<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 Number: 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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each Exchange
Title of each class on which registered
--------------------------------- -------------------
Common Stock, $2.50 Par Value None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of 62,280,451 shares of common stock held by
non-affiliates, calculated based on the average of the bid and asked prices on
March 15, 2000, was approximately $1.0 billion.
As of March 15, 2000 there were 67,959,783 shares of Fulton Financial
Corporation common stock outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference:
Part of Form 10-K into
Document which incorporated
-------- ----------------------
Definitive Proxy Statement of Part III
Fulton Financial Corporation
dated March 9, 2000
<PAGE>
PART I
Item 1. Description of Business
- --------------------------------
Fulton Financial Corporation (the Corporation) is a Pennsylvania business
corporation which was organized on February 8, 1982 and became a bank holding
company through the acquisition of all of the outstanding stock of Fulton Bank
on June 30, 1982. Fulton Financial Corporation provides a wide variety of retail
and commercial banking and investment management and trust services to customers
located primarily in central and eastern Pennsylvania, southern New Jersey,
northern Maryland and southern Delaware through its eleven wholly-owned banking
subsidiaries: Fulton Bank, Lebanon Valley Farmers Bank, Swineford National Bank,
Lafayette Ambassador Bank, FNB Bank, N.A., Great Valley Bank, Hagerstown Trust
Company, Delaware National Bank, The Bank of Gloucester County, The Woodstown
National Bank & Trust Company, and The Peoples Bank of Elkton.
In addition, Fulton Financial Corporation owns all of the outstanding stock
of four nonbank subsidiaries: (i) Fulton Financial Realty Company, which holds
title to or leases certain properties upon which Fulton Bank and Lebanon Valley
Farmers Bank branch offices and other Fulton Bank facilities are located; (ii)
Fulton Life Insurance Company, which engages in the business of reinsuring
credit life and accident and health insurance directly related to extensions of
credit by the banking subsidiaries of the Corporation; (iii) Central
Pennsylvania Financial Corporation which owns certain limited partnership
interests in partnerships invested in low and moderate income housing projects
and two nonbank companies in various stages of liquidation; and (iv) FFC
Management, Inc. which owns certain investment securities and other passive
investments.
Fulton Financial Corporation is registered with the Federal Reserve Board
in accordance with the requirements of the Federal Bank Holding Company Act of
1956, as amended. The Corporation and its subsidiaries are subject to regulation
and periodic review by the Federal Reserve Board, the Office of the Comptroller
of the Currency, the Pennsylvania Department of Banking, the State of Maryland
and the New Jersey Department of Banking.
The common stock of Fulton Financial Corporation is listed for quotation on
the National Market System of the National Association of Securities Dealers
Automated Quotation System under the symbol FULT.
All of the banking subsidiaries face significant competition from
commercial banks, savings banks, credit unions and various nonbank providers of
financial services. None of the Corporation's banking subsidiaries is dependent
upon any single customer, and the loss of any single customer or a few customers
would not have a material adverse impact on any of the banking subsidiaries. The
table below summarizes selected information about the Corporation and its
banking subsidiaries.
<TABLE>
<CAPTION>
No. of Employees
--------------------
Main Office Total Total Full- Part-
Banking Subsidiary Location Assets Deposits time time
--------------------------------------------- ---------------------- ---------- ---------- --------- ---------
(in
millions)
<S> <C> <C> <C> <C> <C>
Fulton Bank Lancaster, PA $2,303 $1,601 823 264
Lebanon Valley Farmers Bank Lebanon, PA 686 550 173 39
Swineford National Bank Hummels Wharf, PA 271 208 79 47
Lafayette Ambassador Bank Easton, PA 825 667 287 60
FNB Bank, N.A. Danville, PA 311 240 80 21
Great Valley Bank Reading, PA 341 227 79 20
Hagerstown Trust Company Hagerstown, MD 399 325 161 22
Delaware National Bank Georgetown, DE 153 126 60 19
Bank of Gloucester County Woodbury, NJ 330 279 118 49
Woodstown National Bank & Trust Co. Woodstown, NJ 297 253 81 57
Peoples Bank of Elkton Elkton, MD 118 88 36 4
Fulton Financial (Parent Company) Lancaster, PA N/A N/A 106 7
--------- ---------
2,083 609
========= =========
</TABLE>
<PAGE>
Fulton Financial Corporation maintains branch offices in 22 counties across
four mid-Atlantic states. In eleven of these counties, the Corporation ranks in
the top three in deposit market share (based on deposits as of June 30, 1999).
The following table summarizes information about the counties in which the
Corporation has branch offices and its market position in each county.
<TABLE>
<CAPTION>
No. of Financial Deposit Market
Institutions Share (6/30/99)
Population --------------------- ------------------
(1999 Banking Banks/ Credit
County State Estimate) Subsidiary Thrifts Unions Rank %
- ------------------- ------- ----------- ------------------------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Lancaster PA 459,000 Fulton Bank 18 12 1 22.4%
Dauphin PA 245,000 Fulton Bank 20 13 6 5.2
Cumberland PA 209,000 Fulton Bank 15 11 13 1.9
York PA 376,000 Fulton Bank 21 22 18 0.8
Chester PA 426,000 Fulton Bank 39 11 21 0.8
Lebanon PA 118,000 Lebanon Valley Farmers Bank 8 2 1 36.1
Schuylkill PA 147,000 Lebanon Valley Farmers Bank 20 8 7 3.5
Berks PA 357,000 Lebanon Valley Farmers Bank 21 20 23 0.5
Great Valley Bank 9 4.0
Montgomery PA 723,000 Great Valley Bank 43 35 44 0.1
Snyder PA 38,000 Swineford National Bank 7 0 1 35.2
Union PA 41,000 Swineford National Bank 8 1 6 5.7
Northumberland PA 93,000 Swineford National Bank 18 3 12 2.5
FNB Bank, N.A. 3 7.5
Montour PA 18,000 FNB Bank, N.A. 5 3 1 38.9
Lycoming PA 117,000 FNB Bank, N.A. 11 13 13 0.9
Columbia PA 64,000 FNB Bank, N.A. 10 0 8 5.1
Northampton PA 259,000 Lafayette Ambassador Bank 18 18 3 11.9
Lehigh PA 300,000 Lafayette Ambassador Bank 23 16 3 4.6
Washington MD 128,000 Hagerstown Trust Company 10 3 1 22.6
Cecil MD 84,000 Peoples Bank of Elkton 7 3 2 15.0
Sussex DE 139,000 Delaware National Bank 13 5 6 1.1
Gloucester NJ 249,000 Bank of Gloucester County 26 5 3 11.4
Woodstown National Bank 10 3.1
Salem NJ 65,000 Woodstown National Bank 8 4 1 20.1
</TABLE>
Fulton Bank
-----------
Fulton Bank (Fulton) is a full-service commercial bank which was originally
chartered as a national banking association on February 8, 1882, and converted
to a Pennsylvania bank and trust company on July 1, 1974. As a state-chartered
bank whose deposits are insured by the Federal Deposit Insurance Corporation
(FDIC) and which is not a member of the Federal Reserve System, Fulton is
subject to regulation and periodic examination by the FDIC and the Pennsylvania
Department of Banking.
Fulton offers a full range of retail and commercial banking products and
services, including: demand, savings and time deposits; commercial, consumer and
mortgage loans; vehicle and equipment leasing and financing; VISA and MasterCard
credit cards; VISA debit cards; and a wide range of international services such
as letters of credit and currency exchange. Fulton maintains a network of
automated teller machines, which is integrated with the MAC(TM) regional and
CIRRUS(TM) national automated teller systems, as well as telephone banking
services through the Bank-By-Phone system and PC banking through the internet.
<PAGE>
Fulton has trust powers and maintains a staff of investment management and
trust services professionals. Services provided include trust and estate
planning, investment management, estate settlement, private banking, investment
and brokerage services, a mutual fund asset allocation program, and IRA
rollovers. Institutional services available include full service retirement plan
management and 401(k) programs, cash reserve investment management accounts,
administrative and investment services for foundations and endowments and
comprehensive corporate trust services.
Advancements in technology such as telephone and PC banking have removed
many of the geographical constraints to traditional banking. While Fulton offers
such banking alternatives and will continue to promote these and other services
in the future, its success has traditionally been the result of its community
banking philosophy. Fulton's branch network is its main distribution channel and
its primary "market area" as defined by these physical locations is the
south-central region of Pennsylvania. Approximately 70 percent of the business
of Fulton is derived from Lancaster County, where its administrative
headquarters and 31 branch offices are located. The remaining 30% of Fulton's
business is derived from Dauphin, Cumberland, York and Chester Counties, where
it maintains 19 branch office locations.
Fulton's market area has experienced stable economic conditions and
relatively low unemployment rates in recent years. Lancaster, Chester and York
Counties have a diverse economic base with a wide range of manufacturing,
distribution and service companies. Dauphin and Cumberland Counties are also
home to a variety of industries, however, their local economies are anchored by
the thousands of employees of the state government in the capitol city of
Harrisburg. Fulton's market is also one of the top agricultural production areas
in the country.
Lebanon Valley Farmers Bank
---------------------------
Lebanon Valley Farmers Bank (LVFB), was formed through the merger of
Lebanon Valley National Bank (acquired by the Corporation on March 27, 1998)
with Farmers Trust Bank, an existing affiliate bank of the Corporation, which
was chartered under the laws of the Commonwealth of Pennsylvania in 1892. LVFB
is a member of the Federal Reserve System and its deposits are insured by the
FDIC. LVFB is subject to regulation and periodic examination by the Federal
Reserve Bank of Philadelphia and by the Pennsylvania Department of Banking. In
addition to its administrative headquarters located in Lebanon, Pennsylvania,
LVFB maintains 17 branch offices in Lebanon (15 branches), Berks (1) and
Schuylkill (1) Counties.
LVFB offers a full range of general retail and commercial banking services,
including demand, savings and time deposits, and commercial, consumer, and
mortgage loans. LVFB maintains automated teller machines which are integrated
with the MAC(TM) regional and CIRRUS(TM) national automated teller systems.
LVFB has trust powers and offers a variety of services through its
investment management and trust services group, including estate planning,
executorships, estate administration, living trusts, life insurance trusts,
testamentary trusts, custodianships, guardianships, investment management
accounts, escrow accounts and mutual fund asset allocation accounts.
Swineford National Bank
-----------------------
Swineford National Bank (Swineford) is a national banking association which
was chartered in 1903. Swineford is a member of the Federal Reserve System and
its deposits are insured by the FDIC. As a national banking association,
Swineford is subject to regulation and periodic examination by the Office of the
Comptroller of the Currency.
In addition to its administrative headquarters located in Hummels Wharf,
Pennsylvania, Swineford maintains seven branch offices. Swineford's market area
is located entirely in Pennsylvania and includes Snyder, Northumberland and
Union Counties.
Swineford offers a full range of general retail and commercial banking
services, including demand, savings and time deposits and commercial, consumer
and mortgage loans. Swineford maintains automated teller machines which are
integrated with the MAC(TM) regional and CIRRUS(TM) national automated teller
systems.
<PAGE>
Lafayette Ambassador Bank
-------------------------
Lafayette Ambassador Bank (Lafayette) is a full-service commercial bank
which was originally chartered under the laws of the Commonwealth of
Pennsylvania in 1922 as Lafayette Trust Bank. During 1988, Lafayette Trust Bank
and Pen Argyl National Bank, both wholly-owned subsidiaries of Fulton Financial
Corporation, merged to form Lafayette Bank. During 1991, Second National Bank of
Nazareth, a wholly-owned subsidiary of Fulton Financial Corporation serving the
same market area, was merged into Lafayette Bank. During 1998, Ambassador Bank
of the Commonwealth merged with Lafayette Bank to form Lafayette Ambassador
Bank.
Lafayette is a state-chartered bank whose deposits are insured by the FDIC
and is a member of the Federal Reserve System. Lafayette is subject to
regulation and periodic examination by the FDIC and by the Pennsylvania
Department of Banking. In addition to its administrative headquarters located in
the City of Easton, Lafayette currently maintains 21 branch offices, all of
which are located in Northampton County and Lehigh County, Pennsylvania.
Lafayette offers a full range of general retail and commercial banking
services, including demand, savings and time deposits, and commercial, consumer
and mortgage loans. Lafayette maintains automated teller machines which are
integrated with the MAC(TM) regional and CIRRUS(TM) national automated teller
systems.
Lafayette has trust powers and offers a variety of services through its
Trust Department, including estate planning, estate administration, living
trusts, life insurance trusts, testamentary trusts, custodianships,
guardianships, investment management accounts, escrow accounts, and IRA rollover
accounts.
FNB Bank, N.A.
--------------
FNB Bank, N.A. (FNB) is a national banking association which was chartered
in 1864. FNB is a member of the Federal Reserve System and its deposits are
insured by the FDIC. As a national banking association, FNB is subject to
regulation and periodic examination by the Office of the Comptroller of the
Currency.
In addition to its administrative headquarters located in Danville,
Pennsylvania, FNB currently maintains eight branch offices. The market area of
FNB is located entirely in Pennsylvania and includes Montour, Lycoming,
Northumberland and Columbia Counties.
FNB offers a full range of general retail and commercial banking services,
including demand, savings and time deposits and commercial, consumer and
mortgage loans. FNB maintains automated teller machines which are integrated
with the MAC(TM) regional automated teller system.
FNB has trust powers and offers a variety of services including estate
planning, executorships, estate administration, living trusts, life insurance
trusts, testamentary trusts, agency accounts, guardianships and asset management
accounts.
Great Valley Bank
-----------------
Great Valley Bank (Great Valley) was organized as a Pennsylvania chartered
mutual savings association in 1974. During 1991, Great Valley converted to a
Pennsylvania chartered stock savings bank. As a state-chartered savings bank
whose deposits are insured by the FDIC and which is not a member of the Federal
Reserve System, Great Valley is subject to regulation and periodic examination
by the FDIC and by the Pennsylvania Department of Banking.
In addition to its administrative headquarters located in the City of
Reading, Great Valley maintains nine branch offices and one remote service
facility. The market area of Great Valley includes Berks County, Pennsylvania
and a portion of Montgomery County, Pennsylvania.
Great Valley offers retail banking services, principally in the form of
demand, savings and time deposits, as well as commercial, mortgage and consumer
loans.
<PAGE>
Hagerstown Trust Company
------------------------
Hagerstown Trust Company (Hagerstown) is a full-service commercial bank
which was chartered under the laws of the State of Maryland in 1933. As a
state-chartered bank whose deposits are insured by the FDIC and which is not a
member of the Federal Reserve System, Hagerstown is subject to regulation and
periodic examination by the FDIC and by the Bank Commissioner of the State of
Maryland.
In addition to its administrative headquarters located in Hagerstown,
Maryland, Hagerstown maintains fourteen branch offices, all of which are located
in Washington County, Maryland.
Hagerstown offers a full range of general retail and commercial banking
services, including demand, savings and time deposits and commercial, consumer
and mortgage loans. Hagerstown maintains automated teller machines which are
integrated with MAC(TM) and HONOR(TM) regional and STAR(TM) national automated
teller systems.
Hagerstown has trust powers and offers a variety of services including
estate administration, estate planning, living trusts, life insurance trusts,
testamentary trusts, custodianships, guardianships, investment management
accounts, agency accounts, escrow accounts, employee benefits, pension and
profit sharing accounts, and mutual fund accounts.
Delaware National Bank
----------------------
Delaware National Bank (Delaware) is a national banking association
chartered in 1979. Delaware is a member of the Federal Reserve System and its
deposits are insured by the FDIC. Delaware is subject to regulation and periodic
examination by the Office of the Comptroller of the Currency.
Delaware maintains five branch offices in addition to an operations and
administrative facility, all of which are located within Sussex County,
Delaware.
Delaware offers a full range of banking services including retail and
commercial checking, savings and time deposits, and consumer, mortgage, and
commercial loans. Delaware also offers investment and brokerage services.
Delaware currently maintains automated teller machines on the MAC(TM) regional
automated teller system.
The Bank of Gloucester County
-----------------------------
The Bank of Gloucester County (Gloucester) is a state bank chartered by the
State of New Jersey in 1989. The deposits of Gloucester are insured by the FDIC
and the bank is subject to regulation and periodic examinations by both the
State of New Jersey and the FDIC.
Gloucester maintains nine branch offices in addition to an operations
facility and operates solely within Gloucester County, New Jersey.
Gloucester offers a full range of banking services including retail and
commercial checking, savings and time deposits, and consumer, mortgage and
commercial loans. Gloucester offers investment and discount brokerage services
and recently acquired trust powers. Gloucester has automated teller machines on
the MAC(TM) regional automated teller system.
The Woodstown National Bank & Trust Company
-------------------------------------------
The Woodstown National Bank & Trust Company (Woodstown) is a national
banking association which was chartered in 1920. Woodstown is a member of the
Federal Reserve System and its deposits are insured by the FDIC. As a national
banking association, Woodstown is subject to regulation and periodic examination
by the Office of the Comptroller of the Currency.
Woodstown maintains eight full service branch offices located in Salem and
Gloucester Counties, New Jersey.
Woodstown offers a full range of banking services, including retail and
commercial checking, savings and time deposits, and consumer, mortgage and
commercial loans. Woodstown offers investment and discount brokerage services
and, through its trust operations, provides investment management, estate
settlement and planning and trust management services. Woodstown maintains
automated teller machines on the MAC(TM) regional automated teller system.
<PAGE>
The Peoples Bank of Elkton
--------------------------
The Peoples Bank of Elkton (Elkton) is a state bank chartered by the State
of Maryland in 1924. The deposits of Elkton are insured by the FDIC and the Bank
is subject to regulation and periodic examinations by both the FDIC and the
State of Maryland. Elkton maintains two branch offices and one remote service
facility within Cecil County, Maryland.
Elkton offers a full range of banking services, including retail and
commercial checking, savings and time deposits, and consumer, mortgage and
commercial loans. Elkton maintains automated teller machines on the MAC(TM)
regional automated teller system. At this time, Elkton does not have trust
powers and does not offer investment or discount brokerage services.
Certain additional statistical information relating to the business of
Fulton Financial Corporation is set forth in the following tables.
<PAGE>
FULTON FINANCIAL CORPORATION
COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
ASSETS Balance Interest Rate Balance Interest Rate
- ------------------------------------------- ------------- ------------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans and leases (1)................... $ 4,181,654 $ 343,906 8.22% $ 3,968,971 $ 338,667 8.53%
Taxable investment securities (2)...... 1,041,274 62,229 5.98 985,026 60,744 6.17
Tax-exempt investment securities (2)... 189,657 8,388 4.42 96,885 4,749 4.90
Equity securities (2).................. 82,087 4,124 5.02 70,916 3,505 4.94
Short-term investments................. 5,558 267 4.80 30,013 1,700 5.66
------------- ------------- --------- ------------- ------------- ---------
Total interest-earning assets............ 5,500,230 418,914 7.62 5,151,811 409,365 7.95
Noninterest-earning assets:
Cash and due from banks................ 217,605 210,105
Premises and equipment................. 77,348 74,589
Other assets(2)........................ 154,419 157,801
Less: Allowance for loan losses........ (58,983) (58,859)
------------- -------------
Total Assets................... $ 5,890,619 $ 5,535,447
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand deposits........................ $ 575,822 $ 7,656 1.33% $ 531,210 $ 8,433 1.59%
Savings deposits....................... 1,033,679 22,964 2.22 1,018,340 25,745 2.53
Time deposits.......................... 2,196,397 112,545 5.12 2,263,060 125,506 5.55
Short-term borrowings.................. 349,505 16,019 4.58 209,292 9,124 4.36
Long-term debt......................... 302,158 15,643 5.18 162,525 8,886 5.47
------------- ------------- --------- ------------- ------------- ---------
Total interest-bearing liabilities....... 4,457,561 174,827 3.92 4,184,427 177,694 4.25
Noninterest-bearing liabilities:
Demand deposits........................ 723,142 666,101
Other.................................. 93,988 97,367
------------- -------------
Total Liabilities.............. 5,274,691 4,947,895
Shareholders' equity..................... 615,928 587,552
------------- -------------
Total Liabilities and
Shareholders' Equity......... $ 5,890,619 $ 5,535,447
============= =============
Net interest income...................... 244,087 231,671
Net yield on interest-earning assets..... 4.44% 4.50%
Tax equivalent adjustment (3)............ 6,899 4,436
------------- --------- ------------- ---------
Net interest margin...................... $ 250,986 4.56% $ 236,107 4.58%
============= ========= ============= =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
(Dollars in thousands) 1997
- -------------------------------------------------------------------------------------------
Average Yield/
ASSETS Balance Interest Rate
- --------------------------------------------- ------------- ------------- ---------
Interest-earning assets:
<S> <C> <C> <C>
Loans and leases (1)................... $ 3,765,384 $ 324,815 8.63%
Taxable investment securities (2)...... 855,670 53,005 6.19
Tax-exempt investment securities (2)... 76,501 4,301 5.62
Equity securities (2).................. 57,544 2,823 4.91
Short-term investments................. 40,161 2,304 5.74
----------- ------------ -------
Total interest-earning assets............ 4,795,260 387,248 8.08
Noninterest-earning assets:
Cash and due from banks................ 190,345
Premises and equipment................. 70,480
Other assets(2)........................ 138,509
Less: Allowance for loan losses........ (56,144)
------------
Total Assets................... $ 5,138,450
============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand deposits........................ $ 494,788 $ 9,111 1.84%
Savings deposits....................... 1,001,277 25,658 2.56
Time deposits.......................... 2,131,177 118,560 5.56
Short-term borrowings.................. 227,805 10,828 4.75
Long-term debt......................... 66,139 3,996 6.04
------------ ------------ -------
Total interest-bearing liabilities....... 3,921,186 168,153 4.29
Noninterest-bearing liabilities:
Demand deposits........................ 607,306
Other.................................. 86,736
------------
Total Liabilities.............. 4,615,228
Shareholders' equity..................... 523,222
------------
Total Liabilities and
Shareholders' Equity......... $ 5,138,450
============
Net interest income...................... 219,095
Net yield on interest-earning assets..... 4.57%
Tax equivalent adjustment (3)............ 5,850
------------ ------
Net interest margin...................... $ 224,945 4.69%
============ ======
</TABLE>
(1) Includes nonperforming loans.
(2) Balances include amortized historical cost for available for sale
securities. The related unrealized holding gains on securities are included
in other assets.
(3) Based on marginal Federal income tax rate and statutory interest expense
disallowances.
<PAGE>
FULTON FINANCIAL CORPORATION
RATE/VOLUME TABLE
The following table sets forth for the periods indicated a summary of
changes in interest income and interest expense resulting from corresponding
volume and rate changes:
<TABLE>
<CAPTION>
1999 vs. 1998 1998 vs. 1997
Increase (decrease) due Increase (decrease) due
to change in to change in
------------------------------------- -------------------------------------
Volume Rate Net Volume Rate Net
--------- ---------- ------------ ---------- -------- -----------
(in thousands)
Interest income on:
<S> <C> <C> <C> <C> <C> <C>
Loans and leases.................... $ 18,148 $ (12,909) $ 5,239 $ 17,562 $ (3,710) $ 13,852
Taxable investment securities....... 3,469 (1,984) 1,485 8,013 (274) 7,739
Tax-exempt investment securities.... 4,547 (908) 3,639 1,146 (698) 448
Equity securities................... 552 67 619 656 26 682
Short-term investments.............. (1,385) (48) (1,433) (582) (22) (604)
--------- --------- --------- ---------- -------- ---------
Total interest-earning assets..... $ 25,331 $ (15,782) $ 9,549 $ 26,795 $ (4,678) $ 22,117
========= ========= ========= ========== ======== =========
Interest expense on:
Demand deposits..................... $ 708 $ (1,485) $ (777) $ 671 $ (1,349 $ (678)
Savings deposits.................... 388 (3,169) (2,781) 437 (350) 87
Time deposits....................... (3,697) (9,264) (12,961) 7,337 (391) 6,946
Short-term borrowings............... 6,113 782 6,895 (880) (824) (1,704)
Long-term debt...................... 7,634 (877) 6,757 5,823 (933) 4,890
--------- --------- --------- ---------- -------- ---------
Total interest-bearing liabilities $ 11,146 $ (14,013) $ (2,867) $ 13,388 $ (3,847) $ 9,541
========= ========= ========= ========== ======== =========
</TABLE>
Note: The rate/volume variances are allocated in the table above by applying the
changes in volume times the prior period rate and by applying the changes
in rate times the current period volume on a consistent basis throughout.
<PAGE>
FULTON FINANCIAL CORPORATION
INVESTMENT PORTFOLIO
The following table sets forth the carrying amount of investment
securities held to maturity (HTM) and available for sale (AFS) as of the dates
shown:
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------------------
1999 1998
------------------------------------------------------------------------------------
HTM AFS Total HTM AFS Total
------------ ------------ ------------ ----------- ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
United States Treasury and U.S.
Government agencies and
Corporations....................... $ 10,388 $ 201,160 $ 211,548 $ 24,287 $ 287,850 $ 312,137
State and municipal..................... 20,622 183,483 204,105 34,457 124,926 159,383
Other securities........................ 525 4,575 5,100 449 6,978 7,427
Equity securities....................... - 112,583 112,583 - 110,866 110,866
Mortgage-backed securities.............. 53,939 636,045 689,984 117,430 675,501 792,931
------------ ----------- ----------- ---------- ----------- -----------
Totals............................ $ 85,474 $ 1,137,846 $ 1,223,320 $ 176,623 $ 1,206,121 $ 1,382,744
============ =========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1997
-----------------------------------------
HTM AFS Total
------------ ----------- -----------
(in thousands)
<S> <C> <C> <C>
United States Treasury and U.S.
Government agencies and
Corporations....................... $ 67,391 $ 265,677 $ 333,068
State and municipal..................... 52,815 21,507 74,322
Other securities........................ 483 - 483
Equity securities....................... - 104,324 104,324
Mortgage-backed securities.............. 222,365 332,686 555,051
------------ ------------ ------------
Totals............................ $ 343,054 $ 724,194 $ 1,067,248
============ ============ ============
</TABLE>
<PAGE>
FULTON FINANCIAL CORPORATION
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
The following tables set forth the maturities of investment securities
at December 31, 1999 and the weighted average yields of such securities
(calculated based upon historical cost).
HELD TO MATURITY (at amortized cost)
- ----------------
<TABLE>
<CAPTION>
MATURING
----------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years
---------------------------- --------------------------- -------------------------
Amount Yield Amount Yield Amount Yield
------------ ----- ----------- ----- ------------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
United States Treasury and
U.S. Government
agencies and corporations...... $ 4,491 6.45% $ 4,602 6.13% $ 965 6.01%
State and municipal (1)............. 5,304 6.43 9,714 7.07 2,041 7.38
Other securities.................... 305 - 155 6.74 50 6.95
------------ ----- ----------- ----- ------------ -----
Totals........................... $ 10,100 6.24% $ 14,471 6.77% $ 3,056 6.94%
============ ===== =========== ===== ============ =====
Mortgage-backed securities (2)...... $ 53,939 6.14%
============ =====
</TABLE>
<TABLE>
<CAPTION>
MATURING
---------------------------
After Ten Years
---------------------------
Amount Yield
------------ -----
(dollars in thousands)
<S> <C> <C>
United States Treasury and
U.S. Government
agencies and corporations...... $ 330 7.61%
State and municipal (1)............. 3,563 9.45
Other securities.................... 15 6.53
------------ -----
Totals........................... $ 3,908 9.28%
============ =====
</TABLE>
AVAILABLE FOR SALE (at estimated fair value)
- ------------------
<TABLE>
<CAPTION>
MATURING
----------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years
---------------------------- --------------------------- -------------------------
Amount Yield Amount Yield Amount Yield
------------ ----- ----------- ----- ------------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
United States Treasury and
U.S. Government
Agencies and corporations.. $ 42,159 6.22% $ 159,001 6.13% $ - -%
State and municipal (1)............. 10 11.18 34,584 6.08 130,745 6.01
Other............................... 4,575 6.59 - - - -
------------ ----- ----------- ----- ------------ -----
Totals........................... $ 46,744 6.25% $ 193,585 6.12% $ 130,745 6.01%
============ ===== ============ ====== ============ =====
Mortgage-backed securities (2)...... $ 636,045 6.00%
============ =====
</TABLE>
<TABLE>
<CAPTION>
MATURING
----------------------------
After Ten Years
----------------------------
Amount Yield
------------ -----
(dollars in thousands)
<S> <C> <C>
United States Treasury and
U.S. Government
Agencies and corporations.. $ - -%
State and municipal (1)............. 18,144 8.23
Other............................... - -
------------ -----
Totals........................... $ 18,144 8.23%
============ =====
</TABLE>
(1) Weighted average yields on tax-exempt securities have been computed on a
fully tax-equivalent basis assuming a tax rate of 35 percent.
(2) Maturities for mortgage-backed securities are dependent upon the interest
rate environment and prepayments on the underlying loans.
(3) For the purpose of this table, the entire balance and weighted average rate
is shown in one period.
<PAGE>
FULTON FINANCIAL CORPORATION
LOAN PORTFOLIO BY TYPE
The following table sets forth the amount of loans outstanding
(including unearned income) as of the dates shown (1):
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ----------- ----------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural...... $ 668,069 $ 557,784 $ 535,842 $ 496,746 $ 477,967
Real-estate - construction.................. 166,291 129,648 150,470 128,196 114,620
Real-estate - mortgage...................... 2,819,261 2,588,324 2,519,511 2,285,047 2,053,275
Consumer.................................... 700,049 696,161 709,405 643,932 535,070
Leasing and other........................... 78,360 68,538 57,425 43,255 38,586
------------ ------------ ----------- ----------- ------------
$ 4,432,030 $ 4,040,455 $ 3,972,653 $ 3,597,176 $ 3,219,518
============ ============ ============ ============ ============
</TABLE>
(1) At December 31, 1999, Fulton Financial Corporation did not have any loan
concentrations to borrowers engaged in the same or similar industries that
exceeded 10% of total loans.
MATURITY & SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The following table summarizes the maturity and sensitivity of loans to
changes in interest rates as of December 31, 1999:
<TABLE>
<CAPTION>
One
One Year Through More Than
or Less Five Years Five Years Total
------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Floating rate................ $ 324,757 $ 282,338 $ 341,857 $ 948,952
Fixed rate................... 796,780 1,756,710 929,588 3,483,078
------------- ------------- ------------- -------------
Totals.................. $ 1,121,537 $ 2,039,048 $ 1,271,445 $ 4,432,030
============= ============= ============= =============
</TABLE>
<PAGE>
FULTON FINANCIAL CORPORATION
RISK ELEMENTS IN LOAN PORTFOLIO
The following table presents information concerning the aggregate amount of
nonaccrual, past due and restructured loans and other nonperforming assets (4):
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans (1) (2) (3)................ $ 18,653 $ 19,281 $ 20,819 $ 16,548 $ 16,350
Accruing loans past due 90 days or more..... 8,516 11,109 10,529 8,162 9,676
Other real estate........................... 917 1,420 1,537 2,829 3,019
---------- ---------- ---------- ---------- ----------
Totals................................. $ 28,086 $ 31,810 $ 32,885 $ 27,539 $ 29,045
========== ========== ========== ========== ==========
</TABLE>
(1) Includes impaired loans as defined by Statement of Financial Accounting
Standards No. 114 of approximately $11.4 million at December 31, 1999.
(2) As of December 31, 1999, the gross interest income that would have been
recorded during 1999 if nonaccrual loans had been current in accordance
with their original terms was approximately $1.8 million. The amount of
interest income on those nonaccrual loans that was included in 1999 net
income was approximately $2.8 million. At December 31, 1999, $16.5 million
of nonaccrual loans are considered to be adequately secured.
(3) Accrual of interest is generally discontinued when a loan becomes 90 days
past due as to principal and interest. When interest accruals are
discontinued, interest credited to income is reversed. Nonaccrual loans are
restored to accrual status when all delinquent principal and interest
becomes current or the loan is considered secured and in the process of
collection. Certain loans, primarily residential mortgages, that are
determined to be sufficiently collateralized may continue to accrue
interest after reaching 90 days past due.
(4) Excluded from the amounts presented above at December 31, 1999 are $34.7
million in domestic commercial loans for which payments were current, but
as to which the borrowers were experiencing significant financial
difficulties. These loans are subject to constant management attention and
their classification is reviewed monthly.
<PAGE>
FULTON FINANCIAL CORPORATION
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Corporation's loss experience is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of year.............. $ 4,422,407 $ 4,030,391 $ 3,961,644 $ 3,597,176 $ 3,219,518
============ ============ ============ ============ ============
Daily average balance of loans and leases..... $ 4,181,654 $ 3,968,971 $ 3,765,384 $ 3,381,599 $ 3,078,455
============ ============ ============ ============ ============
Balance of allowance for loan losses
at beginning of year..................... $ 57,415 $ 57,557 $ 53,893 $ 50,201 $ 49,396
Loans charged-off:
Commercial, financial and agricultural.... 3,260 2,412 2,682 2,152 2,282
Real estate - construction................ - - - 34 -
Real estate - mortgage.................... 1,590 1,403 1,636 1,270 2,366
Consumer.................................. 7,836 5,191 4,854 2,947 2,168
Leasing and other......................... 126 134 70 50 59
------------ ------------ ------------ ------------ ------------
Total loans charged-off................... 12,812 9,140 9,242 6,453 6,875
------------ ------------ ------------ ------------ ------------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural.... 1,979 1,223 2,150 1,576 1,846
Real estate - construction................ - - - 182 44
Real estate - mortgage.................... 710 926 709 1,378 530
Consumer.................................. 2,122 1,265 1,289 1,036 883
Leasing and other......................... 1 2 15 22 20
------------ ------------ ------------ ------------ ------------
Total recoveries.......................... 4,812 3,416 4,163 4,194 3,323
------------ ------------ ------------ ------------ ------------
Net loans charged-off......................... 8,000 5,724 5,079 2,259 3,552
Provision for loan losses..................... 8,216 5,582 8,417 5,951 4,357
Allowance purchased........................... - - 326 - -
------------ ------------ ------------ ------------ ------------
Balance at end of year........................ $ 57,631 $ 57,415 $ 57,557 $ 53,893 $ 50,201
============ ============ ============ ============ ============
Ratio of net charge-offs during period to
average loans............................ 0.19% 0.14% 0.13% 0.07% 0.12%
============ ============ ============ ============ ============
Ratio of allowance for loan losses to loans
Outstanding at end of year............... 1.30% 1.42% 1.45% 1.50% 1.56%
============ ============ ============ ============ ============
</TABLE>
<PAGE>
FULTON FINANCIAL CORPORATION
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses has been allocated as follows to provide for
the possibility of losses being incurred within the following categories of
loans at the dates indicated:
<TABLE>
<CAPTION>
December 31
-------------------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ -----------------------
(dollars in thousands)
% of % of % of
Loans in Loans in Loans in
each Each Each
Allowance Category Allowance Category Allowance Category
----------- --------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
& agriculture......... $ 13,268 15.1% $ 13,433 13.8% $ 10,993 13.5%
Real estate - construction
& mortgages........... 16,817 67.4 19,895 67.3 12,086 67.2
Consumer, leasing
& other............... 9,281 17.5 6,740 18.9 7,262 19.3
Unallocated................ 18,265 - 17,347 - 27,216 -
----------- --------- ----------- --------- ----------- --------
Totals................ $ 57,631 100.0% $ 57,415 100.0% $ 57,557 100.0%
============ ========= ============ ========= =========== ========
</TABLE>
<TABLE>
<CAPTION>
December 31
----------------------------------------------------
1996 1995
----------------------- -----------------------
(dollars in thousands)
% of % of
loans in loans in
each each
Allowance category Allowance category
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Commercial, financial
& agriculture......... $ 11,299 13.8% $ 12,615 14.8%
Real estate - construction
& mortgages........... 14,756 67.1 14,311 67.4
Consumer, leasing
& other............... 3,863 19.1 3,708 17.8
Unallocated................ 23,975 - 19,567 -
------------ -------- ------------ --------
Totals................ $ 53,893 100.0% $ 50,201 100.0%
============= ======== ============ ========
</TABLE>
(1) Refer to the "Provision and Allowance for Loan Losses" section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations for Management's methodology for assessing the adequacy of the
allowance for loan losses.
(2) Charge-offs for 2000 are not anticipated to exceed $8.0 million: commercial
- $1.3 million; consumer - $5.8 million; and mortgage - $900,000. The
overall risk factors in the portfolio are best evidenced by a 30 day and
over delinquency rate in the 1.25% to 1.75% range and overall credit risk
ratings of satisfactory and above for 80% of the commercial and real estate
portfolios.
<PAGE>
FULTON FINANCIAL CORPORATION
DEPOSITS
The average daily balances of deposits and rates paid on such deposits are
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
Amount Rate Amount Rate Amount Rate
------------ ---- ------------ ---- ------------ ----
(dollars in thousands)
<S> <C> <C> <C>
Noninterest-bearing demand deposits...... $ 723,142 -% $ 666,101 -% $ 607,306 -%
Interest-bearing demand deposits......... 575,822 1.33 531,210 1.59 494,788 1.84
Savings deposits......................... 1,033,679 2.22 1,018,340 2.53 1,001,277 2.56
Time deposits............................ 2,196,397 5.12 2,263,060 5.55 2,131,177 5.56
------------ ---- ------------ ---- ------------ ----
Totals................................... $ 4,529,040 3.16% $ 4,478,711 3.57% $ 4,234,548 3.62%
============ ==== ============ ==== ============ ====
</TABLE>
Maturities of time deposits of $100,000 or more outstanding at December 31,
1999 are summarized as follows:
<TABLE>
<CAPTION>
Time Deposits
$100,000
or more
-----------------
(in thousands)
<S> <C>
Three months or less................... $ 131,039
Over three through six months.......... 48,362
Over six through twelve months......... 64,255
Over twelve months..................... 74,604
-----------------
Totals................................ $ 318,260
=================
</TABLE>
FULTON FINANCIAL CORPORATION
SHORT-TERM BORROWINGS
The following table presents information related to Federal funds purchased
and securities sold under agreements to repurchase. No other categories of
short-term borrowings exceeded 30% of shareholders' equity at December 31, 1999.
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1999 1998 1997
------------ ------------ -------------
(dollars in thousands)
<S> <C> <C> <C>
Amount outstanding at December 31.................... $ 482,040 $ 231,746 $ 242,640
Weighted average interest rate at year end........... 5.06% 4.31% 4.66%
Maximum amount outstanding at any month end.......... $ 483,204 $ 263,319 $ 259,952
Average amount outstanding during the year........... $ 349,505 $ 210,933 $ 227,805
Weighted average interest rate during the year....... 4.58% 4.36% 4.75%
</TABLE>
<PAGE>
FULTON FINANCIAL CORPORATION
RETURN ON EQUITY AND ASSETS
The ratio of net income to average shareholders' equity and to average
total assets and certain other ratios are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Percentage of net income to:
Average shareholders' equity................. 15.79% 15.06% 14.60% 13.87% 13.85%
Average total assets......................... 1.65 1.60 1.49 1.39 1.36
Percentage of dividends declared per common
share to basic net income per share.......... 41.6 41.3 40.8 41.5 38.4
Percentage of average shareholders' equity
to average total assets...................... 10.5 10.6 10.2 10.1 9.8
</TABLE>
<PAGE>
Item 2. Properties
- ------------------
The following table summarizes the Corporation's branch network, by
affiliate bank. Remote service facilities (mainly stand-alone ATM's) are
excluded.
<TABLE>
<CAPTION>
Owned Total
---------------------------
Bank Bank (1) FFRC (2) Leased Term (3) Branches
- ---- -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Fulton Bank 15 2 33 2015 50
Lebanon Valley Farmers Bank 13 3 1 2004 17
Swineford National Bank 5 - 2 2002 7
Lafayette Ambassador Bank 6 - 15 2024 21
FNB Bank, N.A. 6 - 2 2014 8
Great Valley Bank 3 - 6 2013 9
Hagerstown Trust Company 12 - 2 2014 14
Delaware National Bank 4 - 1 2001 5
Bank of Gloucester County 6 - 3 2012 9
Woodstown National Bank 7 - 1 2002 8
Peoples Bank of Elkton 1 - 1 2000 2
-------- -------- ------ --------
Total 78 5 67 150
===== ======== ========= ====== ========
</TABLE>
(1) Properties are owned by the bank, free and clear of encumbrances.
(2) Properties are owned by Fulton Financial Realty Company and are leased to
the bank.
(3) Latest lease term expiration date.
The following table summarizes the Corporation's other significant properties:
<TABLE>
<CAPTION>
Owned/
Bank Property Location Leased
- ---- -------- -------- ------
<S> <C> <C> <C>
Fulton Bank/Fulton Financial Corp. Admin. Headquarters Lancaster, PA Owned
Fulton Bank Operations Center East Petersburg, PA Owned
Lebanon Valley Farmers Bank Admin. Headquarters Lebanon, PA Owned
Swineford National Bank Admin. Headquarters Hummels Wharf, PA Owned
Lafayette Ambassador Bank Admin. Headquarters Easton, PA Owned
FNB Bank, N.A. Admin. Headquarters Danville, PA Owned
Great Valley Bank Admin. Headquarters Reading, PA Owned
Hagerstown Trust Company Admin. Headquarters Hagerstown, MD Owned
Delaware National Bank Admin. Headquarters Georgetown, DE Leased (1)
Bank of Gloucester County Admin. Headquarters Woodbury, NJ Owned
Woodstown National Bank Admin. Headquarters Woodstown, NJ Owned
Peoples Bank of Elkton Admin. Headquarters Elkton, MD Owned
</TABLE>
(1) Lease expires in 2001.
In 1999, the Corporation began the construction of a $20 million, 100,000
square foot office building adjacent to its main office in downtown Lancaster,
PA. The property is owned by an independent third party who is financing the
construction through a loan from Fulton Bank. Fulton Financial Realty Company
will lease the property from the third party in a capital leasing transaction.
Item 3. Legal Proceedings
- --------------------------
There are no legal proceedings pending against Fulton Financial Corporation
or any of its subsidiaries which are expected to have a material impact upon the
financial position and/or the operating results of the Corporation.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders of Fulton Financial
Corporation during the fourth quarter of 1999.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
The information appearing under the heading "Capital Resources" and "Common
Stock" in Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" is incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
5-YEAR CONSOLIDATED SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
For the Year
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(Dollars in thousands, except per-share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF INCOME
- -----------------
Interest income............................. $ 418,914 $ 409,365 $ 387,248 $ 353,636 $ 330,070
Interest expense............................ 174,827 177,694 168,153 151,437 143,616
------------ ------------ ------------ ------------ ------------
Net interest income......................... 244,087 231,671 219,095 202,199 186,454
Provision for loan losses................... 8,216 5,582 8,417 5,951 4,357
Other income................................ 62,822 59,948 48,713 41,653 37,673
Other expenses.............................. 160,988 157,694 149,538 144,174 135,674
------------ ------------ ------------ ------------ ------------
Income before income taxes.................. 137,705 128,343 109,853 93,727 84,096
Income taxes................................ 40,479 39,832 33,448 27,815 23,998
------------ ------------ ------------ ------------ ------------
Net income.................................. $ 97,226 $ 88,511 $ 76,405 $ 65,912 $ 60,098
============ ============ ============ ============ ============
PER-SHARE DATA (1)
- ------------------
Net income (basic).......................... $ 1.41 $ 1.28 $ 1.11 $ 0.96 $ 0.88
Net income (diluted)........................ 1.40 1.27 1.10 0.95 0.87
Cash dividends.............................. 0.586 0.529 0.453 0.400 0.338
PERIOD-END BALANCES
- -------------------
Total assets................................ $ 6,070,019 $ 5,838,663 $ 5,377,654 $ 4,936,072 $ 4,595,925
Net loans................................... 4,364,776 3,972,976 3,904,087 3,535,202 3,160,369
Deposits.................................... 4,546,813 4,592,969 4,418,543 4,072,400 3,845,567
Long-term debt.............................. 328,250 296,018 53,045 67,498 56,698
Shareholders' equity........................ 614,294 608,334 564,491 500,294 462,636
AVERAGE BALANCES
- ----------------
Average shareholders' equity................ $ 615,928 $ 587,552 $ 523,222 $ 475,243 $ 434,057
Average total assets........................ 5,890,619 5,535,447 5,138,450 4,725,999 4,408,258
</TABLE>
(1) Adjusted for stock dividends and stock splits.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
This discussion concerns Fulton Financial Corporation (the Corporation), a
bank holding company incorporated under the laws of the Commonwealth of
Pennsylvania in 1982, and its wholly-owned subsidiaries. This discussion and
analysis should be read in conjunction with the consolidated financial
statements and other financial information presented in this report.
The Corporation has made, and may continue to make, certain forward-looking
statements with respect to acquisition and growth strategies, market risk,
expenses, the effect of competition on net interest margin and net interest
income, investment strategy and income growth, investment securities gains,
deposit and loan growth, Year 2000 issues, asset quality, changes in
organizational structure, and other financial and business matters for future
periods. The Corporation cautions that these forward-looking statements are
subject to various assumptions, risks and uncertainties. Because of the
possibility that the underlying assumptions may change, actual results could
differ materially from these 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, actions of the Federal Reserve Board, creditworthiness
of current borrowers and customers' acceptance of the Corporation's products and
services.
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 ACQUISITION ACTIVITY
- -------------------------------
The Corporation's growth over the past two decades has resulted from both
expansion of its existing business and strategic acquisitions of banks with
similar operating philosophies. Through external growth, the Corporation has
extended into four Mid-Atlantic states and has strengthened its presence within
existing markets. While the Corporation did not acquire any banks during 1999,
it anticipates that acquisitions will continue to be an important strategy in
the future. In 1998, the Corporation completed two separate 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 was 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 3.4 million shares of its
common stock in connection with the merger. As a result of the acquisition,
Ambassador was merged with and into Lafayette Bank, one of the Corporation's
existing affiliate banks, which 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), 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'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 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.
In order to effect the acquisition, Keystone 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
immediately after the merger was completed.
The acquisitions of Ambassador and Keystone were accounted for as poolings
of interests and all financial statements and financial information contained
herein have been restated to include the accounts and results of operations of
these companies for all periods presented.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Overview
The Corporation continued to generate steady earnings growth in 1999. Net
income for the year was $97.2 million, or $1.40 per diluted share. This was an
increase of $8.7 million, or 9.8%, over 1998 net income of $88.5 million.
Diluted net income per share increased 10.2% over the $1.27 realized in 1998.
Net income for 1998 was $12.1 million, or 15.8%, greater than 1997, while
diluted net income per share represented an increase of 15.5% over $1.10 in
1997.
The recent earnings trend has been consistent over the past three years and
is largely attributable to growth in core banking business, a strong net
interest margin, expansion of new products and services, expense controls and
good asset quality. However, certain items that could be considered
non-recurring in each of the periods are notable. The table on the following
page summarizes net income and adjusts for certain of these items to arrive at
"core" or adjusted net income. The adjustments shown reflect the after-tax
impact on net income.
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- -------------
(Dollars in thousands, except per-share amounts)
<S> <C> <C> <C>
Net income (reported)........................... $ 97,226 $ 88,511 $ 76,405
Investment securities gains..................... (5,308) (7,384) (4,131)
Merger/conversion expenses...................... - 1,373 846
-------------- ------------- -------------
Adjusted net income............................. $ 91,918 $ 82,500 $ 73,120
============== ============= =============
% increase over prior year...................... 11.4% 12.8% 10.5%
============== ============= =============
Adjusted net income per share (diluted)......... $ 1.33 $ 1.18 $ 1.05
============== ============= =============
% increase over prior year...................... 12.7% 12.4% 9.5%
============== ============= =============
</TABLE>
Investment securities gains and merger expenses are shown as adjustments
since many in the industry consider them to be non-recurring items. However, the
Corporation does have a history of both.
Security gains are derived mainly from the Corporation's investments in
equities of other financial institutions. Gains are realized when, in the
opinion of management, the investments have reached full valuation. Given the
size of this portfolio ($66.3 million in market value with $14.3 million in
unrealized gains at December 31, 1999), it is probable that the Corporation will
continue to realize gains in the future. Merger expenses represent professional
fees paid to complete mergers.
After adjusting for these items, the Corporation's net income still
reflects strong growth over the past three years, with net income per share
increases of 12.7% in 1999, 12.4% in 1998 and 9.5% in 1997. In 1999, 1998 and
1997, the Corporation achieved returns on average assets of 1.65%, 1.60% and
1.49%, respectively, and returns on average shareholders' equity of 15.79%,
15.06% and 14.60%.
Net Interest Income
Net interest income is the most significant component of net income. The
ability to manage net interest income over a variety of interest rate and
economic environments is critical to the success of a banking entity. Net
interest income growth is dependent upon the growth of the Corporation's balance
sheet while maintaining the net interest margin. See also the discussion of
"Interest Rate Risk" later in this section.
Net interest income for 1999 was $244.1 million, a $12.4 million, or 5.4%,
increase over 1998. This compares to a 1998 increase of $12.6 million, or 5.7%,
to $231.7 million. In terms of fully taxable equivalent (FTE) net interest
income, which includes the net tax benefit of investments in tax-exempt assets,
the 1999 increase was $14.2 million, or 6.0%, as compared to a 1998 increase of
$11.9 million, or 5.3%. The "Comparative Average Balance Sheets and Net Interest
Income Analysis" on page 19 and the "Rate/Volume Table" on page 20 summarize the
<PAGE>
components of net interest income and illustrate variances as a result of
changes in interest rates versus growth in assets and liabilities.
In general, the 1999 increase was a result of growth in the loan portfolio,
funded largely through borrowings as deposit growth was flat. Despite the
increase in borrowings, however, the Corporation was able to maintain a fairly
stable net interest margin, 4.56% in 1999 as compared to 4.58% in 1998. The
increase in 1998 net interest income was generated by increases in long-term
borrowings, which were used to purchase investment securities since loan growth
was slower. As with 1999, the use of borrowings for funding purposes had only a
moderate impact on net interest margin, which decreased to 4.58% in 1998 from
4.69% in 1997.
1999 v. 1998
Interest income increased $9.5 million, or 2.3%, to $418.9 million in 1999
from $409.4 million in 1998. This increase was mainly attributable to volume as
average interest earning assets increased $348.4 million, or 6.8%, resulting in
$25.3 million of additional interest income. This was offset by a $15.8 million
reduction in interest income as a result of a 33 basis point drop in average
yields on earning assets.
The growth in average interest earning assets occurred mostly in loans,
which increased $212.7 million, or 5.4%. Commercial loans ($84.9 million, or
9.7% increase) and commercial mortgages ($90.0, or 8.6% increase) accounted for
much of this growth. In addition, home equity loans ($79.1 million, or 32.0%
increase) contributed to an increase in consumer loans as a result of several
promotions during the year.
Average investment securities increased $160.2 million, or 13.9%, mainly in
mortgage-backed securities ($114.6 million, or 17.8% increase) and tax-free
municipal investments ($92.8 million, or 95.8% increase). In recent years,
mortgage-backed securities and municipal investments have become the
Corporation's preferred investment securities. Mortgage-backed securities are
attractive because of the flexibility in matching cash flows with corporate
needs while providing a higher rate of return than traditional government
securities. Municipal investments have recently carried taxable equivalent
interest rates that are favorable in comparison to taxable alternatives.
The 33 basis point decline in average yields on earning assets reflects the
changes in the interest rate environment in general. The average yield on loans
decreased 31 basis points from 8.53% in 1998 to 8.22% in 1999. This decrease
corresponds to the decrease in the average prime lending rate, which was 8.35%
in 1998 and 8.00% in 1999, a 35 basis point drop. In recent years, the prime
rate has become a lesser used index for pricing loans than other rates, however,
it remains an effective gauge of the overall interest rate environment.
Interest expense decreased $2.9 million, or 1.6%, to $174.8 million in 1999
from $177.7 million in 1998. This decrease was mainly a function of rates as the
average cost of funds decreased 33 basis points, resulting in a $14.0 million
decrease in interest expense. This was offset by a $273.1 million, or 6.5%,
increase in average interest-bearing liabilities which generated an $11.1
million increase in interest expense.
Average interest-bearing deposits were essentially flat in 1999,
registering a slight $6.7 million, or 0.1%, decrease. The decrease in average
balances of time deposits ($66.7 million, or 2.9%), was offset by increases in
savings deposits ($15.3 million, or 1.5% increase) and interest-bearing demand
deposits ($44.6 million, or 8.4% increase). Total deposit growth continued to be
difficult in the face of competition from other financial institutions as well
as non-bank financial services providers. Rather than simply raising rates to
attract time deposit money, the Corporation looked to other funding sources.
To support the significant growth in earning assets, the Corporation
increased its borrowings, both short-term and long-term. Short-term borrowings
grew $140.2 million, or 67.0%, mainly in Federal funds purchased ($90.5 million)
and customer repurchase agreements ($37.6 million). To take advantage of
favorable long-term rates in late 1998 and to better match the repricing of its
assets, the Corporation also increased its long-term debt. Average long-term
debt, which consists of advances from the Federal Home Loan Bank (FHLB),
increased $139.6 million, or 85.9%.
Average interest rates on interest-bearing liabilities decreased in line
with the decreases realized on earning assets. This was reflective of the
general interest rate environment. Because of the consistent decline, the
Corporation's net interest margin remained fairly stable, decreasing only two
basis points from 4.58% in 1998 to 4.56% in 1999.
<PAGE>
1998 v. 1997
Interest income increased $22.1 million, or 5.7%, from $387.2 million in
1997 to $409.4 million in 1998. Of this increase, $26.8 million was a result of
a $356.6 million, or 7.4%, increase in average earning assets, offset by a $4.7
million decrease due to a drop in the average yield from 8.08% in 1997 to 7.95%
in 1998. Average loans increased $203.6 million, or 5.4%, in 1998. Additional
increases were realized in investment securities, which increased $163.1
million, or 16.5%, from $989.7 million in 1997 to $1.2 billion in 1998.
The 13 basis point decline in the average yield was driven by two primary
factors. First, the average yield on loans decreased 10 basis points to 8.53% in
1998 from 8.63% in 1997. Secondly, the mix of interest earning assets changed
from 78.5% loans and 21.5% investments in 1997 to 77.0% loans and 23.0%
investments in 1998. Lower yields on investments (overall, 5.98% in 1998 and
6.06% in 1997) relative to loans and a higher percentage of investments in 1998
caused a further reduction in the overall yield.
The 10 basis point reduction in loan yields was closely correlated with the
nine basis point decrease in the Corporation's average prime lending rate from
1997 (8.44%) to 1998 (8.35%).
Interest expense increased $9.5 million or 5.7% to $177.7 million in 1998
from $168.2 million in 1997. As with interest income, this increase was mainly
volume driven ($13.4 million) as average interest bearing liabilities increased
$263.2 million, offset by a $3.8 million decrease due to a slight decline in
rates from 4.29% in 1997 to 4.25% in 1998. Average interest-bearing deposits
showed the largest increase, $185.4 million or 5.1%. Most of this increase was
in time deposits, which increased $131.9 million or 6.2%. Long-term debt, which
consists mainly of advances from the FHLB, increased $96.4 million or 145.7%.
The overall cost of interest-bearing liabilities decreased only four basis
points, despite the general fall in rates throughout the industry. This was
mainly due to the fact that many of the Corporation's deposits (54% in 1998)
were in certificates of deposit which had not yet realized the impact of rate
reductions. This is shown by the average cost of CD's remaining fairly constant
at 5.55% in comparison to 5.56% in 1997.
With interest rates relatively low, the Corporation also turned to
borrowings as an alternative funding source. In an effort to reduce rate
sensitivity, the Corporation locked in longer-term borrowings with the FHLB. The
average cost of such borrowings in 1998 was approximately 5.47% as compared to
6.04% in 1997. In general, the cost of these funds was less than comparable-term
certificates of deposit.
Provision and Allowance for Loan Losses
Additions to the allowance for loan losses are charged to income through
the provision for loan losses when, in the judgement 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 non-performing loans. Additional consideration is given to regional and
national economic conditions.
The tables below summarize non-performing assets (including accruing loans
greater than 90 days past due) and net charge-offs by major loan category as of
or for the years ended December 31, 1999, 1998 and 1997 (dollars in thousands).
<PAGE>
<TABLE>
<CAPTION>
Nonperforming Assets
----------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------
Amount % Change Amount % Change Amount % Change
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans............ $ 18,758 7.5% $ 17,449 (16.7)% $ 20,955 38.0%
Commercial &
Industrial loans........ 4,316 (39.5) 7,130 37.9 5,169 (11.2)
Consumer loans............... 4,095 (29.5) 5,811 11.2 5,224 41.0
Other real estate owned...... 917 (35.4) 1,420 (7.6) 1,537 (45.7)
------------ ----------- ------------ ---------- ------------ ----------
Total........................ $ 28,086 (11.7)% $ 31,810 (3.3)% $ 32,885 19.4%
============ =========== ============ ========== ============ ==========
Non-performing
assets/Total assets..... 0.46% 0.54% 0.61%
============ ============ ============
Non-performing
loans/Total loans....... 0.61% 0.75% 0.79%
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Net Charge-Offs
----------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------
Amount % Change Amount % Change Amount % Change
------------ ----------- ------------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans............ $ 880 84.5% $ 477 (48.5)% $ 927 NA%
Commercial &
Industrial loans........ 1,281 7.7 1,189 123.4 532 (7.6)
Consumer loans............... 5,839 43.9 4,058 12.1 3,620 86.7
------------ ----------- ------------- ---------- --------------- -----------
Total........................ $ 8,000 39.8% $ 5,724 12.7% $ 5,079 124.8%
============ =========== ============= ========== =============== ===========
Net charge-offs/
Average loans........... 0.19% 0.14% 0.13%
============ ============= ===============
</TABLE>
The provision for loan losses for 1999 increased $2.6 million, or 47.2%, to
$8.2 million, as compared to $5.6 million in 1998. The 1998 provision was $2.8
million, or 33.7% lower than the 1997 provision of $8.4 million. In both 1999
and 1998, the provision was consistent with the net charge-offs recognized
during the years ($8.0 million in 1999 and $5.7 million in 1998).
To understand the increase in the provision in 1999, it is necessary to
understand the higher net charge-off levels. In 1999, net charge-offs were 0.19%
of average loans outstanding as compared to 0.14% in 1998. The increase resulted
from the continued trend toward higher levels of losses on consumer loans.
Consumer loan charge-offs continued to increase as a result of further aging of
the indirect loan portfolio, which grew dramatically in the mid to late 1990's.
In the past year, indirect lending has experienced lower growth rates as the
Corporation has faced increased rate competition. Despite the recent decrease,
the existing loan portfolio continued to experience losses, resulting in higher
consumer charge-offs in 1997, 1998 and 1999, further increasing the need for
provisions for losses.
Despite the increase in charge-offs in 1999, the quality of the overall
consumer portfolio continued to show signs of improvement. Total non-performing
consumer loans ($4.1 million in 1999 vs. $5.8 million in 1998); non-performing
consumer loans as a percentage of total non-performing loans (14.6% in 1999 vs.
18.3% in 1998); and non-performing consumer loans to total consumer loans (0.58%
in 1999 vs. 0.83% in 1998) all improved over the past year. Improvements in
overall asset quality measures also occurred in 1999. Overall, total
non-performing assets improved to 0.46% of total assets at December 31, 1999 as
compared to 0.54% at the end of 1998.
The Corporation's periodic loan portfolio review and allowance calculations
resulted in 68% of the total balance being allocated to specific loans and loan
types at December 31, 1999 as compared to 70% at December 31, 1998.
<PAGE>
The allowance for loan losses as a percentage of total loans declined from 1.42%
at December 31, 1998 to 1.30% at December 31, 1999. Management believes that the
allowance balance of $57.6 million at December 31, 1999 is sufficient to cover
losses incurred in the loan portfolio and is appropriate based on applicable
accounting standards.
Other Income
Noninterest income was $62.8 million in 1999, a $2.9 million, or 4.8%,
increase over 1998. Excluding investment securities gains of $8.2 million in
1999 and $11.4 million in 1998, the increase in other income was $6.1 million,
or 12.5%. Excluding the impact of securities gains, other income increased $6.2
million, or 14.7%, in 1998 as compared to 1997.
In recent years, the Corporation has focused on increasing its non-margin
related sources of income. As a result of increased emphasis on fee income,
investment management and trust services income grew $3.5 million, or 27.3%, in
1999 to $16.1 million, following an increase of $2.3 million, or 21.7%, in 1998.
The growth over the past two years was fueled by the rollout of investment and
brokerage services to all eleven of the Corporation's affiliate banks as well as
additional emphasis on traditional trust products.
In 2000, the Corporation will consolidate all of the investment management
and trust services units at each of its affiliate banks into a newly formed
trust company. This company, which will be a non-bank subsidiary of the parent,
will continue offering its existing services and will add, through an affiliate,
life insurance to its menu of products. Coordinating efforts under a centralized
structure is expected to further the Corporation's fee-based income goals.
Service charges on deposits increased $2.3 million, or 12.1%, to $21.2
million in 1999. Cash management fees ($953,000, or 34.3% increase) grew as the
number of cash management accounts continued to increase. The Corporation has
emphasized this business to newer affiliates who may not have offered it in the
past. Overdraft fees ($662,000, or 9.5% increase) and other service charges on
deposits ($673,000, or 7.3% increase) also increased as a result of changes in
fee structures and an increase in demand and savings accounts, which account for
the majority of these fee types. In 1998, service charges on deposits grew $1.1
million, or 6.2%, mainly due to deposit growth.
Other service charges and fees increased $943,000, or 7.8%, to $13.1
million in 1999, following an increase of $1.6 million, or 15.5%, in 1998. In
1998, the Corporation realized an increase of $1.0 million in ATM convenience
fees as a result of their introduction in late 1997. As a result of a full year
of such fees in both 1999 and 1998, the increase was only $178,000, or 8.7%, in
1999. The remainder of the 1999 increase was mainly in debit card revenues,
which increased $835,000, or 47.5%, due to the continued emphasis of this
product at the Corporation's newer affiliate banks.
Mortgage banking income decreased $613,000, or 12.8%, in 1999 after
increasing $1.2 million, or 34.5%, in 1998. This fluctuation was mainly a result
of interest rates. As mortgage rates continued to drop throughout 1998,
refinance activity increased and the Corporation was able to recognize $3.4
million in gains on mortgage loan sales, a $1.1 million, or 48.9%, increase over
1997. In 1999, as rates began rising, mortgage loan sale gains decreased
$828,000, or 24.5%, to $2.6 million. This decrease was somewhat offset by a
$214,000, or 15.0%, increase in mortgage loan servicing income which grew as a
result of retaining the servicing on many of the sold loans.
Investment securities gains decreased $3.2 million, or 28.1%, to $8.2
million in 1999 following an increase of $5.0, or 78.8%, to $11.4 million in
1998. The equity investment portfolio consists of common stocks of financial
institutions in the Corporation's general geographical market area. In 1998,
bank stock values were generally higher than in 1999, resulting in higher gains
realized in 1998 relative to 1999. As previously discussed, management monitors
the Corporation's equity portfolio and makes periodic sale and investment
decisions based on its assessment of the investments' values.
Other Expenses
Noninterest expenses for 1999 increased $3.3 million, or 2.1%, to $161.0
million. This followed a 1998 increase of $8.2 million, or 5.5%, to $157.7
million. Total noninterest expenses in 1997 were $149.5 million. Excluding the
impact of merger expenses in 1998 and 1997, total noninterest expenses increased
$4.7 million, or 3.0%, in 1999 and $7.6 million, or 5.1%, in 1998.
<PAGE>
The Corporation's efficiency ratio, which is the ratio of noninterest
expenses to fully taxable equivalent revenues (excluding securities gains),
improved to 52.7% in 1999, as compared to 55.4% in 1998 (54.9%, excluding merger
expenses) and 55.9% in 1997(55.6%, excluding merger expenses).
The largest component of noninterest expenses, salaries and employee
benefits, increased $4.5 million, or 5.4%, in 1999 to $88.7 million, as compared
to a $4.8 million, or 6.1%, increase to $84.1 million in 1998. The salary
portion of the 1999 expense was $72.9 million, which was a $2.8 million, or
4.0%, increase over 1998. This resulted from a small increase in average
full-time equivalent (FTE) employees to 2,354 in 1999 from 2,333 in 1998, as
well as normal merit increases. The salary portion of the expense in 1998 was
$70.1 million, a $3.2 million, or 5.3%, increase over 1997. This resulted from
an increase in average FTE employees from 2,296 in 1997 to 2,333 in 1998, as
well as normal merit increases.
Employee benefits expense increased $1.7 million, or 12.1%, to $15.8
million in 1999, following a 1998 increase of $985,000, or 5.3%. The sharper
increase in 1999 reflected a $480,000, or 8.6%, increase in health care expenses
and a net increase of $863,000 in retirement plan costs as certain affiliate
banks provided this benefit to their employees for the first time and certain
employees were transitioned from the defined benefit plan to the profit sharing
plan. This transition resulted in some overlap of expenses from the two plans
and the cost is expected to decrease in future periods.
Net occupancy expense increased $953,000, or 7.7%, in 1999 after decreasing
$727,000, or 5.5%, in 1998. The 1998 decrease was due to consolidation of
branches and operations facilities following the 1998 acquisition of Lebanon
Valley. The 1999 increase reflects growth in the branch network and the
completion of a major renovation at the Corporation's operations center.
In 1999, the Corporation began the construction of a $20 million, 100,000
square foot office building in downtown Lancaster, PA. This building, which will
be adjacent to the Corporation's existing main office, will be used to
accommodate current and future occupancy needs of the Corporation. In the first
several years, however, a portion of the facility will be leased to third
parties. Construction is expected to be completed by the end of 2001.
Equipment expense increased $473,000, or 5.2%, in 1999 following a decrease
of $554,000, or 5.8%, in 1998. As with occupancy expense, the variances in
equipment expense were a result of contracting operations in overlapping markets
in 1998, followed by strategic expansion in 1999. Equipment expense also
increased as a result of Year 2000 related needs.
Special services expense, which is the cost of data processing, increased
$446,000, or 4.2% in 1999, compared to a $2.8 million, or 34.9%, increase in
1998. The Corporation has a contract with a third party to perform the main data
processing functions for all of the Corporation's affiliate banks. The increase
in 1998 was mainly the result of converting the newly acquired Lebanon Valley
from its in-house data processing function to the Corporation's third party
systems. In addition, a new mortgage processing system and a new trust system
were installed in 1998, which resulted in increased costs.
Other noninterest expenses decreased $3.1 million, or 7.5%, to $38.4
million in 1999 as compared to $41.5 million in 1998. This was mainly due to
certain nonrecurring expenses in 1998. The Corporation incurred approximately
$1.4 million in professional fees related to the acquisitions of Keystone and
Ambassador in 1998, whereas in 1999 there were no merger-related expenses. In
1998, the Corporation also made approximately $700,000 in net non-equity
contributions related to low income housing projects. Also, net expenses related
to the corporate-owned life insurance program were reduced from $500,000 in 1998
to zero in 1999 as the program was modified to a non-leveraged structure.
Finally, many categories of expenses which indirectly increased in 1998 as a
result of merger-related costs decreased to normal levels in 1999. Among these
were advertising ($401,000, or 8.3%, decrease in 1999), legal fees ($278,000, or
26.6% decrease) and supplies ($373,000, or 7.9% decrease).
<PAGE>
Income Taxes
Income taxes increased only $647,000, or 1.6%, in 1999 as compared to a
$6.4 million, or 19.1%, increase in 1998. The effective tax rates were 29.4%,
31.0% and 30.4% in 1999, 1998 and 1997, respectively. In general, the variances
from the 35% federal statutory rate consisted of tax-exempt interest income,
investments in low and moderate income housing partnerships (which qualify for
Federal tax credits), and certain merger-related expenses which are not
deductible. The decrease in the effective tax rate reflects no merger expenses
in 1999, an increase in tax-free municipal investments and an increase in tax
credits to $5.9 million in 1999 from $5.0 in 1998. See also "Note H - Income
Taxes" in the Consolidated Financial Statements.
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
AVERAGE CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December Monthly Averages
----------------------------------------------------
1999 1998 1997
------------- ----------------- ----------------
ASSETS (in thousands)
- ------
<S> <C> <C> <C>
Cash and due from banks.................................. $ 258,676 $ 225,172 $ 194,136
Other interest-earning assets............................ 3,015 1,885 43,895
Investment securities.................................... 1,243,490 1,382,729 1,058,170
Loans, including loans held for sale..................... 4,391,067 4,031,292 3,936,260
Less: Allowance for loan losses.......................... (58,859) (58,197) (57,646)
------------- ----------------- ----------------
Net Loans....................................... 4,332,208 3,973,095 3,878,614
------------- ----------------- ----------------
Premises and equipment................................... 79,156 75,926 72,907
Other assets............................................. 148,777 134,644 119,286
------------- ----------------- ----------------
Total Assets.................................... $ 6,065,322 $ 5,793,451 $ 5,367,008
============= ================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest-bearing.................................... $ 738,377 $ 709,158 $ 627,929
Interest-bearing....................................... 3,800,163 3,808,427 3,766,976
------------- ----------------- ----------------
Total Deposits.................................. 4,538,540 4,517,585 4,394,905
------------- ----------------- ----------------
Short-term borrowings.................................... 476,475 271,631 271,165
Long-term debt........................................... 330,959 296,035 51,016
Other liabilities........................................ 98,508 99,123 94,565
------------- ----------------- ----------------
Total Liabilities............................... 5,444,482 5,184,374 4,811,651
------------- ----------------- ----------------
Total Shareholders' Equity...................... 620,840 609,077 555,357
------------- ----------------- ----------------
Total Liabilities and Shareholders' Equity...... $ 6,065,322 $ 5,793,451 $ 5,367,008
============= ================= ================
</TABLE>
FINANCIAL CONDITION
The Corporation functions as a financial intermediary and its financial
condition is analyzed in terms of its sources and uses of funds. The table above
highlights the trends in the balance sheet over the past two years. Because
annual averages tend to conceal trends and ending balances can be distorted by
one-day fluctuations, the December monthly averages for each of the last three
years are provided to give a better indication of trends in the balance sheet.
All references within the discussion that follows are to these December average
balances unless specifically noted otherwise.
The Corporation's balance sheet continued to grow in 1999, as assets
increased $272 million, or 4.7%, to $6.1 billion, as compared to $5.8 billion at
the end of 1998. Asset growth in 1998 was $426 million, or 7.9%. In 1999, the
balance sheet growth was asset driven, mostly through increases in loans. In
1998, the balance sheet grew mainly as a result of funding strategies that
increased the Corporation's long-term borrowings.
Loans
Loans outstanding (net of unearned income) increased $359.8 million, or
8.9%, in 1999 to reach a level of $4.4 billion. In 1998, the growth rate was
much slower at $95.0 million, or 2.4%.
In 1999, the growth was most evident in commercial loans ($151.4 million,
or 17.2%, increase), commercial mortgages ($117.2 million, or 10.7%, increase)
and home equity loans ($57.7 million, or 19.5%, increase). Commercial loans and
mortgages were impacted by favorable economic conditions in the Corporation's
markets as well as competitive pricing decisions. Home equity loans benefited
from several promotions during 1999. Furthermore, the overall loan growth rate
was aided by a slowing of residential mortgage refinancings as interest
<PAGE>
rates rose during the year. Although residential mortgages remained flat in
1999, the run-off from refinancing activity that had been seen in prior years
slowed.
In 1998, the Corporation was able to increase commercial mortgages $151.2
million, or 17.8%, but almost all other major loan categories remained flat or
saw decreases. Consumer loans, consisting of automobile financing, student
loans, credit cards and home equity loans, increased only $40.2 million, or
3.4%. Commercial loans decreased $31.4 million, or 3.5%, and residential
mortgages decreased $67.0 million, or 7.7%, due to heavy refinance volume.
Investment Securities
In 1999, investment securities decreased $139.2 million, or 10.1%, to $1.2
billion. This followed a 1998 increase of $324.6 million, or 30.7%. In 1999,
maturities and payoffs of securities were used as one source of funds for the
growing loan portfolio. Conversely, in 1998, excess funds provided by borrowings
and deposit growth were used to purchase securities as loan growth was slower.
The decrease in investment securities during 1999 occurred in all
categories of investments, except for tax-exempt municipal securities which
continued to have favorable taxable equivalent rates as compared to other
investment alternatives. Tax-exempt municipal securities increased $62.9
million, or 44.4%, to $204.4 million and now account for approximately 16% of
the Corporation's investment portfolio. Mortgage-backed securities, which
decreased $66.4 million, or 8.5%, during 1999, continue to account for the
majority of the investment portfolio, at 58%.
The Corporation classified approximately 93% of its investment securities
($1.1 billion) as available for sale and, as such, these investments are
recorded at their estimated fair values. The increase in interest rates during
1999 resulted in a $39.7 million decrease in unrealized gains on non-equity
investments in the portfolio. The Corporation prefers the available for sale
classification as it provides flexibility in managing liquidity needs.
The Corporation also maintains an equity investment portfolio, consisting
of FHLB and other government agency stock ($31.8 million), as well as stocks of
other financial institutions ($52.0 million). This portfolio has historically
been a source of capital appreciation and realized gains ($8.2 million in 1999,
$11.4 million in 1998 and $6.4 million in 1997). Management periodically sells
bank stocks when valuations and market conditions warrant such sales.
Premises and Equipment
Premises and equipment increased $3.2 million, or 4.3%, in 1999 to $79.2
million, following a $3.0 million, or 4.1% increase in 1998. Increases were
mainly a result of capital investments in technology, the renovation of the
Corporation's operations facility and the commencement of construction of a new
office building adjacent to the Corporation's current main office in Lancaster.
Cash and Due from Banks
Cash and due from banks increased $33.5 million, or 14.9%, to $258.7
million in December, 1999. Furthermore, vault cash increased $41.6 million, or
78.5%, to $94.1 million. In anticipation of customer demand for funds as a
result of Year 2000 concerns, the Corporation maintained higher than normal
balances of cash near the end of the year. Demand for cash was not significant
and these reserves were reinvested in early January, 2000. See also "Year 2000"
for additional disclosures about the Year 2000 issues.
Other Assets
Other assets increased $14.1 million, or 10.5%, in 1999 to $148.8 million.
This compares to a $15.4 million, or 12.9%, increase in 1998. The increase in
1999 was mainly a result of the net deferred tax asset, which grew $17.7
million. This was caused by the $46.7 million decrease in the unrealized gain on
available for sale investment securities, and the resulting decline in the
related deferred tax liability. The increase in 1998 resulted from the payoff of
the $15.5 million loan on the corporate-owned life insurance (COLI) program.
This loan was recorded as a reduction to the accumulated cash surrender value on
the life insurance policies.
<PAGE>
During 1999, the Corporation continued its participation in affordable
housing and community development projects through investments in partnerships.
Equity commitments totaling $4.3 million were made to two new projects. The
Corporation made its initial investment of this type during 1989 and is now
involved in 34 projects, all located in the communities served by its subsidiary
banks. The carrying value of these investments was approximately $25.4 million
at December 31, 1999. With these investments, the Corporation not only improves
the quantity and quality of available housing for low income individuals in
support of its banks' Community Reinvestment Act compliance effort, but also
becomes eligible for tax credits under federal and, in some cases, state
programs.
Deposits and Borrowings
Deposits increased $21.0 million, or 0.5%, in 1999 to a total of $4.5
billion. This compares to an increase of $122.7 million, or 2.8%, in 1998.
Competition for time deposits, which is mainly focused on interest rates,
resulted in a decrease of $29.4 million, or 1.3%, in 1999 and $16.7 million, or
0.7%, in 1998. Most notably, certificates of deposit with original maturities of
less than one year decreased $104.3 million, or 14.6%, in 1999 and $106.7
million, or 13.2%, in 1998. Demand and savings deposits, however, did see
increases in both 1999 ($51.6 million, or 2.3%) and 1998 ($139.4 million, or
6.5%). With reasonable funding alternatives available, the Corporation has
avoided simply paying the highest rates to attract new time deposits.
Short-term borrowings, consisting mainly of Federal funds purchased and
customer and broker repurchase agreements, increased $204.8 million, or 75.4%,
in 1999 to $476.5 million after remaining flat in 1998. Federal funds purchased
increased $95.6 million, customer repurchase agreements increased $36.0 million
and broker repurchase agreements increased $70.7 million.
Long-term debt, which consists of advances from the FHLB, increased $34.9
million, or 11.8% in 1999, following a $245.0 million, or 480.3%, increase in
1998. The dramatic increase in 1998 resulted from favorable long-term rates and
a need to better match maturities in conjunction with the Corporation's
asset/liability management strategies. In 1999, short-term borrowing was
relatively more attractive than longer-term.
The increases in both short and long-term borrowings over the past two
years underscores the difficulty that the Corporation and financial institutions
in general have had in generating deposit growth. Although these borrowings have
had little impact in the short term on the net interest margin, the Corporation
will continue to target deposits as its primary funding source in the future.
Deposits, especially demand and savings, are generally less costly and provide
an opportunity to expand the existing customer base.
Shareholders' Equity
Total shareholders' equity increased $6.0 million, or 1.0%, to $614.3
million at December 31, 1999. This compares to an increase of $43.8 million, or
7.8%, in 1998. The slower rate of increase in 1999 reflects two main changes.
First, the reduction in the fair value of the Corporation's non-equity
investments resulted in a shift from $23.6 million in unrealized gains in 1998
to $11.8 million in unrealized losses at December 31, 1999. Second, as a result
of three separate stock repurchase plans in 1999, treasury stock increased $13.5
million.
Excluding treasury stock and accumulated other comprehensive (loss) gain,
shareholders' equity increased $54.9 million, or 9.3%. This resulted from strong
net income growth as well as a prudent dividend policy. Despite increasing
dividends each year ($0.586 per share in 1999 and $0.529 per share in 1998), the
Corporation maintained a dividend payout ratio in the range of 40-45% (41.7% in
1999).
The first stock repurchase plan expired March 31, 1999 and was for 275,000
shares, of which 47,300 were purchased during 1999. The second plan was approved
in April, 1999 for 770,000 shares and was to expire March 31, 2000, however, all
770,000 shares were purchased by the end of 1999. The third plan was approved in
December, 1999 and calls for the repurchase of up to 1 million shares through
June 30, 2000. In 1999, a total of 62,700 shares had been repurchased under this
third plan.
The Corporation and its subsidiary banks are subject to various regulatory
capital requirements administered by banking regulators. Failure to meet minimum
capital requirements can initiate certain actions by regulators that could have
a material effect on the Corporation's financial statements. The regulations
require that banks maintain minimum amounts and ratios of total and Tier I
capital (as defined in the regulations) to risk weighted assets (as
<PAGE>
defined), and Tier I capital to average assets (as defined). As of December 31,
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.
YEAR 2000
- ---------
The Corporation and its significant third-party data processing service
providers successfully transitioned into calendar year 2000. Computer and other
electronic information processing systems all properly recognized dates after
1999, confirming the successful completion of the Corporation's five-step
comprehensive plan (Year 2000 Plan) for awareness, assessment, renovation,
validation, and implementation. Both information technology and non-information
technology systems, such as embedded technology in security and other systems,
continue to function properly. The Corporation has not activated its established
and tested contingency plans since no significant Year 2000 problems have
occurred.
The Corporation incurred approximately $2.3 million in expenses ($1.5
million in 1999) in completing its Year 2000 Plan. The majority of these
expenses were internal resources allocated to the Year 2000 Plan and not
incremental costs. In the future, these resources will be used for additional
technology initiatives. The Corporation also incurred capital expenditures of
approximately $5.5 million ($2.5 million in 1999) to replace non-compliant
hardware, software and other equipment. These expenditures, which were necessary
for Year 2000, also significantly improved the overall technology infrastructure
of the Corporation.
Other issues not related to the Corporation's computer systems include the
Year 2000 compliance of vendors and borrowers. The ability of vendors to
continue to provide uninterrupted service and for borrowers to continue to
perform on their loans could have a material impact on the Corporation's
financial statements. There are no known Year 2000 problems arising since the
beginning of the year 2000 related to significant vendors or borrowers.
While the initial results of the Corporation's Year 2000 preparedness have
been positive, there remains the possibility that Year 2000 problems not yet
identified could arise. While management believes the likelihood of a problem
relating to remaining Year 2000 issues resulting in a material impact on the
financial statements is remote, only the passage of time will confirm this.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
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.
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 $52.0 million) and U.S. Government and agency stock (cost basis of
approximately $31.8 million). The Corporation's equity investments had a total
estimated fair value of $98.2 million at December 31, 1999. The $14.3 million
net unrealized gain is primarily attributable to the financial institutions
stock.
Although the cost basis of equity investments accounted for only 1.6% 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 only 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
<PAGE>
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 of all,
changes in rates have an impact on the Corporation's liquidity position and
could affect its ability to meet obligations and continue to grow. Secondly,
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.
At December 31, 1999, liquid assets (defined as cash and due from banks,
short-term investments, securities available for sale, and non-mortgage-backed
securities held to maturity due in one year or less) totaled $1.4 billion or
23.0% of total assets. This compares to $1.4 billion, or 25.5% of total assets
at December 31, 1998. Liquidity is also provided by non-mortgage-backed
securities held to maturity due from one to five years, which totaled $14.5
million and $24.8 million at December 31, 1999 and 1998, respectively. Principal
payments received on the held to maturity mortgage-backed securities portfolio
also provide liquidity. The Corporation had $53.9 million of such
mortgage-backed securities at December 31, 1999 and $117.4 million at December
31, 1998.
The loan portfolio provides an additional source of liquidity due to the
Corporation's ability to participate in the secondary mortgage market. Sales of
residential mortgages into the secondary market of $184.5 million and $219.7
million in 1999 and 1998, respectively, provided the necessary funding which
allowed the Corporation to meet the needs of its customers for new mortgage
financing.
From a funding standpoint, the Corporation has been able to rely over the
years on a stable base of "core" deposits. Even though the Corporation has
experienced notable changes in the composition and interest sensitivity of this
deposit base, it has been able to rely on this base to provide needed liquidity.
The Corporation also has access to sources of large denomination or jumbo
time deposits and repurchase agreements as potential sources of liquidity.
However, the Corporation has attempted to minimize its reliance upon these more
volatile short-term funding sources and to use them primarily to meet the
requirements of its existing customer base or when it is profitable to do so.
Each of the Corporation's subsidiary banks are members of the FHLB, which
provides them access to FHLB overnight and term credit facilities. At December
31, 1999, the Corporation had $327.6 million in term advances from the FHLB with
an additional $713 million of borrowing capacity (including both short-term
funding on its lines of credit and long-term borrowings). This availability,
along with Federal funds lines at various correspondent commercial banks,
provides the Corporation with additional liquidity.
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.
<PAGE>
FULTON FINANCIAL CORPORATION
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
(dollars in thousands) Expected Maturity Period
-------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Beyond
------------- ------------- ------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate loans (1) $ 736,588 $ 550,655 $ 451,723 $ 335,032 $ 245,507 $ 779,601
Average rate (1) 7.79% 7.81% 7.74% 7.75% 7.72% 7.66%
Floating rate loans (2) 385,712 146,146 120,483 108,962 79,084 482,914
Average rate 9.23% 9.30% 9.52% 9.35% 8.54% 8.05%
Fixed rate investments (3) 233,420 197,726 167,730 190,277 97,776 237,300
Average rate 6.06% 6.04% 6.08% 6.05% 6.16% 6.29%
Floating rate investments (3) 750 50 923 1,000 - 16,280
Average rate 7.19% 7.50% 6.19% 6.42% - 6.14%
Other interest-earning assets 2,814 - - - - -
Average rate 5.55% - - - - -
--------------------------------------------------------------------------------------------
Total $ 1,359,284 $ 894,577 $ 740,859 $ 635,271 $ 422,367 $ 1,516,095
Average rate 7.90% 7.66% 7.65% 7.51% 7.51% 7.55%
--------------------------------------------------------------------------------------------
Fixed rate deposits (4) $ 1,411,026 $ 464,578 $ 173,770 $ 59,505 $ 30,372 $ 20,593
Average rate 4.98% 5.40% 5.69% 5.56% 5.54% 5.69%
Floating rate deposits (5) 553,718 80,642 77,215 77,215 77,215 796,186
Average rate 3.27% 1.56% 1.52% 1.52% 1.52% 1.39%
Fixed rate borrowings (6) 88,934 70,780 280 152,780 280 15,196
Average rate 5.27% 4.60% 5.76% 5.26% 5.76% 5.04%
Floating rate borrowings (7) 487,546 - - - - -
Average rate 5.02% - - - - -
--------------------------------------------------------------------------------------------
Total $ 2,541,224 $ 616,000 $ 251,265 $ 289,500 $ 107,867 $ 831,975
Average rate 4.63% 4.81% 4.41% 4.32% 2.66% 1.56%
<CAPTION>
(dollars in thousands) Estimated
Total Fair Value
---------------- --------------
<S> <C> <C>
Fixed rate loans (1) $ 3,099,106 $ 3,020,936
Average rate (1) 7.74%
Floating rate loans (2) 1,323,301 1,318,403
Average rate 8.80%
Fixed rate investments (3) 1,124,229 1,091,189
Average rate 6.12%
Floating rate investments (3) 19,003 18,851
Average rate 6.20%
Other interest-earning assets 2,814 2,814
Average rate 5.55%
- -------------------------------------------------------------------------
Total $ 5,568,453 $ 5,452,193
Average rate 7.66%
- -------------------------------------------------------------------------
Fixed rate deposits (4) $ 2,159,844 $ 2,147,978
Average rate 5.16%
Floating rate deposits (5) 1,662,191 1,661,918
Average rate 2.04%
Fixed rate borrowings (6) 328,250 315,334
Average rate 5.11%
Floating rate borrowings (7) 487,546 487,546
Average rate 5.02%
- -------------------------------------------------------------------------
Total $ 4,637,831 $ 4,612,776
Average rate 4.02%
- -------------------------------------------------------------------------
</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.
<PAGE>
The preceding table and discussion addressed the liquidity implications of
interest rate risk and focused on expected contractual cash flows from financial
instruments. Expected contractual maturities, however, do not necessarily
estimate the net income impact of interest rate changes. Certain financial
instruments, such as adjustable rate loans, have repricing periods that differ
from contractual cash flows.
The Corporation uses three complementary methods to measure and manage
interest rate risk. They are static gap analysis, simulation of earnings, and
estimates of economic value of equity. Using these measurements in tandem
provides a reasonably comprehensive summary of the magnitude of interest rate
risk in the Corporation, level of risk as time evolves, and exposure to changes
in interest rate relationships.
Static gap provides a measurement of repricing risk in the Corporation's
balance sheet as of a point in time. This measurement is accomplished through
stratification of the Corporation's assets and liabilities into 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% of total earning assets. The cumulative 6-month gap as
of December 31, 1999 was 0.88. The following is a summary of the interest
sensitivity gaps for four different time intervals as of December 31, 1999:
Daily 0-90 91-180 181-365
Adjustable Days Days Days
---------- ---- ------ -------
GAP........................ 1.23 0.62 0.57 0.79
CUMULATIVE GAP............. 1.23 0.98 0.88 0.85
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. At
December 31, 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 2%, 5%
and 8% 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 December 31, 1999,
upward shocks of 100, 200 and 300 basis points were estimated to have negative
effects upon economic value of 2%, 1% and 1%, respectively.
<PAGE>
Common Stock
- ------------
As of December 31, 1999, the Corporation had 68,499,473 shares of $2.50 par
value common stock outstanding held by 15,696 shareholders of record. The common
stock of the Corporation is traded on the national market system of the National
Association of Securities Dealers Automated Quotation System (NASDAQ) under the
symbol FULT.
The following table presents the quarterly high and low prices of the
Corporation's common stock and per-share cash dividends declared for each of the
quarterly periods in 1999 and 1998. Per-share amounts have been retroactively
adjusted to reflect the effect of stock dividends declared.
Price Range
----------------------- Per-Share
High Low Dividend
-------- ------- ---------
1999
----
First Quarter....... 20 29/32 18 3/16 $0.136
Second Quarter...... 21 5/8 19 3/8 0.150
Third Quarter....... 21 1/16 18 3/4 0.150
Fourth Quarter...... 20 5/16 17 9/16 0.150
1998
----
First Quarter....... 24 3/32 21 41/64 0.125
Second Quarter...... 27 21/64 21 41/64 0.131
Third Quarter....... 23 63/64 17 27/32 0.136
Fourth Quarter...... 20 29/32 16 23/64 0.136
<PAGE>
Item 8. Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
December 31
----------------------------------
1999 1998
--------------- ---------------
Assets
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks ........................................................... $ 245,572 $ 247,558
Interest-bearing deposits with other banks ........................................ 1,798 2,975
Mortgage loans held for sale ...................................................... 1,016 7,987
Investment securities:
Held to maturity (estimated fair value- $84,777 in 1999 and $177,939 in 1998) 85,474 176,623
Available for sale ........................................................... 1,137,846 1,206,121
Loans ............................................................................. 4,432,030 4,040,455
Less: Allowance for loan losses ............................................. (57,631) (57,415)
Unearned income ....................................................... (9,623) (10,064)
--------------- ---------------
Net Loans ................................................ 4,364,776 3,972,976
--------------- ---------------
Premises and equipment ............................................................ 79,217 75,715
Accrued interest receivable ....................................................... 31,496 34,942
Other assets ...................................................................... 122,824 113,766
--------------- ---------------
Total Assets ............................................. $ 6,070,019 $ 5,838,663
=============== ===============
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing .......................................................... $ 724,778 $ 759,585
Interest-bearing ............................................................. 3,822,035 3,833,384
--------------- ---------------
Total Deposits ........................................... 4,546,813 4,592,969
--------------- ---------------
Short-term borrowings:
Securities sold under agreements to repurchase................................ 309,790 212,225
Federal funds purchased....................................................... 172,250 19,521
Demand notes of U.S. Treasury ................................................ 5,506 3,839
--------------- ---------------
Total Short-Term Borrowings .............................. 487,546 235,585
--------------- ---------------
Accrued interest payable .......................................................... 32,313 34,255
Other liabilities ................................................................. 60,803 71,502
Long-term debt .................................................................... 328,250 296,018
--------------- ---------------
Total Liabilities ........................................ 5,455,725 5,230,329
--------------- ---------------
Shareholders' Equity
- ---------------------------------------------------------------------------------------------------------------------------
Common stock ($2.50 par)
Shares: Authorized 400,000,000
Issued 69,356,609; Outstanding 68,499,473 (69,185,204 in 1998)....... 173,392 157,638
Capital surplus ................................................................... 394,234 293,897
Retained earnings ................................................................. 75,482 136,668
Accumulated other comprehensive (loss) income...................................... (11,846) 23,619
Less: Treasury stock (857,136 shares in 1999 and 171,405 shares in 1998)........... (16,968) (3,488)
-------------- ---------------
Total Shareholders' Equity ............................... 614,294 608,334
-------------- ---------------
Total Liabilities and Shareholders' Equity ............... $ 6,070,019 $ 5,838,663
============== ===============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<C> <CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per-share data)
Year Ended December 31
-----------------------------------------------------
1999 1998 1997
Interest
Income
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans, including fees ..................................... $ 343,906 $ 338,667 $ 324,815
Investment securities:
Taxable .............................................. 62,229 60,744 53,005
Tax-exempt ........................................... 8,388 4,749 4,301
Dividends ............................................ 4,124 3,505 2,823
Federal funds sold ........................................ 161 1,486 1,994
Interest-bearing deposits with other banks ................ 106 214 310
- -------------- -------------- --------------
18,914 409,365 387,248
Interest Expense
- ---------------------------------------------------------------------------------------------------------------------
Deposits .................................................. 143,165 159,684 153,329
Short-term borrowings ..................................... 16,019 9,124 10,828
Long-term debt ............................................ 15,643 8,886 3,996
Total Interest Expense ........... -------------- -------------- --------------
174,827 177,694 168,153
-------------- -------------- --------------
Net Interest Income .............. 244,087 231,671 219,095
Provision for Loan Losses ................................. 8,216 5,582 8,417
Net Interest Income After -------------- -------------- --------------
Provision for Loan Losses . 235,871 226,089 210,678
Other Income
- ---------------------------------------------------------------------------------------------------------------------
Investment management & trust services..................... 16,109 12,659 10,398
Service charges on deposit accounts ....................... 21,242 18,954 17,849
Other service charges and fees ............................ 13,110 12,167 10,537
Mortgage banking income.................................... 4,195 4,808 3,574
Investment securities gains ............................... 8,166 11,360 6,355
-------------- -------------- --------------
62,822 59,948 48,713
Other Expenses
- ---------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits ............................ 88,657 84,112 79,301
Net occupancy expense ..................................... 13,352 12,399 13,126
Equipment expense ......................................... 9,507 9,034 9,588
Special services .......................................... 11,069 10,623 7,872
Other ..................................................... 38,403 41,526 39,651
-------------- -------------- --------------
160,988 157,694 149,538
-------------- -------------- --------------
Income Before Income Taxes ....... 137,705 128,343 109,853
Income Taxes .............................................. 40,479 39,832 33,448
-------------- -------------- --------------
Net Income ....................... $ 97,226 $ 88,511 $ 76,405
============== ============== ==============
- ---------------------------------------------------------------------------------------------------------------------
Per-Share Data:
Net Income (Basic)......................................... $ 1.41 $ 1.28 $ 1.11
Net Income (Diluted)....................................... 1.40 1.27 1.10
Cash Dividends ............................................ 0.586 0.529 0.453
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Capital Retained
(Dollars in thousands, except per-share data) Stock Surplus Earnings
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1997........................................... $ 117,035 $ 251,159 $ 122,385
Comprehensive Income:
Net income................................................. 76,405
Other - unrealized gain on securities (net of $ 9.9 million
tax expense)
Total comprehensive income............................
Stock dividend issued - 10% (4,944,025 shares).................. 8,989 73,962 (83,045)
Stock issued (279,906 shares)................................... 473 1,281
Acquisition of treasury stock (57,750 shares)...................
Cash dividends - $0.453 per share............................... (31,111)
-----------------------------------------------------
Balance at December 31, 1997......................................... 126,497 326,402 84,634
Comprehensive Income:
Net income................................................. 88,511
Other - unrealized loss on securities (net of $2.5 million
tax benefit)
Total comprehensive income............................
Stock split paid in the form of a 25% stock dividend (13,183,897
shares) 29,963 (30,088)
Stock issued (677,598 shares, including 173,494 shares of
treasury stock) 1,178 (2,417)
Acquisition of treasury stock (275,743 shares)..................
Cash dividends - $0.529 per share............................... (36,477)
-----------------------------------------------------
Balance at December 31, 1998......................................... 157,638 293,897 136,668
Comprehensive Income:
Net income................................................. 97,226
Other - unrealized loss on securities (net of $19.1 million
tax benefit)
Total comprehensive income............................
Stock dividend issued - 10% (6,302,309 shares).................. 15,754 102,099 (117,917)
Stock issued 194,369 (Shares of treasury stock)................. (1,762)
Acquisition of treasury stock (880,100 shares)..................
Cash dividends - $0.586 per share............................... (40,495)
-----------------------------------------------------
Balance at December 31, 1999......................................... $ 173,392 $ 394,234 $ 75,482
=====================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehen-
sive Income Treasury
(Dollars in thousands, except per-share data) (Loss) Stock Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1997........................................... $ 9,818 $ (103) $ 500,294
Comprehensive Income:
Net income................................................. 76,405
Other - unrealized gain on securities (net of $ 9.9 million
tax expense) 18,439 18,439
----------------
Total comprehensive income............................ 94,844
----------------
Stock dividend issued - 10% (4,944,025 shares).................. (94)
Stock issued (279,906 shares)................................... 1,754
Acquisition of treasury stock (57,750 shares)................... (1,196) (1,196)
Cash dividends - $0.453 per share............................... (31,111)
---------------------------------------------------
Balance at December 31, 1997......................................... 28,257 (1,299) 564,491
Comprehensive Income:
Net income................................................. 88,511
Other - unrealized loss on securities (net of $2.5 million
tax benefit) (4,638) (4,638)
----------------
Total comprehensive income............................ 83,873
----------------
Stock split paid in the form of a 25% stock dividend (13,183,897
shares) (125)
Stock issued (677,598 shares, including 173,494 shares of
treasury stock) 3,489 2,250
Acquisition of treasury stock (275,743 shares).................. (5,678) (5,678)
Cash dividends - $0.529 per share............................... (36,477)
---------------------------------------------------
Balance at December 31, 1998......................................... 23,619 (3,488) 608,334
Comprehensive Income:
Net income................................................. 97,226
Other - unrealized loss on securities (net of $19.1 million
tax benefit) (35,465) (35,465)
----------------
Total comprehensive income............................ 61,761
Stock dividend issued - 10% (6,302,309 shares).................. (64)
Stock issued 194,369 (Shares of treasury stock)................. 4,054 2,292
Acquisition of treasury stock (880,100 shares).................. (17,534) (17,534)
Cash dividends - $0.586 per share............................... (40,495)
---------------------------------------------------
Balance at December 31, 1999......................................... $ (11,846) $ (16,968) $ 614,294
===================================================
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Year Ended December 31
---------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income ................................................... $ 97,226 $ 88,511 $ 76,405
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Provision for loan losses .................................... 8,216 5,582 8,417
Depreciation and amortization of premises and equipment ...... 9,911 8,965 9,690
Net amortization of investment security premiums ............. 1,204 359 315
Deferred income tax expense (benefit)......................... 1,377 (329) 841
Gain on sale of investment securities ........................ (8,166) (11,360) (6,355)
Gain on sale of mortgage loans................................ (2,554) (3,384) (2,271)
Proceeds from sale of mortgage loans.......................... 184,535 219,745 128,929
Originations of mortgage loans held for sale.................. (175,010) (222,402) (122,460)
Amortization of intangible assets ............................ 1,297 1,399 1,493
Decrease (increase) in accrued interest receivable ........... 3,446 (2,606) (213)
Decrease (increase) in other assets .......................... 7,303 (24,080) (10,151)
(Decrease) increase in accrued interest payable .............. (1,942) 1,028 5,804
Increase (decrease) in other liabilities...................... 792 (3,494) 14,649
------------- ------------- -------------
Total adjustments....................................... 30,409 (30,577) 28,688
------------- ------------- -------------
Net cash provided by operating activities ........... 127,635 57,934 105,093
------------- ------------- -------------
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale ......... 18,765 25,872 133,723
Proceeds from maturities of securities held to maturity ...... 92,635 173,056 216,859
Proceeds from maturities of securities available for sale .... 297,846 251,311 103,430
Purchase of securities held to maturity ...................... (1,500) (6,606) (27,738)
Purchase of securities available for sale .................... (308,271) (743,044) (470,603)
Decrease (increase) in short-term investments ................ 1,177 (341) 3,506
Net increase in loans ........................................ (400,016) (74,471) (377,302)
Purchase of premises and equipment, net....................... (13,413) (11,633) (13,958)
------------- ------------- -------------
Net cash used in investing activities ............... (312,777) (385,856) (432,083)
------------- ------------- -------------
Cash Flows from Financing Activities:
Net (decrease) increase in demand and savings deposits ....... (44,292) 202,648 62,481
Net (decrease) increase in time deposits ..................... (1,864) (28,222) 283,662
Addition to long-term debt.................................... 43,092 263,612 13,747
Repayment of long-term debt................................... (10,860) (20,639) (28,200)
Increase (decrease) in short-term borrowings ................. 251,961 (12,716) 21,911
Dividends paid ............................................... (39,575) (33,939) (29,810)
Net proceeds from issuance of common stock ................... 2,228 2,125 1,660
Acquisition of treasury stock ................................ (17,534) (5,678) (1,196)
------------- ------------- -------------
Net cash provided by financing activities............ 183,156 367,191 324,255
------------- ------------- -------------
Net (Decrease) Increase in Cash and Due From Banks .......... (1,986) 39,269 (2,735)
Cash and Due From Banks at Beginning of Year ................. 247,558 208,289 211,024
------------- ------------- -------------
Cash and Due From Banks at End of Year ....................... $ 245,572 $ 247,558 $ 208,289
============= ============= =============
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest ............................................ $ 176,769 $ 176,666 $ 162,349
Income taxes ........................................ 31,066 36,040 29,138
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
FULTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Business: Fulton Financial Corporation (Parent Company) provides a full
range of banking and financial services to businesses and consumers through its
wholly-owned banking subsidiaries: Fulton Bank, Lebanon Valley Farmers Bank,
Swineford National Bank, Lafayette Ambassador Bank, FNB Bank, N.A., Great Valley
Bank, Hagerstown Trust, Delaware National Bank, The Bank of Gloucester County,
The Woodstown National Bank & Trust Company and The Peoples Bank of Elkton. In
addition, the Parent Company owns four non-banking subsidiaries: Fulton
Financial Realty Company, Fulton Life Insurance Company, Central Pennsylvania
Financial Corporation and FFC Management, Inc. Collectively, the Parent Company
and its subsidiaries are referred to as the Corporation.
The Corporation's primary source of revenue is interest income on loans and
investment securities and fee income on its products and services. Its expenses
consist of interest expense on deposits and borrowed funds, provision for loan
losses and other operating expenses. The Corporation's primary competition is
other financial services providers operating in its region. With the growth in
electronic and other alternative delivery channels in recent years, competition
has expanded to include other bank and non-bank entities not physically located
in the Corporation's geographical market. The Corporation is subject to the
regulations of certain federal and state agencies and undergoes periodic
examinations by such regulatory authorities.
The Corporation offers, through its eleven banking subsidiaries, a full
range of retail and wholesale banking services throughout sixteen central and
eastern Pennsylvania counties, two Maryland counties, one Delaware county and
two New Jersey counties. Approximately 55% of the Corporation's business is
conducted in the south central Pennsylvania region. Industry diversity is the
key to the economic well-being of this region and the Corporation is not
dependent upon any single customer or industry.
Basis of Financial Statement Presentation: The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles (GAAP) and include the accounts of the Parent Company and all
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The preparation of GAAP-basis financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements as well as revenues and expenses during the period. Actual results
could differ from those estimates.
Investments: Debt securities acquired are classified as held to maturity at
the time of purchase when the Corporation has both the intent and ability to
hold these investments until they mature. Such debt securities are carried at
cost adjusted for amortization of premiums and accretion of discounts using the
effective yield method. The Corporation does not engage in trading activities,
however, since the investment portfolio serves as a source of liquidity, most
debt securities and all marketable equity securities are classified as available
for sale. Securities available for sale are carried at estimated fair value with
the related unrealized holding gains and losses reported as a separate component
of shareholders' equity, net of tax. Realized security gains and losses are
computed using the specific identification method and are recorded on a trade
date basis.
Revenue Recognition: Loan and lease financing receivables are stated at
their principal amount outstanding, except for mortgages held for sale which are
carried at the lower of aggregate cost or market value. Interest income on loans
is accrued as earned. Unearned income on installment loans is recognized on a
basis which approximates the effective yield method.
Accrual of interest income is generally discontinued when a loan becomes 90
days past due as to principal or interest. When interest accruals are
discontinued, unpaid interest credited to income is reversed. Nonaccrual loans
are restored to accrual status when all delinquent principal and interest become
current or the loan is considered secured and in the process of collection.
Loan Origination Fees and Costs: Loan origination fees and the related
direct origination costs are offset and the net amount is deferred and amortized
over the life of the loan as an adjustment to interest income. For mortgage
loans sold, the net amount is included in gain (or loss) upon the sale of the
related mortgage loan.
<PAGE>
Allowance for Loan Losses: The allowance for loan losses is increased by
charges to income and decreased by charge-offs, net of recoveries. Management's
periodic evaluation of the adequacy of the allowance for loan losses is based on
the Corporation's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to repay,
the estimated fair value of the underlying collateral, and current economic
conditions. Management believes that the allowance for loan losses is adequate,
however, future additions to the allowance may be necessary based on changes in
any of these factors.
Impaired loans, as defined by Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan," are measured based
on the present value of expected future cash flows discounted at the loan's
effective interest rate, or at the loan's observable market price or fair value
of the collateral if the loan is collateral dependent. A loan is considered to
be impaired when, based on current information and events, it is probable that
the Corporation will be unable to collect all amounts due according to the
contractual terms of the loan agreement.
Premises and Equipment: Premises and equipment are stated at cost, less
accumulated depreciation and amortization. The provision for depreciation and
amortization is generally computed using the straight-line method over the
estimated useful lives of the related assets, which are a maximum of 39 years
for buildings and improvements and eight years for furniture and equipment.
Interest costs incurred during the construction of major bank premises are
capitalized.
Other Real Estate Owned: Assets acquired in settlement of mortgage loan
indebtedness are recorded as other real estate owned and are included in other
assets initially at the lower of the estimated fair value of the asset or the
carrying amount of the loan. Costs to maintain the assets and subsequent gains
and losses on sales are included in other income and other expense.
Income Taxes: The provision for income taxes is based upon the results of
operations, adjusted primarily for the effect of tax-exempt income and net
credits received as a result of investments in low and moderate income housing
partnerships. Certain items of income and expense are reported in different
periods for financial reporting and tax return purposes. The tax effects of
these temporary differences are recognized currently in the deferred income tax
provision or benefit. Deferred tax assets or liabilities are computed based on
the difference between the financial statement and income tax bases of assets
and liabilities using the applicable enacted marginal tax rate. Deferred income
tax expenses or benefits are based on the changes in the deferred tax asset or
liability from period to period.
Net Income 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 (See Note J).
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):
1999 1998 1997
---- ---- ----
Weighted average shares outstanding (basic)........ 68,973 68,967 68,730
Impact of common stock equivalents................. 388 719 964
------ ------ ------
Weighted average shares outstanding (diluted)...... 69,361 69,686 69,694
====== ====== ======
<PAGE>
Comprehensive Income: The following table summarizes the reclassification
adjustment for realized security gains (net of taxes) for each of the indicated
periods(in thousands):
<TABLE>
<CAPTION>
1998 1998 1997
---- ---- ----
<S> <C> <C> <C>
Unrealized holding (losses) gains arising during period..... $ (30,157) $ 2,746 $ 22,570
Less: reclassification adjustment for gains included
in net income....................................... 5,308 7,384 4,131
---------- ----------- -----------
Net unrealized (losses) gains on securities................. $ (35,465) $ (4,638) $ 18,439
========== =========== ===========
</TABLE>
Disclosures about Segments of an Enterprise and Related Information:
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (Statement 131) became effective in
1998. This statement requires that public business enterprises report financial
and descriptive information about its reportable operating segments. Based on
the guidance provided by the statement, the Corporation does not have any
operating segments which require such additional information. While the
Corporation owns eleven separate banks, each engages in similar activities,
provides similar products and services, and operates in the same general
geographical area. The Corporation's non-banking activities are insignificant
and do not require separate information. The descriptive information related to
competition, concentration of credit risks and other operating factors is
applicable to the consolidated Corporation.
Accounting for Derivative Instruments and Hedging Activities: In June,
1998, the FASB issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (Statement 133).
This statement expanded the previous definition of derivatives to include
certain additional transactions. Entities are required to record derivatives at
their fair values and recognize any changes in fair value in current period
earnings, unless specific hedge criteria are met. Statement 133, as amended by
Statement 137, is effective for years beginning after June 15, 2000. The
Corporation does not expect the adoption of Statement 133 to have a material
effect on its balance sheet or net income.
Reclassifications and Restatements: Certain amounts in the 1998 and 1997
consolidated financial statements and notes have been reclassified to conform to
the 1999 presentation. All share and per-share data have been restated to
reflect the impact of the 10% stock dividend paid on June 1, 1999.
NOTE B - RESTRICTIONS ON CASH AND DUE FROM BANKS
- --------------------------------------------------------------------------------
The Corporation's subsidiary banks are required to maintain reserves, in
the form of cash and balances with the Federal Reserve Bank, against their
deposit liabilities. The average amount of such reserves during 1999 and 1998
was approximately $51.3 million and $51.6 million, respectively.
<PAGE>
NOTE C - INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
The following tables summarize the amortized cost and estimated fair values
of investment securities as of December 31 (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
1999 Held to Maturity Cost Gains Losses Value
- --------------------------------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Government and
agency securities................. $ 10,388 $ 32 $ (192) $ 10,228
State and municipal securities......... 20,622 109 (110) 20,621
Debt securities issued
By foreign governments............ 455 1 (3) 453
Corporate debt securities.............. 70 - - 70
Mortgage-backed securities............. 53,939 87 (621) 53,405
------------- ------------- ------------ -------------
$ 85,474 $ 229 $ (926) $ 84,777
============= ============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
1999 Available for Sale Cost Gains Losses Value
- --------------------------------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Equity securities...................... $ 98,311 $ 17,946 $ (3,674) $ 112,583
U.S. Government and
agency securities................. 204,407 76 (3,323) 201,160
State and municipal securities......... 190,560 211 (7,288) 183,483
Corporate debt securities.............. 4,571 4 - 4,575
Mortgage-backed securities............. 658,220 57 (22,232) 636,045
------------- ------------- ------------ -------------
$ 1,156,069 $ 18,294 $ (36,517) $ 1,137,846
============= ============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
1998 Held to Maturity
- ---------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and
agency securities................. $ 24,287 $ 250 $ - $ 24,537
State and municipal securities......... 34,457 649 (20) 35,086
Debt securities issued
By foreign governments............ 405 1 (3) 403
Corporate debt securities.............. 44 - (3) 41
Mortgage-backed securities............. 117,430 541 (99) 117,872
------------- ------------- ------------ -------------
$ 176,623 $ 1,441 $ (125) $ 177,939
============= ============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
1998 Available for Sale
- ---------------------------------------
<S> <C> <C> <C> <C>
Equity securities...................... $ 81,719 $ 29,695 $ (548) $ 110,866
U.S. Government and
agency securities................. 285,168 2,787 (105) 287,850
State and municipal securities......... 123,451 1,891 (416) 124,926
Corporate debt securities.............. 6,892 86 - 6,978
Mortgage-backed securities............. 672,519 4,273 (1,291) 675,501
------------- ------------- ------------ -------------
$ 1,169,749 $ 38,732 $ (2,360) $ 1,206,121
============= ============= ============ =============
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1999 by contractual maturity are shown in the following table. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<PAGE>
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
---------------------------- ----------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less................. $ 10,100 $ 10,098 $ 46,707 $ 46,744
Due from one year to five years......... 14,471 14,411 197,771 193,585
Due from five years to ten years........ 3,056 2,991 136,699 130,745
Due after ten years..................... 3,908 3,872 18,361 18,144
------------- ------------- ------------- -------------
31,535 31,372 399,538 389,218
Mortgage-backed securities.............. 53,939 53,405 658,220 636,045
------------- ------------- ------------- -------------
$ 85,474 $ 84,777 $ 1,057,758 $ 1,025,263
============= ============= ============= =============
</TABLE>
Gains totaling $8.2 million, $11.3 million and $6.2 million were realized
on the sale of equity securities during 1999, 1998 and 1997, respectively. Gains
totaling $66,000 and $176,000 were realized on the sale of available for sale
debt securities during 1998 and 1997, respectively.
Securities carried at $715.3 million and $590.9 million at December 31,
1999 and 1998, respectively, were pledged as collateral to secure public and
trust deposits and for other purposes.
NOTE D - LOANS AND ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
Gross loans are summarized as follows as of December 31:
1999 1998
------------- -------------
(in thousands)
Commercial, financial and agricultural............ $ 668,069 $ 557,784
Real estate-construction.......................... 166,291 129,648
Real estate-mortgage:
First and second-residential................... 1,398,715 1,325,109
Commercial..................................... 1,420,546 1,263,215
Consumer.......................................... 700,049 696,161
Leasing and other................................ 78,360 68,538
------------- -------------
$ 4,432,030 $ 4,040,455
============= =============
Changes in the allowance for loan losses were as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Balance at January 1............................. $ 57,415 $ 57,557 $ 53,893
------------- ------------- -------------
Loans charged off................................ (12,812) (9,140) (9,242)
Recoveries of loans previously charged off....... 4,812 3,416 4,163
------------- ------------- -------------
Net loans charged off............................ (8,000) (5,724) (5,079)
------------- ------------- -------------
Provision for loan losses........................ 8,216 5,582 8,417
Allowance purchased.............................. - - 326
------------- ------------- -------------
Balance at December 31........................... $ 57,631 $ 57,415 $ 57,557
============= ============= =============
</TABLE>
Nonaccrual loans aggregated approximately $18.7 million at December 31,
1999, $19.3 million at December 31, 1998 and $20.8 million at December 31, 1997.
Interest of approximately $1.8 million, $1.9 million and $1.4 million was not
recognized as interest income due to the nonaccrual status of loans during 1999,
1998 and 1997, respectively.
The recorded investment in loans that were considered to be impaired as
defined by Statement 114 was $11.4 million and $14.0 million at December 31,
1999 and 1998, respectively. All impaired loans were included in
<PAGE>
nonaccrual loans at December 31, 1999 and $12.8 million were included in
nonaccrual loans at December 31, 1998. At December 31, 1999, impaired loans had
a related allowance for loan losses of $1.8 million. At December 31, 1998, $13.0
million of impaired loans had a related allowance for loan losses of $2.0
million. The average recorded investment in impaired loans during the years
ended December 31, 1999, 1998 and 1997 was approximately $10.7 million, $13.2
million and $13.8 million, respectively.
The Corporation applies all payments received on nonaccruing impaired loans
to principal until such time as the principal is paid off, after which time any
additional payments received are recognized as interest income. Payments
received on accruing impaired loans are applied to principal and interest
according to the original terms of the loan. The Corporation recognized interest
income of approximately $1.5 million, $100,000 and $171,000 on impaired loans in
1999, 1998 and 1997, respectively.
The Corporation has granted loans to the officers and directors of the
Corporation and to their associates. Related-party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than the normal risk of collectibility. The aggregate dollar
amount of these loans was $89.5 million and $83.5 million at December 31, 1999
and 1998, respectively. During 1999, $27.9 million of new loans were made and
repayments totaled $21.9 million.
The total portfolio of mortgage loans serviced by the Corporation for
unrelated third parties at December 31, 1999 and 1998 was $609.8 million and
$598.2 million, respectively.
NOTE E - PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
The following is a summary of premises and equipment as of December 31:
1999 1998
----------- -----------
(in thousands)
Premises and leasehold improvements................. $ 91,438 $ 84,822
Furniture and equipment............................. 62,573 57,390
Construction in progress............................ 6,780 5,974
----------- -----------
160,791 148,186
Less: Accumulated depreciation and amortization..... (81,574) (72,471)
----------- -----------
$ 79,217 $ 75,715
=========== ===========
NOTE F - LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt included the following as of December 31:
1999 1998
---------- ----------
(in thousands)
Federal Home Loan Bank advances..................... $ 327,638 $ 295,350
Other............................................... 612 668
---------- ----------
$ 328,250 $ 296,018
========== ==========
As of December 31, 1999, the Corporation had a series of collateralized
Federal Home Loan Bank advances totaling $327.6 million. These advances mature
through January, 2025, and carry a weighted average interest rate of 5.11%. As
of December 31, 1999 the Corporation had an additional borrowing capacity of
approximately $713 million with the Federal Home Loan Bank. Borrowings from the
Federal Home Loan bank are secured by qualifying residential mortgages,
investments and other assets. The following table summarizes the scheduled
maturity periods of Federal Home Loan Bank advances as of December 31, 1999:
<PAGE>
Amount
Year Maturing
----------------- -----------
(in thousands)
2000............. $ 20,042
2001............. 26,500
2002............. -
2003............. 27,500
2004............. -
Thereafter....... 253,596
-----------
$ 327,638
===========
NOTE G - REGULATORY MATTERS
- --------------------------------------------------------------------------------
Dividend and Loan Limitations
The dividends that may be paid by subsidiary banks to the Parent Company
are subject to certain legal and regulatory limitations. Under such limitations,
the total amount available for payment of dividends by subsidiary banks was
approximately $164 million at December 31, 1999.
Under current Federal Reserve regulations, the subsidiary banks are limited
in the amount they may loan to their affiliates, including the Parent Company.
Loans to a single affiliate may not exceed 10%, and the aggregate of loans to
all affiliates may not exceed 20% of each bank subsidiary's capital and surplus.
At December 31, 1999, the maximum amount available for transfer from the
subsidiary banks to the Parent Company in the form of loans and dividends was
approximately $201 million.
Regulatory Capital Requirements
The Corporation's subsidiary banks are subject to various regulatory
capital requirements administered by banking regulators. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the subsidiary banks must meet specific capital guidelines that involve
quantitative measures of the subsidiary banks' assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
subsidiary banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the subsidiary banks to maintain minimum amounts and ratios of total and
Tier I capital to risk-weighted assets, and of Tier I capital to average assets
(as defined in the regulations). Management believes, as of December 31, 1999,
that all of its bank subsidiaries meet the capital adequacy requirements to
which they are subject.
As of December 31, 1999, the Corporation's three significant subsidiaries
- -- Fulton Bank, Lebanon Valley Farmers Bank and Lafayette Ambassador Bank --
were well capitalized under the regulatory framework for prompt corrective
action based on their capital ratio calculations. To be categorized as well
capitalized, these banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the following table.
There are no conditions or events since December 31, 1999 that management
believes have changed the institutions' categories
<PAGE>
Corporation and its significant subsidiaries.
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ---------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ------- ----------- -------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets):
Corporation................................. $ 666,247 15.0% $ 355,376 8.0% $ 444,221 10.0%
Fulton Bank................................. 219,470 11.1 157,837 8.0 197,297 10.0
Lebanon Valley Farmers Bank................. 69,299 14.2 38,924 8.0 48,655 10.0
Lafayette Ambassador Bank................... 75,014 12.4 48,322 8.0 60,402 10.0
Tier I Capital (to Risk Weighted Assets):
Corporation................................. $ 610,693 13.7% $ 177,688 4.0% $ 266,532 6.0%
Fulton Bank................................. 199,077 10.1 78,919 4.0 118,378 6.0
Lebanon Valley Farmers Bank................. 63,191 13.0 19,462 4.0 29,193 6.0
Lafayette Ambassador Bank................... 68,467 11.3 24,161 4.0 36,241 6.0
Tier I Capital (to Average Assets):
Corporation................................. $ 610,693 10.1% $ 180,565 3.0% $ 300,941 5.0%
Fulton Bank................................. 199,077 8.5 70,397 3.0 117,329 5.0
Lebanon Valley Farmers Bank................. 63,191 9.5 19,911 3.0 33,185 5.0
Lafayette Ambassador Bank................... 68,467 8.3 24,754 3.0 41,257 5.0
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ---------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ------- ----------- -------- ---------- ---------
(Dollars in thousands)
Total Capital (to Risk Weighted Assets):
<S> <C> <C> <C> <C> <C> <C>
Corporation.................................. $ 621,124 15.1% $ 328,191 8.0% $ 410,238 10.0%
Fulton Bank.................................. 209,004 11.8 141,514 8.0 176,892 10.0
Lebanon Valley Farmers Bank.................. 66,377 14.0 37,987 8.0 47,484 10.0
Lafayette Ambassador Bank.................... 74,765 13.7 43,708 8.0 54,635 10.0
Tier I Capital (to Risk Weighted Assets):
Corporation.................................. $ 569,768 13.9% $ 164,095 4.0% $ 246,143 6.0%
Fulton Bank.................................. 188,403 10.7 70,757 4.0 106,135 6.0
Lebanon Valley Farmers Bank.................. 60,425 12.7 18,993 4.0 28,490 6.0
Lafayette Ambassador Bank.................... 68,354 12.5 21,854 4.0 32,781 6.0
Tier I Capital (to Average Assets):
Corporation.................................. $ 569,768 9.9% $ 172,182 3.0% $ 286,969 5.0%
Fulton Bank.................................. 188,403 9.2 61,787 3.0 102,978 5.0
Lebanon Valley Farmers Bank.................. 60,425 10.6 17,063 3.0 28,439 5.0
Lafayette Ambassador Bank.................... 68,354 12.5 16,466 3.0 27,444 5.0
</TABLE>
<PAGE>
NOTE H - INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1999 1998 1997
------------ ------------ ------------
Current tax expense -
<S> <C> <C> <C>
Federal....................................... $ 38,972 $ 40,031 $ 32,582
State......................................... 130 130 25
------------ ------------ ------------
39,102 40,161 32,607
Deferred tax expense............................... 1,377 (329) 841
------------ ------------ ------------
$ 40,479 $ 39,832 $ 33,448
============ ============ ============
</TABLE>
The differences between the effective income tax rate and the federal
statutory income tax rate are as follows:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Statutory tax rate................................ 35.0% 35.0% 35.0%
Effect of tax-exempt income....................... (3.2) (2.6) (2.9)
Effect of low income housing investments.......... (2.5) (2.1) (2.1)
Other, net........................................ 0.1 0.7 0.4
------------ ------------ ------------
Effective income tax rate......................... 29.4% 31.0% 30.4%
============ ============ ============
</TABLE>
The net deferred tax asset recorded by the Corporation consisted of the
following tax effects of temporary differences at December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(in thousands)
<S> <C> <C>
Allowance for loan losses.............................................. $ 19,992 $ 19,794
Deferred loan fees..................................................... 144 335
Direct leasing......................................................... (7,302) (5,840)
Deferred compensation.................................................. 2,361 2,340
Postretirement benefits................................................ 3,203 3,184
Fixed asset depreciation............................................... (699) (565)
Other.................................................................. 2,671 2,499
------------ ------------
20,370 21,747
Unrealized holding losses (gains) on securities available for sale..... 6,378 (12,730)
------------ ------------
$ 26,748 $ 9,017
============ ============
</TABLE>
As of December 31, 1999 and 1998, the Corporation has not established any
valuation allowance against deferred tax assets since these tax benefits are
realizable either through carryback availability against prior years' taxable
income or the reversal of existing deferred tax liabilities.
NOTE I - EMPLOYEE BENEFIT PLANS
- --------------------------------------------------------------------------------
Substantially all employees of the Corporation are covered by one of the
following plans:
Profit Sharing Plan - A noncontributory defined contribution plan where
employer contributions are based on a formula providing for an amount not to
exceed 15% of each eligible employee's annual salary (10% for employees hired
subsequent to January 1, 1996). Participants are 100% vested in balances after
five years of service.
<PAGE>
Defined Benefit Pension Plan and 401(k) Plan - Contributions to the defined
benefit plan are actuarially determined and funded annually. Plan assets are
invested in certificates of deposit, guaranteed investment contracts, U.S.
Treasury Securities, money market funds, common stocks and common stock
investment funds. Employees covered under the defined benefit plan are also
eligible to participate in a 401(k) Plan. This Plan allows employees to defer up
to 15% of their pre-tax salary on an annual basis. At its discretion, the
Corporation may also make a matching contribution up to 3%.
Employees who become eligible for a retirement plan after January 1, 1999
will participate in the Profit Sharing Plan and no new participants will be
added to the Defined Benefit Plan and 401(k) Plan. The terms of the Profit
Sharing Plan have been modified to add a 401(k) feature which allows
participants to defer up to 5% of their pre-tax salary on an annual basis, with
no employer match.
The following summarizes the Corporation's expense under the above plans
for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Profit-sharing plan................................ $ 4,920 $ 3,962 $ 3,322
Defined benefit plan............................... 1,393 1,330 1,492
401(k) plan........................................ 553 711 804
------------- ------------- -------------
$ 6,866 $ 6,003 $ 5,618
============= ============= =============
</TABLE>
Defined Benefit Pension Plan
The net periodic pension cost for the Corporation's defined benefit plan,
as determined by consulting actuaries, consisted of the following components for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Service cost - benefits earned during period....... $ 1,631 $ 1,507 $ 1,387
Interest cost on projected benefit obligation...... 1,747 1,639 1,500
Actual return on assets............................ (3,530) (1,366) (3,874)
Net amortization and deferral...................... 1,545 (450) 2,479
------------- ------------- -------------
Net periodic pension cost.......................... $ 1,393 $ 1,330 $ 1,492
============= ============= =============
</TABLE>
<PAGE>
The valuation date of the defined benefit plan is September 30. The following
table summarizes the changes in the projected benefit obligation (PBO) and fair
value of plan assets for the indicated periods:
<TABLE>
<CAPTION>
Oct. 1, 1998 Oct. 1, 1997
Through Through
Sept. 30, 1999 Sept. 30, 1998
----------------- ----------------
(in thousands)
<S> <C> <C>
Projected benefit obligation, beginning............. $ 27,157 $ 23,967
Merge affiliate plan PBO............................ 857 -
Service cost........................................ 1,631 1,507
Interest cost....................................... 1,747 1,639
Distributions....................................... (965) (831)
Change due to change in assumptions................. (3,239) 944
Experience loss at 9/30............................. 185 (69)
--------------- ---------------
Projected benefit obligation, ending................ $ 27,373 $ 27,157
=============== ===============
Fair value of plan assets, beginning................ $ 26,106 $ 23,592
Merge affiliate plan assets......................... 916 -
Employer contributions.............................. 1,498 1,979
Actual return on assets............................. 3,530 1,366
Distributions....................................... (965) (831)
--------------- ---------------
Fair value of plan assets, ending................... $ 31,085 $ 26,106
=============== ===============
</TABLE>
The funded status of the plan and the amounts recognized in the
consolidated balance sheets as of December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
(in thousands)
<S> <C> <C>
Projected benefit obligation........................ $ (27,373) $ (27,157)
Fair value of plan assets........................... 31,085 26,106
---------- -----------
Funded status.................................. 3,712 (1,051)
Employer contributions, 10/1 through 12/31.......... - 148
Unrecognized net transition asset................... 184 272
Unrecognized prior service cost..................... 33 39
Unrecognized net loss (gain)........................ (4,298) 265
---------- -----------
Pension (liability) recognized in the
consolidated balance sheets.................... $ (369) $ (327)
========== ===========
</TABLE>
The following rates were used to calculate net periodic pension cost and
present value of benefit obligations:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------------- ---------------
<S> <C> <C> <C>
Discount rate-projected benefit obligation.......... 7.50% 6.50% 7.00%
Rate of increase in compensation level.............. 5.00 4.00 4.50
Expected long-term rate of return on plan assets.... 8.00 8.00 8.00
</TABLE>
Postretirement Benefits
The Corporation currently provides medical and life insurance benefits to
retired full-time employees who were employees of the Corporation prior to
January 1, 1998. Substantially all of the Corporation's full-time employees may
become eligible for these discretionary benefits if they reach normal retirement
age while working for the Corporation. The components of the expense for
postretirement benefits other than pensions are as follows:
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Service cost-benefits earned during the period...... $ 250 $ 251 $ 217
Interest cost on accumulated benefit obligation..... 364 377 369
Actual return on plan assets........................ (9) (10) (10)
Net amortization and deferral....................... (289) (296) (309)
------------- ------------- -------------
Net nonpension postretirement benefit cost.......... $ 316 $ 322 $ 267
============= ============= =============
</TABLE>
The following table summarizes the changes in the projected benefit
obligation and fair value of plan assets for the years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
----------------------------------
(in thousands)
<S> <C> <C>
Projected benefit obligation, beginning............. $ 5,790 $ 5,662
Service cost........................................ 250 251
Interest cost....................................... 364 377
Benefit payments.................................... (298) (386)
Change due to change in experience.................. (24) (124)
Change due to change in assumptions................. (19) 10
--------------- ---------------
Projected benefit obligation, ending................ $ 6,063 $ 5,790
=============== ===============
Fair value of plan assets, beginning................ $ 199 $ 196
Employer contributions.............................. 293 379
Actual return on assets............................. 9 10
Benefit payments.................................... (298) (386)
--------------- ---------------
Fair value of plan assets, ending................... $ 203 $ 199
=============== ===============
</TABLE>
The funded status of the plan and the amounts recognized in the
consolidated balance sheets as of December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------
(in thousands)
<S> <C> <C>
Projected benefit obligation........................ $ (6,063) $ (5,790)
Fair value of plan assets........................... 203 199
---------- -----------
Funded status.................................. (5,860) (5,591)
Unrecognized prior service cost..................... (1,810) (2,037)
Unrecognized net loss............................... (1,257) (1,276)
---------- -----------
Post-retirement benefits (liability) recognized
in the consolidated balance sheets............. $ (8,927) $ (8,904)
========== ===========
</TABLE>
For measuring the postretirement benefit obligation, a 6.5% annual increase
in the per capita cost of health care benefits was assumed. This health care
cost trend rate has a significant impact on the amounts reported. Assuming a 1%
increase in the health care cost trend rate, the accumulated postretirement
benefit obligation would increase by approximately $756,000 and the current
period expense would increase by approximately $96,000. Conversely, a 1%
decrease in the health care cost trend rate would decrease the accumulated
postretirement benefit obligation by approximately $628,000 and the current
period expense by approximately $77,000. The discount rate used in determining
the accumulated postretirement benefit obligation was 7.50% and 6.50% at
December 31, 1999 and 1998, respectively.
<PAGE>
NOTE J - STOCK-BASED COMPENSATION PLANS AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------
Incentive Stock Option Plan and Employee Stock Purchase Plan
The Corporation has an Incentive Stock Option Plan (Option Plan) and an
employee stock purchase plan (ESPP). Under the Option Plan, options are granted
to key personnel for terms of up to 10 years at option prices equal to the fair
market value of the Corporation's stock on the date of grant. Options are 100%
vested immediately upon grant. The Plan has reserved 1.4 million shares for
future grant through 2006. The number of options granted in any year is
dependent upon the Corporation's performance relative to that of a self-defined
peer group. A summary of stock option activity under the current and prior plan
follows:
<TABLE>
<CAPTION>
Option Price Per Share
------------------------------------
Stock Weighted
Options Range Average
--------- ----------------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997............. 1,435,183 $3.48 - $12.65 $8.89
Granted.............................. 268,945 10.58 - 19.73 17.05
Exercised............................ (329,717) 3.48 - 12.65 8.22
---------
Balance at December 31, 1997........... 1,374,411 3.48 - 19.73 10.63
Granted.............................. 275,220 22.55 22.55
Exercised............................ (249,630) 3.48 - 19.73 9.45
---------
Balance at December 31, 1998........... 1,400,001 3.48 - 22.55 13.17
Granted.............................. 234,250 20.84 20.84
Exercised............................ (146,030) 3.48 - 19.73 8.19
Canceled............................. (10,307) 19.73 - 22.56 21.18
---------
Balance at December 31, 1999........... 1,477,914 $3.48 - $22.56 $14.82
=========
</TABLE>
The following table summarizes information concerning options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Weighted
Range of Unexercised Average Average
Exercise Stock Remaining Exercise
Prices Options Life (Years) Price
------------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
$0.00 - $5.00 81,572 4.13 $3.60
$5.00 - $10.00 367,299 3.78 8.43
$10.00 - $15.00 363,895 5.64 11.83
$15.00 - $20.00 160,699 7.58 19.73
$20.00 - $25.00 504,449 9.12 21.76
------------ ------------ ----------
1,477,914 6.51 $14.82
============ ============ ==========
</TABLE>
The ESPP allows eligible employees to purchase stock in the Corporation at
85% of the fair market value of the stock on the date of exercise. Under the
terms of the ESPP, 79,451 shares, 70,632 shares and 60,965 shares were issued in
1999, 1998 and 1997, respectively. A total of 766,545 shares have been issued
since the inception of the ESPP in 1986. As of December 31, 1999, 520,313 shares
have been reserved for future issuances under the ESPP.
The Corporation accounts for both the Option Plan and the ESPP under
Accounting Principles Board Opinion No. 25, and, accordingly, no compensation
expense has been recognized in the financial statements of the Corporation. Had
compensation cost for these plans been recorded in the financial statements of
the Corporation consistent with the fair value provisions of Statement 123, the
Corporation's net income and net income per share would have been reduced to the
following pro-forma amounts (in thousands, except per-share data):
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Net income: As reported............. $ 97,226 $ 88,511 $ 76,405
Proforma................ 96,054 87,391 75,306
Net income per share (basic): As reported............. $ 1.41 $ 1.28 $ 1.11
Proforma................ 1.39 1.27 1.10
Net income per share (diluted): As reported............. $ 1.40 $ 1.27 $ 1.10
Proforma................ 1.38 1.25 1.08
Weighted average fair value of options granted.............. $ 5.24 $ 5.09 $ 4.86
</TABLE>
Because the Statement 123 method has not been applied to options granted
prior to January 1, 1995, the resulting pro-forma compensation cost may not be
representative of that to be expected in future years. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants:
1999 1998 1997
---------- --------- ---------
Risk-free interest rate..................... 5.84% 5.50% 6.44%
Volatility of Corporation's stock........... 19.71 18.63 18.80
Expected dividend yield..................... 2.88 2.42 2.50
Expected life of options.................... 8 Years 6 Years 6 Years
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.
<PAGE>
NOTE K - LEASES
- --------------------------------------------------------------------------------
Certain branch offices and equipment are leased under agreements which
expire at varying dates through 2025. Most leases contain renewal provisions at
the Corporation's option. Total rental expense was approximately $3.8 million in
1999, $3.4 million in 1998 and $3.2 million in 1997. Future minimum payments as
of December 31, 1999 under noncancelable operating leases are as follows:
Minimum
Year Rent
----------------- -----------
(in thousands)
2000............. $ 2,957
2001............. 2,453
2002............. 2,295
2003............. 2,225
2004............. 2,016
Thereafter....... 13,865
-----------
$ 25,811
===========
NOTE L - COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
letters of credit, and guarantees which involve, to varying degrees, elements of
credit and interest rate risk that are not recognized in the consolidated
balance sheets.
Exposure to credit loss in the event of non-performance by the other party
to the financial instrument for commitments to extend credit is represented by
the contractual notional amount of those instruments. The Corporation uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments. The Corporation had outstanding commitments to fund loans of $1.5
billion and $1.1 billion as of December 31, 1999 and 1998, respectively.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments is expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained upon extension of credit is based on management's credit evaluation of
the customer. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment and income producing commercial
properties. Commitments under outstanding standby letters of credit were $146.8
million at December 31, 1999 and $ 119.9 million at December 31, 1998.
From time to time, the Corporation and its subsidiary banks may be
defendants in legal proceedings relating to the conduct of their banking
business. Most of such legal proceedings are a normal part of the banking
business, and in management's opinion, the financial position and results of
operations of the Corporation would not be affected materially by the outcome of
such legal proceedings.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The following are the estimated fair values of the Corporation's financial
instruments as of December 31 followed by a general description of the methods
and assumptions used to estimate such fair values. These fair values are
significantly affected by assumptions used, principally the timing of future
cash flows and the discount rate. Because assumptions are inherently subjective
in nature, the estimated fair values cannot be substantiated by comparison to
independent market quotes and, in many cases, the estimated fair values could
not necessarily be realized in an immediate sale or settlement of the
instrument. Further, certain financial instruments and all
<PAGE>
nonfinancial instruments are excluded. Accordingly, the aggregate fair value
amounts presented do not necessarily represent management's estimation of the
underlying value of the Corporation.
<TABLE>
<CAPTION>
1999 1998
--------------------------- ----------------------------
Estimated Estimated
FINANCIAL ASSETS Book Value Fair Value Book Value Fair Value
- -------------------------------------- -------------- ------------ ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Cash and due from banks............... $ 245,572 $ 245,572 $ 247,558 $ 247,558
Interest-bearing deposits
with other banks................. 1,798 1,798 2,975 2,975
Mortgage loans held for sale.......... 1,016 1,016 7,987 7,987
Securities held to maturity........... 85,474 84,777 176,623 177,939
Securities available for sale......... 1,137,846 1,137,846 1,206,121 1,206,121
Net loans............................. 4,364,776 4,281,708 3,972,976 3,995,654
Accrued interest receivable........... 31,496 31,496 34,942 34,942
</TABLE>
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
Estimated Estimated
FINANCIAL LIABILITIES Book Value Fair Value Book Value Fair Value
------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Demand and savings deposits........... $ 2,336,314 $ 2,336,314 $ 2,380,606 $ 2,380,606
Time deposits......................... 2,210,499 2,198,360 2,212,363 2,229,485
Short-term borrowings................. 487,546 487,546 235,585 235,585
Accrued interest payable.............. 32,313 32,313 34,255 34,255
Other financial liabilities........... 25,843 25,843 31,180 31,180
Long-term debt........................ 328,250 315,334 296,018 296,063
</TABLE>
For short-term financial instruments, defined as those with remaining
maturities of 90 days or less, the carrying amount was considered to be a
reasonable estimate of fair value. The following instruments are predominantly
short-term:
Assets Liabilities
------ -----------
Cash and due from banks Demand and savings deposits
Interest bearing deposits Short-term borrowings
Accrued interest receivable Accrued interest payable
Mortgage loans held for sale Other financial liabilities
For those components of the above-listed financial instruments with
remaining maturities greater than 90 days, fair values were determined by
discounting contractual cash flows using rates which could be earned for assets
with similar remaining maturities and, in the case of liabilities, rates at
which the liabilities with similar remaining maturities could be issued as of
the balance sheet date.
As indicated in Note A, securities available for sale are carried at their
estimated fair values. The estimated fair values of securities held to maturity
as December 31, 1999 and 1998 were generally based on quoted market prices,
broker quotes or dealer quotes.
For short-term loans and variable rate loans which reprice within 90 days,
the carrying value was considered to be a reasonable estimate of fair value. For
other types of loans, fair value was estimated by discounting future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. In addition, for
loans secured by real estate, appraisal values for the collateral were
considered in the fair value determination.
<PAGE>
The fair value of long-term debt was estimated by discounting the remaining
contractual cash flows using a rate at which the Corporation could issue debt
with a similar remaining maturity as of the balance sheet date. The fair value
of commitments to extend credit is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For fixed
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of standby
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligations.
NOTE N - MERGERS 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 was 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 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
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 immediately after the merger was completed.
The following table sets forth selected unaudited financial data for the
Corporation and Keystone Heritage for the period January 1, 1998 through March
27, 1998. Amounts for Fulton Financial Corporation have not been restated to
include Ambassador.
<TABLE>
<CAPTION>
Fulton
Financial Keystone
Corporation Heritage
----------------- -----------------
(in thousands)
<S> <C> <C>
Net interest income......................... $ 47,466 $ 6,555
Other income................................ 13,032 1,308
--------------- ---------------
Total income................................ $ 60,498 $ 7,863
=============== ===============
Net income.................................. $ 19,066 $ 1,534
=============== ===============
</TABLE>
The effect of the Keystone Heritage and Ambassador mergers on the
Corporation's previously reported revenues, net income and net income per share
for the year ended December 31, 1997 follows. Per-share amounts have been
restated to reflect the impact of stock dividends (dollars in thousands, except
per-share data).
<PAGE>
<TABLE>
<CAPTION>
Fulton
Financial Keystone
1997 Corporation Heritage Ambassador Restated
----------------- ----------------- ------------------ -----------------
(in thousands, except per-share data)
<S> <C> <C> <C> <C>
Net interest income................. $ 182,610 $ 27,133 $ 9,352 $ 219,095
Other income........................ 41,055 7,159 499 48,713
--------------- --------------- --------------- ---------------
Total income........................ $ 223,665 $ 34,292 $ 9,851 $ 267,808
=============== =============== =============== ===============
Net income.......................... $ 65,199 $ 9,270 $ 1,936 $ 76,405
=============== =============== =============== ===============
Net income per share (basic)........ $ 1.17 $ 2.34 $ 1.21 $ 1.11
=============== =============== =============== ===============
Net income per share (diluted)...... $ 1.16 $ 2.31 $ 1.08 $ 1.10
=============== =============== =============== ===============
</TABLE>
NOTE O - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
- --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
- ------------------------
(in thousands)
<TABLE>
<CAPTION>
December 31 December 31
---------------------- ----------------------
1999 1998 1999 1998
---------- ----------- ---------- -----------
ASSETS LIABILITIES
- ------ -----------
AND EQUITY
----------
<S> <C> <C> <S> <C> <C>
Cash, securities, $ 465 $ 425 Short - term
and other assets........ Borrowings........... $ - $ 6,617
Receivable from
bank subsidiaries....... 745 - Other Liabilities......... 23,430 17,846
------------ ------------
Investment in: Total Liabilities.... 23,430 24,463
Bank subsidiaries....... 511,924 511,863 Shareholders' equity...... 614,294 608,334
------------ ------------
Nonbank subsidiaries.... 124,590 120,509
------------ ------------ Total Liabilities and
Total Assets............ $ 637,724 $ 632,797 Shareholders' Equity. $ 637,724 $ 632,797
============ ============ ============ ============
</TABLE>
CONDENSED STATEMENTS OF INCOME
- ------------------------------
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1999 1998 1997
------------ ------------ ----------
(in thousands)
<S> <C> <C> <C>
Income:
Dividends from bank subsidiaries................................ $ 66,292 $ 69,592 $ 46,388
Other........................................................... 9,900 8,129 12,869
------------ ------------ ----------
76,192 77,721 59,257
Expenses............................................................. 15,760 17,146 13,513
------------ ------------ ----------
Income before income taxes and equity in
undistributed net income (loss) of subsidiaries................. 60,432 60,575 45,744
Income tax benefit................................................... (2,338) (2,680) (2,192)
------------ ------------ ----------
62,770 63,255 47,936
Equity in undistributed net income (loss) of:
Bank subsidiaries............................................... 25,738 15,642 29,399
Nonbank subsidiaries............................................ 8,718 9,614 (930)
------------ ------------ ----------
Net Income................................................. $ 97,226 $ 88,511 $ 76,405
============ ============ ==========
</TABLE>
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
- ----------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1999 1998 1997
------------ ------------ ----------
(in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income..................................................... $ 97,226 $ 88,511 $ 76,405
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Gain on sale of investment securities....................... - - (5,191)
(Increase) decrease in other assets......................... (799) 3,745 2,932
Increase in investment in subsidiaries...................... (34,456) (25,256) (28,469)
Increase in other liabilities............................... 4,664 911 2,496
------------ ------------ ----------
Total adjustments....................................... (30,591) (20,600) (28,232)
------------ ------------ ----------
Net cash provided by operating activities............... 66,635 67,911 48,173
------------ ------------ ----------
Cash Flows From Investing Activities:
Investment in subsidiaries.................................. (5,151) (21,275) (20,283)
Investment in real estate partnerships...................... - - (266)
Proceeds from sales of investment securities................ - - 8,571
Purchase of investment securities........................... - - (7,488)
------------ ------------ ----------
Net cash used in investing activities................... (5,151) (21,275) (19,466)
------------ ------------ ----------
Cash Flows From Financing Activities:
Net (decrease) increase in short-term borrowings............ (6,617) (9,383) 889
Dividends paid.............................................. (39,575) (33,939) (29,810)
Net proceeds from issuance of common stock.................. 2,228 2,227 1,660
Acquisition of treasury stock............................... (17,534) (5,780) (1,196)
------------ ------------ ----------
Net used in financing activities........................ (61,498) (46,875) (28,457)
------------ ------------ ----------
Net (Decrease) Increase in Cash and Cash Equivalents............... (14) (239) 250
Cash and Cash Equivalents at Beginning of Year..................... 19 258 8
------------ ------------ ----------
Cash and Cash Equivalents at End of Year........................... $ 5 $ 19 $ 258
============ ============ ==========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest..................................................... $ 1,556 $ 2,257 $ 3,416
Income taxes................................................. 31,066 36,040 29,138
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Fulton Financial Corporation:
We have audited the accompanying consolidated balance sheets of Fulton
Financial Corporation (a Pennsylvania corporation) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Keystone Heritage Group, Inc. and Ambassador Bank of the
Commonwealth, companies acquired during 1998 in transactions accounted for as
poolings of interests, as discussed in Note N. Such statements are included in
the consolidated financial statements of Fulton Financial Corporation and
reflect total interest income of 17 percent of the related consolidated totals
in 1997. These statements were audited by other auditors whose reports have been
furnished to us and our opinion, insofar as it relates to amounts included for
Keystone Heritage Group, Inc. and Ambassador Bank of the Commonwealth, is based
solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Fulton Financial Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Lancaster, Pennsylvania
January 21, 2000
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Board of Directors
Keystone Heritage Group, Inc.
We have audited the accompanying consolidated balance sheets of Keystone
Heritage Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related statements of income, stockholders' equity and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Keystone
Heritage Group, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
January 30, 1998
Harrisburg, Pennsylvania
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Ambassador Bank of the Commonwealth
Allentown, Pennsylvania
We have audited the statements of income, stockholders' equity and cash
flows of Ambassador Bank of the Commonwealth for the year ended December 31,
1997. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Ambassador
Bank of the Commonwealth for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
BEARD & COMPANY, INC.
Allentown, Pennsylvania
January 16, 1998
<PAGE>
<TABLE>
<CAPTION>
FULTON FINANCIAL CORPORATION
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per-share data)
Three Months Ended
------------------------------------------------------------
For the Year 1999 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------ -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Interest income............... $ 101,350 $ 103,475 $ 105,457 $ 108,632
Interest expense.............. 42,682 42,429 43,707 46,009
------------- ------------- ------------- -------------
Net interest income........... 58,668 61,046 61,750 62,623
Provision for loan losses..... 1,967 2,085 1,997 2,167
Other income.................. 15,596 15,381 16,454 15,391
Other expenses................ 39,023 40,227 41,495 40,243
------------- ------------- ------------- -------------
Income before income taxes.... 33,274 34,115 34,712 35,604
Income taxes.................. 9,747 10,072 10,303 10,357
------------- ------------- ------------- -------------
Net income.................... $ 23,527 $ 24,043 $ 24,409 $ 25,247
============= ============= ============= =============
Per-share data:
Net income (basic)....... $ 0.34 $ 0.35 $ 0.35 $ 0.37
Net income (diluted)..... 0.34 0.35 0.35 0.37
Cash dividends........... 0.136 0.150 0.150 0.150
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------
For the Year 1998 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------ ---------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Interest income............... $ 99,984 $ 101,582 $ 103,569 $ 104,230
Interest expense.............. 43,273 44,100 44,931 45,390
------------- ------------- ------------- -------------
Net interest income........... 56,711 57,482 58,638 58,840
Provision for loan losses..... 1,611 1,621 1,067 1,283
Other income.................. 14,636 16,518 14,174 14,620
Other expenses................ 38,999 40,713 38,877 39,105
------------- ------------- ------------- -------------
Income before income taxes.... 30,737 31,666 32,868 33,072
Income taxes.................. 9,564 10,085 10,520 9,663
------------- ------------- ------------- -------------
Net income.................... $ 21,173 $ 21,581 $ 22,348 $ 23,409
============= ============= ============= =============
Per-share data:
Net income (basic)....... $ 0.31 $ 0.31 $ 0.32 $ 0.34
Net income (diluted)..... 0.30 0.31 0.32 0.34
Cash dividends........... 0.125 0.131 0.136 0.136
</TABLE>
Item 9. Changes in and Disagreements with Accountants on
- ---------------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Incorporated by reference herein is the information appearing under the
heading "Information about Nominees and Continuing Directors" on pages 5 through
10 of the 2000 Proxy Statement and under the heading "Executive Officers" on
page 11 of the 2000 Proxy Statement.
Item 11. Executive Compensation
- --------------------------------
Incorporated by reference herein is the information appearing under the
heading "Executive Compensation" on pages 11 through 13 of the 2000 Proxy
Statement and under the heading "Compensation of Directors" on page 11 of the
2000 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Incorporated by reference herein is the information appearing under the
heading "Voting of Shares and Principal Holders Thereof" on page 3 of the 2000
Proxy Statement and under the heading "Information about Nominees and Continuing
Directors" on pages 5 through 10 of the 2000 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Incorporated by reference herein is the information appearing under the
heading "Transactions with Directors and Executive Officers" on page 16 of the
2000 Proxy Statement, and the information appearing in Note D - Loans and
Allowance for Loan Losses, of the Notes to Consolidated Financial Statements in
Item 8, "Financial Statements and Supplementary Data".
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements -- The following consolidated financial
statements of Fulton Financial Corporation and subsidiaries are
incorporated herein by reference in response to Item 8 above:
(i) Consolidated Balance Sheets - December 31, 1999 and 1998.
(ii) Consolidated Statements of Income - Years ended December 31,
1999, 1998 and 1997.
(iii) Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1999, 1998 and 1997.
(iv) Consolidated Statements of Cash Flows - Years ended December 31,
1999, 1998 and 1997.
(v) Notes to Consolidated Financial Statements
(vi) Report of Independent Public Accountants.
2. Financial Statement Schedules -- All financial statement schedules for
which provision is made in the applicable accounting regulations of
the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and have therefore been
omitted.
3. Exhibits -- The following is a list of the Exhibits required by Item
601 of Regulation S-K and filed as part of this report:
(i) Articles of Incorporation, as amended and restated, and Bylaws
of Fulton Financial Corporation, as amended - Incorporated by
reference from Exhibit 3 of the Fulton Financial Corporation
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
(ii) Rights Amendment dated June 20, 1989, as amended and restated on
April 27, 1999, between Fulton Financial Corporation and Fulton
Bank - Incorporated by reference from Exhibit 1 of the Fulton
Financial Corporation Current Report on Form 8-K dated April 27,
1999.
(iii) Material Contracts - Executive Compensation Agreements and
Plans:
(a) Severance Agreements entered into between Fulton Financial
and: Rufus A. Fulton, Jr., as of April 17, 1984; R. Scott
Smith, Jr., as of May 17, 1988; Richard J. Ashby, Jr., as
of May 17, 1988; and Charles J. Nugent, as of November 19,
1992- Incorporated by reference from Exhibit 10(a) of the
Fulton Financial Corporation Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999.
(b) Incentive Stock Option Plan adopted September 19, 1995 -
Incorporated by reference from Exhibit A of Fulton
Financial Corporation's 1996 Proxy Statement.
(iv) Subsidiaries of the Registrant.
(v) Consents of Independent Public Accountants
(vi) Financial Data Schedule
(b) Reports on Form 8-K -- None
<PAGE>
(c) Exhibits -- The exhibits required to be filed as part of this report are
submitted as a separate section of this report.
(d) Financial Statement Schedules -- None required.
<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 - Incorporated by reference from Exhibit
3 of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
4. Rights Amendment dated June 20, 1989, as amended and restated on April 27,
1999, between Fulton Financial Corporation and Fulton Bank - Incorporated
by reference from Exhibit 1 of the Fulton Financial Corporation Current
Report on Form 8-K dated April 27, 1999.
10. Material Contracts - Executive Compensation Agreements and Plans:
(a) Severance Agreements entered into between Fulton Financial and: Rufus
A. Fulton, Jr., as of April 17, 1984; R. Scott Smith, Jr., as of May
17, 1988; Richard J. Ashby, Jr., as of May 17, 1988; and Charles J.
Nugent, as of November 19, 1992 - Incorporated by reference from
Exhibit 10(a) of the Fulton Financial Corporation Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999.
(b) Incentive Stock Option Plan adopted September 19, 1995 - Incorporated
by reference from Exhibit A of Fulton Financial Corporation's 1996
Proxy Statement.
21. Subsidiaries of the Registrant.
23. Consents of Independent Public Accountants.
27. Financial Data Schedule.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FULTON FINANCIAL CORPORATION
(Registrant)
Dated: March 21, 2000 By: /s/ Rufus A. Fulton, Jr.
-----------------------------
Rufus A. Fulton, Jr.,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been executed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Jeffrey G. Albertson Director March 21, 2000
- --------------------------------------
Jeffrey G. Albertson
/s/ James P. Argires, M.D Director March 21, 2000
- --------------------------------------
James P. Argires, M.D
Director March 21, 2000
- --------------------------------------
Donald M. Bowman, Jr.
/s/ Beth Ann L. Chivinski Senior Vice President March 21, 2000
- -------------------------------------- and Controller
Beth Ann L. Chivinski (Principal Accounting Officer)
/s/ Harold D. Chubb Director March 21, 2000
- --------------------------------------
Harold D. Chubb
/s/ William H. Clark, Jr Director March 21, 2000
- --------------------------------------
William H. Clark, Jr.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
Director March 21, 2000
- --------------------------------------
Martin D. Cohen, Esq.
/s/ Frederick B. Fichthorn Director March 21, 2000
- --------------------------------------
Frederick B. Fichthorn
/s/ Patrick J. Freer Director March 21, 2000
- --------------------------------------
Patrick J. Freer
/s/ Rufus A. Fulton, Jr Chairman, President, Chief March 21, 2000
- -------------------------------------- Executive Officer and Director
Rufus A. Fulton, Jr (Principal Executive Officer)
/s/ Eugene H. Gardner Director March 21, 2000
- --------------------------------------
Eugene H. Gardner
/s/ Robert D. Garner Director March 21, 2000
- --------------------------------------
Robert D. Garner
/s/ Daniel M. Heisey Director March 21, 2000
- --------------------------------------
Daniel M. Heisey
/s/ Charles V. Henry III, Esq.. Director March 21, 2000
- --------------------------------------
Charles V. Henry III, Esq.
Director March 21, 2000
- --------------------------------------
J. Robert Hess
/s/ Carolyn R. Holleran Director March 21, 2000
- --------------------------------------
Carolyn R. Holleran
/s/ Clyde W. Horst Director March 21, 2000
- --------------------------------------
Clyde W. Horst
/s/ Samuel H. Jones, Jr. Director March 21, 2000
- --------------------------------------
Samuel H. Jones, Jr.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Donald W. Lesher, Jr. Director March 21, 2000
- --------------------------------------
Donald W. Lesher, Jr.
/s/ Charles J. Nugent Executive Vice President and March 21, 2000
- -------------------------------------- Chief Financial Officer
Charles J. Nugent (Principal Financial Officer)
/s/ Joseph J. Mowad, MD Director March 21, 2000
- --------------------------------------
Joseph J. Mowad, MD
Director March 21, 2000
- --------------------------------------
Stuart H. Raub, Jr.
/s/ William E. Rusling Director March 21, 2000
- --------------------------------------
William E. Rusling
/s/ Mary Ann Russell Director March 21, 2000
- --------------------------------------
Mary Ann Russell
Director March 21, 2000
- --------------------------------------
John O. Shirk, Esq.
/s/ James K. Sperry Director March 21, 2000
- --------------------------------------
James K. Sperry
/s/ Kenneth G. Stoudt Director March 21, 2000
- --------------------------------------
Kenneth G. Stoudt
</TABLE>
<PAGE>
Exhibit 21 - Subsidiaries of the Registrant
The following are the subsidiaries of Fulton Financial Corporation:
<TABLE>
<CAPTION>
State of Incorporation Name Under Which
Subsidiary or Organization Business is Conducted
---------- --------------- ---------------------
<S> <C> <C>
Fulton Bank Pennsylvania Fulton Bank
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604
Lebanon Valley Farmers Bank Pennsylvania Lebanon Valley Farmers Bank
555 Willow Street
P. O. Box 1285
Lebanon, Pennsylvania 17042
Swineford National Bank Pennsylvania Swineford National Bank
227 East Main Street
Middleburg, Pennsylvania 17842
Lafayette Ambassador Bank Pennsylvania Lafayette Ambassador Bank
360 Northampton Street
Easton, Pennsylvania 18042
Fulton Financial Realty Company Pennsylvania Fulton Financial Realty Company
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604
Fulton Life Insurance Company Arizona Fulton Life Insurance Company
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604
FNB Bank, N.A. Pennsylvania FNB Bank, N.A.
354 Mill Street
P.O. Box 279
Danville, Pennsylvania 17821
Great Valley Bank Pennsylvania Great Valley Bank
210 North 5th Street.......
P. O. Box 1342
Reading, Pennsylvania 19603
Hagerstown Trust Company Maryland Hagerstown Trust Company
83 West Washington Street
Hagerstown, Maryland 21740
Central Pennsylvania Financial Corp. Pennsylvania Central Pennsylvania Financial Corp.
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604
</TABLE>
<PAGE>
Exhibit 21 - Subsidiaries of the Registrant (Continued)
<TABLE>
<CAPTION>
State of Incorporation Name Under Which
Subsidiary or Organization Business is Conducted
---------- --------------- ---------------------
<S> <C> <C>
Delaware National Bank Delaware Delaware National Bank
Route 113 North
P. O. Box 520
Georgetown, DE 19947
The Bank of Gloucester County New Jersey The Bank of
100 Park Avenue Gloucester County
P.O. Box 832
Woodbury, NJ 08096
FFC Management, Inc. Delaware FFC Management, Inc.
900 Market Street, Second Floor
Wilmington, DE 19801
The Woodstown National New Jersey The Woodstown National
Bank and Trust Company Bank & Trust Company
1 South Main Street
Woodstown, NJ 08098
The Peoples Bank of Elkton Maryland The Peoples Bank of Elkton
130 North Street
P.O. Box 220
Elkton, MD 21922
</TABLE>
<PAGE>
Exhibit 23 - Consent of Independent Public Accountants
To: Fulton Financial Corporation
As independent public accountants, we hereby consent to the incorporation of our
report dated January 21, 2000 included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 333-05481, File No. 33-5965 and
File No. 33-37835.
/s/ Arthur Andersen LLP
Lancaster, Pa.,
March 20, 2000
<PAGE>
Exhibit 23.1 - Consent of Independent Public Accountants
The Board of Directors
Fulton Financial Corporation
We consent to the incorporation of our report dated January 30, 1998, with
respect to the consolidated statements of income, stockholders' equity, and cash
flows of Keystone Heritage Group, Inc. and subsidiaries for the year ended
December 31, 1997, included in this Form 10-K of Fulton Financial Corporation
(the Company) for the year ended December 31, 1999, into the Company's
previously filed Registration Statement File No. 333-05481, File No. 33-5965 and
File No. 33-37835.
Harrisburg, Pennsylvania
March 20, 2000
<PAGE>
Exhibit 23.2 - Consent of Independent Auditors
We hereby consent to the incorporation of our report dated January 16, 1998,
with respect to the financial statements of Ambassador Bank of the Commonwealth
for the year ended December 31, 1997, included in this Annual Report on Form
10-K of Fulton Financial Corporation ("The Company") for the year ended December
31, 1999, into the Company's previously filed Registration Statements No.
333-05481, No. 33-5965 and No. 33-37835.
/s/ BEARD & COMPANY, INC.
Allentown, PA
March 20, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FULTON
FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE
RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999
AND OTHER FINANCIAL DATA INCLUDED WITHIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 245,572
<INT-BEARING-DEPOSITS> 1,798
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,137,846
<INVESTMENTS-CARRYING> 85,474
<INVESTMENTS-MARKET> 84,777
<LOANS> 4,422,407
<ALLOWANCE> 57,631
<TOTAL-ASSETS> 6,070,019
<DEPOSITS> 4,546,813
<SHORT-TERM> 487,546
<LIABILITIES-OTHER> 93,116
<LONG-TERM> 328,250
0
0
<COMMON> 173,392
<OTHER-SE> 440,902
<TOTAL-LIABILITIES-AND-EQUITY> 6,070,019
<INTEREST-LOAN> 343,906
<INTEREST-INVEST> 74,741
<INTEREST-OTHER> 267
<INTEREST-TOTAL> 418,914
<INTEREST-DEPOSIT> 143,165
<INTEREST-EXPENSE> 174,827
<INTEREST-INCOME-NET> 244,087
<LOAN-LOSSES> 8,216
<SECURITIES-GAINS> 8,166
<EXPENSE-OTHER> 160,988
<INCOME-PRETAX> 137,705
<INCOME-PRE-EXTRAORDINARY> 97,226
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,226
<EPS-BASIC> 1.41
<EPS-DILUTED> 1.40
<YIELD-ACTUAL> 4.56
<LOANS-NON> 18,653
<LOANS-PAST> 8,516
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 57,415
<CHARGE-OFFS> 12,812
<RECOVERIES> 4,812
<ALLOWANCE-CLOSE> 57,631
<ALLOWANCE-DOMESTIC> 57,631
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 18,265
</TABLE>
