a portion of this increase resulted from a
change in policy which requires earlier charge-off of non-accrual loans, the net
charge-offs of consumer loans continued to grow.
The Corporation's periodic loan portfolio review and allowance calculation
resulted in an unallocated allowance for loan losses of 29% at June 30, 1999 and
30% at December 31, 1998. This fairly stable unallocated level supports the
provision for loan losses for the quarter and the balance of the allowance for
loan losses as of June 30, 1999. Management believes that the allowance balance
of $58.9 million is sufficient to cover losses incurred in the loan portfolio
and appropriate based on applicable accounting standards.
Other Income
- ------------
Other income for the quarter ended June 30, 1999 was $15.4 million. This was a
decrease of $1.1 million, or 6.9%, over the comparable period in 1998. Excluding
investment security gains, which decreased from $4.6 million in 1998 to $1.7
million in 1999, other income increased $1.8 million or 15.2%. Increases were
realized in most major categories of other income. Investment management and
trust services income increased $812,000, or 25.4%, primarily due to the
continued roll-out of investment brokerage services at all eleven of the
Corporation's subsidiary banks. Service charges on deposit accounts increased
$418,000, or 8.8%, as a result of an increase in overdraft fees as well as the
$143 million or 6.5% growth in average savings and demand deposit accounts which
generate the majority of service charges.
Other service charges and fees increased $583,000, or 21.4%, as a result of
higher debit card revenue ($245,000, or 57.9% increase) and other special fee
revenue. Total mortgage banking income remained flat ($6,000, or 0.5% decrease)
- - decreases in mortgage sale gains ($62,000, or 7.1%) due to moderately higher
mortgage rates were offset by increases in servicing income ($57,000, or 6.5%)
as the Corporation's servicing portfolio grew from recent refinance activity.
14
<PAGE>
Other Expenses
- --------------
Total other expenses for the second quarter of 1999 of $40.2 million showed a
decrease of $488,000 or 1.2% from 1998. This small decrease resulted from
expense management efforts in 1999 as well as certain non-recurring items which
inflated 1998 expenses. In 1998, the Corporation incurred approximately $400,000
in professional fee expenses related to mergers, $200,000 of costs related to
the conversion of Lebanon Valley's data processing systems and $500,000 of
expenses from contributions related to low-income housing projects. Excluding
the impact of these non-recurring expenses, the increase in total other expenses
was moderate at $614,000, or 1.5%.
Salaries and employee benefits increased $1.4 million, or 6.8%, in comparison to
the second quarter of 1998. Salaries expense increased $892,000, or 4.9%,
reflecting normal merit increases and a small increase in average full-time
equivalent employees from 2,311 in 1998 to 2,327 in 1999. Employee benefits
expense increased $555,000, or 15.9%, due to increased medical insurance costs
($196,000, or 14.2%), and profit sharing plan expense ($257,000 or 25.9%
increase).
Both net occupancy expense and equipment expense registered less than $10,000
and 0.5% changes from the prior year. Special services expense, which represents
the cost of data processing, increased only $75,000 or 2.8%. These small expense
increases overall reflect the efficiencies gained as a result of the merger with
Keystone Heritage and the conversion of Lebanon Valley's data processing from an
in-house function to the Corporation's third-party servicer.
Other expenses decreased $2.0 million or 16.7%, in 1999 to $9.8 million, as
compared to $11.8 million for the same period in 1998. This decrease was mainly
due to the non-recurring expenses noted previously.
Income Taxes
- ------------
Income tax expense for the quarter was $10.1 million in both 1999 and 1998,
reflecting effective tax rates of 29.5% in 1999 and 31.9% in 1998. The 1998
effective tax rate was higher due to lower investments in tax-free municipal
investments and $1.3 million in low-income housing related tax credits, as
compared to $1.5 million in 1999. Adjusting for these factors, the 1998
effective tax rate would have been 29.9%.
Six Months ended June 30, 1999 versus Six Months ended June 30, 1998
- ---------------------------------------------------------------------
Fulton Financial Corporation's net income for the first six months of 1999
increased $4.8 million, or 11.3%, in comparison to net income for the same
period in 1998. Diluted net income per share increased $0.07, or 11.3%, compared
to 1998. First half net income of $47.6 million, or $0.69 per share (basic) and
$0.68 per share (diluted), represented a return on average assets (ROA) of 1.65%
and a return on average equity (ROE) of 15.54%. This compares to 1998 net income
of $42.8 million, or $0.62 per share (basic) and $0.61 per share (diluted)
(1.59% ROA and 14.94% ROE). Excluding the impact of unrealized gains on
investment securities, return on average equity was 16.11% in 1999 and 15.75% in
1998.
The increase in net income in 1999 resulted from continued growth of the
Corporation's core banking business, as shown by increases in both net interest
income and non-interest income. The Corporation's expense levels also remained
flat in comparison to the prior year.
15
<PAGE>
Net Interest Income
- -------------------
Net interest income increased $5.5 million, or 4.8%, for the first six months of
1999. Overall, this increase was a result of growth in the Corporation's balance
sheet, offset by declines in interest rates. The following tables summarize the
components of the increase in net interest income as well as the changes in
average balances of interest-earning assets and interest-bearing liabilities
from the first half of 1998 to the first half of 1999 and the average interest
rates thereon. All dollar amounts are in thousands.
<TABLE>
<CAPTION>
Six Months Ended June 30 Change
--------------------------------------- ---------------------------------------
1999 1998 $ %
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Interest income............... $204,825 $201,566 $ 3,259 1.6%
Interest expense.............. 85,111 87,373 (2,262) (2.6)
Net interest income........... $119,714 $114,193 $ 5,521 4.8%
<CAPTION>
Six Months Ended June 30
----------------------------------------
1999 1998 % Change
----------------- ----------------- -----------------
<S> <C> <C> <C>
Average interest-earning assets................. $5,410,106 $5,042,829 7.3%
Yield on earning assets......................... 7.73% 8.13% (4.9%)
Average interest-bearing liabilities............ $4,381,065 $4,096,022 7.0%
Cost of interest-bearing liabilities............ 3.92% 4.30% (8.8%)
Net interest margin (fully taxable equivalent).. 4.56% 4.63% (1.5%)
</TABLE>
The 7.3% increase in average earning assets accounted for an interest income
increase of approximately $14.9 million, offset by a reduction of $11.6 million
due to the 40 basis point decline in yield. As noted in the second quarter
discussion, yields were lower as a result of a decline in rates in general and a
shift in the mix of earning assets from loans to investments.
The Corporation's average loan portfolio grew by approximately $116 million, or
2.9%, mainly in commercial mortgages ($92 million or 9.2% increase). Although
recent increases in residential mortgage rates have reduced the volume of
refinance activity, overall loan growth for the first half of the year was
impacted by a $65 million reduction in average adjustable rate mortgages. This
decline was due to the sale of the resulting fixed rate mortgages in the
secondary market to reduce interest rate risk. The remaining growth in earning
assets was realized in investment securities, which increased $272 million or
24.9%.
The 7.0% increase in average interest-bearing liabilities resulted in a $6.1
million increase in interest expense. This was offset by a $8.4 million decrease
in interest expense as a result of a 38 basis point decrease in the overall cost
of interest-bearing liabilities. The majority of the increase in interest-
bearing liabilities occurred in long-term debt, which grew $187 million or 167%,
as the Corporation borrowed from the Federal Home Loan Bank to take advantage of
lower fixed interest rates.
16
<PAGE>
Due to the decline in interest rates, the shift in the mix of earning assets,
and the increase in long-term debt, the Corporation's net interest margin
decreased 7 basis points, from 4.63% in 1998 to 4.56% in 1999. The financial
services industry has become increasingly competitive in recent years.
Competition for loans has resulted in downward pressure on yields and
competition for deposits has resulted in upward pressure on rates. In the
future, the ability to maintain the net interest margin while growing the
balance sheet will continue to be a challenge for the Corporation. Management
believes, however, that the Corporation has an effective asset/liability
management function. See "Market Risk."
Provision for Loan Losses
- -------------------------
The following table summarizes the activity in the Corporation's allowance for
loan losses:
<TABLE>
<CAPTION>
Six Months Ended June 30
---------------------------------
1999 1998
--------- ----------
(dollars in thousands)
<S> <C> <C>
Loans outstanding at end of period (net of unearned)...... $4,172,560 $3,937,112
========== ==========
Daily average balance of loans and leases................. $4,073,687 $3,957,564
========== ==========
Balance of allowance for loan losses
at beginning of period............................... $ 57,415 $ 57,557
Loans charged-off:
Commercial, financial and agricultural................ 772 739
Real estate - mortgage................................. 593 604
Consumer.............................................. 3,861 2,261
Leasing and other..................................... 68 34
---------- ---------
Total loans charged-off............................... 5,294 3,638
---------- ---------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural................ 1,351 435
Real estate - mortgage................................. 471 328
Consumer.............................................. 947 620
Leasing and other..................................... - 7
---------- ---------
Total recoveries...................................... 2,769 1,390
---------- ---------
Net loans charged-off..................................... 2,525 2,248
Provision for loan losses................................. 4,052 3,232
---------- ----------
Balance at end of period.................................. $ 58,942 $ 58,541
========== ==========
Net charge-offs to average loans (annualized)............. 0.12% 0.11%
========== ==========
Allowance for loan losses to loans outstanding............ 1.41% 1.49%
========== ==========
</TABLE>
Refer to the "Provision for Loan Losses" section of Management's Discussion for
a summary of the Corporation's process for establishing the provision and
allowance for loan losses. For the first six months of 1999, net charge-offs
totaled $2.5 million, or 0.12%, of average loans on an annualized basis. This
compares to $2.2 million, or 0.11%, for the first half of 1998 and 0.14% for all
of 1998. Non-performing loans to total loans were 0.61% at June 30, 1999 as
compared to 0.75% at both December 31, 1998 and 0.76% at June 30, 1999.
17
<PAGE>
Although there were improvements in some of the Corporation's loan quality
measures, the provision for loan losses increased $820,000 or 25.4% in
comparison to the first half of 1998. Net charge-offs for the first six months
of 1999 included recoveries of $1.0 million on commercial loans that are
considered by management to be non-recurring. Adjusting for these, net charge-
offs for 1999 would have been approximately $3.5 million, or 0.17% of average
loans on an annualized basis. This is a $1.3 million, or 56.8%, increase over
1999.
The largest component of net charge-offs over the past two years has been
consumer loans. This situation is a result of the Corporation's decision to
expand its consumer lending over the past several years. While the portfolio has
not grown in recent months due to competitive factors, losses on existing loans
continue and management believes that there are additional losses in the
portfolio.
The Corporation's periodic loan portfolio review and allowance calculation
resulted in an unallocated allowance for loan losses of 29% at June 30, 1999 and
30% at December 31, 1998. This fairly stable unallocated level supports the
provision for loan losses for the quarter and the balance of the allowance for
loan losses as of June 30, 1999. Management believes that the allowance balance
of $58.4 million is sufficient to cover losses incurred in the loan portfolio
and appropriate based on applicable accounting standards.
Other Income
- ------------
Other income for the six months ended June 30, 1999 was $31.0 million. This was
a decrease of $177,000 or 0.6% over the comparable period in 1998. Excluding
investment security gains, which decreased from $8.0 million in 1998 to $4.7
million in 1999, other income increased $3.1 million or 13.4%. Increases were
realized in all major categories of other income. Investment management and
trust services income increased $1.2 million, or 19.1%, due to the introduction
of new trust products and services, such as investment brokerage services, and
continued emphasis on the Corporation's traditional trust services.
Service charges on deposit accounts increased $829,000, or 9.1%, as a result of
the $138 million or 6.3% growth in average savings and demand deposit accounts
which generate the majority of service charges. Other service charges and fees
increased $950,000, or 17.5%, as a result of higher debit card revenue
($379,000, or 49.9% increase), and other special fee revenue. Mortgage banking
income increased $121,000, or 5.1%, almost entirely due to servicing income as
the Corporation's serviced loan portfolio continued to grow.
Other Expenses
- --------------
Total other expenses for the first half of 1999 of $79.3 million showed a
decrease of $464,000 or 0.6% over 1998. This small decrease was attributable to
expense management efforts in 1999 as well as certain non-recurring items in
1998. In 1998, the Corporation incurred $1.3 million in professional fee
expenses related to mergers, $200,000 of costs related to the conversion of
Lebanon Valley's data processing systems and $500,000 of expenses from
contributions related to low income housing projects. Excluding these expenses,
the increase in total other expenses was moderate at $1.5 million, or 2.0%.
Salaries and employee benefits increased $1.8 million or 4.3%, in comparison to
the first half of 1998. Salaries expense increased $806,000, or 2.3% mainly due
to normal merit increases. Employee benefits expense increased $994,000, or
14.3%, mainly due to increased medical insurance costs and profit sharing
expense.
18
<PAGE>
Net occupancy expense increased $129,000, or 2.0%, due to growth. Equipment
expense decreased $126,000, or 2.6%, and special services expense, which
represents the cost of data processing, increased $670,000, or 13.4%. The
decrease in equipment expense and the increase in special services reflect the
conversion of Lebanon Valley to the Corporation's outside data processing
servicer upon merging with the Corporation in March, 1998. Prior to the merger,
Lebanon Valley's core data processing function was in-house, using bank-owned
equipment, software and personnel. Subsequent to the merger, Lebanon Valley was
added to the Corporation's organization-wide third party data processing system.
Other expenses decreased $2.9 million, or 13.4%, in 1999 to $19.0 million, as
compared to $21.9 million for the same period in 1998. This decrease was mainly
due to the nonrecurring expenses discussed previously.
Income Taxes
- ------------
Income tax expense for the first six months of 1999 was $19.8 million as
compared to $19.6 million for the comparable period in 1998, a $170,000 or 0.9%
increase. The effective tax rate was 29.4% for 1999 and 31.5% in 1998. The 1998
effective rate was higher due to the impact of the non-deductible merger-related
expenses incurred in 1998, higher investments in municipal securities in 1999
and an increase in federal tax credits on low income housing investments to $3.0
million in 1999 from $2.6 million in 1998. Adjusting for these factors, the 1998
effective tax rate would have been 29.3%.
FINANCIAL CONDITION
- -------------------
At June 30, 1999, the Corporation had total assets of $6.0 billion, reflecting
an increase of $114.6 million, or 2.0%, from December 31, 1998.
The increase in assets was almost entirely due to loan growth, with loans (net
of unearned) increasing $142.2 million, or 3.5% to $4.2 billion at June 30, 1999
as compared to $4.0 billion at December 31, 1998. Most of this increase occurred
as a result of new loan production during the second quarter of 1999. This loan
growth was realized in commercial loans and mortgages ($123 million, or 6.3%
increase from December 31, 1998; $83 million of the total occurring in the
second quarter).
The $142 million increase in loans, coupled with a $97.8 million, or 2.1%
decrease in deposits required total additional funding of $240 million. This was
provided by short-term borrowings ($149.4 million, or 63.4% increase) and long
term debt ($52.1 million, or 17.6% increase). The effect of funding through
borrowings rather than deposits had a minimal impact on the Corporation's net
interest income and net interest margin (see "Net Interest Income" section of
Management's Discussion).
Capital Resources
- -----------------
Shareholders' equity increased $3.0 million or 0.5% during the first six months
of 1999. Net income of $47.6 million, offset by $19.8 million in cash dividends
to shareholders, produced a net increase to equity of $27.8 million. However,
increases in interest rates had a negative impact on the value of the
Corporation's investment portfolio (primarily U.S. Treasury and Agency
securities), resulting in a $21.5 million after tax reduction in unrealized
gains on securities.
19
<PAGE>
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 3.0% for
institutions which are highly-rated in terms of safety and soundness and which
are not experiencing or anticipating any significant growth. Other institutions
are expected to maintain capital levels at least one or two percent above the
minimum.
As of June 30, 1999, the Corporation and each of its subsidiaries met the
minimum capital requirements. In addition, the Corporation and each of its
subsidiaries' capital ratios exceeded the amounts required to be considered
"well-capitalized" as defined in the regulations.
The Corporation's total and Tier I risk-based capital ratios have placed the
Corporation in the top half of its self-defined peer group over the past year.
The Corporation's ratio of Tier I capital to average assets has placed it in the
top quartile in comparison to its peers.
On April 27, 1999, the Board of Directors approved a plan to repurchase up to
770,000 shares of the Corporation's common stock through March 31, 2000.
Treasury stock acquired under this plan will be used for the Corporation's
Employee Stock Purchase Plan, Incentive Stock Option Plan and other benefit
plans. Through June 30, 1999, 174,900 shares had been repurchased under this
plan.
YEAR 2000
- ---------
The Corporation's business, operations and financial condition may be affected
by the "Year 2000 Problem" where certain computer and other electronic
information processing systems may not be able to properly recognize dates after
1999. A financial institution's ability to process financial data such as
deposits, loans and trust accounts through its various data processing systems
is the most obvious area of exposure to the Year 2000 Problem. In addition, a
financial institution's ability to collect payments on loans could be impacted
if borrowers are unable to make payments as a result of their own Year 2000
deficiencies. Furthermore, financial institutions could be affected by the Year
2000 readiness of business customers, vendors and correspondents, customer
perception of the problem, and regulatory influences, among other things.
The Corporation formed committees at each subsidiary bank and at the Corporation
to identify, evaluate and manage the risks related to the Year 2000 Problem. A
comprehensive plan adopted by the Board of Directors of the Corporation
established a five-step process - awareness, assessment, renovation, validation
and implementation - to address the Year 2000 Problem. The plan established
priorities for addressing the Year 2000 Problem, with systems classified as
being most mission critical receiving the highest priority treatment. The
primary focus of the plan is on assuring that information technology systems
will be operable, but it also addresses non-information technology issues such
as embedded technology in security and other systems.
20
<PAGE>
Federal bank regulatory agencies have issued Year 2000 project guidelines for
financial institutions and have conducted examinations of the Corporation and
its banks on the Corporation's plans to address the Year 2000 Problem. The
Corporation has used such guidance to establish Year 2000 work tasks for each
phase.
The awareness, assessment, renovation and validation phases of the plan have
been completed for all mission critical systems, including third party data
processing providers. The implementation of mission-critical systems, including
third-party systems, is substantially complete. The Corporation also has
completed business contingency plans for all critical processes within the
organization. Testing alternative work-around processes from these business
contingency plans will be finalized by September, 1999 and necessary adjustments
will be made to insure success when used. During the last half of 1999, the
Corporation will re-inspect all processes, beginning with the most critical, for
continual assurance that contingency planning adequately addresses potential
disruptions. In addition, the Corporation continues to review and improve the
documented business contingency plans.
Since the beginning of its Year 2000 efforts, the Corporation has incurred
approximately $2.0 million in expenses related to the Year 2000 ($900,000 in
1999). In addition, capital expenditures to replace non-compliant hardware,
software and other equipment have totaled approximately $5.5 million ($2.5
million in 1999). The Corporation expects to incur an additional $600,000 in
expenses as it continues to re-test renovated systems and test its contingency
plans during the remainder of 1999.
While these costs are related to the Year 2000 Problem, many also represent
significant improvements to the technology infrastructure for Fulton Financial
Corporation and its bank subsidiaries. Improvements at Fulton Bank include
finishing migration to a new branch automation solution and completing the wide
area telecommunications network for both branch and security communication.
Since third-party service providers perform most major data processing functions
of the Corporation, the Corporation does not anticipate that it will incur any
material costs to address the Year 2000 Problem other than those discussed
above. The Corporation expects, at this time, that the Year 2000 Problem should
have no material adverse effect on the products and services it offers or on
competitive conditions; however, further testing with mission critical third-
party service providers will validate the readiness of these providers for this
change. Similarly, the Corporation believes that the Year 2000 Problem should
have no material adverse effect on the Corporation's business, operations or
financial condition, based on surveys of its major business loan customers and
other actions designed to evaluate the risks associated with the Year 2000
Problem, however, it cannot rule out the possibility that the Year 2000 Problem
might have such an effect. The Corporation will continue to evaluate such risks
throughout 1999.
Federal bank regulators have initiated a series of examinations of all financial
institutions to assess their progress in addressing the Year 2000 Problem and
have indicated that institutions which have not adequately addressed the issue
will be subject to various sanctions, including denial of, or delay in acting
on, regulatory applications. The Corporation believes that it has made
sufficient progress on the Year 2000 Problem to minimize the likelihood of
regulatory sanctions.
MARKET RISK
- -----------
Market risk is the exposure to economic loss that arises from changes in the
values of certain financial instruments. The types of market risk exposures
generally faced by banking entities include interest rate risk, equity market
price risk, foreign currency risk and commodity price risk. Due to the nature of
its operations, only equity market price risk and interest rate risk are
significant to the Corporation.
21
<PAGE>
Equity Market Price Risk
- ------------------------
Equity market price risk is the risk that changes in the values of equity
investments could have a material impact on the financial position or results of
operations of the Corporation. The Corporation's equity investments consist of
common stocks of publicly traded financial institutions (cost basis of
approximately $50.6 million) and U.S. Government and agency stock (cost basis of
approximately $22.9 million). The Corporation's financial institutions stock
portfolio had unrealized gains of approximately $25.1 million at June 30, 1999.
Although the book value of equity investments accounted for only 0.8% of the
Corporation's total assets, the unrealized gains on the portfolio represent a
potential source of revenue. The Corporation has a history of periodically
realizing gains from this portfolio and, if values were to decline
significantly, this revenue source could be lost.
The Corporation manages its equity market price risk by investing primarily in
regional financial institutions. Management continuously monitors the fair value
of its equity investments and evaluates current market conditions and operating
results of the companies. Periodic sale and purchase decisions are made based on
this monitoring process. None of the Corporation's equity securities are
classified as trading. Future cash flows from these investments are not provided
here since none of them have maturity dates.
Interest Rate Risk
- ------------------
Interest rate risk creates exposure in two primary areas. First, changes in
rates have an impact on the Corporation's liquidity position and could affect
its ability to meet obligations and continue to grow. Second, movements in
interest rates can create fluctuations in the Corporation's net income and
changes in the economic value of its equity.
The Corporation employs various management techniques to minimize its exposure
to interest rate risk. An Asset/Liability Management Committee (ALCO),
consisting of key financial and senior management personnel, meets on a weekly
basis. The ALCO is responsible for reviewing the interest rate sensitivity
position of the Corporation, approving asset and liability management policies,
and overseeing the formulation and implementation of strategies regarding
balance sheet positions and earnings. The primary goal of asset/liability
management is to address the liquidity and net income risks noted above.
From a liquidity standpoint, the Corporation must maintain a sufficient level of
liquid assets to meet the ongoing cash flow requirements of customers, who, as
depositors, may want to withdraw funds or who, as borrowers, need credit
availability. Liquidity sources are found on both sides of the balance sheet.
Liquidity is provided on a continuous basis through scheduled and unscheduled
principal reductions and interest payments on outstanding loans and investments.
Liquidity is also provided through the availability of deposits and borrowings.
The following table provides information about the Corporation's interest rate
sensitive financial instruments. The table provides expected cash flows and
weighted average rates for each significant interest rate sensitive financial
instrument, by expected maturity period. None of the Corporation's financial
instruments are classified as trading.
22
<PAGE>
FULTON FINANCIAL CORPORATION
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
(dollars in thousands)
Expected Maturity Period
----------------------------------------------------------------------- Estimated
1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years >5 Years Total Fair Value
----------- ---------- ---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate loans (1) $ 725,808 $575,460 $456,311 $293,546 $231,051 $ 602,304 $2,884,480 $2,880,156
Average rate (1) 8.01% 7.99% 7.91% 7.86% 7.79% 7.66% 7.88%
Floating rate loans (2) 373,855 176,754 148,530 128,582 73,984 386,375 1,288,080 1,285,778
Average rate 8.65% 8.95% 8.93% 8.89% 8.13% 8.05% 8.54%
Fixed rate investments (3) 336,250 244,811 128,942 178,057 72,510 297,804 1,258,374 1,236,095
Average rate 6.48% 6.08% 5.99% 6.08% 6.08% 5.95% 6.15%
Floating rate investments (3) 13,551 - - - - - 13,551 13,553
Average rate 4.42% - - - - 4.98%
Other interest-earning assets 112,385 - - - - - 112,385 113,942
Average rate 5.72% - - - - - 5.72%
---------------------------------------------------------------------------------------------------
Total $1,561,849 $997,025 $773,783 $600,185 $377,545 $1,286,483 $5,556,870 $5,529,524
Average rate 7.64% 7.69% 7.78% 7.55% 7.53% 7.38% 7.59%
---------------------------------------------------------------------------------------------------
Fixed rate deposits (4) $1,415,595 $450,850 $146,198 $ 62,958 $ 23,931 $ 22,827 $2,122,359 $2,121,153
Average rate 4.88% 5.24% 5.27% 5.66% 5.23% 5.62% 5.02%
Floating rate deposits (5) 673,417 69,341 66,106 66,106 66,106 703,478 1,644,554 1,644,544
Average rate 2.76% 1.46% 1.42% 1.42% 1.42% 1.36% 1.94%
Fixed rate borrowings (6) 82,349 3,636 26,594 358 27,500 207,632 348,069 341,395
Average rate 5.37% 5.79% 4.80% 5.25% 4.99% 5.06% 5.11%
Floating rate borrowings (7) 385,027 - - - - - 385,027 385,027
Average rate 4.40% - - - - - 4.40%
---------------------------------------------------------------------------------------------------
Total $2,556,388 $523,827 $238,898 $129,422 $117,537 $ 933,937 $4,500,009 $4,492,119
Average rate 4.26% 4.74% 4.15% 3.49% 3.03% 2.31% 3.85%
--------------------------------------------------------------------------------------------------
</TABLE>
Assumptions:
1) Amounts are based on contractual maturities, adjusted for expected
prepayments.
2) Average rates are shown on a fully taxable equivalent basis using an
effective tax rate of 35%.
3) Amounts are based on contractual maturities, adjusted for expected
prepayments on mortgage-backed securities.
4) Amounts are based on contractual maturities of time deposits.
5) Money market and Super NOW deposits are shown in first year. NOW and
savings accounts are spread based on history of deposit flows.
6) Amounts are based on contractual maturities of Federal Home Loan Bank
advances.
7) Amounts are Federal Funds purchased and securities sold under
agreements to repurchase, which mature in less than 90 days.
23
<PAGE>
The Corporation uses three complementary methods to measure and manage interest
rate risk. They are static gap analysis, simulation of net interest income, and
estimates of economic value of equity. Using these measurements in tandem
provides a reasonably comprehensive summary of the magnitude of interest rate
risk in the Corporation, level of risk as time evolves, and exposure to changes
in interest rate relationships.
Static gap analysis provides a measurement of repricing risk in the
Corporation's balance sheet as of a point in time. This measurement is
accomplished through stratification of the Corporation's assets and liabilities
into predetermined repricing periods. The assets and liabilities in each of
these periods are summed and compared for mismatches within that maturity
segment. Core deposits having noncontractual maturities are placed into
repricing periods based upon historical balance performance. Repricing for
mortgage loans held and for mortgage-backed securities includes the effect of
expected cash flows. Estimated prepayment effects are applied to these balances
based upon industry projections for prepayment speeds. The Corporation's policy
limits the cumulative 6-month gap to plus or minus 15 percent of total earning
assets. The Corporation was positioned within this range throughout the first
half of 1999. At June 30, 1999, the cumulative 6-month gap was 0.89.
Simulation of net interest income and of net income is performed for the next
twelve-month period. A variety of interest rate scenarios is used to measure the
effects of sudden and gradual movements upward and downward in the yield curve.
These results are compared to the results obtained in a flat or unchanged
interest rate scenario. Simulation of earnings is used primarily to measure the
Corporation's short-term earnings exposure to rate movements. The Corporation's
policy limits the potential exposure of net interest income to 10% of the base
case net interest income for every 100 basis point "shock" in interest rates. A
"shock' is an immediate upward or downward movement of interest rates across the
yield curve based upon changes in the prime rate. As of June 30, 1999, the
Corporation had a larger exposure to upward rate shocks, with net interest
income at risk of loss over the next twelve months of 0.4%, 1.8% and 4.5% where
interest rates are shocked upward by 100, 200 and 300 basis points,
respectively.
Economic value of equity estimates the discounted present value of asset cash
flows and liability cash flows. Discount rates are based upon market prices for
like assets and liabilities. Upward and downward shocks of interest rates are
used to determine the comparative effect of such interest rate movements
relative to the unchanged environment. This measurement tool is used primarily
to evaluate the longer term repricing risks and options in the Corporation's
balance sheet. A policy limit of 10% of economic equity may be at risk for every
100 basis point "shock" movement in interest rates. As of June 30, 1999, upward
shocks of 100, 200 and 300 basis points were estimated to have negative effects
upon economic value of 0.1%, 1.3% and 2.0%, respectively.
24
<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 and restated, and Bylaws
of Fulton Financial Corporation as amended.
(2) Instruments defining the right of securities holders,
including indentures:
(a) Rights Agreement dated June 20, 1989, as amended and
restated on April 27, 1999 between Fulton Financial
Corporation and Fulton Bank - Incorporated by reference to
Exhibit 1 of the Fulton Financial Corporation Current
Report on Form 8-K dated April 27, 1999.
(3) Material Contracts - Executive Compensation Agreements and
Plans:
(a) Severance Agreements entered into between Fulton Financial
and: Rufus A. Fulton, Jr., as of April 17, 1984; R. Scott
Smith, Jr., as of May 17, 1988; Charles J. Nugent, as of
November 19, 1992; and Richard J Ashby, Jr., as of May 17,
1988.
(b) Incentive Stock Option Plan adopted September 19, 1995 -
Incorporated by reference from Exhibit A of Fulton
Financial Corporation's 1996 Proxy Statement.
(4) Financial Data Schedule June 30, 1999
(5) Financial Data Schedule June 30, 1998 (restated).
(b) Reports on Form 8-K:
(1) Form 8-K dated April 27, 1999 (as amended by Form 8-K/A filed
July 8, 1999) reporting the Amended and Restated Rights
Agreement.
25
<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 13, 1999 \s\ Rufus A. Fulton, Jr.
---------------- ------------------------------------------
Rufus A. Fulton, Jr.
Chairman, President and
Chief Executive Officer
Date: August 13, 1999 \s\ Charles J. Nugent
----------------- ------------------------------------------
Charles J. Nugent
Executive Vice President and
Chief Financial Officer
26
<PAGE>
EXHIBIT INDEX
Exhibits Required Pursuant
to Item 601 of Regulation S-K
-----------------------------
3. Articles of incorporation, as amended and restated, and Bylaws of Fulton
Financial Corporation as amended.
4. Instruments defining the rights of security holders, including indentures.
(a) Rights Agreement dated June 20, 1989, as amended and restated on April
27, 1999 between Fulton Financial Corporation and Fulton Bank -
Incorporated by reference to Exhibit 1 of the Fulton Financial
Corporation Current Report on Form 8-K dated April 27, 1999.
10. Material Contracts
(a) Severance Agreements entered into between Fulton Financial and: Rufus
A. Fulton, Jr., as of April 17, 1984; R. Scott Smith, Jr., as of May
17, 1988; Charles J. Nugent, as of November 19, 1992; and Richard J
Ashby, Jr., as of May 17, 1988.
(b) Incentive Stock Option Plan adopted September 19, 1995 - Incorporated
by reference from Exhibit A of Fulton Financial Corporation's 1996
Proxy Statement.
27. Financial data schedule June 30, 1999.
27.1 Financial data schedule June 30, 1998 (restated).
27
<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, 1999 AND THE
RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1999
AND OTHER FINANCIAL DATA INCLUDED WITHIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 228,419
<INT-BEARING-DEPOSITS> 2,763
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,267,882
<INVESTMENTS-CARRYING> 112,139
<INVESTMENTS-MARKET> 112,041
<LOANS> 4,172,560
<ALLOWANCE> 58,942
<TOTAL-ASSETS> 5,953,309
<DEPOSITS> 4,495,128
<SHORT-TERM> 385,027
<LIABILITIES-OTHER> 113,377
<LONG-TERM> 348,069
0
0
<COMMON> 173,392
<OTHER-SE> 437,916
<TOTAL-LIABILITIES-AND-EQUITY> 5,953,309
<INTEREST-LOAN> 166,554
<INTEREST-INVEST> 38,070
<INTEREST-OTHER> 201
<INTEREST-TOTAL> 204,825
<INTEREST-DEPOSIT> 71,340
<INTEREST-EXPENSE> 85,111
<INTEREST-INCOME-NET> 119,714
<LOAN-LOSSES> 4,052
<SECURITIES-GAINS> 4,726
<EXPENSE-OTHER> 79,250
<INCOME-PRETAX> 67,389
<INCOME-PRE-EXTRAORDINARY> 47,570
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,570
<EPS-BASIC> 0.69
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 4.56
<LOANS-NON> 17,974
<LOANS-PAST> 7,528
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 58,440
<CHARGE-OFFS> 3,093
<RECOVERIES> 1,510
<ALLOWANCE-CLOSE> 58,942
<ALLOWANCE-DOMESTIC> 58,942
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17,680
</TABLE>
<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, 1998 AND THE
RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND OTHER FINANCIAL DATA INCLUDED WITHIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THIS INFORMATION HAS BEEN RESTATED FOR THE CORPORATION'S ACQUISITION
OF AMBASSADOR BANK OF THE COMMONWEALTH ON SEPTEMBER 11, 1998, WHICH WAS
ACCOUNTED FOR AS A POOLING OF INTERESTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 234,933
<INT-BEARING-DEPOSITS> 4,197
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 958,853
<INVESTMENTS-CARRYING> 259,083
<INVESTMENTS-MARKET> 259,243
<LOANS> 3,937,108
<ALLOWANCE> 58,541
<TOTAL-ASSETS> 5,524,963
<DEPOSITS> 4,502,748
<SHORT-TERM> 199,421
<LIABILITIES-OTHER> 103,883
<LONG-TERM> 128,779
0
0
<COMMON> 156,613
<OTHER-SE> 433,519
<TOTAL-LIABILITIES-AND-EQUITY> 5,524,963
<INTEREST-LOAN> 168,811
<INTEREST-INVEST> 31,594
<INTEREST-OTHER> 1,161
<INTEREST-TOTAL> 201,566
<INTEREST-DEPOSIT> 79,916
<INTEREST-EXPENSE> 87,373
<INTEREST-INCOME-NET> 114,193
<LOAN-LOSSES> 3,232
<SECURITIES-GAINS> 7,995
<EXPENSE-OTHER> 79,712
<INCOME-PRETAX> 62,403
<INCOME-PRE-EXTRAORDINARY> 42,754
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,754
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 4.63
<LOANS-NON> 20,612
<LOANS-PAST> 9,245
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 58,078
<CHARGE-OFFS> 1,989
<RECOVERIES> 1,158
<ALLOWANCE-CLOSE> 58,541
<ALLOWANCE-DOMESTIC> 58,541
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17,560
</TABLE>
