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, 2000, 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: Common Stock, $2.50 Par Value 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 [X] The aggregate market value of 67,120,514 shares of common stock held by non-affiliates, calculated based on the average of the bid and asked prices on March 14, 2001, was approximately $1.4 billion. As of March 14, 2001 there were 72,122,724 shares of Fulton Financial Corporation common stock outstanding.
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 5, 2001
PART I Item 1. Description of Business - -------------------------------- General Fulton Financial Corporation (the Corporation) was incorporated under the laws of Pennsylvania 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. In 2000, the Corporation became a financial holding company as defined in the Gramm-Leach-Bliley Act (GLB Act), which allows the Corporation to expand its financial services activities under its holding company structure (See "Competition" and "Regulation and Supervision"). At December 31, 2000, the Corporation owned 100% of the stock of eleven community banks, two financial services companies and four non-bank entities. 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. Bank and Financial Services Subsidiaries The Corporation's eleven subsidiary banks are located primarily in suburban or semi-rural geographical markets throughout a four state region (Pennsylvania, Maryland, New Jersey and Delaware). Pursuant to its "super-community" banking strategy, the Corporation operates the banks independently to maximize the advantage of community banking and service to its customers. Where appropriate, operations are centralized through common platforms and back-office functions; however, decision making remains with the local bank management. The subsidiary banks are located in areas which have experienced stable or growing economies and relatively low unemployment in recent years. These regions are home to a wide range of manufacturing, distribution, health care and other service companies. The Corporation and its banks are not dependent upon one or a few customers or any one industry and the loss of any single customer or a few customers would not have a material adverse impact on any of the subsidiary banks. Although the banks vary in terms of size, each offers a consistent variety of commercial and retail banking services to its customers. Included in the array of products are demand, savings and time deposits; commercial, consumer and mortgage loans; vehicle and equipment leasing and financing; VISA and MasterCard credit cards; VISA debit cards; cash management; international services such as letters of credit and currency exchange; and PC and telephone banking. The Corporation's subsidiary banks deliver their products and services through traditional branch banking, with a network of 160 full service branch offices. Electronic delivery channels include a network of automated teller machines, telephone banking and PC banking through the Internet. These alternative delivery channels allow customers access to their account information and perform certain transactions such as transferring funds and paying bills at virtually any hour of the day. In May, 2000, the Corporation formed Fulton Financial Advisors, N.A. (Advisors) as a separate investment management and trust services subsidiary. Advisors consolidated the existing investment management and trust services businesses at the Corporation's subsidiary banks. Through Advisors and the Corporation's other financial services subsidiary, Fulton Insurance Services Group, Inc. (Fulton Insurance), the Corporation offers investment management, brokerage, trust services, private banking and insurance to customers throughout the subsidiary banking network. During 2000, there were two changes to the organizational structure of the Corporation's subsidiary banks. First, Great Valley Bank, a separate bank subsidiary of the Corporation, was merged into Fulton Bank. Second, the Corporation expanded its geographical presence into northern New Jersey though its acquisition of Skylands Financial Corporation. On January 2, 2001, the Corporation acquired investment management and advisory company Dearden, Maguire, Weaver and Barrett, Inc. On December 27, 2000, the Corporation entered into a merger agreement to
acquire Drovers Bancshares Corporation in York, Pennsylvania. On January 29, 2001, the Corporation entered into a definitive agreement to acquire 18 branch offices from Sovereign Bank. See additional information with respect to acquisitions in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations". The following table provides geographical and statistical information for the Corporation's banking and financial services subsidiaries. <TABLE> <CAPTION> Full-Time Main Office Total Total Equivalent Subsidiary Location Assets Deposits Employees Branches* - ---------------------------------------------- -------------- ---------- ------------ ------------- -------------- (millions) <S> <C> <C> <C> <C> <C> Fulton Bank Lancaster, PA $2,766 $1,913 928 59 Lebanon Valley Farmers Bank Lebanon, PA 697 530 171 17 Swineford National Bank Hummels Wharf, PA 277 220 97 7 Lafayette Ambassador Bank Easton, PA 877 683 314 21 FNB Bank, N.A Danville, PA 309 241 88 8 Hagerstown Trust Company Hagerstown, MD 409 329 155 15 Delaware National Bank Georgetown, DE 174 144 69 5 Bank of Gloucester County Woodbury, NJ 360 307 160 10 Woodstown National Bank & Trust Co. Woodstown, NJ 313 257 92 8 Peoples Bank of Elkton Elkton, MD 113 91 39 2 Skylands Community Bank Hackettstown, NJ 274 236 75 8 Fulton Financial Advisors, N.A. and Fulton Insurance Services Group, Inc. Lancaster, PA - - 144 - Fulton Financial (Parent Company) Lancaster, PA - - 106 - ----------- ----------- 2,438 160 =========== =========== </TABLE> * See additional information in "Item 2 - Properties" Non-Bank Subsidiaries The Corporation also owns 100% of the stock of four non-bank subsidiaries: (i) Fulton Life Insurance Company 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; (ii) Fulton Financial Realty Company holds title to or leases certain properties upon which Corporation branch offices and other facilities are located; (iii) Central Pennsylvania Financial Corp. 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. owns certain investment securities and other passive investments. Competition The banking and financial services businesses are highly competitive. Within its geographical region, the Corporation's subsidiary banks face direct competition from other commercial banks, varying in size from local community banks to larger regional and national banks, and credit unions. With the growth in electronic commerce and distribution channels, the banks also face competition from banks not physically located in the Corporation's geographical markets. The competition in the industry has also increased as a result of the passage of the GLB Act. Under the GLB Act, banks, insurance companies or securities firms may affiliate under a financial holding company structure, allowing expansion into non-banking financial services activities that were previously restricted. These include a full range of banking, securities and insurance activities, including securities and insurance underwriting, issuing and selling annuities and merchant banking activities. While the Corporation does not currently engage in all of these activities, the ability to do so without separate approval from the Federal Reserve Board enhances the ability of the Corporation - and financial holding companies in general - to compete more effectively in all areas of financial services.
A bank holding company wishing to become a financial holding company - such as the Corporation, which did so in 2000 - must first satisfy several conditions, including requirements that all of its Federal Deposit Insurance Company (FDIC)-insured depository subsidiaries are well-capitalized, well-managed and have at least as "satisfactory" rating under the Community Reinvestment Act (CRA). As a result of the GLB Act, there is more competition for customers that were traditionally served by the banking industry. While the GLB Act increased competition, it also provided opportunities for the Corporation to expand its financial services offerings, such as insurance products through Fulton Insurance. The Corporation also competes through the variety of products that it offers and the quality of service that it provides to its customers. However, there is no guarantee that these efforts will insulate the Corporation from competitive pressure which could impact its pricing decisions for loans and deposits and ultimately impact financial results. Market Share Although there are many ways to assess the size and strength of banks, deposit market share continues to be an important statistic in the industry. The information is compiled annually by the FDIC and is available to the public. The Corporation's banks maintain branch offices in 26 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, 2000). 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 (6/30/00) -------------------- ------------------- Population Banking Banks/ Credit County State (2000 Est) Subsidiary Thrifts Unions Rank % - ------------ ------- ------------ ---------------------------- --------- -------- -------- ------- <S> <C> <C> <C> <C> <C> <C> <C> Lancaster PA 463,000 Fulton Bank 27 5 1 21.1% Dauphin PA 246,000 Fulton Bank 20 13 6 5.4 Cumberland PA 211,000 Fulton Bank 16 11 11 1.9 York PA 379,000 Fulton Bank 20 21 15 1.0 Chester PA 435,000 Fulton Bank 38 9 26 0.8 Montgomery PA 728,000 Fulton Bank 45 33 43 0.1 Berks PA 360,000 Fulton Bank 22 20 9 2.9 Lebanon Valley Farmers Bank 24 0.3 Lebanon PA 118,000 Lebanon Valley Farmers Bank 7 2 1 33.5 Schuylkill PA 148,000 Lebanon Valley Farmers Bank 19 8 7 3.4 Snyder PA 38,000 Swineford National Bank 7 0 1 33.6 Union PA 41,000 Swineford National Bank 8 1 5 6.6 Northumberland PA 93,000 Swineford National Bank 18 3 12 2.5 FNB Bank, N.A. 4 7.2 Montour PA 18,000 FNB Bank, N.A. 5 3 1 37.8 Columbia PA 64,000 FNB Bank, N.A. 10 0 7 5.2 Lycoming PA 116,000 FNB Bank, N.A. 12 12 13 0.9 Northampton PA 261,000 Lafayette Ambassador Bank 17 18 3 12.3 Lehigh PA 300,000 Lafayette Ambassador Bank 23 16 3 4.3 Washington MD 128,000 Hagerstown Trust Company 10 3 1 22.8 Cecil MD 85,000 Peoples Bank of Elkton 6 3 2 14.8 Sussex DE 142,000 Delaware National Bank 12 4 6 0.9 </TABLE>
<TABLE> <S> <C> <C> <C> <C> <C> <C> <C> Camden NJ 503,000 Bank of Gloucester County 20 14 26 (less than)0.1 Gloucester NJ 252,000 Bank of Gloucester County 25 5 3 11.1 Woodstown National Bank 8 2.8 Salem NJ 64,000 Woodstown National Bank 10 3 1 21.2 Warren NJ 101,000 Skylands Community Bank 13 3 8 6.4 Sussex NJ 146,000 Skylands Community Bank 13 1 11 0.7 Morris NJ 467,000 Skylands Community Bank 32 11 16 1.2 </TABLE> Supervision and Regulation The Corporation is a registered financial holding company and its subsidiary banks are depository institutions whose deposits are insured by the FDIC. The Corporation and its subsidiaries are subject to various regulations and examinations by regulatory authorities. The following table summarizes the charter types and primary regulator for each of the Corporation's subsidiary banks. State (Name) or National Primary Subsidiary Charter Regulator(s) - ---------------------------------- ------------ -------------- Fulton Bank PA PA/FDIC Lebanon Valley Farmers Bank PA PA/FRB Swineford National Bank National OCC* Lafayette Ambassador Bank PA PA/FRB FNB Bank, N.A. National OCC Hagerstown Trust Company MD MD/FDIC Delaware National Bank National OCC Bank of Gloucester County NJ NJ/FDIC Woodstown National Bank & Trust Co. National OCC Peoples Bank of Elkton MD MD/FDIC Skylands Community Bank NJ NJ/FDIC Fulton Financial Advisors, N.A. National OCC Fulton Financial (Parent Company) N/A FRB * Office of the Comptroller of the Currency Federal statutes that apply to the Corporation and its subsidiaries include the GLB Act, the Bank Holding Company Act (BHCA), the Federal Reserve Act and the Federal Deposit Insurance Act. In general, these statutes define the eligible business activities of the Corporation, certain acquisition and merger restrictions, limitations on intercompany transactions such as loans and dividends, and capital adequacy requirements, among other regulations. The Corporation is subject to regulation and examination by the Federal Reserve Board (FRB), and is required to file periodic reports and to provide additional information that the FRB may require. The Bank Holding Company Act imposes certain restrictions upon the Corporation regarding the acquisition of substantially all of the assets of or direct or indirect ownership or control of any bank of which it is not already the majority owner. In addition, the FRB must approve certain proposed changes in organizational structure or other business activities before they occur. There are a number of restrictions on bank holding companies and FDIC-insured depository subsidiaries that are designed to minimize potential loss to depositors and the FDIC insurance funds. If an FDIC-insured depository
subsidiary is "undercapitalized", the bank holding company is required to guarantee (subject to certain limits) the subsidiary's compliance with the terms of any capital restoration plan filed with its appropriate federal banking agency. Also, a bank holding company is required to serve as a source of financial strength to its depository institution subsidiaries and to commit resources to support such institutions in circumstances where it might not do so absent such policy. Under the BHCA, the FRB has the authority to require a bank holding company to terminate any activity or to relinquish control of a nonbank subsidiary upon the FRB's determination that such activity or control constitutes a serious risk to the financial soundness and stability of a depository institution subsidiary of the bank holding company. Bank holding companies are required to comply with the FRB's risk-based capital guidelines which require a minimum ratio of total capital to risk-weighted assets of 8%. At least half of the total capital is required to be Tier 1 capital. In addition to the risk-based capital guidelines, the FRB has adopted a minimum leverage capital ratio under which a bank holding company must maintain a level of Tier 1 capital to average total consolidated assets of at least 3% in the case of a bank holding company which has the highest regulatory examination rating and is not contemplating significant growth or expansion. All other bank holding companies are expected to maintain a leverage capital ratio of at least 1% to 2% above the stated minimum. There are also various restrictions on the extent to which the Corporation and its nonbank subsidiaries can receive loans from its banking subsidiaries. In general, these restrictions require that such loans be secured by designated amounts of specified collateral and are limited, as to any one of the Corporation or its nonbank subsidiaries, to 10% of the lending bank's capital stock and surplus (20% in the aggregate to all such entities). The Corporation is also limited in the amount of dividends that it may receive from its subsidiary banks. Dividend limitations vary, depending on the subsidiary bank's charter and whether or not it is a member of the Federal Reserve System. Generally, subsidiaries are prohibited from paying dividends when doing so would cause them to fall below the regulatory minimum capital levels. Additionally, limits exist on paying dividends in excess of net income for specified periods. Monetary and Fiscal Policy The Corporation and its subsidiary banks are affected by fiscal and monetary policies of the federal government, including those of the FRB, which regulates the national money supply in order to manage recessionary and inflationary pressures. Among the techniques available to the Federal Reserve Board are engaging in open market transactions of U.S. Government securities, changing the discount rate and changing reserve requirements against bank deposits. These techniques are used in varying combinations to influence the overall growth of bank loans, investments and deposits. Their use may also affect interest rates charged on loans and paid on deposits. The effect of monetary policies on the earnings of the Corporation cannot be predicted. Statistical Information Certain additional statistical information relating to the business of Fulton Financial Corporation is set forth in the following tables.
FULTON FINANCIAL CORPORATION COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS <TABLE> <CAPTION> Year Ended December 31 -------------------------------------------------------------------------------- (Dollars in thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- 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)................... $ 4,645,897 $ 391,328 8.42% $ 4,181,654 $ 343,722 8.22% Taxable investment securities (2)...... 940,464 57,353 6.10 1,041,274 62,229 5.98 Tax-exempt investment securities (2)... 201,491 8,635 4.29 189,657 8,388 4.42 Equity securities (2).................. 85,924 4,510 5.25 82,087 4,124 5.02 Short-term investments................. 10,086 755 7.49 5,558 267 4.80 -------------- -------------- -------- -------------- -------------- -------- Total interest-earning assets............ 5,883,862 462,581 7.86 5,500,230 418,730 7.61 Noninterest-earning assets: Cash and due from banks................ 229,658 217,605 Premises and equipment................. 87,632 77,348 Other assets (2)....................... 129,185 154,419 Less: Allowance for loan losses........ (59,940) (58,983) -------------- -------------- Total Assets................... $ 6,270,397 $ 5,890,619 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY - ----------------------------------------------------------------------------------------------------------------------------- Interest-bearing liabilities: Demand deposits........................ $ 600,715 $ 9,359 1.56% $ 575,822 $ 7,656 1.33% Savings deposits....................... 1,040,379 26,486 2.55 1,033,679 22,964 2.22 Time deposits.......................... 2,287,227 128,175 5.60 2,196,397 112,545 5.12 Short-term borrowings.................. 475,770 27,336 5.75 349,505 16,019 4.58 Long-term debt......................... 363,446 19,125 5.26 302,158 15,643 5.18 -------------- -------------- -------- -------------- -------------- -------- Total interest-bearing liabilities....... 4,767,537 210,481 4.41 4,457,561 174,827 3.92 Noninterest-bearing liabilities: Demand deposits........................ 783,702 723,142 Other.................................. 95,378 93,988 -------------- -------------- Total Liabilities.............. 5,646,617 5,274,691 Shareholders' equity..................... 623,780 615,928 -------------- -------------- Total Liabilities and Shareholders' Equity......... $ 6,270,397 $ 5,890,619 ============== ============== Net interest income...................... 252,100 243,903 Net yield on interest-earning assets..... 4.28% 4.43% Tax equivalent adjustment (3)............ 7,171 6,899 -------------- -------- -------------- -------- Net interest margin...................... $ 259,271 4.41% $ 250,802 4.56% ============== ======== ============== ======== <CAPTION> Year Ended December 31 ---------------------------------------- (Dollars in thousands) 1998 - ------------------------------------------------------------------------------------- Average Yield/ ASSETS Balance Interest Rate - ----------------------------------------- -------------- -------------- -------- <S> <C> <C> <C> Interest-earning assets: Loans and leases (1)................... $ 3,968,971 $ 338,536 8.53% Taxable investment securities (2)...... 985,026 60,744 6.17 Tax-exempt investment securities (2)... 96,885 4,749 4.90 Equity securities (2).................. 70,916 3,505 4.94 Short-term investments................. 30,013 1,700 5.66 -------------- -------------- -------- Total interest-earning assets............ 5,151,811 409,234 7.94 Noninterest-earning assets: Cash and due from banks................ 210,105 Premises and equipment................. 74,589 Other assets (2)....................... 157,801 Less: Allowance for loan losses........ (58,859) -------------- Total Assets................... $ 5,535,447 ============== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------- Interest-bearing liabilities: Demand deposits........................ $ 531,210 $ 8,433 1.59% Savings deposits....................... 1,018,340 25,745 2.53 Time deposits.......................... 2,263,060 125,506 5.55 Short-term borrowings.................. 209,292 9,124 4.36 Long-term debt......................... 162,525 8,886 5.47 -------------- -------------- -------- Total interest-bearing liabilities....... 4,184,427 177,694 4.25 Noninterest-bearing liabilities: Demand deposits........................ 666,101 Other.................................. 97,367 -------------- Total Liabilities.............. 4,947,895 Shareholders' equity..................... 587,552 -------------- Total Liabilities and Shareholders' Equity......... $ 5,535,447 ============== Net interest income...................... 231,540 Net yield on interest-earning assets..... 4.49% Tax equivalent adjustment (3)............ 4,436 -------------- -------- Net interest margin...................... $ 235,976 4.58% ============== ======== </TABLE> (1) Includes nonperforming loans. (2) Balances include amortized historical cost for available for sale securities. The related unrealized holding gains (losses) on securities are included in other assets. (3) Based on marginal Federal income tax rate and statutory interest expense disallowances.
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> 2000 vs. 1999 1999 vs. 1998 Increase (decrease) due Increase (decrease) due to change in to change in ------------------------------------ ------------------------------------ Volume Rate Net Volume Rate Net -------- -------- -------- -------- -------- -------- (in thousands) <S> <C> <C> <C> <C> <C> <C> Interest income on: Loans and leases ...................... $ 38,160 $ 9,446 $ 47,606 $ 18,141 $(12,955) $ 5,186 Taxable investment securities ......... (6,025) 1,149 (4,876) 3,469 (1,984) 1,485 Tax-exempt investment securities ...... 523 (276) 247 4,547 (908) 3,639 Equity securities ..................... 193 193 386 552 67 619 Short-term investments ................ 218 270 488 (1,385) (48) (1,433) ---------- ---------- ---------- ---------- ---------- ---------- Total interest-earning assets ....... $ 33,069 $ 10,782 $ 43,851 $ 25,324 $(15,828) $ 9,496 ========== ========== ========== ========== ========== ========== Interest expense on: Demand deposits ....................... $ 331 $ 1,372 $ 1,703 $ 708 $ (1,485) $ (777) Savings deposits ...................... 149 3,373 3,522 388 (3,169) (2,781) Time deposits ......................... 4,654 10,976 15,630 (3,697) (9,264) (12,961) Short-term borrowings ................. 5,787 5,530 11,317 6,113 782 6,895 Long-term debt ........................ 3,173 309 3,482 7,634 (877) 6,757 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities .. $ 14,094 $ 21,560 $ 35,654 $ 11,146 $(14,013) $ (2,867) ========== ========== ========== ========== ========== ========== </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.
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 ------------------------------------------------------------------------------------- 2000 1999 ---------------------------------------- ---------------------------------------- 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 ................ $ 8,992 $ 199,039 $ 208,031 $ 10,388 $ 201,160 $ 211,548 State and municipal .............. 12,971 192,179 205,150 20,622 183,483 204,105 Other securities ................. 720 250 970 525 4,575 5,100 Equity securities ................ - 110,115 110,115 - 112,583 112,583 Mortgage-backed securities ....... 62,079 639,063 701,142 53,939 636,045 689,984 ------------ ------------ ------------ ------------ ------------ ------------ Totals ..................... $ 84,762 $1,140,646 $1,225,408 $ 85,474 $1,137,846 $1,223,320 ============ ============ ============ ============ ============ ============ <CAPTION> December 31 ---------------------------------------- 1998 ---------------------------------------- HTM AFS Total ---------- ---------- ---------- (in thousands) <S> <C> <C> <C> United States Treasury and U.S. Government agencies and Corporations ................ $ 24,287 $ 287,850 $ 312,137 State and municipal .............. 34,457 124,926 159,383 Other securities ................. 449 6,978 7,427 Equity securities ................ - 110,866 110,866 Mortgage-backed securities ....... 117,430 675,501 792,931 ------------ ------------ ------------ Totals ..................... $ 176,623 $1,206,121 $1,382,744 ============ ============ ============ </TABLE>
FULTON FINANCIAL CORPORATION MATURITY DISTRIBUTION OF INVESTMENT SECURITIES The following tables set forth the maturities of investment securities at December 31, 2000 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 After Ten Years ----------------------------------------------------------------------------------------- Amount Yield Amount Yield Amount Yield Amount Yield ---------- ------- ---------- ------- ---------- ------- ---------- ------- (dollars in thousands) <S> <C> <C> <C> <C> <C> <C> <C> <C> United States Treasury and U.S. Government agencies and corporations...... $ 401 6.63% $ 7,753 6.13% $ 838 6.36% $ - -% State and municipal (1)............. 3,745 7.05 7,836 7.14 1,390 7.89 - - Other securities.................... 55 7.18 150 6.64 172 6.36 343 7.56 ---------- ------- ---------- ------- ---------- ------- ---------- ------- Totals........................... $ 4,201 7.01% $ 15,739 6.64% $ 2,400 7.25% $ 343 7.56% ========== ======= ========== ======= ========== ======= ========== ======= Mortgage-backed securities (2)...... $ 62,079 6.42% ========== ======= </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 After Ten Years ----------------------------------------------------------------------------------------- Amount Yield Amount Yield Amount Yield Amount Yield ---------- ------- ---------- ------- ---------- ------- ---------- ------- (dollars in thousands) <S> <C> <C> <C> <C> <C> <C> <C> <C> United States Treasury and U.S. Government Agencies and corporations...... $ 32,559 6.12% $ 166,224 6.19% $ 256 7.00% $ - -% State and municipal (1)............. 757 6.05 112,225 5.96 59,792 6.20 19,405 8.15 Other............................... - - 250 6.83 - - - - ---------- ------- ---------- ------- ---------- ------- ---------- ------- Totals........................... $ 33,316 6.12% $ 278,699 6.10% $ 60,048 6.20% $ 19,405 8.15% ========== ======= ========== ======= ========== ======= ========== ======= Mortgage-backed securities (2)...... $ 639,063 6.38% ========== ======= </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.
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: <TABLE> <CAPTION> December 31 -------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (in thousands) <S> <C> <C> <C> <C> <C> Commercial, financial and agricultural ........ $1,219,845 $1,051,958 $ 894,230 $ 859,053 $ 796,375 Real-estate - construction .................... 223,575 164,583 132,647 153,951 131,162 Real-estate - mortgage ........................ 2,639,274 2,371,764 2,202,890 2,144,324 1,944,775 Consumer ...................................... 709,985 774,098 750,274 764,547 693,985 Leasing and other ............................. 87,004 69,627 60,414 50,778 30,879 ------------------------------------------------------------------------- $4,879,683 $4,432,030 $4,040,455 $3,972,653 $3,597,176 ========================================================================= </TABLE> 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, 2000: <TABLE> <CAPTION> One One Year Through More Than or Less Five Years Five Years Total ------------ -------------- -------------- ------------ (in thousands) <S> <C> <C> <C> <C> Commercial, financial and agricultural: Floating rate ............................ $ 198,779 $ 163,639 $ 238,689 $ 601,107 Fixed rate ............................... 243,303 291,276 84,159 618,738 ----------- ----------- ----------- ----------- Total ............................... $ 442,082 $ 454,915 $ 322,848 $1,219,845 =========== =========== =========== =========== Real-estate - construction: Floating rate ............................ $ 43,303 $ 32,792 $ 15,005 $ 91,100 Fixed rate ............................... 50,705 38,412 43,358 132,475 ----------- ----------- ----------- ----------- Total ............................... $ 94,008 $ 71,204 $ 58,363 $ 223,575 =========== =========== =========== =========== </TABLE>
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 ----------------------------------------------------------------- 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- (in thousands) <S> <C> <C> <C> <C> <C> Nonaccrual loans (1) (2) (3) ................ $ 19,465 $ 18,653 $ 19,281 $ 20,819 $ 16,548 Accruing loans past due 90 days or more ..... 7,127 8,516 11,109 10,529 8,162 Other real estate ........................... 931 917 1,420 1,537 2,829 ----------- ----------- ----------- ----------- ----------- Totals ................................. $ 27,523 $ 28,086 $ 31,810 $ 32,885 $ 27,539 =========== =========== =========== =========== =========== </TABLE> (1) Includes impaired loans as defined by Statement of Financial Accounting Standards No. 114 of approximately $13.7 million at December 31, 2000. (2) As of December 31, 2000, the gross interest income that would have been recorded during 2000 if nonaccrual loans had been current in accordance with their original terms was approximately $1.7 million. The amount of interest income on those nonaccrual loans that was included in 2000 net income was approximately $1.8 million. (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, 2000 are $53.2 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.
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 ---------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (dollars in thousands) <S> <C> <C> <C> <C> <C> Loans outstanding at end of year ................ $4,866,767 $4,422,407 $4,030,391 $3,961,644 $3,597,176 ========== ========== ========== ========== ========== Daily average balance of loans and leases ....... $4,645,897 $4,181,654 $3,968,971 $3,765,384 $3,381,599 ========== ========== ========== ========== ========== Balance of allowance for loan losses at beginning of year ....................... $ 57,631 $ 57,415 $ 57,557 $ 53,893 $ 50,201 Loans charged-off: Commercial, financial and agricultural ...... 4,987 3,260 2,412 2,682 2,152 Real estate - construction .................. - - - - 34 Real estate - mortgage ...................... 1,333 1,590 1,403 1,636 1,270 Consumer .................................... 6,734 7,836 5,191 4,854 2,947 Leasing and other ........................... 282 126 134 70 50 ---------- ---------- ---------- ---------- ---------- Total loans charged-off ..................... 13,336 12,812 9,140 9,242 6,453 ---------- ---------- ---------- ---------- ---------- Recoveries of loans previously charged-off: Commercial, financial and agricultural ...... 1,503 1,979 1,223 2,150 1,576 Real estate - construction .................. - - - - 182 Real estate - mortgage ...................... 525 710 926 709 1,378 Consumer .................................... 2,649 2,122 1,265 1,289 1,036 Leasing and other ........................... 19 1 2 15 22 ---------- ---------- ---------- ---------- ---------- Total recoveries ............................ 4,696 4,812 3,416 4,163 4,194 ---------- ---------- ---------- ---------- ---------- Net loans charged-off ........................... 8,640 8,000 5,724 5,079 2,259 Provision for loan losses ....................... 8,645 8,216 5,582 8,417 5,951 Allowance purchased ............................. 2,633 - - 326 - ---------- ---------- ---------- ---------- ---------- Balance at end of year .......................... $ 60,269 $ 57,631 $ 57,415 $ 57,557 $ 53,893 ========== ========== ========== ========== ========== Ratio of net charge-offs during period to average loans .............................. 0.19% 0.19% 0.14% 0.13% 0.07% ========== ========== ========== ========== ========== Ratio of allowance for loan losses to loans Outstanding at end of year ................. 1.24% 1.30% 1.42% 1.45% 1.50% ========== ========== ========== ========== ========== </TABLE>
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 --------------------------------------------------------------------------------------------- 2000 1999 1998 1997 --------------------- --------------------- --------------------- ---------------------- (dollars in thousands) % of % of % of % of Loans in Loans in Loans in Loans in each Each Each Each Allowance Category Allowance Category Allowance Category Allowance Category --------- -------- --------- -------- --------- -------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Commercial, financial & agriculture ....... $ 18,103 25.0% $ 13,268 23.7% $ 13,433 22.1% $ 10,993 21.6% Real estate - construction & mortgages ......... 13,917 58.7 16,817 57.2 19,895 57.8 12,086 57.9 Consumer, leasing & other ............. 10,409 16.3 9,281 19.1 6,740 20.1 7,262 20.5 Unallocated .............. 17,840 - 18,265 - 17,347 - 27,216 - --------- -------- --------- -------- --------- -------- --------- -------- Totals .............. $ 60,269 100.0% $ 57,631 100.0% $ 57,415 100.0% $ 57,557 100.0% ========= ======== ========= ======== ========= ======== ========= ======== <CAPTION> December 31 ------------------------- 1996 ----------------------- (dollars in thousands) % of Loans in each Allowance Category --------- -------- <S> <C> <C> Commercial, financial & agriculture ....... $ 11,299 22.1% Real estate - construction & mortgages ......... 14,756 57.7 Consumer, leasing & other ............. 3,863 20.2 Unallocated .............. 23,975 - --------- -------- Totals .............. $ 53,893 100.0% ========= ======== </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 2001 are not anticipated to exceed $8.5 million: commercial - $4.4 million; consumer - $2.9 million; and mortgage - $1.2 million. 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.
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 ----------------------------------------------------------------------------- 2000 1999 1998 ----------------------- ----------------------- ----------------------- Amount Rate Amount Rate Amount Rate ---------- -------- ---------- -------- ---------- -------- (dollars in thousands) <S> <C> <C> <C> <C> <C> <C> Noninterest-bearing demand deposits ......... $ 783,702 -% $ 723,142 -% $ 666,101 -% Interest-bearing demand deposits ............ 600,715 1.56 575,822 1.33 531,210 1.59 Savings deposits ............................ 1,040,379 2.55 1,033,679 2.22 1,018,340 2.53 Time deposits ............................... 2,287,227 5.60 2,196,397 5.12 2,263,060 5.55 ---------- ------ ---------- ----- ---------- ----- Totals ...................................... $4,712,023 3.48% $4,529,040 3.16% $4,478,711 3.57% ========== ====== ========== ===== ========== ===== </TABLE> Maturities of time deposits of $100,000 or more outstanding at December 31, 2000 are summarized as follows: Time Deposits $100,000 or more -------------- (in thousands) Three months or less ........................ $ 122,932 Over three through six months ............... 57,303 Over six through twelve months .............. 91,172 Over twelve months .......................... 95,217 -------------- Totals ..................................... $ 366,624 ==============
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, 2000. <TABLE> <CAPTION> December 31 --------------------------------------------- 2000 1999 1998 --------- --------- --------- (dollars in thousands) <S> <C> <C> <C> Amount outstanding at December 31 ................... $403,375 $482,040 $231,705 Weighted average interest rate at year end .......... 5.75% 4.96% 4.27% Maximum amount outstanding at any month end ......... $525,634 $483,204 $263,319 Average amount outstanding during the year .......... $471,469 $345,192 $204,597 Weighted average interest rate during the year ...... 5.74% 4.58% 4.34% </TABLE> 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 -------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> Percentage of net income to: Average shareholders' equity ................... 16.64% 15.79% 15.06% 14.60% 13.87% Average total assets ........................... 1.66 1.65 1.60 1.49 1.39 Percentage of dividends declared per common share to basic net income per share ............ 42.7 41.6 41.3 40.7 41.4 Percentage of average shareholders' equity to average total assets ........................ 9.9 10.5 10.6 10.2 10.1 </TABLE>
Item 2. Properties - ------------------ The following table summarizes the Corporation's branch network, by subsidiary 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 18 2 39 2015 59 Lebanon Valley Farmers Bank 13 3 1 2004 17 Swineford National Bank 5 - 2 2002 7 Lafayette Ambassador Bank 7 - 14 2010 21 FNB Bank, N.A 6 - 2 2014 8 Hagerstown Trust Company 12 - 3 2014 15 Delaware National Bank 4 - 1 2001 5 Bank of Gloucester County 6 - 4 2012 10 Woodstown National Bank 7 - 1 2002 8 Peoples Bank of Elkton 1 - 1 2000 2 Skylands Community Bank 3 - 5 2013 8 -------- -------- -------- -------- Total 82 5 73 160 ======== ======== ======== ======== </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 Skylands Community Bank Admin. Headquarters Hackettstown, NJ Leased (2) </TABLE> (1) Lease expires in 2001. (2) Lease expires in 2004. In 1999, the Corporation began the construction of a $24 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 when it is completed in 2001. 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 2000.
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 ---------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per-share data) <S> <C> <C> <C> <C> <C> SUMMARY OF INCOME - ----------------- Interest income .......................... $ 462,581 $ 418,730 $ 409,234 $ 387,248 $ 353,636 Interest expense ......................... 210,481 174,827 177,694 168,153 151,437 ------------ ------------ ------------ ------------ ------------ Net interest income ...................... 252,100 243,903 231,540 219,095 202,199 Provision for loan losses ................ 8,645 8,216 5,582 8,417 5,951 Other income ............................. 69,611 61,358 58,293 48,713 41,653 Other expenses ........................... 165,022 159,340 155,908 149,538 144,174 ------------ ------------ ------------ ------------ ------------ Income before income taxes ............... 148,044 137,705 128,343 109,853 93,727 Income taxes ............................. 44,240 40,479 39,832 33,448 27,815 ------------ ------------ ------------ ------------ ------------ Net income ............................... $ 103,804 $ 97,226 $ 88,511 $ 76,405 $ 65,912 ============ ============ ============ ============ ============ PER-SHARE DATA (1) - ------------------ Net income (basic) ....................... $ 1.46 $ 1.34 $ 1.22 $ 1.06 $ 0.92 Net income (diluted) ..................... 1.45 1.33 1.21 1.04 0.91 Cash dividends ........................... 0.623 0.558 0.504 0.431 0.381 PERIOD-END BALANCES - ------------------- Total assets ............................. $6,571,155 $6,070,019 $5,838,663 $5,377,654 $4,936,072 Net loans ................................ 4,806,498 4,364,776 3,972,976 3,904,087 3,535,202 Deposits ................................. 4,934,405 4,546,813 4,592,969 4,418,543 4,072,400 Long-term debt ........................... 441,973 328,250 296,018 53,045 67,498 Shareholders' equity ..................... 679,336 614,294 608,334 564,491 500,294 AVERAGE BALANCES - ---------------- Average shareholders' equity ............. $ 623,780 $ 615,928 $ 587,552 $ 523,252 $ 475,243 Average total assets ..................... 6,270,397 5,890,619 5,535,447 5,117,365 4,725,999 </TABLE> (1) Adjusted for stock dividends and stock splits. Item 7. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations - -------------
This discussion concerns Fulton Financial Corporation (the Corporation), a financial holding company registered under the Bank Holding Company Act and 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, asset quality, changes in organizational structure, balances of risk-sensitive assets to risk-sensitive liabilities, 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 has historically supplemented its internal growth through the strategic acquisition of community banks with similar operating philosophies. More recently, the Corporation has also looked to non-bank entities to support its noninterest income growth initiatives. In 2000, the Corporation completed the acquisition of Skylands Financial Corporation, a community bank holding company, and announced two additional acquisitions to be finalized in 2001. Skylands Financial Corporation - On August 1, 2000, the Corporation completed its acquisition of Skylands Financial Corporation (SFC) of Hackettstown, New Jersey. SFC's sole subsidiary, Skylands Community Bank (Skylands), had approximately $240 million in total assets on the acquisition date. This acquisition allowed the Corporation to expand its geographical reach into northern New Jersey through Skylands's eight community banking offices located in Morris, Warren and Sussex counties. Under the terms of the merger agreement, each of the 2.5 million outstanding shares of SFC's common stock was exchanged for 0.819 shares of the Corporation's common stock. In addition, the 308,000 options to acquire shares of SFC stock were also exchanged for options to purchase the Corporation's common stock. As a result of the acquisition, SFC was merged with and into the Corporation and Skylands became the Corporation's third banking subsidiary located in New Jersey. The acquisition was accounted for as a purchase, and goodwill of approximately $17.5 million was recorded as the purchase price paid in excess of the net assets acquired. The goodwill is being amortized to expense on a straight line basis over 15 years. The accounts and results of operations of Skylands are included in the financial statements of the Corporation prospectively from the August 1, 2000 acquisition date. Dearden, Maguire, Weaver and Barrett, Inc. - On January 2, 2001, the Corporation completed its previously announced acquisition of investment management and advisory company Dearden, Maguire, Weaver and Barrett, Inc. (Dearden Maguire). Dearden Maguire provides investment advice to, and manages the assets of, clients in the mid-Atlantic region. The firm currently has approximately $1.3 billion in assets under management. Dearden Maguire will retain its name and will operate in conjunction with Fulton Financial Advisors, N.A. (Advisors), the Corporation's investment management and trust services subsidiary. Since the acquisition was accounted for under
the purchase method of accounting, the accounts and results of operations of Dearden Maguire are not included in the financial statements of the Corporation for periods prior to January 2, 2001. Drovers Bancshares Corporation - On December 27, 2000, the Corporation entered into a merger agreement to acquire Drovers Bancshares Corporation (Drovers), of York, Pennsylvania. Drovers is an $800 million bank holding company whose primary subsidiary is The Drovers & Mechanics Bank (Drovers Bank), which has 16 community banking offices in York County, Pennsylvania and one office in Frederick County, Maryland. Under the terms of the merger agreement, each of the approximately 5.1 million shares of Drover's common stock outstanding will be exchanged for 1.24 shares of the Corporation's common stock. In addition, each of the 247,000 options to acquire Drovers stock will be converted to options to purchase the Corporation's stock. The acquisition is subject to approval by bank regulatory authorities and Drovers' shareholders and is expected to be completed in the third quarter of 2001. The acquisition will be accounted for as a pooling of interests. As a result of the acquisition, Drovers will be merged into the Corporation and Drovers Bank will be merged into Fulton Bank, the Corporation's largest affiliate bank. The trust business of Drovers Bank will be transferred to Advisors. This acquisition will allow the Corporation to expand its presence in the York County, Pennsylvania market. Sovereign Bank Branches - On January 29, 2001, the Corporation entered into a definitive agreement with Sovereign Bank (Sovereign) to acquire 18 branch offices located in Delaware, New Jersey and Pennsylvania. These branch offices, which include approximately $319 million in deposits and $53 million in loans, will be operated through existing banking affiliates of the Corporation. The transaction is subject to regulatory approvals and is expected to be completed in the second quarter of 2001. RESULTS OF OPERATIONS - --------------------- Overview Net income and net income per share continued to increase steadily in 2000. Net income for 2000 was $103.8 million, or $1.45 per share (diluted). This was an increase of $6.6 million, or 6.8%, over 1999 net income of $97.2 million. Diluted net income per share increased 9.0% over the $1.33 realized in 1999. Net income for 1999 was $8.7 million, or 9.8%, greater than 1998, while diluted net income per share represented an increase of 9.9% over $1.21 for 1998. All per-share amounts have been restated for the effect of the 5% stock dividend paid in May, 2000. The Corporation's increase in earnings per-share outpaced the growth in net income as a result of share repurchase plans which resulted in fewer average shares outstanding in 2000 (71.7 million) as compared to 1999 (72.8 million). The largest of the repurchase plans was in place to acquire shares which were subsequently re-issued for the acquisition of SFC. During 2000, the interest rate environment and competition continued to cause pressure on the Corporation's net interest margin. Strong loan growth was unable to completely offset the decline in the margin and the result was a lower growth rate in net interest income than had been realized in prior years. The Corporation relied on non-interest revenue sources and expense controls to supplement net income growth for the year. There were no significant non-recurring items which impact the comparability of net income with prior periods. However, since the acquisition of SFC in August, 2000 was accounted for as a purchase, comparisons of balances, revenue and expenses between 2000 and 1999 may be affected. Where appropriate, the effect of Skylands is isolated in the discussion that follows. The Corporation's return on average assets for 2000 was 1.66% as compared with 1.65% in 1999 and 1.60% in 1998. Return on average shareholders' equity (ROE) was 16.64% in 2000 as compared to 15.79% in 1999 and 15.06% in 1998. The ROE improvement reflects the growth in net income coupled with a lower growth rate for average shareholders' equity resulting from the share repurchase programs and an increase in the average unrealized loss on investment securities.
Net Interest Income Net interest income is the most significant component of the Corporation's net income. The ability to manage net interest income over a variety of interest rate and economic environments is important to the success of a banking entity. Net interest income growth is generally dependent upon balance sheet growth and maintaining a strong net interest margin. See also the discussion of "Interest Rate Risk" later in this section. Net interest income for 2000 was $252.1 million, an $8.2 million, or 3.4%, increase over 1999. Excluding the contribution from Skylands, net interest income increased $3.4 million, or 1.4%. This compares to a 1999 increase of $12.4 million, or 5.3%, to $243.9 million. The "Comparative Average Balance Sheets and Net Interest Income Analysis" on page 20 and the "Rate/Volume Table" above summarize the components of net interest income and illustrate variances as a result of changes in interest rates versus growth in assets and liabilities. The Corporation's net interest margin for 2000 was 4.41%, a 15 basis point decrease from 4.56% in 1999, which was two basis points lower than 1998. Over the past two years, the Corporation experienced strong loan growth, resulting in net interest income growth. However, as the Corporation's funding mix gradually shifted from deposits to borrowings and as the Federal Reserve increased short-term interest rates six times over the past two years, the net interest margin has gradually declined, reducing the benefit of the loan increases. While the decrease in net interest margin in 2000 negatively impacted net interest income growth, the overall margin continued to be strong relative to the Corporation's peer group and the industry in general. Management believes that its asset/liability management practices will continue to minimize the effects of interest rate fluctuations. 2000 v. 1999 Interest income increased $43.9 million, or 10.5%, to $462.6 million in 2000 from $418.7 million in 1999. Excluding Skylands, the increase was $35.5 million, or 8.5%. This growth was mainly volume driven, with $33.1 million of the increase attributable to growth in earning assets ($383.6 million, or 7.0%) and the remaining $10.8 million the result of interest rate increases. On average, the yield on earning assets increased 25 basis points to 7.86% in 2000 from 7.61% in 1999. The growth in average interest-earning assets occurred mostly in loans, which increased $464.2 million, or 11.1% ($391.9 million, or 9.4%, excluding the impact of Skylands) to $4.6 billion. Commercial loans ($161.5 million, or 16.8% increase) and commercial mortgage loans ($182.9 million, or 16.4% increase) accounted for the majority of the growth. Consumer loans, primarily as a result of an increase in home equity lines of credit and second mortgage loans, grew $80.1 million, or 18.6%. Residential mortgage loans increased only $32.9 million, or 3.8%, as the Corporation continued to sell originated fixed rate mortgage loans. Offsetting the increase in average loans was a decline in investment securities balances, which decreased $85.1 million, or 6.5%, to $1.2 billion in 2000. In general, proceeds from maturities were used to support loan growth rather than being reinvested in securities. The 25 basis point increase in average yields on earning assets reflected the changes in the interest rate environment in general. As market rates rose in response to the actions of the Federal Reserve, the Corporation's earning assets also gradually readjusted to higher rates. However, the average loan yield increased only 20 basis points to 8.42% despite a 125 basis point increase in the average prime lending rate to 9.25% in 2000 from 8.00% in 1999. This reflects competition from other lenders and the loan portfolio mix, which included longer-term fixed rate loans originated when rates were lower. Interest expense increased $35.7 million, or 20.4%, to $210.5 million in 2000 from $174.8 million in 1999 ($32.2 million, or 18.4%, increase, excluding Skylands). Unlike interest income, which was mainly volume driven, the interest expense increase was driven more by rate increases. Increases in average balances accounted for $14.1 million of the increase, while rates accounted for $21.6 million of the increase.
Average interest-bearing deposits increased $122.4 million, or 3.2%, to $3.9 billion in 2000. This modest increase, however, was impacted by the Skylands acquisition, which added $76.7 million to the annual average balance. Increasing deposits continued to be a challenge for the Corporation - and banks in general - as non-bank alternatives continued to be attractive to consumers. While most of the deposit increase, $90.8 million, was in more costly time deposits, the Corporation did have some success in raising noninterest-bearing demand deposits, which grew $60.6 million, or 8.4%. As deposit growth lagged the increase in earning assets, the Corporation turned to alternative funding sources. Average short-term borrowings, consisting of overnight repurchase agreements and Federal funds purchased, increased $126.3 million, or 36.1%, and long-term debt, consisting of advances from the Federal Home Loan Bank (FHLB), increased $61.3 million, or 20.3%. The increases in borrowings were not impacted by Skylands. Average interest rates paid on interest-bearing liabilities increased 49 basis points to 4.41% as compared to 3.92% in 1999. This increase far outpaced the increase in yields on earning assets and reflected the change in the funding mix from lower cost deposits to higher cost borrowings. In addition, the Corporation's liabilities, on average, are shorter in term than its assets, causing them to react more quickly to changes in interest rates. 1999 v. 1998 Interest income increased $9.5 million, or 2.3%, to $418.7 million in 1999 from $409.2 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 mortgage loans ($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). During the period, mortgage-backed securities had become attractive because of the flexibility in matching expected cash flows with corporate needs while providing a higher rate of return than traditional government securities. Municipal investments had carried taxable equivalent interest rates that were favorable in comparison to taxable alternatives. The 33 basis point decline in average yields on earning assets reflected 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 corresponded 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. While the prime rate has become a lesser used index for pricing loans than other rates, 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). To support the 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 consisted of advances from the 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. Provision and Allowance for Loan Losses Additions to the Corporation's 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, 2000, 1999 and 1998 (dollars in thousands). <TABLE> <CAPTION> Nonperforming Assets ---------------------------------------------------------------------------- 2000 1999 1998 ----------------------- ----------------------- ----------------------- Amount % Change Amount % Change Amount % Change ---------- ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> Real estate loans............ $ 17,690 (5.7)% $ 18,758 7.5% $ 17,449 (16.7)% Commercial & industrial loans........ 4,944 14.6 4,316 (39.5) 7,130 37.9 Consumer loans............... 3,958 (3.3) 4,095 (29.5) 5,811 11.2 Other real estate owned...... 931 1.5 917 (35.4) 1,420 (7.6) ------------ --------- ------------ --------- ------------ --------- Total........................ $ 27,523 (2.0)% $ 28,086 (11.7)% $ 31,810 (3.3)% ============ ========= ============ ========= ============ ========= Non-performing assets/Total assets..... 0.42% 0.46% 0.54% ============ ============ ============ Non-performing loans/Total loans....... 0.55% 0.61% 0.75% ============ ============ ============ <CAPTION> Net Charge-Offs ---------------------------------------------------------------------------- 2000 1999 1998 ----------------------- ----------------------- ----------------------- Amount % Change Amount % Change Amount % Change ---------- ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> Real estate loans............ $ 808 (8.2)% $ 880 84.5% $ 477 (48.5)% Commercial & industrial loans........ 3,484 172.0 1,281 7.7 1,189 123.4 Consumer loans............... 4,348 (25.5) 5,839 43.9 4,058 12.1 ------------ --------- ------------ --------- ------------ --------- Total........................ $ 8,640 8.0% $ 8,000 39.8% $ 5,724 12.7% ============ ========= ============ ========= ============ ========= Net charge-offs/ average loans........... 0.19% 0.19% 0.14% ============ ============ ============ </TABLE>
The provision for loan losses for 2000 increased $429,000, or 5.2%, to $8.6 million, as compared to $8.2 million in 1999. The 1999 provision was $2.6 million, or 47.2%, higher than the 1998 provision of $5.6 million. In all three years, the provision was consistent with the level of net charge-offs ($8.6 million in 2000, $8.0 million in 1999 and $5.7 million in 1998). In comparison to the strong loan growth in 2000, the provision increase was relatively moderate. This reflects the fact that the Corporation's asset quality continued to improve. Nonperforming assets (NPA's), which include nonaccrual loans and accruing loans more than 90 days past due, decreased to $27.5 million in 2000 from $28.1 million in 1999. NPA's as a percentage of total assets improved to 0.42% at December 31, 2000 as compared to 0.46% in 1999. The Corporation's asset quality also remained strong in terms of net charge-offs. Net charge-offs as a percentage of average loans of 0.19% was unchanged from 1999. For 2000, the Corporation saw an increase in commercial loans in both NPA's and net charge-offs. This resulted mainly from one account which management believes is adequately reserved and which management believes is not indicative of additional quality issues in the portfolio. As the volume of new consumer loans - mainly indirect automobile loans - has decreased compared to prior periods, so have the losses on the portfolio. The result has been a decrease in consumer NPA's and net charge-offs. The Corporation's periodic loan portfolio review and allowance calculations resulted in 70% of the total balance being allocated to specific loans and loan types at December 31, 2000 as compared to 68% at December 31, 1999. The allowance for loan losses as a percentage of total loans declined to 1.24% at December 31, 2000 from 1.30% at December 31, 1999. This decline reflects the significant growth in loan balances, a lower increase in the provision for loan losses and a stable level of charge-offs. Management believes that the allowance balance of $60.3 million at December 31, 2000 is sufficient to cover losses incurred in the loan portfolio and is appropriate based on applicable accounting standards. Other Income Noninterest income was $69.6 million in 2000, an $8.3 million, or 13.5%, increase over 1999. Excluding investment securities gains of $8.8 million in 2000 and $8.2 million in 1999, the increase in other income was $7.6 million, or 14.2%. The acquisition of Skylands accounted for $558,000 of the increase in noninterest income. Excluding the impact of securities gains, other income increased $6.3 million, or 13.3%, in 1999. Every category of other income registered strong growth in 2000, except for mortgage banking income. With the increase in average mortgage loan rates over the past two years, refinance activity declined and, thus, the Corporation's volume of loan sales also declined. Mortgage sale gains decreased $758,000, or 29.7%, to $1.8 million in 2000. In May, 2000, the Corporation formed Advisors as a separate investment management and trust services subsidiary. Advisors consolidated the existing investment and trust businesses at the Corporation's affiliate banks to create a centralized approach for delivering investment management, brokerage, trust services, private banking and insurance to the Corporation's customers. Investment management and trust services income increased $2.9 million, or 18.1%, to $19.0 million in 2000. This is a somewhat lower growth rate than the $3.5 million, or 27.3%, increase realized in 1999. Results were hampered by the sell-off in securities markets which reduced the demand for brokerage services and also impacted the level of fees generated on managed accounts as portfolios decreased in value. As previously discussed, the Corporation and the industry have faced challenges in growing deposits as customers have diversified their holdings into alternative, non-FDIC insured, investment products. In addition to enhancing noninterest income, Advisors offers similar financial services as other non-bank competitors and has, therefore, been able to help the Corporation's customers diversify their financial holdings. Service charges on deposits increased $3.0 million, or 14.3%, to $24.3 million in 2000. Cash management fees ($1.3 million, or 33.9% increase) grew as the number of cash management accounts continued to increase, mainly
as a result of the continued growth of the Corporation's commercial business. Overdraft fees ($853,000, or 11.1% increase) and other service charges on deposits ($930,000, or 9.4% increase) also increased as a result of changes in fee structures and an increase in demand and savings accounts, which produce the majority of service charges. In 1999, service charges on deposits grew $2.3 million, or 12.1%, also as a result of these factors. Other service charges and fees increased $2.6 million, or 22.3%, to $14.2 million in 2000, following an increase of $1.1 million, or 10.8%, in 1999. The increase in 2000 was realized in several categories, including debit card revenues ($551,000, or 21.3% increase), merchant fees ($737,000, or 34.1% increase), and net revenues from the Corporation's credit life reinsurance subsidiary ($630,000 increase). Other service charge growth is dependent upon the roll out of the Corporation's various products and services to all of its affiliates, especially those acquired more recently which may not have offered these products in the past. Investment securities gains increased $674,000, or 8.3%, to $8.8 million in 2000 following a decrease of $3.2 million, or 28.1%, to $8.2 million in 1999. The equity investment portfolio consists of common stocks of financial institutions, many of which are located in and around the Corporation's general geographic market area. In 1998, bank stock values were generally higher than in 2000 and 1999, resulting in higher gains realized in 1998. 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 2000 increased $5.7 million, or 3.6%, to $165.0 million. This followed a 1999 increase of $3.4 million, or 2.2%, to $159.3 million. Total noninterest expenses in 1998 were $155.9 million. Excluding the impact of Skylands, the increase in expenses in 2000 was only $2.8 million, or 1.7%. The Corporation's efficiency ratio, which is the ratio of noninterest expenses to fully taxable equivalent revenues (excluding securities gains), improved to 51.6% in 2000, as compared to 52.4% in 1999 and 55.4% in 1998. Salaries and employee benefits increased $4.5 million, or 5.0%, in 2000 to $93.1 million, as compared to a $4.5 million, or 5.4%, increase to $88.7 million in 1999. Excluding the impact of Skylands, the 2000 increase was $3.0 million, or 3.4%. In both 2000 and 1999, the increase in salaries and benefits resulted from an increase in the number of average full-time equivalent employees (2,409 in 2000 as compared to 2,354 in 1999 and 2,333 in 1998) and normal merit increases. The 2000 increase was offset by a $93,000, or 1.4%, decrease in retirement plan expenses as the defined benefit plan was grandfathered and employees were converted to the profit sharing plan (see "Note I - Employee Benefit Plans" in the Notes to Consolidated Financial Statements). In 1999, as this transition was occurring, retirement plan expense increased $863,000, or 14.4%. In addition, employee health insurance remained flat in 2000 as compared to 1999, after experiencing a $480,000, or 8.6%, increase in 1999. Net occupancy expense increased $619,000, or 4.6% to $14.0 million, following a 1999 increase of $953,000, or 7.7%. Equipment expense increased $312,000, or 3.3%, in 2000 following an increase of $473,000, or 5.2%, in 1999. In both periods, the increases were due to normal growth of the Corporation. In 1999, the Corporation began the construction of a $24 million, 100,000 square foot office building in downtown Lancaster, Pennsylvania. 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, portions of the facility will be leased to third parties. Construction is expected to be completed in the second quarter of 2001 and no depreciation expense was recognized in the Corporation's financial statements in 2000. Data processing expense decreased $307,000, or 2.8%, in 2000, compared to a $446,000, or 4.2%, increase in 1999. In 2000, the Corporation's contract with its third party loan and deposit processor was renegotiated, resulting in savings to the Corporation.
Other noninterest expenses increased $606,000, or 1.6%, to $37.4 million in 2000 as compared to $36.8 million in 1999. The 1999 expense was a $3.0 million, or 7.5%, decrease from the 1998 amount. The moderate increase in other expenses during 2000 reflects the positive impact of expense monitoring and control activities as well as efficiencies gained through technology improvements. Increases were realized in certain categories, such as advertising expense ($676,000, or 15.3%), to support the continued growth of the Corporation. The decrease in other expense realized in 1999 was due to: $1.4 million in merger-related professional fees in 1998; $700,000 in net non-equity contributions related to low income housing projects in 1998; a $500,000 reduction in the expenses related to the corporate-owned life insurance program; and a decrease in certain expense categories as a result of efficiencies realized from mergers, including 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). Income Taxes Income taxes increased $3.8 million, or 9.3%, in 2000 as compared to a $647,000, or 1.6%, increase in 1999. The effective tax rates were 29.9%, 29.4% and 31.0% in 2000, 1999 and 1998, 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 - net credits of $3.4 million were recognized in 2000 and 1999 and net credits of $2.7 million were recognized in 1998), and certain merger-related expenses which are not deductible. The increase in the effective rate in 2000 was due to non-deductible goodwill amortization from the Skylands acquisition. The decrease in the effective tax rate in 1999 reflected no merger expenses in 1999 and an increase in tax-free municipal investments. See also "Note H - Income Taxes" in the Notes to Consolidated Financial Statements.
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES AVERAGE CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> December Monthly Averages ------------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ ASSETS (in thousands) - ------ <S> <C> <C> <C> Cash and due from banks .................................. $ 233,775 $ 258,676 $ 225,190 Other interest-earning assets ............................ 18,135 3,015 5,130 Investment securities .................................... 1,217,212 1,243,490 1,382,729 Loans, including loans held for sale ..................... 4,873,976 4,391,099 4,031,276 Less: Allowance for loan losses .......................... (61,449) (58,859) (58,197) ------------- ------------- ------------- Net Loans ....................................... 4,812,527 4,332,240 3,973,079 ------------- ------------- ------------- Premises and equipment ................................... 96,637 79,156 75,926 Other assets ............................................. 162,221 148,745 131,855 ------------- ------------- ------------- Total Assets .................................... $ 6,540,507 $ 6,065,322 $ 5,793,909 ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Deposits: Noninterest-bearing .................................... $ 825,932 $ 738,377 $ 709,934 Interest-bearing ....................................... 4,052,124 3,800,163 3,806,451 ------------- ------------- ------------- Total Deposits .................................. 4,878,056 4,538,540 4,516,385 ------------- ------------- ------------- Short-term borrowings .................................... 444,456 476,475 274,835 Long-term debt ........................................... 444,839 330,959 296,035 Other liabilities ........................................ 111,950 98,508 98,839 ------------- ------------- ------------- Total Liabilities ............................... 5,879,301 5,444,482 5,186,094 ------------- ------------- ------------- Total Shareholders' Equity ...................... 661,206 620,840 607,815 ------------- ------------- ------------- Total Liabilities and Shareholders' Equity ...... $ 6,540,507 $ 6,065,322 $ 5,793,909 ============= ============= ============= </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 on page 26 highlights the trends in the balance sheet over the past two years. Because annual averages may conceal trends and ending balances can be distorted by one-day fluctuations, the average balances for the month of December in 2000, 1999 and 1998 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 2000, as assets increased $475 million, or 7.8%, to $6.5 billion, as compared to $6.1 billion in 1999. Excluding Skylands, assets grew $232 million, or 3.8%. Asset growth in 1999 was $271 million, or 4.7%. In both 2000 and 1999, the balance sheet growth was asset driven, mostly through increases in loans. Loans Loans outstanding (net of unearned income) increased $482.9 million, or 11.0%, in 2000 to reach a level of $4.9 billion. Excluding Skylands, loans increased $313 million, or 7.1%. In 1999, loans grew by $359.8 million, or 8.9%.
As noted in the "Net Interest Income" section, commercial loans and mortgages accounted for most of the recent growth. In 2000, commercial loans increased $185 million, or 18.0%, while commercial mortgage loans increased $199 million, or 16.8%. In 1999, these loan categories grew $151 million, or 17.2%, and $114 million, or 10.6%, respectively. Home equity loans also increased during both periods -- $73 million, or 20.6%, in 2000 and $58 million, or 19.5%, in 1999. Other than home equity loans, growth in the retail loan categories was minimal. Residential mortgage loans increased $51 million, or 5.8%, mainly in adjustable rate loans as originated fixed rate mortgages were generally sold to minimize interest rate risk. Consumer loans, excluding home equities, decreased $43.7 million, or 5.0%, as the Corporation's direct and indirect automobile loans decreased. Investment Securities In 2000, investment securities decreased $26.3 million, or 2.1% ($82.4 million, or 6.6%, excluding the impact of Skylands), to $1.2 billion, following a $139.2 million, or 10.1%, decrease in 1999. In general, over the past two years, funds from maturing investment securities have been used to support loan growth. Purchases of investment securities have decreased considerably over the past two years. In 1998, the Corporation had total purchases of $750 million. This declined to only $160 million in 2000. The Corporation classified approximately 93% of its investment securities ($1.1 billion) as available for sale at December 31, 2000 and, as such, these investments were recorded at their estimated fair values. The increase in interest rates during 1999 resulted in total net unrealized losses of $32.5 million on non-equity investments at December 31, 1999, a shift of $39.7 million from $7.2 million in net unrealized gains at December 31, 1998. As of December 31, 2000, however, this unrealized loss had declined to $5.0 million. 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 ($34.2 million), as well as stocks of other financial institutions ($50.1 million). This portfolio has historically been a source of capital appreciation and realized gains ($8.8 million in 2000, $8.2 million in 1999 and $11.4 million in 1998). Management periodically sells bank stocks when valuations and market conditions warrant such sales. Premises and Equipment Premises and equipment increased $17.5 million, or 22.1%, in 2000 to $96.6 million, following a $3.2 million, or 4.3%, increase in 1999. The 2000 increase resulted from construction of the Corporation's new office space. When the project is completed in 2001, the total cost will be approximately $24 million. No depreciation expense was recorded in the Corporation's financial statements as the construction was not completed as of December 31, 2000. Cash and Due from Banks Cash and due from banks decreased $24.9 million, or 9.6%, to $233.8 million in 2000, following a $33.5 million, or 14.9%, increase in 1999. These fluctuations resulted from the Year 2000 contingency planning precautions whereby the Corporation maintained higher than normal balances of cash near the end of 1999. Other Assets Other assets increased $13.5 million, or 9.1%, in 2000 to $162.2 million, following a $16.9 million, or 12.8%, increase in 1999. This increase was primarily a result of $17.5 million of goodwill recorded in connection with the SFC acquisition. The increase in 1999 was mainly due to 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 Corporation continued to increase its participation in affordable housing and community development projects through investments in partnerships. Equity commitments totaling $8.2 million were made to five new projects. The Corporation made its initial investment of this type during 1989 and is now involved in 39 projects, all located in the communities served by its subsidiary banks. The carrying value of these investments was approximately $31.9 million at December 31, 2000. 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 $339.5 million, or 7.5%, to $4.9 billion. Excluding the impact of Skylands, the increase was $123.6 million, or 2.7%. This compares to an increase of $22.2 million, or 0.5%, in 1999. Although competition for deposits continued to be strong, the Corporation was able to achieve increases in most deposit categories. Excluding the impact of Skylands, noninterest-bearing demand deposits, which are most desirable due to their low cost, increased $44.6 million, or 6.0%; interest-bearing demand deposits increased $15.4 million, or 2.6%; and time deposits increased $82.6 million, or 3.8%. In 1999, competition for time deposits, which is mainly focused on interest rates, resulted in a decrease of $29.4 million, or 1.3%. Most notably, certificates of deposit with original maturities of less than one year decreased $104.3 million, or 14.6%. Demand and savings deposits, however, did see increases in 1999 ($51.6 million, or 2.3%). With reasonable funding alternatives available, the Corporation 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, decreased $32.0 million, or 6.7%, in 2000 to $444.5 million after increasing $201.6 million, or 73.4%, in 1999. During 2000, the Corporation attempted to relieve its reliance on short-term funding and the associated interest rate risk by using longer term borrowings. As a result, long term debt increased $113.9 million, or 34.4%. The general 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. Deposits, especially demand and savings, are generally less costly and provide an opportunity to expand its existing customer base. The acquisition of Skylands was beneficial to the Corporation as acquired deposits of approximately $216 million exceeded loans of approximately $167 million. Shareholders' Equity Total shareholders' equity increased $65.0 million, or 10.6%, to $679.3 million at December 31, 2000. This compares to a $6.0 million, or 1.0%, increase in 1999. The growth in 2000 was the result of net income of $103.8 million and a $14.2 million improvement in unrealized losses on available for sale investment securities. These increases were offset by $44.3 million in cash dividends to shareholders. Although shareholders' equity also increased $31.9 million as a result of the SFC acquisition, this was offset by $45.2 million in repurchases of stock during the period, the majority of which was reissued to consummate the merger. The slower rate of increase in 1999 reflected 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 stock repurchase plans in 1999, treasury stock increased $13.5 million. Excluding treasury stock and accumulated other comprehensive income (loss), shareholders' equity increased $54.9 million, or 9.3%, in 1999. This resulted from net income growth offset by dividends paid to shareholders. Despite increasing dividends each year ($0.623 per share in 2000 and $0.558 per share in 1999), the Corporation maintained a consistent dividend payout ratio - 42.7% in 2000, 41.7% in 1999 and 41.2% in 1998.
During 2000, the Corporation repurchased shares of its stock under two separate plans approved by its Board of Directors. The first was an open market repurchase program for up to 1.05 million shares through the end of 2000. The second was an open market repurchase program of up to 2.1 million shares. The second plan was adopted to minimize the increase in the number of outstanding shares of the Corporation as a result of its acquisition of SFC. Under the second plan, 2.0 million shares were repurchased during 2000 and all were reissued in connection with the SFC acquisition. This plan was cancelled as of the August 1, 2000 acquisition date. Under the first plan, 429,000 shares were repurchased through the plan's termination date on December 27, 2000. The Corporation and its subsidiary banks are subject to various regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can initiate certain actions by regulators that could have a material effect on the Corporation's financial statements. The regulations require that banks maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk weighted assets (as defined), and Tier I capital to average assets (as defined). As of December 31, 2000, the Corporation and each of its bank subsidiaries met the minimum capital requirements. In addition, the Corporation and each of its bank subsidiaries' capital ratios exceeded the amounts required to be considered "well-capitalized" as defined in the regulations. 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 $50.1 million at December 31, 2000), U.S. Government and agency stock (cost basis of approximately $34.3 million) and equity mutual funds (cost basis of approximately $17.1 million). The Corporation's equity investments had a total estimated fair value of $92.9 million at December 31, 2000. The $8.6 million net unrealized gain was primarily attributable to the financial institutions stock. Although the carrying value of equity investments accounted for only 1.7% of the Corporation's total assets, the unrealized gains on the portfolio represent a potential source of revenue. The Corporation has a history of periodically realizing gains from this portfolio and, if values were to decline significantly, this revenue source could be lost. The Corporation manages its equity market price risk by investing primarily in regional financial institutions. Management continuously monitors the fair value of its equity investments and evaluates current market conditions and operating results of the companies. Periodic sale and purchase decisions are made based on this monitoring process. None of the Corporation's equity securities are classified as trading. Future cash flows from these investments are not provided here since none of them have maturity dates. In addition to its equity portfolio, the Corporation's investment management and trust services revenue could be impacted by fluctuations in the securities markets. A portion of the Corporation's revenue is based on the value of the underlying investment portfolios. If securities markets contract, the Corporation's revenue could be negatively impacted. In addition, the ability of the Corporation to sell its brokerage services is dependent upon the consumers' level of confidence in the outlook for rising securities prices. Interest Rate Risk: Interest rate risk creates exposure in two primary areas. First, changes in rates have an impact on the Corporation's liquidity position and could affect its ability to meet obligations and continue to grow. Second,
movements in interest rates can create fluctuations in the Corporation's net income and changes in the economic value of its equity. The Corporation employs various management techniques to minimize its exposure to interest rate risk. An Asset/Liability Management Committee (ALCO), consisting of key financial and senior management personnel, meets on a weekly basis. The ALCO is responsible for reviewing the interest rate sensitivity position of the Corporation, approving asset and liability management policies, and overseeing the 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, 2000, 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 21.5%, of total assets. This compares to $1.4 billion, or 23.0%, of total assets at December 31, 1999. Liquidity is also provided by non-mortgage-backed securities held to maturity due from one to five years, which totaled $15.7 million and $14.5 million at December 31, 2000 and 1999, respectively. Principal payments received on the held to maturity mortgage-backed securities portfolio also provide liquidity. The Corporation had $62.1 million of such mortgage-backed securities at December 31, 2000 and $53.9 million at December 31, 1999. 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 $125.7 million and $184.5 million in 2000 and 1999, 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, 2000, the Corporation had $442.0 million in term advances from the FHLB with an additional $594 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.
<TABLE> <CAPTION> FULTON FINANCIAL CORPORATION INTEREST RATE SENSITIVITY (dollars in thousands) Expected Maturity Period ---------------------------------------------------------------------------------- 2001 2002 2003 2004 2005 Beyond Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> Fixed rate loans (1) $ 930,084 $ 642,575 $ 496,925 $ 329,321 $ 224,664 $ 704,656 $3,328,225 Average rate (1) 8.09% 7.98% 7.94% 7.93% 8.00% 7.67% 7.94% Floating rate loans (2) 507,295 183,444 159,366 120,238 97,417 470,782 1,538,542 Average rate 9.81% 9.60% 9.59% 9.66% 8.68% 8.77% 9.36% Fixed rate investments (3) 225,907 200,611 251,579 141,776 162,015 123,512 1,105,400 Average rate 6.09% 6.26% 6.17% 6.25% 6.19% 6.38% 6.22% Floating rate investments (3) 50 - 1,000 - - 13,830 14,880 Average rate 7.51% - 5.55% - - 6.86% 6.77% Other interest-earning assets 8,440 - - - - - 8,440 Average rate 6.31% - - - - - 6.31% ------------------------------------------------------------------------------------------------ Total $1,671,776 $1,026,630 $ 908,870 $ 591,335 $ 484,096 $1,312,780 $5,995,487 Average rate 8.33% 7.93% 7.74% 7.88% 7.53% 7.93% 7.98% ------------------------------------------------------------------------------------------------ Fixed rate deposits (4) $1,443,646 $ 627,563 $ 157,455 $ 37,324 $ 43,398 $ 24,342 $2,333,728 Average rate 5.76% 6.24% 6.02% 5.71% 6.33% 5.65% 5.91% Floating rate deposits (5) 617,245 130,795 126,575 126,575 119,726 1,479,761 2,600,677 Average rate 3.58% 1.33% 1.27% 1.27% 1.16% 0.83% 1.56% Fixed rate borrowings (6) 207,314 280 157,780 280 73,280 3,039 441,973 Average rate 5.72% 5.44% 5.26% 5.42% 6.36% 5.80% 5.66% Floating rate borrowings (7) 408,166 - - - - - 408,166 Average rate 6.17% - - - - - 6.17% ------------------------------------------------------------------------------------------------ Total $2,676,371 $ 758,638 $ 441,810 $ 164,179 $ 236,404 $1,507,142 $5,784,544 Average rate 5.32% 5.39% 4.39% 2.29% 3.72% 0.92% 3.96% ------------------------------------------------------------------------------------------------ <CAPTION> Estimated Fair Value ------------ <S> <C> Fixed rate loans (1) $3,354,239 Average rate (1) Floating rate loans (2) 1,537,330 Average rate Fixed rate investments (3) 1,099,522 Average rate Floating rate investments (3) 14,845 Average rate Other interest-earning assets 8,440 Average rate ---------- Total $6,014,376 Average rate ---------- Fixed rate deposits (4) 2,350242 Average rate Floating rate deposits (5) 2,600,573 Average rate Fixed rate borrowings (6) 438,796 Average rate Floating rate borrowings (7) 408,166 Average rate ---------- Total $5,797,777 Average rate ---------- </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 expected payoffs and calls 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.
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, 2000 was 1.08. The following is a summary of the interest sensitivity gaps for four different time intervals as of December 31, 2000: Daily 0-90 91-180 181-365 Adjustable Days Days Days ------------ ------- -------- -------- GAP........................ 1.51 0.76 0.76 0.66 CUMULATIVE GAP............. 1.51 1.18 1.08 0.95 Although the Corporation was in an asset-sensitive gap position at the end of the year, during 2000 its average 6-month gap was liability-sensitive at 0.95. Daily fluctuations distorted the balances of risk-sensitive assets and risk-sensitive liabilities at December 31, 2000. Management believes that this is a temporary situation and that the consolidated gap will be closer to neutral during 2001. 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, 2000 the Corporation had a larger exposure to downward rate shocks, with net interest income at risk of loss over the next twelve months of 3%, 5% and 7% where interest rates are shocked downward 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, 2000, neither upward nor downward shocks of 100,200 or 300 basis points were estimated to have negative effects upon economic value.
Common Stock - ------------ As of December 31, 2000, the Corporation had 71,925,079 shares of $2.50 par value common stock outstanding held by 15,997 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 2000 and 1999. Per-share amounts have been retroactively adjusted to reflect the effect of stock dividends. Price Range -------------------- Per-Share High Low Dividend ------- ------- ---------- 2000 - ---- First Quarter ................ $ 20.06 $ 15.18 $ 0.143 Second Quarter ............... 22.75 17.00 0.160 Third Quarter ................ 21.94 19.00 0.160 Fourth Quarter ............... 23.88 19.44 0.160 1999 - ---- First Quarter ................ $ 19.91 $ 17.32 $ 0.130 Second Quarter ............... 20.59 18.45 0.143 Third Quarter ................ 20.06 17.86 0.143 Fourth Quarter ............... 19.58 16.37 0.143
Item 8. Financial Statements and Supplementary Data - -------------------------------------------------------------------------------- FULTON FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- (Dollars in thousands, except per-share data) <TABLE> <CAPTION> December 31 ------------------------------ 2000 1999 ----------- ----------- Assets - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> Cash and due from banks ...................................................................... $ 267,178 $ 245,572 Interest-bearing deposits with other banks ................................................... 3,199 1,798 Mortgage loans held for sale ................................................................. 5,241 1,016 Investment securities: Held to maturity (estimated fair value- $83,836 in 2000 and $84,777 in 1999) ............ 84,762 85,474 Available for sale ...................................................................... 1,140,646 1,137,846 Loans ........................................................................................ 4,879,683 4,432,030 Less: Allowance for loan losses ........................................................ (60,269) (57,631) Unearned income .................................................................. (12,916) (9,623) ----------- ----------- Net Loans ........................................................... 4,806,498 4,364,776 ----------- ----------- Premises and equipment ....................................................................... 97,147 79,217 Accrued interest receivable .................................................................. 40,411 31,496 Other assets ................................................................................. 126,073 122,824 ----------- ----------- Total Assets ........................................................ $ 6,571,155 $ 6,070,019 =========== =========== Liabilities - ------------------------------------------------------------------------------------------------------------------------------------ Deposits: Noninterest-bearing ..................................................................... $ 857,696 $ 724,778 Interest-bearing ........................................................................ 4,076,709 3,822,035 ----------- ----------- Total Deposits ...................................................... 4,934,405 4,546,813 ----------- ----------- Short-term borrowings: Securities sold under agreements to repurchase .......................................... 248,375 309,790 Federal funds purchased ................................................................. 155,000 172,250 Demand notes of U.S. Treasury ........................................................... 4,791 5,506 ----------- ----------- Total Short-Term Borrowings ......................................... 408,166 487,546 ----------- ----------- Accrued interest payable ..................................................................... 41,637 32,313 Other liabilities ............................................................................ 65,638 60,803 Long-term debt ............................................................................... 441,973 328,250 ----------- ----------- Total Liabilities ................................................... 5,891,819 5,455,725 ----------- ----------- Shareholders' Equity - ------------------------------------------------------------------------------------------------------------------------------------ Common stock ($2.50 par) Shares: Authorized 400 million Issued 72.8 million; Outstanding 71.9 million .................................. 182,052 173,392 Capital surplus .............................................................................. 444,570 394,234 Retained earnings ............................................................................ 67,201 75,482 Accumulated other comprehensive income (loss) ................................................ 2,358 (11,846) Less: Treasury stock (899,000 shares in 2000 and 900,000 shares in 1999) ..................... (16,845) (16,968) ----------- ----------- Total Shareholders' Equity .......................................... 679,336 614,294 ----------- ----------- Total Liabilities and Shareholders' Equity .......................... $ 6,571,155 $ 6,070,019 =========== =========== - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> See notes to consolidated financial statements
FULTON FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- (Dollars in thousands, except per-share data) <TABLE> <CAPTION> Year Ended December 31 -------------------------------------------- 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Interest Income - ------------------------------------------------------------------------------------------------------------------ Loans, including fees ......................................... $391,328 $343,722 $338,536 Investment securities: Taxable .................................................. 57,353 62,229 60,744 Tax-exempt ............................................... 8,635 8,388 4,749 Dividends ................................................ 4,510 4,124 3,505 Other interest income ......................................... 755 267 1,700 -------- -------- -------- Total Interest Income ............... 462,581 418,730 409,234 Interest Expense - ------------------------------------------------------------------------------------------------------------------ Deposits ...................................................... 164,020 143,165 159,684 Short-term borrowings ......................................... 27,336 16,019 9,124 Long-term debt ................................................ 19,125 15,643 8,886 -------- -------- -------- Total Interest Expense ............... 210,481 174,827 177,694 -------- -------- -------- Net Interest Income .................. 252,100 243,903 231,540 Provision for Loan Losses ..................................... 8,645 8,216 5,582 -------- -------- -------- Net Interest Income After Provision for Loan Losses ..... 243,455 235,687 225,958 -------- -------- -------- Other Income - ------------------------------------------------------------------------------------------------------------------ Investment management & trust services ........................ 19,018 16,109 12,659 Service charges on deposit accounts ........................... 24,290 21,242 18,954 Other service charges and fees ................................ 14,240 11,646 10,512 Mortgage banking income ....................................... 3,223 4,195 4,808 Investment securities gains ................................... 8,840 8,166 11,360 -------- -------- -------- 69,611 61,358 58,293 Other Expenses - ------------------------------------------------------------------------------------------------------------------ Salaries and employee benefits ................................ 93,109 88,657 84,112 Net occupancy expense ......................................... 13,971 13,352 12,399 Equipment expense ............................................. 9,819 9,507 9,034 Data processing ............................................... 10,762 11,069 10,623 Other ......................................................... 37,361 36,755 39,740 -------- -------- -------- 165,022 159,340 155,908 -------- -------- -------- Income Before Income Taxes ........... 148,044 137,705 128,343 Income Taxes .................................................. 44,240 40,479 39,832 -------- -------- -------- Net Income ........................... $103,804 $ 97,226 $ 88,511 ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------ Per-Share Data: Net Income (Basic) ............................................ $ 1.46 $ 1.34 $ 1.22 Net Income (Diluted) .......................................... 1.45 1.33 1.21 Cash Dividends ................................................ 0.623 0.558 0.504 - ------------------------------------------------------------------------------------------------------------------ </TABLE> See notes to consolidated financial statements
FULTON FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY <TABLE> <CAPTION> Accumulated Other Comprehen- Common Capital Retained sive Income Treasury (Dollars in thousands, except per-share data) Stock Surplus Earnings (Loss) Stock Total - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Balance at January 1, 1998 .............................. $ 126,497 $ 326,402 $ 84,634 $ 28,257 $ (1,299) $ 564,491 Comprehensive Income: Net income .................................... 88,511 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 (13.8 million shares) ............................ 29,963 (30,088) (125) Stock issued (711,000 shares, including 182,000 shares of treasury stock) ........................ 1,178 (2,417) 3,489 2,250 Acquisition of treasury stock (290,000 shares) ..... (5,678) (5,678) Cash dividends - $0.504 per share .................. (36,477) (36,477) ------------------------------------------------------------------------ Balance at December 31, 1998 ............................ 157,638 293,897 136,668 23,619 (3,488) 608,334 Comprehensive Income: Net income .................................... 97,226 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% (6.6 million shares) ... 15,754 102,099 (117,917) (64) Stock issued (204,000 shares of treasury stock) .... (1,762) 4,054 2,292 Acquisition of treasury stock (924,000 shares) ..... (17,534) (17,534) Cash dividends - $0.558 per share .................. (40,495) (40,495) ------------------------------------------------------------------------ Balance at December 31, 1999 ............................ 173,392 394,234 75,482 (11,846) (16,968) 614,294 Comprehensive Income: Net income .................................... 103,804 103,804 Other - unrealized gain on securities (net of $7.6 million tax expense) ................... 14,204 14,204 ---------- Total comprehensive income ............... 118,008 ---------- Stock dividend issued - 5% (3.5 million shares) .... 8,660 59,065 (67,796) (71) Stock issued (310,000 shares of treasury stock) .... (1,308) 6,003 4,695 Stock issued for acquisition of Skylands Financial Corporation (2.1 million shares of treasury stock) Acquisition of treasury stock (2.4 million shares) . (45,162) (45,162) Cash dividends - $0.623 per share .................. (44,289) (44,289) ------------------------------------------------------------------------ Balance at December 31, 2000 ............................ $ 182,052 $ 444,570 $ 67,201 $ 2,358 $ (16,845) $ 679,336 ======================================================================== </TABLE> See notes to consolidated financial statements
FULTON FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- (In Thousands) <TABLE> <CAPTION> Year Ended December 31 --------------------------------------------- 2000 1999 1998 --------- --------- --------- <S> <C> <C> <C> Cash Flows from Operating Activities: Net income ......................................................... $ 103,804 $ 97,226 $ 88,511 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for loan losses ........................................ 8,645 8,216 5,582 Depreciation and amortization of premises and equipment .......... 10,190 9,911 8,965 Net amortization of investment security premiums ................. 428 1,204 359 Deferred income tax (benefit) expense ............................ (1,280) 1,377 (329) Gain on sale of investment securities ............................ (8,840) (8,166) (11,360) Gain on sale of mortgage loans ................................... (1,796) (2,554) (3,384) Proceeds from sale of mortgage loans ............................. 125,678 184,535 219,745 Originations of mortgage loans held for sale ..................... (128,107) (175,010) (222,402) Amortization of intangible assets ................................ 1,478 1,297 1,399 (Increase) decrease in accrued interest receivable ............... (7,669) 3,446 (2,606) Decrease (increase) in other assets .............................. 6,365 7,303 (24,080) Increase (decrease) in accrued interest payable .................. 8,932 (1,942) 1,028 Increase (decrease) in other liabilities ......................... 1,536 792 (3,494) --------- --------- --------- Total adjustments .......................................... 15,560 30,409 (30,577) --------- --------- --------- Net cash provided by operating activities ............... 119,364 127,635 57,934 --------- --------- --------- Cash Flows from Investing Activities: Proceeds from sales of securities available for sale ............. 33,507 18,765 25,872 Proceeds from maturities of securities held to maturity .......... 43,258 92,635 173,056 Proceeds from maturities of securities available for sale ........ 167,127 297,846 251,311 Purchase of securities held to maturity .......................... (2,604) (1,500) (6,606) Purchase of securities available for sale ........................ (156,903) (308,271) (743,044) (Increase) decrease in short-term investments .................... (1,107) 1,177 (341) Net increase in loans ............................................ (283,244) (400,016) (74,471) Cash acquired from Skylands Financial Corporation ................ 11,632 - - Purchase of premises and equipment, net .......................... (24,343) (13,413) (11,633) --------- --------- --------- Net cash used in investing activities ................... (212,677) (312,777) (385,856) --------- --------- --------- Cash Flows from Financing Activities: Net increase (decrease) in demand and savings deposits ........... 97,640 (44,292) 202,648 Net increase (decrease) in time deposits ......................... 74,014 (1,864) (28,222) Addition to long-term debt ....................................... 202,000 43,092 263,612 Repayment of long-term debt ...................................... (88,277) (10,860) (20,639) (Decrease) increase in short-term borrowings ..................... (86,780) 251,961 (12,716) Dividends paid ................................................... (43,140) (39,575) (33,939) Net proceeds from issuance of common stock ....................... 4,624 2,228 2,125 Acquisition of treasury stock .................................... (45,162) (17,534) (5,678) --------- --------- --------- Net cash provided by financing activities ............... 114,919 183,156 367,191 --------- --------- --------- Net Increase (Decrease) in Cash and Due From Banks ............... 21,606 (1,986) 39,269 Cash and Due From Banks at Beginning of Year ..................... 245,572 247,558 208,289 --------- --------- --------- Cash and Due From Banks at End of Year ........................... $ 267,178 $ 245,572 $ 247,558 ========= ========= ========= Cash paid during the year for: Interest .................................................... $ 201,549 $ 176,769 $ 176,666 Income taxes ................................................ 39,819 31,066 36,040 - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> See notes to consolidated financial statements
FULTON FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Business: Fulton Financial Corporation (Parent Company) is a multi-bank financial holding company which 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., Hagerstown Trust, Delaware National Bank, The Bank of Gloucester County, The Woodstown National Bank & Trust Company, The Peoples Bank of Elkton and Skylands Community Bank (Skylands); as well as its financial services subsidiaries, Fulton Financial Advisors, N.A. and Fulton Insurance Services Group, Inc. In addition, the Parent Company owns four other non-banking subsidiaries: Fulton Financial Realty Company, Fulton Life Insurance Company, Central Pennsylvania Financial Corp. 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 banking subsidiaries, a full range of retail and wholesale banking services throughout central and eastern Pennsylvania, western and northern Maryland, southern Delaware and western New Jersey. 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 financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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 in shareholders' equity as a component of other comprehensive income, 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 mortgage loans 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. 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. During 2000, the Corporation capitalized approximately $780,000 in interest expense related to the construction of its new office space at its headquarters location. 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 less estimated selling costs 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. Option grants which would not have a dilutive impact on average shares are not included in the calculation. The Corporation's common stock equivalents consist solely of outstanding stock options. A reconciliation of the weighted average shares outstanding used to calculate basic net income per share and diluted net income per share follows. There is no adjustment to net income to arrive at diluted net income per share. 2000 1999 1998 ---- ---- ---- (in thousands) Weighted average shares outstanding (basic) ...... 71,242 72,422 72,415 Impact of common stock equivalents ............... 412 406 755 -------- ------- ------- Weighted average shares outstanding (diluted)..... 71,654 72,828 73,170 ======== ======= =======
Comprehensive Income: The following table summarizes the reclassification adjustment for realized security gains (net of taxes) for each of the indicated periods: <TABLE> <CAPTION> 2000 1999 1998 ---- ---- ---- (in thousands) <S> <C> <C> <C> Unrealized holding gains (losses) arising during period ........... $ 19,950 $(30,157) $ 2,746 Reclassification adjustment for gains included in net income ...... 5,746 5,308 7,384 -------- -------- -------- Net unrealized gains (losses) on securities ....................... $ 14,204 $(35,465) $ (4,638) ======== ======== ======== </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) requires that public business enterprises report financial and descriptive information about its reportable operating segments. 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 immaterial 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 Financial Accounting Standards Board 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 adopted Statement 133 on January 1, 2001 and there was no material impact on its balance sheet, comprehensive income or net income. Reclassifications and Restatements: Certain amounts in the 1999 and 1998 consolidated financial statements and notes have been reclassified to conform to the 2000 presentation. All share and per-share data have been restated to reflect the impact of the 5% stock dividend paid on May 31, 2000. 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 2000 and 1999 was approximately $53.1 million and $51.3 million, respectively. 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 2000 Held to Maturity Cost Gains Losses Value - --------------------------------------- ------------- ------------- ------------ ------------- <S> <C> <C> <C> <C> U.S. Government and agency securities................. $ 8,992 $ 88 $ (1,219) $ 7,861 State and municipal securities......... 12,971 152 (28) 13,095 Debt securities issued by foreign governments............ 205 4 - 209 Corporate debt securities.............. 515 4 - 519 Mortgage-backed securities............. 62,079 289 (216) 62,152 ------------- ------------- ------------ ------------- $ 84,762 $ 537 $ (1,463) $ 83,836 ============= ============= ============ ============= <CAPTION> Gross Gross Estimated Amortized Unrealized Unrealized Fair 2000 Available for Sale Cost Gains Losses Value - --------------------------------------- ------------- ------------- ------------ ------------- <S> <C> <C> <C> <C> Equity securities...................... $ 101,501 $ 12,160 $ (3,546) $ 110,115 U.S. Government and agency securities................. 198,661 579 (201) 199,039 State and municipal securities......... 192,651 929 (1,401) 192,179 Debt securities issued by foreign governments............ 250 - - 250 Mortgage-backed securities............. 643,956 2,069 (6,962) 639,063 ------------- ------------- ------------ ------------- $ 1,137,019 $ 15,737 $ (12,110) $ 1,140,646 ============= ============= ============ ============= <CAPTION> 1999 Held to Maturity - --------------------------------------- <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 ============= ============= ============ ============= <CAPTION> 1999 Available for Sale - --------------------------------------- <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> The amortized cost and estimated fair value of debt securities at December 31, 2000 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.
<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 .................. $ 4,201 $ 4,213 $ 33,200 $ 33,316 Due from one year to five years .......... 15,739 14,623 279,185 278,699 Due from five years to ten years ......... 2,400 2,440 60,458 60,048 Due after ten years ...................... 343 408 18,719 19,405 ---------- ---------- ---------- ---------- 22,683 21,684 391,562 391,468 Mortgage-backed securities ............... 62,079 62,152 643,956 639,063 ---------- ---------- ---------- ---------- $ 84,762 $ 83,836 $1,035,518 $1,030,531 ========== ========== ========== ========== </TABLE> Gains totaling $8.8 million, $8.2 million and $11.4 million were realized on the sale of equity securities during 2000, 1999 and 1998, respectively. Gains totaling $66,000 were realized on the sale of available for sale debt securities during 1998. Securities carried at $715.4 million and $715.3 million at December 31, 2000 and 1999, 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: 2000 1999 ----------- ----------- (in thousands) Commercial, financial and agricultural ..... $ 1,219,845 $ 1,051,958 Real estate-construction ................... 223,575 164,583 Real estate-mortgage: First and second-residential ............ 1,424,274 1,291,483 Commercial .............................. 1,215,000 1,080,281 Consumer ................................... 709,985 774,098 Leasing and other .......................... 87,004 69,627 ----------- ----------- $ 4,879,683 $ 4,432,030 =========== =========== Changes in the allowance for loan losses were as follows for the years ended December 31: <TABLE> <CAPTION> 2000 1999 1998 ----------- ----------- ----------- (in thousands) <S> <C> <C> <C> Balance at January 1 ....................... $ 57,631 $ 57,415 $ 57,557 ----------- ----------- ----------- Loans charged off .......................... (13,336) (12,812) (9,140) Recoveries of loans previously charged off . 4,696 4,812 3,416 ----------- ----------- ----------- Net loans charged off ...................... (8,640) (8,000) (5,724) ----------- ----------- ----------- Provision for loan losses .................. 8,645 8,216 5,582 Allowance purchased (Skylands) ............. 2,633 - - ----------- ----------- ----------- Balance at December 31 ..................... $ 60,269 $ 57,631 $ 57,415 =========== =========== =========== </TABLE> Nonaccrual loans aggregated approximately $19.5 million at December 31, 2000, $18.7 million at December 31, 1999 and $19.3 million at December 31, 1998. Interest of approximately $1.7 million, $1.8 million and $1.9 million was not recognized as interest income due to the nonaccrual status of loans during 2000, 1999 and 1998, respectively. The recorded investment in loans that were considered to be impaired as defined by Statement 114 was $24.3 million and $11.4 million at December 31, 2000 and 1999, respectively. At December 31, 2000, $13.7 million of impaired loans were included in nonaccrual loans and at December 31, 1999, all impaired loans were included in
nonaccrual loans. At December 31, 2000 and 1999, impaired loans had related allowances for loan losses of $3.7 million and $1.8 million, respectively. The average recorded investment in impaired loans during the years ended December 31, 2000, 1999 and 1998 was approximately $18.3 million, $10.7 million, and $13.2 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 $900,000, $1.5 million and $100,000 on impaired loans in 2000, 1999, and 1998, 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 $75.0 million and $89.5 million at December 31, 2000 and 1999, respectively. During 2000, $29.0 million of new loans were made and repayments totaled $43.5 million. The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties at December 31, 2000 and 1999 was $597.9 million and $609.8 million, respectively. NOTE E - PREMISES AND EQUIPMENT - -------------------------------------------------------------------------------- The following is a summary of premises and equipment as of December 31: 2000 1999 --------- --------- (in thousands) Premises and leasehold improvements ............... $ 95,362 $ 91,438 Furniture and equipment ........................... 67,510 62,573 Construction in progress .......................... 25,866 6,780 --------- --------- 188,738 160,791 Less: Accumulated depreciation and amortization ... (91,591) (81,574) --------- --------- $ 97,147 $ 79,217 ========= ========= NOTE F - LONG-TERM DEBT - -------------------------------------------------------------------------------- The Corporation had a series of collateralized Federal Home Loan Bank advances totaling $442.0 million at December 31, 2000 and $328.3 million at December 31, 1999. These advances mature through January, 2025, and carry a weighted average interest rate of 5.57%. As of December 31, 2000 the Corporation had an additional borrowing capacity of approximately $594 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, 2000: Amount Year Maturing - ------------------------------ ---------- (in thousands) 2001 ......................... $ 86,500 2002 ......................... - 2003 ......................... 27,500 2004 ......................... - 2005 ......................... 73,000 Thereafter ................... 254,973 -------- $441,973 ========
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 $167 million at December 31, 2000. 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, 2000, the maximum amount available for transfer from the subsidiary banks to the Parent Company in the form of loans and dividends was approximately $210 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, 2000, that all of its bank subsidiaries meet the capital adequacy requirements to which they are subject. As of December 31, 2000 and 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, 2000 that management believes have changed the institutions' categories. The following tables present the total risk-based, Tier I risk-based and Tier I leverage requirements for the Corporation and its significant subsidiaries.
<TABLE> <CAPTION> As of December 31, 2000 ----------------------------------------------------------------------- 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................................. $ 705,519 14.3% $ 394,369 8.0% $ 492,962 10.0% Fulton Bank................................. 266,352 11.1 191,360 8.0 239,201 10.0 Lebanon Valley Farmers Bank................. 73,401 14.0 41,855 8.0 52,319 10.0 Lafayette Ambassador Bank................... 79,404 12.3 51,836 8.0 64,796 10.0 Tier I Capital (to Risk Weighted Assets): Corporation................................. $ 645,250 13.1% $ 197,185 4.0% $ 295,777 6.0% Fulton Bank................................. 242,613 10.1 95,680 4.0 143,520 6.0 Lebanon Valley Farmers Bank................. 67,312 12.9 20,928 4.0 31,392 6.0 Lafayette Ambassador Bank................... 71,996 11.1 25,918 4.0 38,877 6.0 Tier I Capital (to Average Assets): Corporation................................. $ 645,250 10.0% $ 194,258 3.0% $ 323,763 5.0% Fulton Bank................................. 242,613 8.6 84,414 3.0 140,690 5.0 Lebanon Valley Farmers Bank................. 67,312 9.7 20,843 3.0 34,239 5.0 Lafayette Ambassador Bank................... 71,996 8.3 25,899 3.0 43,166 5.0 <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>
NOTE H - INCOME TAXES - -------------------------------------------------------------------------------- The components of the provision for income taxes are as follows: Year ended December 31 -------------------------------- 2000 1999 1998 -------- --------- --------- Current tax expense: Federal ............................ $ 45,210 $ 38,972 $ 40,031 State .............................. 310 130 130 -------- --------- --------- 45,520 39,102 40,161 Deferred tax (benefit) expense .......... (1,280) 1,377 (329) -------- --------- --------- $ 44,240 $ 40,479 $ 39,832 ======== ========= ========= The differences between the effective income tax rate and the Federal statutory income tax rate are as follows: Year ended December 31 -------------------------------- 2000 1999 1998 -------- --------- --------- Statutory tax rate ...................... 35.0% 35.0% 35.0% Effect of tax-exempt income ............. (3.1) (3.2) (2.6) Effect of low income housing investments (2.3) (2.5) (2.1) Other, net .............................. 0.3 0.1 0.7 -------- --------- --------- Effective income tax rate ............... 29.9% 29.4% 31.0% ======== ========= ========= The net deferred tax asset recorded by the Corporation is included in other assets and consists of the following tax effects of temporary differences at December 31: <TABLE> <CAPTION> 2000 1999 -------- -------- (in thousands) <S> <C> <C> Allowance for loan losses ............................................. $ 21,094 $ 19,992 Deferred loan fees .................................................... 170 144 Direct leasing ........................................................ (8,440) (7,302) Deferred compensation ................................................. 2,449 2,361 Post-retirement benefits .............................................. 3,224 3,203 Investments in low income housing ..................................... 1,868 1,456 Fixed asset depreciation .............................................. (318) (699) Other ................................................................. 3,013 1,215 -------- -------- 23,060 20,370 Unrealized holding (gains) losses on securities available for sale .... (1,270) 6,378 -------- -------- $ 21,790 $ 26,748 ======== ======== </TABLE> As of December 31, 2000 and 1999, the Corporation has not established any valuation allowance against deferred tax assets since these tax benefits ar 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 or combination of 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. In addition, the profit sharing plan includes a 401(k) feature which allows employees to defer up to 5% of their pre-tax salary on an annual basis, with no employer match. Contributions under this feature are 100% vested. 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, corporate bonds, 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%. The defined benefit plan was closed to new participants effective January 1, 1999. Employees participating in the plans as of that date continue to accrue benefits according to the terms of the plan. Employees who become eligible for a retirement plan after January 1, 1999 are enrolled in the profit sharing plan. The following summarizes the Corporation's expense under the above plans for the years ended December 31: <TABLE> <CAPTION> 2000 1999 1998 ------- ------- ------- (in thousands) <S> <C> <C> <C> Profit-sharing plan ................................ $ 5,203 $ 4,920 $ 3,962 Defined benefit plan ............................... 1,037 1,393 1,330 401(k) plan ........................................ 533 553 711 ------- ------- ------- $ 6,773 $ 6,866 $ 6,003 ======= ======= ======= </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> 2000 1999 1998 ------- ------- ------- (in thousands) <S> <C> <C> <C> Service cost - benefits earned during period ....... $ 1,485 $ 1,631 $ 1,507 Interest cost on projected benefit obligation ...... 2,024 1,747 1,639 Actual return on assets ............................ (4,183) (3,530) (1,366) Net amortization and deferral ...................... 1,711 1,545 (450) ------- ------- ------- Net periodic pension cost .......................... $ 1,037 $ 1,393 $ 1,330 ======= ======= ======= </TABLE> 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:
Oct. 1, 1999 Oct. 1, 1998 Through Through Sept. 30, 2000 Sept. 30, 1999 ------------------------------- (in thousands) Projected benefit obligation, beginning .... $ 27,373 $ 27,157 Merge affiliate plan PBO ................... - 857 Service cost ............................... 1,485 1,631 Interest cost .............................. 2,024 1,747 Distributions .............................. (1,026) (965) Change due to change in assumptions ........ - (3,239) Experience loss at September 30 ............ (475) 185 -------------- -------------- Projected benefit obligation, ending ....... $ 29,381 $ 27,373 ============== ============== Fair value of plan assets, beginning ....... $ 31,085 $ 26,106 Merge affiliate plan assets ................ - 916 Employer contributions ..................... 833 1,498 Actual return on assets .................... 4,183 3,530 Distributions .............................. (1,026) (965) -------------- -------------- Fair value of plan assets, ending .......... $ 35,075 $ 31,085 ============== ============== The funded status of the plan and the amounts included in other liabilities as of December 31, 2000 and 1999 follows: 2000 1999 ------------ ------------ (in thousands) Projected benefit obligation ............... $ (29,381) $ (27,373) Fair value of plan assets .................. 35,075 31,085 ------------ ------------ Funded status ......................... 5,694 3,712 Unrecognized net transition asset .......... 96 184 Unrecognized prior service cost ............ 25 33 Unrecognized net gain ...................... (6,311) (4,298) ------------ ------------ Pension liability recognized in the consolidated balance sheets ........... $ (496) $ (369) ============ ============ The following rates were used to calculate net periodic pension cost and present value of benefit obligations: ............. 2000 1999 1998 ------ ------ ------ Discount rate-projected benefit obligation .......... 7.50% 7.50% 6.50% Rate of increase in compensation level .............. 5.00 5.00 4.00 Expected long-term rate of return on plan assets .... 8.00 8.00 8.00 Post-retirement 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 post-retirement benefits other than pensions are as follows:
<TABLE> <CAPTION> 2000 1999 1998 -------- -------- --------- (in thousands) <S> <C> <C> <C> Service cost-benefits earned during the period ...... $ 268 $ 250 $ 251 Interest cost on accumulated benefit obligation ..... 422 364 377 Actual return on plan assets ........................ (12) (9) (10) Net amortization and deferral ....................... (304) (289) (296) -------- -------- -------- Net nonpension post-retirement benefit cost ......... $ 374 $ 316 $ 322 ======== ======== ======== </TABLE> The following table summarizes the changes in the projected benefit obligation and fair value of plan assets for the years ended December 31, 2000 and 1999: <TABLE> <CAPTION> 2000 1999 ---------- ----------- (in thousands) <S> <C> <C> Projected benefit obligation, beginning ........ $ 6,063 $ 5,790 Service cost ................................... 268 250 Interest cost .................................. 422 364 Benefit payments ............................... (315) (298) Change due to change in experience ............. (257) (24) Change due to change in assumptions ............ (641) (19) ---------- ----------- Projected benefit obligation, ending ........... $ 5,540 $ 6,063 ========== =========== Fair value of plan assets, beginning ........... $ 203 $ 199 Employer contributions ......................... 292 293 Actual return on assets ........................ 12 9 Benefit payments ............................... (315) (298) ---------- ----------- Fair value of plan assets, ending .............. $ 192 $ 203 ========== =========== </TABLE> The funded status of the plan and the amounts included in other liabilities as of December 31, 2000 and 1999 follows: <TABLE> <CAPTION> 2000 1999 ---------- ----------- (in thousands) <S> <C> <C> Projected benefit obligation ................... $ (5,540) $ (6,063) Fair value of plan assets ...................... 192 203 ---------- ----------- Funded status ............................. (5,348) (5,860) Unrecognized prior service cost ................ (1,584) (1,810) Unrecognized net gain .......................... (2,076) (1,257) ---------- ----------- Post-retirement benefits liability recognized in the consolidated balance sheets ........ $ (9,008) $ (8,927) ========== =========== </TABLE> For measuring the post-retirement benefit obligation, a 5.5% 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 above the assumed annual increase, the accumulated post-retirement benefit obligation would increase by approximately $641,000 and the current period expense would increase by approximately $105,000. Conversely, a 1% decrease in the health care cost trend rate would decrease the accumulated post-retirement benefit obligation by approximately $537,000 and the current period expense by approximately $85,000. The discount rate used in determining the accumulated post retirement benefit obligation was 7.50% at December 31, 2000 and 1999.
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. Options assumed from Skylands retained their original vesting schedules. The Plan has reserved 1.1 million additional 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: Option Price Per Share ------------------------------ Stock Weighted Options Range Average ----------- --------------- ----------- Balance at January 1, 1998 ...... 1,443,132 $3.31 - $18.79 $ 10.12 Granted ....................... 288,981 21.49 21.49 Exercised ..................... (262,112) 3.31 - 18.79 9.00 ----------- Balance at December 31, 1998 .... 1,470,001 3.31 - 21.49 12.54 Granted ....................... 245,963 19.85 19.85 Exercised ..................... (153,332) 3.31 - 18.79 7.80 Canceled ...................... (10,822) 18.79 - 21.49 20.17 ----------- Balance at December 31, 1999 .... 1,551,810 3.31 - 21.49 14.11 Granted ....................... 247,650 19.72 19.72 Exercised ..................... (200,438) 3.31 - 19.85 8.96 Assumed from Skylands ......... 249,954 4.08 - 15.76 10.89 ----------- Balance at December 31, 2000 .... 1,848,976 $3.31 - $21.49 $ 14.96 =========== Exercisable at December 31, 2000. 1,763,613 $3.31 - $21.49 $ 15.12 =========== The following table summarizes information concerning options outstanding at December 31, 2000: <TABLE> <CAPTION> Total Weighted Weighted Range of Unexercised Average Average Exercisable Exercise Stock Remaining Exercise Stock Prices Options Life (Years) Price Options - ---------------- ------------- ------------- ----------- ------------- <S> <C> <C> <C> <C> $0.00 - $5.00 78,282 2.71 $3.59 76,196 $5.00 - $10.00 322,813 2.97 8.18 322,813 $10.00 - $15.00 460,237 5.11 11.14 398,812 $15.00 - $20.00 704,029 8.37 19.19 682,177 $20.00 - $25.00 283,615 7.58 21.49 283,615 ------------- ------------- ----------- ------------- 1,848,976 6.26 $14.96 1,763,613 ============= ============= =========== ============= </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, 74,605 shares, 83,424 shares and 74,164 shares were issued in 2000, 1999 and 1998, respectively. A total of 879,477 shares have been issued since the inception of the ESPP in 1986. As of December 31, 2000, 471,724 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 of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (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): <TABLE> <CAPTION> 2000 1999 1998 ------------- ------------- ------------- <S> <C> <C> <C> <C> Net income: As reported............. $ 103,804 $ 97,226 $ 88,511 Proforma................ 102,529 96,054 87,391 Net income per share (basic): As reported............. $ 1.46 $ 1.34 $ 1.22 Proforma................ 1.44 1.33 1.21 Net income per share (diluted): As reported............. $ 1.45 $ 1.33 $ 1.21 Proforma................ 1.43 1.32 1.19 Weighted average fair value of options granted.............. $ 5.33 $ 4.99 $ 4.85 </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: 2000 1999 1998 --------- ----------- ----------- Risk-free interest rate .............. 6.43% 5.84% 5.50% Volatility of Corporation's stock .... 22.71 19.71 18.63 Expected dividend yield .............. 3.25 2.88 2.42 Expected life of options ............. 8 Years 8 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. As of December 31, 2000, the purchase price had adjusted to $77.92 per share as a result of stock dividends. 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. NOTE K - LEASES - -------------------------------------------------------------------------------- Certain branch offices and equipment are leased under agreements which expire at varying dates through 2018. Most leases contain renewal provisions at the Corporation's option. Total rental expense was approximately $4.0 million in 2000, $3.8 million in 1999 and $3.4 million in 1998. Future minimum payments as of December 31, 2000 under noncancelable operating leases are as follows:
Minimum Year Rent - ----------------- ------------- (in thousands) 2001............. $ 3,492 2002............. 3,173 2003............. 2,903 2004............. 2,529 2005............. 2,272 Thereafter....... 10,067 ----------- $ 24,436 =========== 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 $1.7 billion and $1.5 billion as of December 31, 2000 and 1999, 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 $241.7 million at December 31, 2000 and $146.8 million at December 31, 1999. 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 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> 2000 1999 -------------------------- --------------------------- Estimated FINANCIAL ASSETS Book Value Fair Value Book Value Fair Value - -------------------------------------- ------------- ------------ ------------- ------------ (in thousands) <S> <C> <C> <C> <C> Cash and due from banks............... $ 267,178 $ 267,178 $ 245,572 $ 245,572 Interest-bearing deposits with other banks................. 3,199 3,199 1,798 1,798 Mortgage loans held for sale.......... 5,241 5,241 1,016 1,016 Securities held to maturity........... 84,762 83,836 85,474 84,777 Securities available for sale......... 1,140,646 1,140,646 1,137,846 1,137,846 Net loans............................. 4,806,498 4,831,300 4,364,776 4,281,708 Accrued interest receivable........... 40,411 40,411 31,496 31,496 <CAPTION> 2000 1999 ---------------------------- ---------------------------- Estimated Estimated FINANCIAL LIABILITIES Book Value Fair Value Book Value Fair Value ------------- ------------- ------------- ------------- (in thousands) <S> <C> <C> <C> <C> Demand and savings deposits........... $ 2,553,643 $ 2,553,643 $ 2,336,314 $ 2,336,314 Time deposits......................... 2,380,762 2,397,172 2,210,499 2,198,360 Short-term borrowings................. 408,166 408,166 487,546 487,546 Accrued interest payable.............. 41,637 41,637 32,313 32,313 Other financial liabilities........... 28,089 28,089 25,843 25,843 Long-term debt........................ 441,973 438,796 328,250 315,334 </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 of December 31, 2000 and 1999 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.
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 - -------------------------------------------------------------------------------- Skylands Financial Corporation - On August 1, 2000, the Corporation completed its acquisition of Skylands Financial Corporation (SFC) of Hackettstown, New Jersey. SFC, with approximately $240 million in total assets on the acquisition date, was a bank holding company whose sole banking subsidiary, Skylands Community Bank (Skylands), operates eight community banking offices in Morris, Warren and Sussex counties. Under the terms of the merger agreement, each of the 2.5 million outstanding shares of SFC's common stock was exchanged for 0.819 shares of the Corporation's common stock. In addition, the 308,000 options to acquire shares of SFC stock were also exchanged for options to purchase the Corporation's common stock. As a result of the acquisition, SFC was merged with and into the Corporation and Skylands became the Corporation's third banking subsidiary located in New Jersey. The acquisition was accounted for as a purchase. Goodwill of approximately $17.5 million was recorded as the purchase price paid in excess of the net assets acquired. The goodwill is being amortized to expense on a straight line basis over 15 years. The accounts and results of operations of Skylands are included in the financial statements of the Corporation prospectively from the August 1, 2000 acquisition date. Ambassador Bank of the Commonwealth. - On September 11, 1998, the Corporation completed its acquisition of Ambassador Bank of the Commonwealth (Ambassador), a $275 million asset 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 1.617 shares of the Corporation's common stock. In addition, the 438,000 options and warrants to acquire Ambassador stock were exchanged for approximately 473,000 shares of the Corporation's common stock. The Corporation issued 3.6 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 2.643 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 10.5 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. Dearden, Maguire, Weaver and Barrett, Inc. - On January 2, 2001, the Corporation completed its previously announced acquisition of investment management and advisory company Dearden, Maguire, Weaver and Barrett, Inc. (Dearden Maguire). Dearden Maguire provides investment advice to, and manages the assets of, clients in the mid-Atlantic region. The firm currently has approximately $1.3 billion in assets under management. Dearden Maguire will retain its name and will operate in conjunction with Fulton Financial Advisors, N.A. (Advisors), the Corporation's investment management and trust services subsidiary. Since the acquisition was accounted for under
the purchase method of accounting, the accounts and results of operations of Dearden Maguire are not included in the financial statements of the Corporation for periods prior to January 2, 2001. Drovers Bancshares Corporation - On December 27, 2000, the Corporation entered into a merger agreement to acquire Drovers Bancshares Corporation (Drovers), of York, Pennsylvania. Drovers is an $800 million bank holding company whose primary subsidiary is The Drovers & Mechanics Bank (Drovers Bank), which has 16 community banking offices in York County, Pennsylvania and one office in Frederick County, Maryland. Under the terms of the merger agreement, each of the approximately 5.1 million shares of Drover's common stock will be exchanged for 1.24 shares of the Corporation's common stock. In addition, each of the 247,000 options to acquire Drovers stock will be converted to options to purchase the Corporation's stock. The acquisition is subject to approval by bank regulatory authorities and Drovers' shareholders and is expected to be completed in the third quarter of 2001. The acquisition will be accounted for as a pooling of interests. As a result of the acquisition, Drovers will be merged into the Corporation and Drovers Bank will be merged into Fulton Bank, the Corporation's largest affiliate bank. The trust business of Drovers Bank will be transferred to Fulton Financial Advisors, N.A. Sovereign Bank Branches - On January 29, 2001, the Corporation entered into a definitive agreement with Sovereign Bank (Sovereign) to acquire 18 branch offices located in Delaware, New Jersey and Pennsylvania. These branch offices, which include approximately $319 million in deposits and $53 million in loans, will be operated through existing banking affiliates of the Corporation. The transaction is subject to regulatory approvals and is expected to be completed in the second quarter of 2001. NOTE O - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY - -------------------------------------------------------------------------------- CONDENSED BALANCE SHEETS - ------------------------ (in thousands) December 31 --------------------------- 2000 1999 ---------- ---------- ASSETS - ------ Cash, securities, and other assets................... $ 651 $ 465 Receivable from bank subsidiaries ................. 8 745 Investment in: Bank subsidiaries ................. 591,563 511,924 Nonbank subsidiaries .............. 133,844 124,590 ---------- ---------- Total Assets ...................... $ 726,066 $ 637,724 ========== ========== December 31 --------------------------- 2000 1999 ---------- ---------- LIABILITIES - ----------- AND EQUITY ---------- Short - term borrowings ........................ $ 11,425 $ - Payable to nonbank subsidiaries .............. 16,177 3,000 Other liabilities ...................... 19,128 20,430 ---------- ---------- Total Liabilities ................. 46,730 23,430 Shareholders' equity ................... 679,336 614,294 Total Liabilities and Shareholders' Equity .............. $ 726,066 $ 637,724 ========== ==========
CONDENSED STATEMENTS OF INCOME - ------------------------------ <TABLE> <CAPTION> Year ended December 31 ------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ (in thousands) <S> <C> <C> <C> Income: Dividends from bank subsidiaries................................ $ 70,711 $ 66,292 $ 69,592 Other........................................................... 9,539 9,900 8,129 ------------ ------------ ------------ 80,250 76,192 77,721 Expenses............................................................. 16,619 15,760 17,146 ------------ ------------ ------------ Income before income taxes and equity in undistributed net income of subsidiaries........................ 63,631 60,432 60,575 Income tax benefit................................................... (2,697) (2,338) (2,680) ------------ ------------ ------------ 66,328 62,770 63,255 Equity in undistributed net income of: Bank subsidiaries............................................... 27,466 25,738 15,642 Nonbank subsidiaries............................................ 10,010 8,718 9,614 ------------ ------------ ------------ Net Income................................................. $ 103,804 $ 97,226 $ 88,511 ============ ============ ============ <CAPTION> CONDENSED STATEMENTS OF CASH FLOWS - ---------------------------------- Year Ended December 31 ------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ (in thousands) <S> <C> <C> <C> Cash Flows From Operating Activities: Net Income..................................................... $ 103,804 $ 97,226 $ 88,511 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Decrease (increase) in other assets......................... 657 (799) 3,745 Increase in investment in subsidiaries...................... (37,476) (34,456) (25,256) Increase in other liabilities............................... 10,726 4,664 911 Total adjustments....................................... (26,093) (30,591) (20,600) Net cash provided by operating activities............... 77,711 66,635 67,911 Net cash used in investing activities - investment in subsidiaries. (5,352) (5,151) (21,275) Cash Flows From Financing Activities: Net increase (decrease) in short-term borrowings............ 11,425 (6,617) (9,383) Dividends paid.............................................. (43,140) (39,575) (33,939) Net proceeds from issuance of common stock.................. 4,624 2,228 2,227 Acquisition of treasury stock............................... (45,162) (17,534) (5,780) ------------ ------------ ------------ Net cash used in financing activities................... (72,253) (61,498) (46,875) ------------ ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents............... 106 (14) (239) Cash and Cash Equivalents at Beginning of Year..................... 5 19 258 ------------ ------------ ------------ Cash and Cash Equivalents at End of Year........................... $ 111 $ 5 $ 19 ============ ============ ============ Cash paid during the year for: Interest..................................................... $ 2,495 $ 1,556 $ 2,257 Income taxes................................................. 39,819 31,066 36,040 </TABLE>
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, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the financial position of Fulton Financial Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Lancaster, Pennsylvania January 19, 2001
FULTON FINANCIAL CORPORATION QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED) (In thousands, except per-share data) <TABLE> <CAPTION> Three Months Ended ---------------------------------------------------- For the Year 2000 March 31 June 30 Sept. 30 Dec. 31 - ---------------------------------------------------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Interest income .................................... $ 109,011 $ 112,368 $ 118,982 $ 122,220 Interest expense ................................... 47,891 50,530 54,645 57,415 ---------- ---------- ---------- ---------- Net interest income ................................ 61,120 61,838 64,337 64,805 Provision for loan losses .......................... 2,025 2,025 2,345 2,250 Other income ....................................... 16,652 17,032 16,890 19,037 Other expenses ..................................... 39,786 39,923 41,700 43,613 ---------- ---------- ---------- ---------- Income before income taxes ......................... 35,961 36,922 37,182 37,979 Income taxes ....................................... 10,647 11,015 11,061 11,517 ---------- ---------- ---------- ---------- Net income ......................................... $ 25,314 $ 25,907 $ 26,121 $ 26,462 ========== ========== ========== ========== Per-share data: Net income (basic) ............................ $ 0.35 $ 0.37 $ 0.37 $ 0.37 Net income (diluted) .......................... 0.35 0.37 0.37 0.37 Cash dividends ................................ 0.143 0.160 0.160 0.160 <CAPTION> Three Months Ended ---------------------------------------------------- For the Year 1999 March 31 June 30 Sept. 30 Dec. 31 - ---------------------------------------------------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Interest income .................................... $ 101,308 $ 103,426 $ 105,411 $ 108,585 Interest expense ................................... 42,682 42,429 43,707 46,009 ---------- ---------- ---------- ---------- Net interest income ................................ 58,626 60,997 61,704 62,576 Provision for loan losses .......................... 1,967 2,085 1,997 2,167 Other income ....................................... 15,313 15,041 15,411 15,593 Other expenses ..................................... 38,698 39,838 40,406 40,398 ---------- ---------- ---------- ---------- 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) ............................ $ 0.32 $ 0.33 $ 0.34 $ 0.35 Net income (diluted) .......................... 0.32 0.33 0.34 0.35 Cash dividends ................................ 0.130 0.143 0.143 0.143 </TABLE> Item 9. Changes in and Disagreements with Accountants on - --------------------------------------------------------- Accounting and Financial Disclosure ----------------------------------- None.
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 2001 Proxy Statement and under the heading "Executive Officers" on page 11 of the 2001 Proxy Statement. Item 11. Executive Compensation - -------------------------------- Incorporated by reference herein is the information appearing under the heading "Executive Compensation" on pages 12 through 13 of the 2001 Proxy Statement and under the heading "Compensation of Directors" on page 11 of the 2001 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 2001 Proxy Statement and under the heading "Information about Nominees and Continuing Directors" on pages 5 through 10 of the 2001 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 2001 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".
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, 2000 and 1999. (ii) Consolidated Statements of Income - Years ended December 31, 2000, 1999 and 1998. (iii) Consolidated Statements of Shareholders' Equity - Years ended December 31, 2000, 1999 and 1998. (iv) Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998. (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) Consent of Independent Public Accountants (b) Reports on Form 8-K:
(1) Form 8-K dated January 2, 2001 reporting the execution of an Agreement and Plan of Merger between Fulton Financial Corporation and Drovers Bancshares Corporation. (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.
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 20, 2001 By: /s/ Rufus A. Fulton, Jr. ---------------------------- Rufus A. Fulton, Jr., 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. Signature Capacity Date /s/ Jeffrey G. Albertson Director March 20, 2001 - --------------------------------- Jeffrey G. Albertson, Esq.. /s/ James P. Argires, M.D. Director March 20, 2001 - --------------------------------- James P. Argires, M.D. /s/ Donald M. Bowman, Jr. Director March 20, 2001 - --------------------------------- Donald M. Bowman, Jr. /s/ Beth Ann L. Chivinski Senior Vice President March 20, 2001 - --------------------------------- and Controller Beth Ann L. Chivinski (Principal Accounting Officer) /s/ Harold D. Chubb Director March 20, 2001 - --------------------------------- Harold D. Chubb /s/ William H. Clark, Jr. Director March 20, 2001 - --------------------------------- William H. Clark, Jr., C.P.A.
Signature Capacity Date - --------- -------- ---- /s/ Craig A. Dally, Esq. Director March 20, 2001 - --------------------------------- Craig A. Dally, Esq. /s/ Frederick B. Fichthorn Director March 20, 2001 - --------------------------------- Frederick B. Fichthorn Director March 20, 2001 - --------------------------------- Patrick J. Freer /s/ Rufus A. Fulton, Jr. Chairman, Chief Executive March 20, 2001 - --------------------------------- Officer and Director Rufus A. Fulton, Jr. (Principal Executive Officer) /s/ Eugene H. Gardner Director March 20, 2001 - --------------------------------- Eugene H. Gardner /s/ Robert D. Garner Director March 20, 2001 - --------------------------------- Robert D. Garner /s/ Charles V. Henry III, Esq. Director March 20, 2001 - --------------------------------- Charles V. Henry III, Esq. /s/ J. Robert Hess Director March 20, 2001 - --------------------------------- J. Robert Hess /s/ Carolyn R. Holleran Director March 20, 2001 - --------------------------------- Carolyn R. Holleran /s/ Clyde W. Horst Director March 20, 2001 - --------------------------------- Clyde W. Horst /s/ Samuel H. Jones, Jr. Director March 20, 2001 - --------------------------------- Samuel H. Jones, Jr.
Signature Capacity Date - --------- -------- ---- /s/ Donald W. Lesher, Jr. Director March 20, 2001 - --------------------------------- Donald W. Lesher, Jr. /s/ Charles J. Nugent Senior Executive March 20, 2001 - --------------------------------- Vice President and Charles J. Nugent Chief Financial Officer (Principal Financial Officer) /s/ Joseph J. Mowad, M.D. Director March 20, 2001 - ---------------------------------- Joseph J. Mowad, M.D. Director March 20, 2001 - ---------------------------------- Stuart H. Raub, Jr. /s/ Mary Ann Russell Director March 20, 2001 - ---------------------------------- Mary Ann Russell /s/ John O. Shirk, Esq. Director March 20, 2001 - ---------------------------------- John O. Shirk, Esq. /s/ R. Scott Smith, Jr. President and Chief March 20, 2001 - ----------------------------------- Operating Officer and R. Scott Smith, Jr. Director /s/ James K. Sperry Director March 20, 2001 - ----------------------------------- James K. Sperry /s/ Kenneth G. Stoudt Director March 20, 2001 - ----------------------------------- Kenneth G. Stoudt
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. Consent of Independent Public Accountants.