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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number: 33-85626
FULTON BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Commonwealth of Pennsylvania 25-1598464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Lincoln Way East
McConnellsburg, Pennsylvania 17233
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (717) 485-3144
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 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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Class Outstanding at March 4, 1997
(Common stock, .625 par value) 495,000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year
ended December 31, 1996 are incorporated by reference into
Parts I and II. Portions of the Proxy Statement for 1997
Annual Meeting of Security Holders are incorporated by
reference in Part III of this Form 10-K.
- -1-
Item 1. Business.
Description of the Company
Fulton Bancshares Corporation (the "Company"), a
Pennsylvania business corporation, is a bank holding company
registered with and supervised by the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board").
The Company was incorporated on March 29, 1989 under the
business corporation law of the Commonwealth of Pennsylvania
for the purpose of becoming a bank holding company. Since
commencing operations, the Company's business has consisted
primarily of managing and supervising the Fulton County
National Bank and Trust Company (the "Bank"), and its
principal source of income has been dividends paid by the
Bank. The Company has two wholly-owned subsidiaries - the
Bank, and Fulton County Community Development Corporation
("FCCDC"), which was formed on June 7, 1996 to support
efforts of the local downtown business revitalization
project by making low interest loans to eligible small
businesses for the purpose of facade improvement. FCCDC had
minimal activity in 1996, and has no employees.
The principal executive office of the Company is
located at 100 Lincoln Way East, McConnellsburg, Fulton
County, Pennsylvania 17233. The telephone number of the
Company is (717) 485-3144.
The Company has no employees.
- -2-
Supervision and Regulation - The Company
The Company is subject to the provisions of the
Bank Holding Company Act of 1956, as amended (the "Bank
Holding Company Act"), and to supervision by the Federal
Reserve Board. The Bank Holding Company Act requires the
Company to secure the prior approval of the Federal Reserve
Board before it owns or controls, directly or indirectly,
more than five percent (5%) of the voting shares or
substantially all of the assets of any institution,
including another bank. The Bank Holding Company Act
prohibits acquisition by the Company of more than five
percent (5%) of the voting shares of, or interest in, all or
substantially all of the assets of any bank located outside
of Pennsylvania unless such acquisition is specifically
authorized by the laws of the state in which such bank is
located.
A bank holding company is prohibited from engaging
in or acquiring direct or indirect control of more than five
percent (5%) of the voting shares of any company engaged in
nonbanking activities unless the Federal Reserve Board, by
order or regulation, has found such activities to be so
closely related to banking or managing or controlling banks
as to be a proper incident thereto.
- -3-
The Company is required to file an annual report
with the Federal Reserve Board and any additional
information that the Federal Reserve Board may require
pursuant to the Bank Holding Company Act. The Federal
Reserve Board may also make examinations of the Company and
any or all of its subsidiaries.
Federal law prohibits acquisitions of control of a
bank holding company without prior notice to certain federal
bank regulators. Control is defined for this purpose as the
power, directly or indirectly, to direct the Management or
policies of the bank or bank holding company or to vote 25%
or more of any class of voting securities of the bank
holding company. A person or group holding revocable
proxies to vote 25% or more of the stock of a bank or its
holding company would presumably be deemed to control the
institution for purposes of this federal law.
Subsidiary banks of a bank holding company are
subject to certain restrictions imposed by the Federal
Reserve Act on any extensions of credit to the bank holding
company or any of its subsidiaries, on investments in the
stock or other securities of the bank holding company and on
taking of such stock or securities as collateral for loans
to any borrower.
- -4-
Permitted Activities
The Federal Reserve Board permits bank holding
companies to engage in activities so closely related to
banking or managing or controlling banks as to be a proper
incident thereto. The Company does not at this time engage
in any of the permissible activities described below, nor
does the Company have any current plans to engage in these
activities in the foreseeable future.
While the types of permissible activities are
subject to a variety of limitations and to change by the
Federal Reserve Board, the principal activities that
presently may be conducted by a bank holding company and may
in the future be engaged by the Company are: (1) making,
acquiring or servicing loans and other extensions of credit
for its own account or for the account of others, such as
would be made by consumer finance, credit card, mortgage,
commercial finance and factoring companies; (2) operating as
an industrial bank or similar entity in the manner
authorized by state law so long as the institution does not
both accept demand deposits and make commercial loans; (3)
operating as a trust company in the manner authorized by
federal or state law so long as the institution does not
make certain types of loans or investments or accept
deposits, except as may be permitted by the Federal Reserve
Board; (4) acting as an investment or financial advisor to
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investment companies and other persons; (5) leasing personal
and real property or acting as agent, broker or advisor in
leasing property; (6) making equity and debt investments in
corporations or projects designed primarily to promote
community welfare; (7) providing to others financially
oriented data processing or bookkeeping services; (8) acting
as an insurance agent or broker in relation to insurance for
itself and its subsidiaries or for insurance directly
related to extensions of credit; (9) acting as underwriter
for credit life insurance and credit accident and health
insurance: (10) providing courier services of a limited
character; (11) providing management consulting advice to
nonaffiliated banks and nonbank depository institutions;
(12) selling money orders, travelers' checks and United
States savings bonds; (13) performing appraisals of real
estate; (14) acting as intermediary for the financing of
commercial or industrial income-producing real estate by
arranging for the transfer of the title, control and risk of
such a real estate project to one or more investors; (15)
providing securities brokerage services, related securities
credit activities and incidental activities such as offering
custodial services, individual retirement accounts and cash
management services, if the securities brokerage services
are restricted to buying and selling securities solely as
- -6-
agent for the account of customers and do not include
securities underwriting or dealing or investment advice or
research services; (16) underwriting and dealing in
obligations of the United States, general obligations of
states and their political subdivisions such as bankers'
acceptances and certificates of deposit; (17) providing
general information, advisory services and statistical
forecasting with respect to foreign exchange markets; (18)
acting as a futures commission merchant in the execution and
clearance on major commodity exchanges of futures contracts
and options on futures contracts for bullion, foreign
exchange, government securities, certificates of deposit and
other money market instruments; (19) performing personal
property appraisals that require expertise regarding all
types of personal and business property, including
intangible property such as corporate securities; (20)
providing commodity trading and futures commission merchant
advice; (21) providing consumer financial counseling to
individuals on consumer-oriented financial management
matters, including debt consolidation, mortgage
applications, bankruptcy, budget management, real estate tax
shelters, tax planning, retirement and estate planning,
insurance and general investment management, so long as this
activity does not include the sale of specific products or
- -7-
investments; (22) providing tax planning and preparation
advice to corporations and individuals; (23) providing check
guaranty services to subscribing merchants; (24) operating a
collection agency and credit bureau; and (25) acquiring and
operating thrift institutions, including savings and loan
associations, building and loan associations and FDIC-
insured savings banks.
Certain Provisions of Pennsylvania Banking Law
Under the Pennsylvania Banking Code of 1965, as
amended, (the "Code"), the Company has been permitted since
March 4, 1990 to control an unlimited number of banks.
However, the Company would be subject to the requirements of
the Bank Holding Company Act as discussed in the
"Supervision and Regulation - The Company" section above.
Also since March 4, 1990, the Code authorizes
reciprocal interstate banking without any geographic
limitation. Reciprocity between states exists when a
foreign state's law authorizes Pennsylvania bank holding
companies to acquire banks or bank holding companies located
in that state on terms and conditions substantially no more
restrictive than those applicable to such an acquisition by
a bank holding company located in that state. For a further
discussion of interstate banking and branching, see the
section entitled "Legislation and Regulatory Changes" below.
- -8-
Legislation and Regulatory Changes
From time to time, legislation is enacted which
has the effect of increasing the cost of doing business,
limiting or expanding permissible activities or affecting
the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations
governing the operations and taxation of banks, bank holding
companies and other financial institutions are frequently
made in Congress, and before various bank regulatory
agencies. No prediction can be made as to the likelihood of
any major changes or the impact such changes might have on
the Company and its subsidiary, the Bank. Certain changes
of potential significance to the Company which have been
enacted recently are discussed below.
The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking and Branch
Act") permits interstate banking to occur. Bank holding
companies, pursuant to an amendment to the Bank Holding
Company Act, can acquire a bank located in any state, as
long as the acquisition does not result in the bank holding
company controlling more than 10% of the deposits in the
United States, or 30% of the deposits in the target bank's
state. The legislation permits states to waive the
concentration limits and require that the target institution
- -9-
be in existence for up to five years before it can be
acquired by an out-of-state bank or bank holding company.
Interstate branching and merging of existing banks is
permitted after September 29, 1997 if the bank is adequately
capitalized and demonstrates good management. Branch
merging will be permitted earlier if a state undertakes to
enact a law which allows it and states may also enact a law
to permit banks to branch de novo. As a national bank, the
Bank currently can relocate its main office across state
lines by utilizing a provision in the National Bank Act
which permits such relocation to a location not more than
thirty miles from its existing main office.
The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") was enacted in August of
1989. This law was enacted primarily to improve the
supervision of savings associations by strengthening
capital, accounting and other supervisory standards. In
addition, FIRREA reorganized the FDIC by creating two
deposit insurance funds to be administered by the FDIC: The
Savings Association Insurance Fund and the Bank Insurance
Fund. Customers' deposits held by the Bank are insured
under the Bank Insurance Fund. FIRREA also regulates real
estate appraisal standards and the supervisory/enforcement
powers and penalty provisions in connection with the
regulation of the Bank.
- -10-
Effects of Inflation
Inflation has some impact on the Company's, the
Bank's, and FCCDC's operating costs. Unlike many industrial
companies, however, substantially all of the Bank's and
FCCDC's assets and liabilities are monetary in nature. As a
result, interest rates have a more significant impact on the
Company's, the Bank's, and FCCDC's performance than the
general level of inflation. Over short periods of time,
interest rates may not necessarily move in the same
direction or in the same magnitude as prices of goods and
services.
Monetary Policy
The earnings of the Company, the Bank, and FCCDC
are affected by domestic economic conditions and the
monetary and fiscal policies of the United States Government
and its agencies. An important function of the Federal
Reserve System is to regulate the money supply and interest
rates. Among the instruments used to implement those
objectives are open market operations in United States
government
securities and changes in reserve requirements against
member bank deposits. These instruments are used in varying
combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may also
affect rates charged on loans or paid for deposits.
- -11-
The Bank is a member of the Federal Reserve System
and, therefore, the policies and regulations of the Federal
Reserve Board have a significant effect on its deposits,
loans and investment growth, as well as the rate of interest
earned and paid, and are expected to affect the Bank's
operations in the future. The effect of such policies and
regulations upon the future business and earnings of the
Company, the Bank, and FCCDC cannot be predicted.
Environmental Regulation
There are several federal and state statutes which
regulate the obligations and liabilities of financial
institutions pertaining to environmental issues. In
addition to the potential for attachment of liability
resulting from its own actions, a bank may be held liable
under certain circumstances for the actions of its
borrowers, or third parties, when such actions result in
environmental problems on properties that collateralize
loans held by the Bank. Further, the liability has the
potential to far exceed the original amount of the loan
issued by the Bank. Currently, the Company, the Bank, and
FCCDC are not party to any pending legal proceeding pursuant
to any environmental statute, nor is the Company, the Bank,
or FCCDC aware of any circumstances which may give rise to
liability under any such statute.
- -12-
Description of the Bank
The Bank was organized on February 24, 1887 as a
Pennsylvania state-chartered banking institution. It
converted to a national banking association on September 5,
1933, and is presently under the supervision of the Office
of the Comptroller of the Currency (the "Comptroller"). The
Bank is a member of the Federal Reserve System. Customers'
deposits held by the Bank are insured by the FDIC to the
maximum extent permitted by law. The Bank's legal
headquarters are located at 100 Lincoln Way East,
McConnellsburg, Fulton County, Pennsylvania 17233.
The Bank engages in a full service commercial and
consumer banking business, including the acceptance of time
and demand deposits and the making of secured and unsecured
commercial and consumer loans, and offering trust services.
The Bank's primary service area is located in Fulton
County, Pennsylvania. Specifically, the main office of the
Bank is located in McConnellsburg, the county seat. Within
the defined service area of the Bank's main office, the
banking business is highly competitive. The Bank competes
with regionally-based commercial banks, all of which have
greater assets, capital and lending limits. The Bank also
competes with savings banks, savings and loan associations,
money market funds, insurance companies, stock brokerage
- -13-
firms, regulated small loan companies, credit unions and
with the issuers of commercial paper and other securities.
In order to compete effectively in this market and
to obtain business from individuals, small and medium-sized
businesses and professionals, the Bank offers specialized
services such as extended hours of operation and personal
and business checking accounts at competitive rates in
addition to traditional commercial and consumer banking and
trust services. The Bank accepts time, demand and savings
deposits, including passbook accounts, statement savings
accounts, NOW accounts, money market accounts, regular
savings accounts, certificates of deposit and club accounts.
The Bank makes secured and unsecured commercial, consumer,
installment and construction loans. Consumer loans include
revolving credit lines and commercial lending. The
following support services are offered by the Bank to make
financial management more efficient and convenient for its
customers: bank by mail, direct deposit, drive-in banking,
Federal Tax Depository, automatic teller machine,
MasterCard/Visa applications and cash advances, night
deposit services, notary public services, payroll deduction
plan, personal collections, safe deposit boxes, signature
guarantees, travelers checks, treasury securities, U.S.
Savings Bonds, individual retirement accounts, and utility
and municipal payments. The Bank also provides discount
- -14-
brokerage services. The Bank expects to experience a modest
increase in growth.
Lending Activities
It is the Bank's general policy to grant all of
its loans in its primary trade area. This trade area
includes all of Fulton County, Southern Huntington County
and the Hancock, Maryland area. The Bank's lending
objectives are as follows: (1) to establish a diversified
loan portfolio composed of a predetermined mix of mortgage
loans, commercial loans, consumer loans and all other loan
types; (2) to provide a satisfactory rate of return to its
shareholders by properly pricing loans to include the cost
of funds, administrative costs, bad debts, local economic
conditions, competition, customer relationships, the term of
the loan, credit risk, and collateral quality; and, (3) to
provide protection for its depositors by maintaining a
predetermined level of loans to deposits to ensure
liquidity. The Bank recognizes that the lending of money is
a community responsibility which involves a degree of credit
risk and is willing to undertake such risks by utilizing
standard banking procedures and making prudent judgments
when extending credit.
The Bank makes loans to both individual consumers
and commercial entities. The types of loans offered
include: (1) loans for businesses and individuals on a
- -15-
short term or seasonal basis; (2) loans to individuals for
consumer purchases such as appliances, furniture, vacations,
etc.: (3) loans secured by marketable stock and bonds
providing adequate margins for market fluctuations; (4)
short term working capital loans secured by the assignment
of accounts receivable and inventory; (5) automobile loans,
and (6) second liens on commercial and residential real
estate. Loans of these types will be considered desirable
by the Bank provided such loans meet the test of sound
credit.
The Bank had adopted the following loan-to-value
ratios, in accordance with standards adopted by its bank
supervisory agencies:
Loan Category
Loan-to-Value Limit
Raw land 65%
Land development 75%
Construction:
Commercial, multifamily, and other
nonresidential
1 to 4-family residential 80%
Improved property 80%
Owner-occupied 1 to 4 family and
home equity 80%
The Bank does not assume undue risk on any loan within the
loan portfolio, and takes appropriate steps to secure all
loans as necessary.
- -16-
Concentration
The Bank is neither dependent upon deposits nor
exposed to loan concentrations to a single customer or to a
single industry, the loss of any one or more of which would
have a material adverse effect on the financial condition of
the Bank.
Employees
As of December 31, 1996, the Bank has forty-six
(46) full-time equivalent employees.
Supervision and Regulation - The Bank
The operations of the Bank are subject to federal
and state statutes applicable to banks chartered under the
banking laws of the United States, to members of the Federal
Reserve System and to banks whose deposits are insured by
the FDIC. The operations of the Bank are also subject to
regulations of the Comptroller, the Federal Reserve Board
and the FDIC. The primary supervisory authority of the Bank
is the Comptroller, which regulates and examines the Bank.
The Comptroller has authority to prevent national banks from
engaging in unsafe or unsound practices in conducting their
businesses.
Federal and state banking laws and regulations
govern, among other things, the scope of a bank's business,
the investments a bank may make, the reserves against
deposits a bank must maintain, loans a bank makes and
- -17-
collateral it takes, the maximum interest rates a bank may
pay on deposits, the activities of a bank with respect to
mergers and consolidations and the establishment of
branches. Under Pennsylvania law, the Bank may establish or
acquire branch offices, subject to certain limitations, in
any county of the state. National bank branches, however
may be established within the permitted area only after
approval by the Comptroller.
As a subsidiary bank of a bank holding company,
the Bank is subject to certain restrictions imposed by the
Federal Reserve Act on any extensions of credit to the bank
holding company or its subsidiaries, or investments in the
stock or other securities as collateral for loans. The
Federal Reserve Act and Federal Reserve Board regulations
also place certain limitations and reporting requirements on
extensions of credit by the Bank to principal shareholders
of its parent holding company, among others, and to related
interests of such principal shareholders. In addition, such
legislation and regulations may affect the terms upon which
any person becoming a principal shareholder of a holding
company may obtain credit from banks with which the
subsidiary Bank maintains a correspondent relationship.
FDIC
Under the Federal Deposit Insurance Act, the
Comptroller possesses the power to prohibit institutions
- -18-
regulated by it (such as the Bank) from engaging in any
activity that would be an unsafe and unsound banking
practice or would otherwise be in violation of the law.
Moreover, the Financial Institutions Regulatory and Interest
Rate Control Act of 1978 ("FIRA") generally expanded the
circumstances under which officers or directors of a bank
may be removed by the institution's federal supervisory
agency, restricts lending by a bank to its executive
officers, directors, principal shareholders or related
interests thereof and restricts management personnel of a
bank from serving as directors or in other management
positions with certain depository institutions whose assets
exceed a specified amount or which have an office within a
specified geographic area, and restricts management
personnel from borrowing from another institution that has a
correspondent relationship with their bank. Additionally,
FIRA requires that no person may acquire control of a bank
unless the appropriate federal supervisory agency has been
given sixty (60) days prior written notice and within that
time has not disapproved the acquisition or otherwise
extended the period for disapproval. Control for purposes
of FIRA, means the power, directly or indirectly, to direct
the management or policies or to vote twenty-five percent
(25%) or more of any class of outstanding stock of a
financial institution or its respective holding company. A
- -19-
person or group holding revocable proxies to vote twenty-
five percent (25%) or more of the outstanding common stock
of a financial institution or holding company such as the
Company, would presumably be deemed to control the
institution for purposes of FIRA.
Garn-St Germain
The Garn-St Germain Depository Institutions Act of
1982 ("1982 Act") removed certain restrictions on a bank's
lending powers and liberalized its depository capabilities.
The 1982 Act also amended FIRA (see above) by eliminating
the statutory limits on lending by a bank to its executive
officers, directors, principal shareholders or related
interests thereof and by relaxing certain reporting
requirements. The 1982 Act, however, also tightened FIRA
provisions respecting management interlocks and
correspondent bank relationships involving a bank's
management personnel.
CRA
Under the Community Reinvestment Act of 1977, as
amended ("CRA"), the Comptroller is required to assess the
record of all financial institutions regulated by it to
determine if these institutions are meeting the credit needs
of the community (including low and moderate income
neighborhoods) which they serve and to take this record into
account in its evaluation of any application made by any of
such institutions for, among other things, approval of a
- -20-
branch or other deposit facility, office relocation, a
merger or an acquisition of bank shares. The Financial
Institutions Reform, Recovery and Enforcement Act of 1989
amended the CRA to require, among other things, that the
Comptroller make publicly available the evaluation of a
bank's record of meeting the credit needs of its entire
community, including low and moderate income neighborhoods.
This evaluation will include a descriptive rating and a
statement describing the basis for the rating, which is
publicly disclosed.
BSA
Under the Bank Secrecy Act ("BSA"), banks and
other financial institutions are required to report to the
Internal Revenue Service currency transactions of more than
$ 10,000 or multiple transactions of which the Bank is aware
in any one day that aggregate in excess of $ 10,000. Civil
and criminal penalties are provided under the BSA for
failure to file a required report, for failure to supply
information required by the BSA or for filing a false or
fraudulent report.
CEBA
An omnibus federal banking bill, known as the
Competitive Equality Banking Act ("CEBA"), was signed into
law in August of 1987. Included in the legislation were
measures: (1) imposing certain restrictions on transactions
- -21-
between banks and their affiliates; (2) expanding the powers
available to Federal bank regulators in assisting failed and
failing banks; (3) limiting the amount of time banks may
hold certain deposits prior to making such funds available
for withdrawal and any interest thereon; and (4) requiring
that any adjustable rate mortgage loan secured by a lien on
a one-to-four family dwelling include a limitation on the
maximum rate at which interest may accrue on the principal
balance during the term of such loan.
FDICIA
Capital Categories
In December of 1991 the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") became law.
Under FDICIA, institutions must be classified, based on
their risk-based capital ratios into one of five defined
categories, as illustrated below:
Total Tier 1 Tier 1 Under a
Risk-Based Risk-Based Leverage Capital Order
Ratio Ratio Ratio or Directive
CAPITAL CATEGORY
Well capitalized > 10.0 > 6.0 > 5.0 No
Adequately
capitalized > 8.0 > 4.0 > 4.0*
Undercapitalized < 8.0 < 4.0 < 4.0*
Significantly
undercapitalized< 6.0 < 3.0 < 3.0
Critically
undercapitalized < 2.0
* 3.0 for those banks having the highest available
regulatory rating.
- -22-
Prompt Corrective Action
In the event an institution's capital deteriorates
to the undercapitalized category or below, FDICIA prescribes
an increasing amount of regulatory intervention, including:
(1) the institution of a capital restoration plan and a
guarantee of the plan by a parent institution; and (2) the
placement of a hold on increases in assets, number of
branches or lines of business. If capital has reached the
significantly or critically undercapitalized levels, further
material restrictions can be imposed, including restrictions
on interest payable on accounts, dismissal of management and
(in critically undercapitalized situations) appointment of a
receiver. For well capitalized institutions, FDICIA
provides authority for regulatory intervention where the
institution is deemed to be engaging in unsafe or unsound
practices or receives a less than satisfactory examination
report rating for asset quality, management, earnings or
liquidity. All but well capitalized institutions are
prohibited from accepting brokered deposits without prior
regulatory approval.
Operational Controls
Under FDICIA, financial institutions are subject
to increased regulatory scrutiny and must comply with
certain operational, managerial and compensation standards
to be developed by Federal Reserve Board regulations.
- -23-
FDICIA also requires the regulators to issue new rules
establishing certain minimum standards to which an
institution must adhere including standards requiring a
minimum ratio of classified assets to capital, minimum
earnings necessary to absorb losses and minimum ratio of
market value to book value for publicly held institutions.
Additional regulations are required to be developed relating
to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth and
excessive compensation, fees and benefits.
Examinations and Audits
Annual full-scope, on site examinations are
required for all FDIC-insured institutions except
institutions with assets under $ 100 million which are well
capitalized, well managed and not subject to a recent change
in control, in which case, the examination period is every
eighteen (18) months. Banks with total assets of $ 150
million or more are required to submit to their supervising
federal and state banking agencies a publicly available
annual audit report and are subject to additional accounting
and reporting regulations.
Truth-In-Savings
A separate subtitle within FDICIA, called the
"Bank Enterprise Act of 1991", requires "truth-in-savings"
on consumer deposit accounts so that consumers can make
meaningful comparisons between the competing claims of banks
- -24-
with regard to deposit accounts and products. Under this
provision, the Bank is required to provide information to
depositors concerning the terms of their deposit accounts,
and in particular, to disclose the annual percentage yield.
There are some operational costs of complying with the
Truth-In-Savings law.
Management believes that full implementation of
the FDICIA has had no material impact on liquidity, capital
resources or reported results of operation.
Item 2. Properties
The main administrative office of the Bank which
also includes a branch, is located in McConnellsburg,
Pennsylvania. The Bank currently has four branch offices
one of which is located at Penn's Village on Route 16 at the
east end of McConnellsburg, Pennsylvania. This branch
office opened on May 11, 1981. In addition, the Bank
installed an ATM at the Penn's Village Shopping Center in
March, 1989. The Bank also serves the communities
surrounding the Pennsylvania/Maryland border through its
branch office located in Warfordsburg, Pennsylvania. This
branch opened for business on April 4, 1983. On the same
day, a third branch office was opened in Hustontown,
Pennsylvania, which services Northern Fulton County.
Finally, to service the Southern end of Huntington County,
the Bank acquired a branch in Shade Gap, Pennsylvania, on
- -25-
September 26, 1988. On January 7, 1997 ATM's were opened at
the Warfordsburg and Hustontown branches. The main office,
Warfordsburg, Hustontown and Shade Gap branches are owned by
the Bank. The Penn's Village branch is rented.
Item 3. Legal Proceedings.
Fulton Bancshares Corporation is an occasional
party to legal actions arising in the ordinary course of its
business. In the opinion of the Company's management,
Fulton Bancshares Corporation has adequate legal defenses
and/or insurance coverage respecting any and each of these
actions and does not believe that they will materially
affect the Company's operations or financial position.
Item 4. Submission of Matters to Vote of Security Holders.
None
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters.
The corporation's common stock is traded on a
limited basis in the local over-the-counter market. As of
December 31, 1996, the approximate number of shareholders of
record was 451.
Market Cash Market Cash
Price Dividend Price Dividend
1996 1995
First Quarter $ 27.00 $ .15 $ 25.00 $ .00
Second Quarter 32.00 .15 25.00 .25
Third Quarter 35.00 .179 25.00 .15
Fourth Quarter 35.00 .185 26.00 .15
- -26-
Item 6. Selected Financial Data.
1996 1995 1994 1993 1992
Income (000 omitted)
Interest income $ 7,513 $ 7,298 $ 6,417 $ 6,349 $ 6,687
Interest expense 3,725 3,732 3,269 3,575 3,953
Provision for
loan losses 65 62 48 70 84
Net interest
income after
provision for
loan losses 3,723 3,504 3,100 2,704 2,650
Securities gains
(losses) ( 2) 5 2 89 16
Other operating
income 391 276 242 229 240
Other operating
expenses 2,425 2,304 2,236 2,097 1,972
Income before
income taxes 1,687 1,481 1,108 925 934
Applicable income
tax 455 422 319 225 247
Net income $ 1,232 $ 1,059 $ 789 $ 700 $ 687
Per share amounts are based on following weighted averages:
1996 - 495,000 1994 - 440,000 1992 - 440,000
1995 - 480,476 1993 - 440,000
Income before
income taxes $ 3.41 $ 3.08 $ 2.52 $ 2.10 $ 2.12
Applicable income
taxes .92 .88 .73 .51 .56
Net income 2.49 2.20 1.79 1.59 1.56
Cash dividend paid .66 .55 .48 .44 .43
Book value 20.50 19.08 14.12 15.42 14.26
- -27-
Item 6. Selected Financial Data (Continued).
1996 1995 1994 1993 1992
Income (000 omitted)
Year-End Balance Sheet Figures (000 omitted)
Total assets $ 102,355 $ 96,449 $ 90,890 $ 88,349 $ 91,253
Net loans 63,791 59,871 60,321 60,998 63,582
Total investment
securities 28,474 29,365 24,060 18,350 20,372
Deposits-non-
interest
bearing 10,000 7,959 7,266 6,930 7,577
Deposits-interest
bearing 81,632 78,399 76,728 74,220 76,841
Total deposits 91,632 86,358 83,994 81,150 84,418
Liabilities for
borrowed money 0 0 220 0 0
Total stock-
holders'
equity 10,149 9,445 6,214 6,785 6,276
Ratios
Average equity/
average assets 9.80 9.29 7.23 7.15 6.96
Return on
average equity 12.57 12.13 12.08 10.73 11.36
Return on
average assets 1.23 1.13 .87 .77 .79
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Management's discussion and analysis of financial
condition and results of operations are included on pages 62
through 68.
Item 8. Financial Statements and Supplementary Data.
The report of independent auditors and the
following consolidated financial statements and schedules of
- -28-
Fulton Bancshares Corporation and subsidiaries are submitted
herewith:
Page
Independent auditor's report 30
Consolidated balance sheets
December 31, 1996 and 1995 31
Consolidated statements of income for
the years ended December 31, 1996, 1995
and 1994 32-33
Consolidated statements of changes in
stockholders' equity for the years ended
December 31, 1996, 1995, and 1994 34
Consolidated statements of cash flows for
the years ended December 31, 1996, 1995,
and 1994 35 - 37
Notes to consolidated financial
statements 38 - 60
Summary of quarterly financial data
(unaudited) 61
- -29-
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Fulton Bancshares Corporation
McConnellsburg, Pennsylvania
We have audited the accompanying consolidated
balance sheets of the Fulton Bancshares Corporation and its
wholly-owned subsidiaries as of December 31, 1996 and 1995
and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for each of the
three years ended December 31, 1996. These consolidated
financial statements are the responsibility of the
corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of the Fulton Bancshares
Corporation and its wholly-owned subsidiaries as of
December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years
ended December 31, 1996 in conformity with generally
accepted accounting principles.
Chambersburg, Pennsylvania
February 12, 1997
- -30-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
Cash and due from banks $ 3,731,071 $ 2,855,829
Federal funds sold 495,000 600,000
Securities available for sale 27,751,699 28,863,968
Federal Reserve, Atlantic Central
Bankers Bank and Federal Home Loan
Bank stocks 722,550 500,650
Loans, net of reserve for loan losses
1996 - $ 443,659; 1995 - $ 344,801 63,791,136 59,870,747
Premises and equipment 2,148,583 2,059,137
Accrued interest receivable 634,935 606,334
Real estate owned other than premises 337,117 424,245
Cash surrender value of life insurance 2,374,288 552,545
Other assets 369,028 116,009
Total assets $ 102,355,407 $ 96,449,464
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest bearing $ 9,999,893 $ 7,959,377
Interest bearing 81,632,387 78,399,170
91,632,280 86,358,547
Accrued interest payable 372,949 369,514
Other liabilities (including accrued
income taxes 1996 - $ 4,992; 1995 -
$ 127,517) 201,678 276,419
Total liabilities 92,206,907 87,004,480
STOCKHOLDERS' EQUITY
Common stock: par value $ .625 per
share, 4,000,000 shares authorized
and 495,000 shares issued at
December 31, 1996 and 1995 309,375 309,375
Additional paid-in capital 2,051,275 2,051,275
Retained earnings 8,006,318 7,101,377
Unrealized holding losses, net of
tax 1996 - $ 112,544; 1995 -
$ 8,780 ( 218,468) ( 17,043)
Total stockholders' equity 10,148,500 9,444,984
Total liabilities and
stockholders' equity $ 102,355,407 $ 96,449,464
The Notes to Consolidated Financial Statements are an integral part
of these statements.
- -31-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Interest Income
Interest and fees on loans $ 5,676,179 $ 5,649,463 $ 5,160,709
Interest and dividends on
investment securities:
U.S. Government securities 15,971 25,874 34,753
Other U. S. Government
agencies 415,389 313,159 258,336
Mortgage backed securities 1,185,034 1,158,881 870,628
Obligations of states and
political subdivisions 152,730 80,630 45,758
Interest on federal funds sold 23,106 38,599 21,574
Other interest and
dividends 44,338 31,560 25,143
Total interest income 7,512,747 7,298,166 6,416,901
Interest Expense
Interest on deposits 3,659,385 3,687,892 3,245,286
Interest on federal funds
purchased 49,609 31,956 16,010
Interest on other borrowed
money 16,195 11,786 7,475
Total interest expense 3,725,189 3,731,634 3,268,771
Net interest income
before provision
for loan losses 3,787,558 3,566,532 3,148,130
Provision for Loan Losses 65,000 62,500 48,000
Net interest income
after provision
for loan losses 3,722,558 3,504,032 3,100,130
Other Income
Service charges on deposit
accounts 129,633 98,609 102,277
Other service charges and fees 102,392 69,147 80,025
Trust department income 43,132 41,815 41,283
Gain (loss) on sale of
investment securities ( 2,044) 5,427 2,192
Gain (loss) on sale of
other real estate ( 1,772) 46,252 15,657
Earnings - Cash surrender
value of life insurance 112,733 8,157 0
Other income 4,505 11,720 2,830
Total other income 388,579 281,127 244,264
The Notes to Consolidated Financial Statements are an integral part
of these statements.
- -32-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Other Expenses
Salaries, fees and
employee benefits $ 1,128,686 $ 1,071,628 $ 956,834
Net occupancy expense
of bank premises and
furniture and equipment
expense 417,777 370,424 325,032
FDIC insurance premiums 1,493 98,248 195,364
Other expenses 876,909 763,260 758,777
Total other expenses 2,424,865 2,303,560 2,236,007
Income before income
taxes 1,686,272 1,481,599 1,108,387
Applicable income taxes 454,631 422,326 319,569
Net income $ 1,231,641 $ 1,059,273 $ 788,818
Earnings per common share $ 2.49 $ 2.20 $ 1.79
The Notes to Consolidated Financial Statements are an integral part
of these statements.
- -33-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
Additional Unrealized
Capital Paid-In Retained Holding
Stock Capital Earnings Losses
Balance - December 31,
1993 $ 275,000 $ 775,000 $ 5,734,536 $ 0
Net income 0 0 788,818 0
Cash dividends
($ .475 per share) 0 0 ( 209,000) 0
Unrealized (loss)
on investment
securities available
for sale, net of
tax 0 0 0 ( 1,149,895)
Balance - December 31,
1994 275,000 775,000 6,314,354 ( 1,149,895)
Net income 0 0 1,059,273 0
Cash dividends
($ .55 per share) 0 0 ( 272,250) 0
Proceeds from
issuance of stock 34,375 1,276,275 0 0
Unrealized gain
on investment
securities available
for sale, net of
tax 0 0 0 1,132,852
Balance - December 31,
1995 309,375 2,051,275 7,101,377 ( 17,043)
Net income 0 0 1,231,641 0
Cash dividends
($ .66 per share) 0 0 ( 326,700) 0
Unrealized (loss)
on investment
securities available
for sale, net of
tax 0 0 0 ( 201,425)
Balance - December 31,
1996 $ 309,375 $ 2,051,275 $ 8,006,318 ($ 218,468)
The Notes to Consolidated Financial Statements are an integral part
of these statements.
- -34-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net income $ 1,231,641 $ 1,059,273 $ 788,818
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation and
amortization 169,381 152,452 133,052
Provision for loan losses 65,000 62,500 48,000
Deferred income taxes ( 32,037) ( 2,951) 43,584
(Increase) in CSV -
Officers' life
insurance ( 80,743) ( 7,545) 0
(Gain) loss on disposal
of other real estate 1,772 ( 46,252) ( 15,657)
(Gain) loss on sale of
investment securities 2,044 ( 5,427) ( 2,192)
Loss on disposal of
fixed assets 0 0 2,414
(Increase) decrease in
other assets ( 140,842) 30,675 9,175
(Increase) decrease in
interest receivable ( 28,601) ( 31,705) ( 101,267)
Increase (decrease) in
interest payable 3,435 57,502 10,368
Increase (decrease) in
other liabilities ( 48,502) 100,461 37,399
Net cash provided by
operating activities 1,142,548 1,368,983 95,694
Cash flows from investing activities:
Maturities of investment
securities to be held
to maturity 0 0 300,000
Purchases of investment
securities to be held
to maturity 0 ( 1,365,219) ( 1,218,824)
Sales of investment
securities available
for sale 5,909,298 8,204,138 2,275,056
The Notes to Consolidated Financial Statements are an integral part
of these statements.
- -35-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Maturities of investment
securities available
for sale $ 3,607,407 $ 2,953,262 $ 3,320,425
Purchases of investment
securities available
for sale ( 8,713,580)( 13,271,590) ( 12,127,269)
Net decrease (increase)
in loans ( 3,985,389) 374,615 321,430
Purchases of property
and equipment ( 189,847) ( 149,491) ( 607,592)
Purchases of FRB and
FHLB stock ( 221,900) ( 103,050) 0
Purchase of officers'
life insurance ( 1,741,000) ( 545,000) 0
Proceeds from sales of
other real estate 16,728 243,502 60,360
Purchases of other
real estate ( 1,056) ( 69,684) 0
Net cash (used) by
investing activities ( 5,319,339) ( 3,728,517) ( 7,676,414)
Cash flows from financing activities:
Proceeds from issuing
common stock 0 1,310,650 0
Net increase in deposits 5,273,733 2,364,440 2,843,560
Dividends paid ( 326,700) ( 272,250) ( 209,000)
Net (decrease) increase
in federal funds
purchased 0 ( 220,000) 220,000
Net cash provided by
financing activities 4,947,033 3,182,840 2,854,560
Net increase (decrease)
in cash and cash equivalents 770,242 823,306 ( 3,868,160)
Cash and cash equivalents
at beginning of year 3,455,829 2,632,523 6,500,683
Cash and cash equivalents
at end of year $ 4,226,071 $ 3,455,829 $ 2,632,523
The Notes to Consolidated Financial Statements are an integral part
of these statements.
- -36-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest $ 3,721,754 $ 3,674,132 $ 3,258,403
Income taxes 609,193 375,406 173,284
Supplemental schedule of noncash investing and
financing activities:
Unrealized holding gain
(loss), net of tax ($ 201,425) $ 1,132,852 ($ 1,149,895)
Loans transferred to
other real estate owned $ 0 $ 23,884 $ 308,248
Other real estate owned
transferred to
property and equipment $ 69,684 $ 0 $ 0
Transfer of investment
securities from "held
to maturity" to "available
for sale" $ 0 $ 2,884,933 $ 0
The Notes to Consolidated Financial Statements are an integral part
of these statements.
- -37-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Nature of Operations
Fulton Bancshares Corporation's primary activity
consists of owning and supervising its
subsidiaries:
O Fulton County National Bank and Trust Company,
which is engaged in providing banking and bank
related services, principally in Fulton and
Huntingdon Counties. Its five branches are
located in McConnellsburg (2), Shade Gap,
Warfordsburg and Hustontown.
O Fulton County Community Development Corporation,
which was formed on June 7, 1996 to support
efforts of the local downtown business
revitalization project by making low interest
loans to eligible small businesses for the
purpose of facade improvement. Future projects
are expected to include small business
marketing, new business creation, small business
education, and housing for low-to-moderate
income individuals.
Principles of Consolidation
The consolidated financial statements include the
accounts of the corporation and its wholly-owned
subsidiaries, the Fulton County National Bank and
Trust Company and the Fulton County Community
Development Corporation. All significant
intercompany transactions and accounts have been
eliminated.
See Note 13 for parent company financial
statements.
Basis of Accounting
The corporation uses the accrual basis of
accounting.
Use of estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts of
- -38-
Note 1. Significant Accounting Policies (Continued)
assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual
results could differ from those estimates.
Material estimates that are particularly
susceptible to significant change relate to the
determination of the allowance for losses on loans
and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of
loans. In connection with the determination of the
allowances for losses on loans and foreclosed real
estate, management obtains independent appraisals
for significant properties.
While management uses available information to
recognize losses on loans and foreclosed real
estate, future additions to the allowances may be
necessary based on changes in local economic
conditions. In addition, regulatory agencies, as
an integral part of their examination process,
periodically review the corporation's allowances
for losses on loans and foreclosed real estate.
Such agencies may require the corporation to
recognize additions to the allowances based on
their judgments about information available to them
at the time of their examination. Because of these
factors, management's estimate of credit losses
inherent in the loan portfolio and the related
allowance may change in the near term.
Investment Securities
Under SFAS 115, the Corporation's investments in
securities are classified in three categories and
accounted for as follows.
O Trading Securities. Securities held principally
for resale in the near term are classified as
trading securities and recorded at their fair
values. Unrealized gains and losses on trading
securities are included in other income. The
Corporation had no trading securities in 1996 or
1995.
- -39-
Note 1. Significant Accounting Policies (Continued)
O Securities to be Held to Maturity. Bonds and
notes for which the Corporation has the positive
intent and ability to hold to maturity are
reported at cost, adjusted for amortization of
premiums and accretion of discounts, which are
recognized in interest income using the interest
method over the period to maturity.
O Securities Available for Sale. Securities
available for sale consist of bonds and notes
not classified as trading securities nor as
securities to be held to maturity. These are
securities that management intends to use as a
part of its asset and liability management
strategy and may be sold in response to changes
in interest rates, resultant prepayment risk and
other related factors.
Unrealized holding gains and losses, net of tax, on
securities available for sale are reported as a net
amount in a separate component of stockholders'
equity until realized.
Gains and losses on the sale of securities
available for sale are determined using the
specific-identification method.
Fair values for investment securities are based on
quoted market prices.
The Corporation has classified all of its
investment securities as "available for sale" at
December 31, 1996 and 1995.
Loans and Reserve for Possible Loan Losses
Loans are stated at the amount of unpaid principal,
reduced by a reserve for loan losses and increased
or decreased by net deferred loan origination fees
and costs. Interest on loans is calculated by
using the simple interest method on daily balances
of the principal amount outstanding. The reserve
for loan losses is established through a provision
for loan losses charged to expense. Loans are
charged against the reserve for loan losses when
management believes that the collectibility of the
principal is unlikely.
- -40-
Note 1. Significant Accounting Policies (Continued)
The reserve is an amount that management believes
will be adequate to absorb possible losses on
existing loans that may become uncollectible, based
on evaluations of the collectibility of loans and
prior loan loss experience. The evaluations take
into consideration such factors as changes in the
nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem
loans, and current economic conditions that may
affect the borrowers' ability to pay. Accrual of
interest is discontinued on a loan when management
believes, after considering economic and business
conditions and collection efforts, that the
borrowers' financial condition is such that
collection of interest is uncertain. Interest
accrued but not collected as of the date of
placement on nonaccrual status is reversed and
charged against current income unless fully
collateralized. Subsequent payments received are
either applied to the outstanding principal balance
or recorded as interest income, depending on
management's assessment of the ultimate
collectibility of principal.
In accordance with SFAS No. 91, loan origination
fees and certain direct loan origination costs are
being deferred and the net amount amortized as an
adjustment of the related loan's yield. These
amounts are being amortized over the contractual
life of the related loans.
Premises and Equipment
Premises and equipment are carried at cost less
accumulated depreciation. Depreciation is
calculated on both straight-line and accelerated
methods over the estimated useful lives of the
various assets as follows:
Years
Computer software 3 - 5
Premises 5 - 50
Equipment and vehicles 3 - 25
Repairs and maintenance are charged to operations
as incurred.
- -41-
Note 1. Significant Accounting Policies (Continued)
Assets Received in Foreclosure
Assets received in foreclosure are recorded at the
lower of the outstanding principal balance of the
related loans or the estimated market value of
collateral held less costs to sell. Any adjustment
required to write down the property to net
realizable value is charged to the allowance for
loan losses. Costs of holding and maintaining the
property are charged to expense when incurred.
Earnings per Share
Earnings per common share were computed based on:
495,000 shares of common stock outstanding in 1996;
480,476 shares of common stock outstanding in 1995,
and 440,000 shares of common stock outstanding in
1994 after retroactive recognition of a two-for-one
stock split in August 1994.
Federal income taxes
For financial reporting purposes the provision for
loan losses charged to operating expense is based
on management's judgment, whereas for federal
income tax purposes, the amount allowable under
present tax law is deducted. Additionally,
deferred compensation is charged to operating
expense in the period the liability is incurred for
financial reporting purposes, whereas for federal
income tax purposes, these expenses are deducted
when paid. As a result of these and timing
differences in depreciation expense and loan costs,
deferred income taxes are provided in the financial
statements. See Note 9 for further details.
Statements of Cash Flows
For purposes of the Statements of Cash Flows, cash
and cash equivalents include those amounts in the
balance sheet captions "cash and due from banks"
and "federal funds sold". As permitted by
Statement of Financial Accounting Standards No.
104, the corporation has elected to present the net
change in interest bearing deposits with banks,
deposits, and loans in the Statements of Cash
Flows.
- -42-
Note 1. Significant Accounting Policies (Continued)
Fair values of financial instruments
Statement of Financial Accounting Standards No.
107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value
information about financial instruments, whether or
not recognized in the balance sheet. In cases
where quoted market prices are not available, fair
values are based on estimates using present value
or other valuation techniques. Those techniques
are significantly affected by the assumptions used,
including the discount rate and estimates of future
cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not
be realized in immediate settlement of the
instruments. Statement No. 107 excludes certain
financial instruments and all nonfinancial
instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of
the corporation.
The following methods and assumptions were used by
the corporation in estimating fair values of
financial instruments as disclosed herein:
Cash and Cash Equivalents. The carrying amounts
of cash and short-term instruments
approximate their fair value.
Securities to be Held to Maturity and Securities
Available for Sale. Fair values for
investment securities are based on quoted market
prices.
Loans Receivable. For variable-rate loans that
reprice frequently and have no significant
change in credit risk, fair values are based on
carrying values. Fair values for fixed rate
loans are estimated using discounted cash flow
analyses, using interest rates currently being
offered for loans with similar terms to
borrowers of similar credit quality. Fair
values for impaired loans are estimated using
discounted cash flow analyses or underlying
collateral values, where applicable.
- -43-
Note 1. Significant Accounting Policies (Continued)
Deposit Liabilities. The fair values disclosed
for demand deposits are, by definition, equal
to the amount payable on demand at the reporting
date (that is, their carrying amounts). The
carrying amounts of variable-rate, fixed-term
money market accounts and certificates of
deposit approximate their fair values at the
reporting date. Fair values for fixed-rate
certificates of deposits and IRA's are estimated
using a discounted cash flow calculation that
applies interest rates currently being offered
to a schedule of aggregated expected monthly
maturities on time deposits.
Long-Term Borrowings. The fair value of the
Bank's long-term debt is estimated using a
discounted cash flow analysis based on the
Bank's current incremental borrowing rate for
similar types of borrowing arrangements.
Accrued Interest. The carrying amounts of
accrued interest approximate their fair values.
Off-Balance-Sheet Instruments. The Bank
generally does not charge commitment fees. Fees
for standby letters of credit and their off-
balance-sheet instruments are not significant.
Advertising
The Corporation expenses advertising costs as
incurred. Advertising expenses for the years ended
December 31, 1996, 1995 and 1994 were $ 60,361,
$ 55,332, and $ 61,124, respectively.
Note 2. Investments
The amortized cost and fair value of investment
securities available for sale at December 31, 1996
were:
- -44-
Note 2. Investments (Continued)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Obligations of U. S.
Government
corporations
and agencies $ 7,004,547 $ 13,639 $ 63,181 $ 6,955,005
Obligations of
states and
political
subdivisions 4,280,094 74,717 6,432 4,348,379
Mortgage-backed
securities 16,798,070 9,049 358,804 16,448,315
Totals $ 28,082,711 $ 97,405 $ 428,417 $27,751,699
During 1995 the Financial Accounting Standards Board
(FASB) issued Supplemental Guidance regarding the
implementation of SFAS No. 115 Accounting for
Certain Investments in Debt and Equity Securities.
In connection with this supplemental guidance the
FASB provided a one-time opportunity for
institutions to redesignate their security
classifications without "tainting" any of their
investment pools.
After extensive review of the Corporation's security
portfolio in November 1995, management moved
$ 2,884,933 of securities classified as held-to-
maturity to the available for sale classification
and accordingly carries these securities at their
market value. No securities were moved from the
available for sale classification to the held-to-
maturity classification and no securities were
classified as trading.
The amortized cost and fair value of investment
securities available for sale at December 31, 1995
were:
- -45-
Note 2. Investments (Continued)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Obligations of U. S.
Government
corporations
and agencies $ 4,925,750 $ 31,212 $ 38,255 $ 4,918,707
Obligations of
states and
political
subdivisions 1,738,975 58,063 5,701 1,791,337
Mortgage-backed
securities 21,822,191 34,774 109,793 21,747,172
U. S. Treasury
securities 402,875 3,877 0 406,752
Totals $ 23,889,791 $ 127,926 $ 153,749 $28,863,968
The amortized cost and fair value of investment
securities available for sale at December 31, 1996,
by expected maturity, are shown below. Expected
maturities will differ from contractual maturities
because borrowers may have the right to call or
prepay obligations with or without call or
prepayment penalties.
Amortized Fair
Cost Value
Due in one year or less $ 0 $ 0
Due after one year through
five years 8,371,264 8,338,059
Due after five years through
ten years 2,913,377 2,965,325
Mortgage-backed securities 16,798,070 16,448,315
$ 28,082,711 $ 27,751,699
Proceeds from sales of securities available for
sale during 1996 were $ 5,909,298. Gross gains and
losses on those sales were $ 9,818 and $ 11,862,
respectively. Proceeds from maturities of
investment securities during 1996 were $ 3,607,407,
resulting in no gains or losses. Included in
shareholders' equity at December 31, 1996 is
$ 218,468 of unrealized holding losses on
securities available for sale, net of $ 112,544 in
deferred taxes.
- -46-
Note 2. Investments (Continued)
Proceeds from sales of securities available for
sale during 1995 were $ 8,204,138. Gross gains and
losses on those sales were $ 33,278 and $ 27,851,
respectively. Proceeds from maturities of
investment securities during 1995 were $ 2,953,262,
resulting in no gains or losses. Included in
shareholders' equity at December 31, 1995 is
$ 17,043 of unrealized holding losses on securities
available for sale, net of $ 8,780 in deferred
taxes.
The Bank owns the following equity securities at
December 31:
1996 1995
Federal Home Loan Bank $ 491,700 $ 419,800
Atlantic Central Bankers Bank 10,000 10,000
Federal Reserve Bank 70,850 70,850
FNMA Preferred 150,000 0
$ 722,550 $ 500,650
Securities with a cost basis of $ 4,403,144 (fair
value of $ 4,362,560) and $ 3,927,652 (fair value
of $ 3,908,488) at December 31, 1996 and 1995,
respectively, were pledged to secure public funds
and for other purposes as required or permitted by
law.
Note 3. Reserve for Loan Losses
Activity in the reserve for loan losses is
summarized as follows:
1996 1995 1994
Balance at beginning of period $ 344,801 $ 358,006 $ 400,388
Recoveries 43,050 7,472 9,356
Current year provision charged
to income 65,000 62,500 48,000
Total 452,851 427,978 457,744
Losses 9,192 83,177 99,738
Balance at end of period $ 443,659 $ 344,801 $ 358,006
- -47-
Note 4. Premises and Equipment
A summary of bank premises and equipment is as
follows:
Accumulated Depreciated
Description Cost Depreciation Cost
1996
Premises and improvements
(including land
$ 269,586) $ 2,065,990 $ 399,769 $ 1,666,221
Equipment, furniture &
fixtures 1,154,990 709,836 445,154
Vehicles 35,749 17,863 17,886
Construction in
process 19,322 0 19,322
$ 3,276,051 $ 1,127,468 $ 2,148,583
1995
Premises and improvements
(including land
$ 199,902) $ 1,949,974 $ 347,423 $ 1,602,551
Equipment, furniture &
fixtures 1,031,501 599,950 431,551
Vehicles 35,749 10,714 25,035
$ 3,017,224 $ 958,087 $ 2,059,137
Depreciation expense amounted to $ 169,381 in 1996,
$ 152,452 in 1995 and $ 124,608 in 1994.
Note 5. Loans
The Bank grants agribusiness, commercial and
residential loans to customers primarily in Fulton
County, Pennsylvania and adjoining counties in
Pennsylvania and Maryland. Although the Bank has a
diversified loan portfolio, a significant portion
of its customers' ability to honor their contracts
is dependent upon the agribusiness economic sector
(approximately 11.5% of loan portfolio).
The Bank evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the corporation
upon the extension of credit, is based on
management's credit evaluation of the customer.
Collateral held varies but generally includes
equipment and real estate.
- -48-
Note 5. Loans (Continued)
Loans consist of the following at December 31 (in
thousands):
1996 1995
Real estate loans:
Secured by construction and
land development $ 0 $ 386
Secured by farmland 6,038 6,029
Secured by 1-4 family
residential 33,183 27,471
Secured by nonfarm
nonresidential 8,318 4,322
Loans to finance agricultural
production:
Loans to farmers 1,342 1,385
Commercial and industrial loans 4,254 7,761
Loans to individuals for
household, family and other
personal expenditures 9,023 10,866
Obligations of states and
political subdivisions in
the U. S. 2,052 1,989
All other loans 25 6
64,235 60,215
Less: reserve for loan
losses ( 444) ( 345)
$ 63,791 $ 59,870
Loans 90 days or more past due (still accruing
interest) and those on nonaccrual status were as
follows at December 31 (in thousands):
90 Days or More Nonaccrual
- - - -Past Due- - - - - - - -Status- - - -
1996 1995 1994 1996 1995 1994
Real estate
mortgages $ 1,038 $ 4 $ 83 $ 310 $ 310 $ 0
Installment
loans 3 20 2 0 0 0
Time and demand
loans 0 229 0 0 0 80
Total $ 1,041 $ 253 $ 85 $ 310 $ 310 $ 80
- -49-
Note 5. Loans (Continued)
The amounts of foregone interest and recognized
interest income on loans placed on nonaccrual
status were:
Foregone Interest Interest Income
at December 31 Recognized
1996 $ 37,278 $ 21,030
1995 25,144 3,078
1994 8,261 2,894
Loan balances are stated net of deferred loan
origination (fees) costs. These net (fees) costs
amounted to the following at December 31:
1996 1995
Installment $ 9,625 $ 6,728
Time and demand 534 ( 2,982)
Mortgage ( 75,028) ( 60,930)
($ 64,869) ($ 57,184)
The corporation had no impairment of loans during
1996 or 1995 as defined by Statement of Financial
Accounting Standard No. 114.
Note 6. Loans to Related Parties
The Bank has granted loans to the officers and
directors of the corporation and its subsidiary 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 normal risk of
collectibility. The aggregate dollar amount of
these loans was $ 639,266 and $ 1,384,650 at
December 31, 1996 and 1995, respectively. During
1996, $ 1,524,274 of new loans were made and
repayments totalled $ 1,720,888. The remaining
decrease was due to the retirement of several
directors during 1996. During 1995, $ 2,309,381 of
new loans were made and repayments totalled
$ 2,107,887.
- -50-
Note 6. Loans to Related Parties (Continued)
Outstanding loans to Bank employees totalled
$ 540,534 and $ 702,289 at December 31, 1996 and
1995, respectively.
Note 7. Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of
business to meet the financial needs of its
customers and to reduce its own exposure to
fluctuations in interest rates. These financial
instruments include commitments to extend credit
and standby letters of credit. Those instruments
involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount
recognized in the balance sheets. The contract
amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and
standby letters of credit and financial guarantees
written is represented by the contractual amounts
of those instruments. The Bank uses the same
credit policies in making commitments and
conditional obligations as it does for on-balance-
sheet instruments.
Contract or
Notional Amount
1996 1995
Financial instruments whose contract amounts
represent credit risk at December 31:
Commitments to extend credit $ 4,800,512 $ 4,198,000
Standby letters of credit and
financial guarantees written 491,045 188,865
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 many of the commitments
are expected to expire without being drawn upon,
the total commitment amounts do not necessarily
represent future cash requirements.
- -51-
Note 7. Financial Instruments With Off-Balance-Sheet Risk
(Continued)
Standby letters of credit and financial guarantees
written are conditional commitments issued by the
Bank to guarantee the performance of a customer to
a third party. Those guarantees are primarily
issued to support public and private borrowing
arrangements. The credit risk involved in issuing
letters of credit is essentially the same as that
involved in extending loans to customers. The Bank
holds collateral supporting those commitments when
deemed necessary by management.
Note 8. Retirement Plan
The Bank maintains a 401-K profit-sharing plan
covering substantially all full-time employees.
The plan allows contributions of up to 15% by
employees and requires Bank contributions of at
least 1% of salaries. Additional contributions can
be made at the discretion of the board of
directors. The Bank contributions made to the plan
were $ 60,000 for 1996, $ 50,000 for 1995, and
$ 35,000 for 1994.
Note 9. Federal Income Taxes
The components of federal income tax expense are
summarized as follows:
1996 1995 1994
Current year provision $ 487,363 $ 423,432 $ 296,731
Deferred income taxes
(benefits) ( 32,037) ( 2,951) 43,584
Refund due - prior
year amendment 0 0 ( 21,491)
Income tax effect of
securities
transactions ( 695) 1,845 745
Applicable income
taxes $ 454,631 $ 422,326 $ 319,569
Federal income taxes were computed after reducing
pretax accounting income for nontaxable income in
the amount of $ 321,305, $ 261,107, and $ 169,712
for 1996, 1995 and 1994, respectively.
- -52-
Note 9. Federal Income Taxes (Continued)
A reconciliation of the effective income tax rate
to the federal statutory rate is as follows:
1996 1995 1994
Applicable federal income tax rate 34.0% 34.0% 34.0%
Reductions resulting from:
Nontaxable interest income and
other items, net of
nondeductible expenses ( 7.0) ( 5.5) ( 4.1)
Rehabilitation tax credit 0.0 0.0 ( 1.1)
Effective income tax rate 27.0% 28.5% 28.8%
Deferred tax liabilities have been provided for
taxable temporary differences related to
accumulated depreciation and deferred loan costs.
Deferred tax assets have been provided for
deductible temporary differences related to the
allowance for loan losses and unrealized losses on
available for sale securities. The net deferred
tax assets (liabilities) included in other assets
(other liabilities) in the accompanying
consolidated balance sheets include the following
components:
1996 1995 1994
Total deferred tax assets $ 230,283 $ 74,239 $ 654,681
Total deferred tax
liabilities ( 120,721) ( 100,478) ( 100,281)
Net deferred tax asset
(liability) $ 109,562 ($ 26,239) $ 554,400
The corporation has not recorded a valuation
allowance for the deferred tax assets as they feel
that it is more likely than not that they will be
ultimately realized.
Note 10. Leases
The Bank is party to real estate leases with base
monthly rental charges of $ 2,450. These charges
are to be adjusted on specified dates and by agreed
upon amounts or by the net change in the consumer
price index. The original leases expire on
- -53-
Note 10. Leases (Continued)
January 7, 2001 and December 31, 1998,
respectively. Each lease contains a provision for
renewal under various terms at the Bank's option.
In addition, the Bank leases certain equipment on a
54 month lease which expires in 2001. Total rental
expense charged to operations for the years ended
December 31, 1996, 1995 and 1994 was $ 45,921,
$ 43,413 and $ 42,635, respectively.
Based on the current monthly rent, future minimum
rental payments for the next five years are as
follows:
1997 $ 58,231
1998 58,231
1999 58,231
2000 58,231
2001 47,784
Note 11. Other Assets
Other assets include the following at December 31:
1996 1995
Net deferred tax asset $ 109,562 $ 0
Prepaid expenses 98,188 107,594
Deposits on equipment 140,557 0
Others 20,721 8,415
$ 369,028 $ 116,009
Note 12. Deposits
Included in interest-bearing deposits at December
31 are NOW and Money Market Account balances
totaling $ 15,555,335 and $ 15,266,252 for 1996 and
1995, respectively.
Time deposits of $ 100,000 and over aggregated
$ 9,554,650 and $ 8,640,425 at December 31, 1996
and 1995, respectively. Interest expense on time
deposits of $ 100,000 and over was $ 521,000,
$ 524,000, and $ 410,000 for 1996, 1995, and 1994,
respectively.
- -54-
Note 12. Deposits (Continued)
The amount of time deposits maturing over the next
5 years is as follows:
1997 $ 18,160,160
1998 15,867,118
1999 8,082,106
2000 4,754,842
2001 4,643,163
$ 51,507,389
The Bank accepts deposits of the officers and
directors of the corporation and its subsidiaries
on the same terms, including interest rates, as
those prevailing at the time for comparable
transactions with unrelated persons. The aggregate
dollar amount of deposits of officers and directors
totaled $ 3,845,539 and $ 3,361,667 at December 31,
1996 and 1995, respectively.
Overdrafts of $ 24,676 and $ 6,313 at December 31,
1996 and 1995, respectively, were reclassified as
loans for financial reporting purposes.
Note 13. Fulton Bancshares Corporation (Parent Company Only)
Financial Information
The following are the condensed balance sheets,
income statements and statements of cash flows for
the parent company as of and for the periods ended
December 31:
Balance Sheets
Assets 1996 1995
Cash $ 22,243 $ 0
Investment in the Fulton
County National Bank
& Trust Company 10,079,881 9,444,290
Investment in Fulton County
Community Development
Corporation 46,376 0
Due from subsidiary 0 694
Total assets $ 10,148,500 $ 9,444,984
- -55-
Note 13. Fulton Bancshares Corporation (Parent Company Only)
Financial Information (Continued)
Stockholders' Equity 1996 1995
Common stock, par value
$ .625 per share, 4,000,000
shares authorized and 495,000
shares issued at December 31,
1996 and 1995 $ 309,375 $ 309,375
Additional paid-in capital 2,051,275 2,051,275
Retained earnings 8,006,318 7,101,377
Unrealized holding (loss), net
of tax $ 112,544 - 1996 and
$ 8,780 - 1995 ( 218,468) ( 17,043)
Total stockholders'
equity 10,148,500 9,444,984
Total liabilities and
stockholders' equity $ 10,148,500 $ 9,444,984
1996 1995 1994
Statements of Income
Years Ended December 31
Cash dividends from wholly-owned
subsidiary $ 430,250 $ 283,500 $ 209,000
Equity in undistributed
income of subsidiaries 833,391 786,021 592,093
Printing, supplies,
amortization and
other expenses ( 32,000) ( 10,248) ( 12,275)
Net income $ 1,231,641 $ 1,059,273 $ 788,818
Statements of Cash Flows
Years Ended December 31
Cash flows from operating activities:
Net income $ 1,231,641 $ 1,059,273 $ 788,818
Adjustments to
reconcile net income
to cash provided by
operating activities:
Amortization -
Organization costs 0 0 8,228
Equity in
undistributed
income of
subsidiary ( 833,391) ( 786,021) ( 592,093)
Net cash provided by
operating activities 398,250 273,252 204,953
- -56-
Note 13. Fulton Bancshares Corporation (Parent Company Only)
Financial Information (Continued)
1996 1995 1994
Cash flows from investing activities:
Investment in
subsidiary ($ 50,000) ($ 1,310,650) $ 0
Cash flows from financing activities:
Dividends paid ( 326,700) ( 272,250) ( 209,000)
Net proceeds from
issuing common stock 0 1,310,650 0
Net (repayments from)
advances to
subsidiary 693 ( 1,002) 4,047
Net cash provided
(used) by financing
activities ( 326,007) 1,037,398 ( 204,953)
Net change in cash 22,243 0 0
Beginning cash 0 0 0
Ending cash $ 22,243 $ 0 $ 0
Note 14. Compensating Balances
The corporation is required to maintain certain
compensating balances with its correspondent banks
to cover processing costs and service charges.
Required compensating balances were $ 125,000 at
December 31, 1996 and 1995.
Note 15. Regulatory Matters
Dividends paid by Fulton Bancshares Corporation are
generally provided from the Bank's dividends to it.
The Federal Reserve Board, which regulates bank
holding companies, establishes guidelines which
indicate that cash should be covered by current
year earnings and the debt to equity ratio of the
holding company must be below 30%.
Fulton County National Bank and Trust Company, as a
National Bank, is subject to the dividend
restrictions set forth by the Comptroller of the
Currency. Retained earnings available for the
payment of dividends without approval of the
Comptroller amounted to $ 2,235,877, $ 1,843,532
and $ 1,574,857 at December 31, 1996, 1995 and
1994, respectively.
- -57-
Note 15. Regulatory Matters (Continued)
The Bank is also required to maintain minimum
amounts of capital to total "risk weighted" assets,
as defined by the banking regulations. At December
31, 1996, the Bank's actual ratios and required
levels were as follows:
Required Actual
Leverage (total capital/total assets) 4.0 10.1
Tier 1 (Tier 1 capital/risk weighted
assets) 4.0 17.1
Total capital (total capital plus allowance
for loan losses/risk weighted assets) 8.0 17.8
Note 16. Line of Credit
The Bank has established a line of credit at
Federal Home Loan Bank (FHLB) of Pittsburgh to
improve liquidity. The line limit fluctuates on a
quarterly basis depending on various factors
reported by the Bank. The line was limited to
$ 4,184,000 at December 31, 1996 and carries a
variable interest rate. No funds were drawn on the
line at that date. In addition, the Bank may
borrow up to $ 31,638,750 from FHLB under the terms
of certain commitment agreements. The rates and
terms of the commitments are flexible and will not
be fixed until the funds are withdrawn. The
agreements expire December 11, 1997. Collateral
for the lines consist of substantially all Bank
assets.
Note 17. Changes in Common Stock
Fulton Bancshares Corporation issued 34,484 and
20,516 shares of stock at March 15 and May 15,
1995, respectively. The net proceeds of
$ 1,310,650 were advanced to the subsidiary bank to
increase its capital position.
Note 18. Fair Value of Financial Instruments
Statement on Financial Accounting Standards (SFAS)
No. 107, Disclosure About Fair Value of Financial
Instruments, became effective for the corporation's
1995 financial statements. The estimated fair
values of the corporation's financial instruments
were as follows at December 31, 1996 and 1995:
- -58-
Note 18. Fair Value of Financial Instruments (Continued)
Carrying Amount Fair Value
(000 Omitted)
1996 1995 1996 1995
FINANCIAL ASSETS
Cash and due from banks $ 3,731 $ 2,856 $ 3,731 $ 2,856
Federal funds sold 495 600 495 600
Securities available for
sale 28,083 28,890 27,752 28,864
Other bank stock 723 501 723 501
Loans receivable 63,791 59,871 63,401 60,451
Accrued interest receivable 635 606 635 606
FINANCIAL LIABILITIES
Time certificates 51,528 49,112 51,935 49,308
Other deposits 40,104 37,247 40,104 37,247
Accrued interest payable 373 370 373 370
Note 19. Deferred Compensation and Other Benefit Programs
The Corporation has adopted several benefit
programs, some of which result in the deferral of
payments for services rendered:
(1) The CEO Salary Continuation Plan - This Plan is
funded by single premium life insurance
on the CEO, with the Bank as beneficiary.
Actual payments to the CEO will not begin until
2005.
(2) The Director Emeritus Program - This plan,
funded by life insurance, will allow the Bank
to reward its directors for longevity of
service to the Board. Directors who qualify
would be eligible at age 75 to receive $ 4,000
annually for up to 10 years under this program.
(3) The Director Deferred Compensation Plan - This
plan, also funded by life insurance, will allow
directors to defer up to 100% of directors fees
annually. The amounts deferred will be paid
out over a period of up to 10 years beginning
when the director reaches the age of 75.
(4) The Officer Supplemental Life Insurance Plan
provides for officer life insurance coverage of
double their current salary level, and is also
funded by single premium life insurance.
- -59-
Note 19. Deferred Compensation and Other Benefit Programs
(Continued)
As a result of these plans, the following items are
recognized in the financial statements:
1996 1995
Cash surrender value of life
insurance $ 2,374,288 $ 552,545
Deferred compensation liability 52,668 10,059
Deferred directors fees liability 34,020 0
Income
Earnings on cash surrender value
of life insurance 112,733 8,157
Expenses
Life insurance expense 31,990 0
Salary continuation expense 42,609 10,059
Deferred directors fees 34,020 0
Director emeritus fees 9,000 0
- -60-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
SUMMARY OF QUARTERLY FINANCIAL DATA
The unaudited quarterly results of operations for the years ended
December 31, 1996 and 1995 are as follows:
1996 1995
($ 000 omitted Quarter Ended Quarter Ended
except per
share) Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30
Dec.
31
Interest income $ 1,841 $ 1,868 $ 1,922 $ 1,882 $ 1,742 $ 1,830
$
1,873 $ 1,853
Interest
expense 943 929 926 927 889 931
971 941
Net interest
income 898 939 996 955 853 899 902 912
Provision for
loan losses 0 0 50 15 10 20
8 25
Net interest income
after provision for
loan losses 898 939 946 940 843 879 894 887
Securities gains
(losses) 2 ( 2) ( 2) 0 0 1 2 2
Other income 77 88 91 135 66 80 54 76
Other expenses 563 615 580 667 574 638
525 566
Operating income
before income
taxes 414 410 455 408 335 322 425 399
Applicable income
taxes 114 103 104 134 98 88
126 110
Net income $ 300 $ 307 $ 351 $ 274 $ 237 $ 234
$
299 $ 289
Net income applicable
to common stock
Per share data:
Net income $ .61 $ .62 $ .71 $ .55 $ .53 $
.48 $ .61 $ .58
- -61-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read
in conjunction with the selected supplementary financial
information presented in this report.
OPERATING RESULTS
Net income was $ 1,232,000 for 1996, compared to
$ 1,059,000 for 1995, representing an increase of $ 173,000,
or 16.3%. Net income on an adjusted per share basis for
1996 was $ 2.49, up $ .29 from the $ 2.20 per share realized
during 1995.
Interest income for 1996 was $ 7,513,000, up
$ 215,000, or 2.9% more than 1995. The increase was due
primarily to a combination of higher interest rates earned
on debt securities and higher average balances of loans and
investments in 1996 compared to 1995.
Average earning assets increased 3.8% in both 1996
and 1995. Average loan demand, which typically produces
higher yields than investments, increased 2.5% in 1996. Net
loans at December 31, 1996 stood at $ 63,791,000 compared
with $ 59,871,000 as of December 31, 1995, an increase of
6.5%. Average investment securities increased 7.6%, with
most of the increase concentrated in tax-exempt state and
political subdivisions and U.S. Government Agencies.
Total interest expense was $ 3,725,000 for 1996, a
decrease of $ 7,000, or .19% from the $ 3,732,000 for 1995.
Total deposits increased 6.1% in 1996 compared to 2.8% in
1995. Deposit growth for 1996 occurred as follows:
O Noninterest-bearing deposits increased 25.6%
O Interest-bearing demand and savings deposits
increased 2.8%
O Time deposits increased 4.9%
Since a higher portion of deposit growth occurred
in noninterest-bearing deposits and average rates moderated
during 1996, the bank experienced lower interest costs.
Management continues to competitively price its interest-
bearing deposits to maintain a favorable net interest
margin.
Net interest income is the difference between total
interest income and total interest expense. Interest income
is generated through earning assets which include loans,
deposits with other banks, and investments. Interest income
is dependent on many factors including the volume of earning
assets, the level of interest rates and the changes in
interest rates, and volumes of nonperforming loans. The
cost of funds varies with the volume of funds necessary to
support earning assets, the rates paid to maintain deposits,
rates paid on borrowed funds and the level of interest-free
deposits.
- -62-
Net interest income for 1996 totaled $ 3,788,000, up
6.2% from 1995. Management continuously monitors liquidity
and interest rate risk through its Asset-Liability Committee
reporting and reprices products to maintain a desired net
interest margin.
Other income represents service charges on deposit
accounts, commissions on loan insurance, fees for travelers'
checks and other services, safe deposit box rents, fees for
trust services, securities gains (losses), gains (losses) on
sales of other real estate owned, and earnings on cash
surrender value of directors and officers life insurance.
Other income increased $ 108,000 from 1995 to 1996.
The increase in 1996 resulted primarily from a $ 105,000
increase in earnings on cash surrender value of directors
and officers life insurance.
The noninterest expenses are classified into four
main categories: salaries, fees and employee benefits,
occupancy expenses and furniture and equipment expenses that
include depreciation, maintenance, utilities, taxes,
insurance and rents; FDIC insurance premiums; and other
operating expenses that include all other expenses incurred
in daily operations.
Employee related expenses increased 5.3% and 12.0%
for 1996 and 1995, respectively, primarily due to salary and
related benefit increases and the addition of the business
development representative position in 1995. Occupancy and
furniture and equipment expenses increased 13.0% and 14.2%
in 1996 and 1995, respectively. These increases were due
primarily to the additional depreciation expense associated
with the purchase of a local area network, deposit and loan
processing software and additional computer equipment in
1995 and 1996. Other operating expenses increased $ 17,000,
or 1.9% over 1995. A $ 97,000 decrease in FDIC insurance
premiums in 1996 was largely offset by increases in director
fees, deferred director fees and directors and officers life
insurance expense.
Applicable income taxes changed between 1994, 1995
and 1996 because of changes in pretax accounting income and
taxable income. The effective income tax rate for 1996 was
27.0% compared with 28.5% and 28.8% for 1995 and 1994,
respectively. The decrease in the effective income tax rate
for 1996 was due primarily due to an increase in tax-exempt
interest on obligations of state and political subdivisions
and the nontaxable income related to the increase in the
cash surrender value of directors and officers life
insurance.
FINANCIAL CONDITION
Total assets at December 31, 1996 were $ 102,355,000,
a 6.1% increase over December 31, 1995. Net loans at
December 31, 1996 totaled $ 63,791,000, an increase of
$ 3,920,000 over the $ 59,871,000 at December 31, 1995.
- -63-
The provision for loan losses was $ 65,000 in 1996
compared to $ 63,000 in 1995. The provisions were based on
management's evaluation of the adequacy of the reserve
balance and represent amounts considered necessary to
maintain the reserve at the appropriate level based on the
quality of the loan portfolio and economic conditions. The
bank's history of net charge-offs has traditionally been
better than peer group performance with an average rate of
less than .10% of average loans outstanding over the past
five years. Though this trend is expected to continue,
management intends to maintain the reserve at appropriate
levels based on an ongoing evaluation of the loan portfolio.
Loans 90 days or more past due (still accruing
interest) and those on nonaccrual status were as follows at
December 31 (in thousands):
90 Days or More
Past Due Nonaccrual Status
1996 1995 1996 1995
Real estate mortgages $ 1,038 $ 4 $ 310 $ 310
Installment loans 3 20 0 0
Demand and time loans 0 229 0 0
Total $ 1,041 $ 253 $ 310 $ 310
There were no restructured loans for any of the time
periods set forth above.
Total deposits increased to $ 91,632,000 at December
31, 1996 compared to $ 89,359,000 at December 31, 1995,
primarily in noninterest-bearing demand and interest-bearing
time deposits.
Stockholders' equity reached $ 10,148,000 at
December 31, 1996 for a 7.4% increase over the prior year.
The increase in stockholders' equity was due to retained
earnings. Total stockholders' equity represented 9.9% and
9.8% of total assets at the end of 1996 and 1995,
respectively. Cash dividends paid in 1996 were $ 327,000,
up $ 55,000 over 1995. It is management's and the Board of
Directors' intention to continue to pay a fair return on the
stockholders' investment while retaining adequate earnings
to allow for continued growth.
As described in Note 1 of the Notes to Consolidated
Financial Statements, deferred income taxes have been
provided for timing differences in the recognition of
certain expenses between financial reporting and tax
purposes. Deferred income taxes have been provided at
prevailing tax rates for such items as depreciation,
provision for loan losses, deferred compensation and
unrealized holding losses on available for sale securities.
At December 31, 1996, net deferred tax assets amounted to
$ 110,000. If all timing differences reversed in 1997, the
actual income taxes incurred by the recognition of these
items would not be significantly different from the deferred
income taxes recognized for financial reporting purposes.
- -64-
FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June of 1996 the Financial Accounting Standards
Board issued SFAS No. 125 Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of
Liabilities. Management has not concluded on the impact on
future operations. This statement may significantly affect
accounting for and disclosures about certain bank
transactions including the following:
d Assets subject to prepayment risk
d Servicing assets and liabilities
d Securities lending transactions
d Loan participations
d Extinguishment of liabilities
d Collateral controlled by an institution as a
secured party
This statement is effective for transfers and
servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996.
LIQUIDITY
Liquidity and interest rate sensitivity are related
but distinctly different from one another.
Liquidity involves the bank's ability to meet cash
withdrawal needs of customers and their credit needs in the
form of loans. Liquidity is provided by cash on hand and
transaction balances held at correspondent banks. Liquidity
available to meet credit demands and/or adverse deposit
flows is also made available from sales or maturities of
short-term assets. Additional sources of funds to meet
credit needs is provided by access to the marketplace to
obtain interest-bearing deposits and other borrowings,
including special programs available through Federal Home
Loan Bank.
Interest rate sensitivity is the matching or
mismatching of the maturity and rate structure of the
interest-bearing assets and liabilities. It is the
objective of management to control the difference in the
timing of the rate changes for these assets and liabilities
to preserve a satisfactory net interest margin. The
following table approximately reflects the matching of
assets and liabilities maturing within one year and
thereafter, which management feels is adequate to meet
customer cash and credit needs while maintaining a desired
interest rate spread.
- -65-
LIQUIDITY (CONTINUED)
Due Due Due Due Due
0-30 31-90 91-180 181-360 After
(000 omitted) Days Days Days Days 1 Year Total
Rate Sensitive Assets
Other short-term
investments $ 495 $ 0 $ 0 $ 0 $ 0 $ 495
Investment
securities 1,324 880 2,015 5,968 17,565 27,752
Real estate,
commercial
and consumer
loans 3,078 8,362 11,765 4,382 36,648 64,235
$ 4,897 $ 9,242 $ 13,780 $ 10,350 $ 54,213 $ 92,482
Rate Sensitive Liabilities
Certificates of
deposit over
$ 100,000 $ 387 $ 497 $ 5,409 $ 634 $ 2,628 $ 9,555
Other certificates
of deposit 1,111 2,029 20,104 3,666 15,057 41,967
Money market
deposit
accounts 423 423 846 5,408 0 7,100
Other interest-
bearing
deposits 1,215 1,215 1,805 18,775 0 23,010
$ 3,136 $ 4,164 $ 28,164 $ 28,483 $ 17,685 $ 81,632
Cumulative GAP $ 1,761 $ 6,839 ($ 7,545) ($ 25,678) $ 10,850
- -66-
Loan rates have remained relatively unchanged over
the past six months. However, management anticipates that
the Federal Reserve Board will increase short term interest
rates to keep inflation under control. Management expects
the increases in the short-term interest rates to take
place slowly over the next 360 days. As a result,
management has assessed probabilities to each time period
and proportionately included variable rate loans in rate
sensitive assets of one year or less.
In monitoring and evaluating liquidity, management
generally does not consider regular savings or interest-
bearing checking accounts to be particularly rate sensitive
since it is highly improbable that 100% of these deposits
will be withdrawn within the next 360 days. Therefore,
management has assessed probabilities to each time period
and proportionately included these funds in rate sensitive
liabilities of one year or less. Variable rate certificates
of deposit totalling $ 19,080,000, which can reprice June,
1997, have been reflected in the 91-180 days time period.
CAPITAL FUNDS
Internal capital generation has been the primary
method utilized by Fulton Bancshares Corporation to
increase its capital. This was supplemental in 1995 with
the issuance of 55,000 shares of capital stock, which
netted proceeds of $ 1,310,000. Stockholders' equity
exceeded $ 10 million at December 31, 1996. Regulatory
authorities have established capital guidelines in the form
of the "leverage ratio" and "risk-based capital ratios."
The leverage ratio compares capital to total balance sheet
assets, while the risk-based ratios compare capital to
risk-weighted assets and off-balance-sheet activity in
order to make capital levels more sensitive to risk
profiles of individual banks. A comparison of Fulton
Bancshares Corporation's capital ratios to regulatory
minimums at December 31 is as follows:
Fulton Bancshares
Corporation Regulatory Minimum
1996 1995 Requirements
Leverage ratio 10.1% 9.8% 4%
Risk-based capital ratio
Tier I (core capital) 17.1% 16.4% 4%
Combined Tier I and
Tier II (core capital
plus allowance
for loan losses) 17.8% 17.0% 8%
Fulton Bancshares Corporation has traditionally been
well above required levels and expects equity capital to
continue to exceed regulatory guidelines and industry
averages. Certain ratios are useful in measuring the
ability of a company to generate capital internally.
- -67-
The following chart indicates the growth in equity
capital for the past three years.
1996 1995 1994
Equity capital at December 31
($ 000 omitted) $ 10,148 $ 9,445 $ 6,214
Equity capital as a percent
of assets at December 31 9.9% 9.8% 6.8%
Return on average assets 1.23% 1.13% .87%
Return on average equity 12.49% 12.13% 12.08%
Cash dividend payout ratio 26.51% 25.7% 26.5%
STOCK MARKET ANALYSIS AND DIVIDENDS
The corporation's common stock is traded inactively
in the over-the-counter market. As of December 31, 1996 the
approximate number of shareholders of record was 451.
Market Cash Market Cash
Price Dividend Price Dividend
1996 1995
First Quarter $ 27.00 $ .15 $ 25.00 $ .00
Second Quarter 32.00 .15 25.00 .25
Third Quarter 35.00 .175 25.00 .15
Fourth Quarter 35.00 .185 26.00 .15
- -68-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
For additional information concerning liquidity, refer to statistical
disclosures applicable to the investment and loan portfolio.
Closely related to the management of liquidity is the management of rate
sensitivity which focuses on maintaining stability in the net interest
margin. As illustrated in the table below the tax equivalent net interest
margin ranged from 3.7% to 4.1% of average earning assets during the past 3
years. An asset/liability committee monitors and coordinates the overall
asset/liability strategy.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Rates and Interest Differential Tax Equivalent Yields
Years Ended December 31
ASSETS 1996 1995
1994
Average Average Average
(000 omitted) Balance Interest Rate Balance Interest Rate Balance
Interest Rate
Investment securities:
Taxable interest
income $ 26,647 $ 1,651 6.2% $ 26,010 $ 1,498 5.7% $ 23,458 $
1,164 5.0%
Nontaxable interest
income 3,040 153 5.0 1,586 81 5.1 906
46 5.1
Total investment
securities 29,687 1,804 6.1 27,596 1,579 5.7 24,364
1,210 5.0
Loans (net of unearned
discounts) 62,530 5,686 9.1 61,011 5,649 9.3 61,062
5,16
1 8.5
Other short-term
investments 430 23 5.3 661 70 5.9 536
46 4.0
Total interest
earning assets 92,647 $ 7,513 8.1% 89,268 $ 7,298 8.2%
85,962 $ 6,417 7.5%
Allowance for loan
losses ( 392) ( 364) ( 388)
Cash and due from banks 2,638 2,399 2,402
Bank premises and
equipment 2,083 2,028 1,931
Other assets 3,211 1,440 408
Total assets $ 100,187 $ 94,771 $ 90,315
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand
deposits $ 15,758 $ 413 2.6% $ 14,871 $ 398 2.7% $ 14,876
$
382 2.6%
Savings deposits 14,578 400 2.7 14,663 417 2.8 16,641 488 2.9
Time deposits 49,582 2,847 5.7 47,502 2,872 6.0 43,920 2,376
5.4
Short-term borrowings 1,196 65 5.4 709 44 6.2
607 23 3.8
Total interest
bearing
liabilities 81,114 $ 3,725 4.6% 77,745 $ 3,731 4.8% 76,044
$
3,269 4.3%
Demand deposits 8,562 7,902 7,449
Other liabilities 645 394 292
Total liabilities 90,321 86,041 83,785
Stockholders'
equity 9,866 8,730 6,530
Total liabilities &
stockholders'
equity $ 100,187 $ 94,771 $ 90,315
Net interest income/net
yield on average
earning assets $ 3,788 4.1% $ 3,567 4.0% $ 3,148 3.7%
For purposes of calculating loan yields, the average loan volume
includes
nonaccrual loans. For purposes of calculating yields on nontaxable interest
income, the taxable equivalent adjustment is made to equate nontaxable
interest on the same basis as taxable interest. The marginal tax rate was
34% for 1996, 1995 and 1994.
- -69-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
CHANGES IN NET INTEREST INCOME TAX EQUIVALENT YIELDS
1996 Versus 1995 1995 Versus 1994
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
Total Total
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
(000 omitted)
Interest Income
Loans (net of
unearned
discounts) $ 138 ($ 111) $ 27 ($ 4) $ 492 $ 488
Taxable
investment
securities 39 92 131 209 126 335
Nontaxable
investment
securities 73 ( 1) 72 36 ( 1) 35
Other short-term
investments ( 12) ( 3) ( 15) 5 18 23
Total interest
income 238 ( 23) 215 246 635 881
Interest Expense
Interest bearing
demand 23 ( 9) 14 0 18 18
Savings
deposits ( 2) ( 15) ( 17) ( 85) 14 ( 71)
Time deposits 119 ( 144) ( 25) 154 342 496
Short-term
borrowings 26 ( 4) 22 4 16 20
Total interest
expense 166 ( 172) ( 6) 73 390 463
Net interest
income $ 221 $ 418
Changes which are attributed in part to volume and in part
to
rate are allocated in proportion to their relationships to the amounts of
changes.
- -70-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
The following table shows the maturities of investment
securities at book value as of December 31, 1996, and weighted average
yields of such securities. Yields are shown on a tax equivalent basis,
assuming a 34% federal income tax rate.
After 1 year After 5 years
Within but within but within After
1 year 5 years 10 years 10 years Total
(000 omitted)
Bonds:
U. S. Treasury
Book value $ 0 $ 0 $ 0 $ 0 $ 0
Yield 0% 0% 0% 0% 0%
U. S. Government agencies
Book value 0 7,005 0 0 7,005
Yield 0% 6.17% 0% 0% 6.14%
State and municipal
Book value 0 1,193 3,087 0 4,280
Yield 0% 4.41% 5.30% 0% 5.05%
Mortgage-Backed
Book value 0 37 1,051 15,710 16,798
Yield 0% 9.12% 6.13% 6.55% 6.53%
Total book value $ 0 $ 8,235 $ 4,138 $ 15,710 $ 28,083
Yield 0% 5.93% 5.51% 6.55% 6.21%
Equity Securities:
Total Equity Securities $ 722
Yield 6.23%
Total Investment Securities $ 28,805
Yield 6.21%
- -71-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
LOAN PORTFOLIO
The following table presents the loan portfolio at the end of
each of the last five years:
1996 1995 1994 1993 1992
(000 omitted)
Commercial, financial and
agricultural $ 7,648 $ 11,135 $ 11,641 $ 10,337 $ 13,471
Real estate - Construction 0 386 159 386 1,041
Real estate - Mortgage 47,519 37,822 37,196 38,221 36,074
Installment and other
personal loans (net of
unearned discount) 9,068 10,872 11,682 12,455 13,372
Total loans $ 64,235 $ 60,215 $ 60,678 $ 61,399 $ 63,958
Presented below are the approximate maturities of the loan
portfolio (excluding real estate mortgages and installments) at
December 31, 1996:
Under One One to Over Five
Year Five Years Years Total
(000 omitted)
Commercial, financial and
agricultural $ 4,940 $ 1,405 $ 1,303 $ 7,648
Real estate - Construction 0 0 0 0
Total $ 4,940 $ 1,405 $ 1,303 $ 7,648
The following table presents the approximate amount of fixed
rate loans and variable rate loans due as of December 31, 1996:
Fixed Rate Variable
Loans Rate Loans
(000 omitted)
Due within one year $ 4,292 $ 8,782
Due after one but within five years 8,308 4,520
Due after five years 15,228 23,105
Total $ 27,828 $ 36,407
- -72-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
SUMMARY OF LOAN LOSS EXPERIENCE
Years Ended December 31
1996 1995 1994 1993 1992
(000 omitted)
Average total loans
outstanding (net of
unearned income) $ 62,530 $ 61,011 $ 61,062 $ 64,104 $ 62,073
Allowance for loan losses,
beginning of period $ 345 $ 358 $ 400 $ 376 $ 372
Additions to provision
for loan losses charged
to operations 65 62 48 70 84
Loans charged off during
the year
Commercial 0 35 68 39 85
Installment 9 48 31 14 14
Total charge-off's 9 83 99 53 99
Recoveries of loans
previously charged off:
Commercial 33 1 6 2 2
Installment 10 7 3 5 17
Total recoveries 43 8 9 7 19
Net loans charged off ( 34) 75 90 46 80
Allowance for loan losses, $ 444 $ 345 $ 358 $ 400 $
376
Ratio of net loans
charged off to average
loans outstanding ( .05) .12% .15% .07% .13%
The provision is based on an evaluation of the adequacy of
the allowance for possible loan losses. The evaluation includes, but is
not limited to, review of net loan losses for the year, the present and
prospective financial condition of the borrowers and evaluation of
current and projected economic conditions.
- -73-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
LOANS
The following table sets forth the outstanding balances
of those loans on a nonaccrual status and those on accrual status
which are contractually past due as to principal or interest
payments for 30 days or more at December 31.
1996 1995 1994 1993 1992
(000 omitted)
Nonaccrual loans $ 310 $ 310 $ 80 $ 249 $ 135
Accrual loans:
Restructured $ 0 $ 0 $ 0 $ 0 $ 0
30 through 89 days
past due 1,716 2,533 3,876 2,551 2,052
90 days or more
past due 1,041 253 85 147 124
Total accrual
loans $ 2,757 $ 2,786 $ 3,961 $ 2,698 $ 2,176
See Note 5 of the notes to consolidated financial
statements for details of income recognized and foregone revenue on
nonaccrual loans for the past three years.
Management has not identified any significant problem
loans in the accrual loan categories shown above.
- -74-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
The following is an allocation by loan categories of the
allowance for loan losses at December 31 for the last five years. In
retrospect the specific allocation in any particular category may prove
excessive or inadequate and consequently may be reallocated in the future
to reflect the then current conditions. Accordingly, the entire allowance
is available to absorb losses in any category:
Years Ended December 31
1996 1995 1994
Percentage Percentage Percentage
Allowance of Loans to Allowance of Loans to Allowance of Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
(000 omitted)
Commercial,
financial and
agri-
cultural $ 53 11.91% $ 123 35.68% $ 136 37.92%
Real estate -
Constr-
uction 0 0.00 2 0.64 1 .27
Real estate -
Mortgage 328 73.98 157 45.62 152 42.55
Instal-
lment 63 14.11 63 18.06 69 19.26
Total $ 444 100.00% $ 345 100.00% $ 358 100.00%
Years Ended December 31
1993 1992
Percentage Percentage
Allowance of Loans to Allowance of Loans to
Amount Total Loans Amount Total Loans
(000 omitted)
Commercial,
financial and
agricultural $ 144 36.05% $ 96 25.48%
Real estate -
Construction 3 .63 6 1.62
Real estate -
Mortgage 172 43.01 177 47.06
Installment 81 20.31 97 25.84
Total $ 400 100.00% $ 376 100.00%
- -75-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
DEPOSITS
The average amounts of deposits are summarized below:
Years Ended December 31
1996 1995 1994
(000 omitted)
Demand deposits $ 8,562 $ 7,902 $ 7,449
Interest bearing demand deposits 15,758 14,871 14,876
Savings deposits 14,578 14,663 16,641
Time deposits 49,582 47,502 43,919
Total deposits $ 88,480 $ 84,938 $ 82,885
The following is a breakdown of maturities of time
deposits of $ 100,000 or more as of December 31, 1996:
Maturity (000 omitted)
Certificates of Deposit
Three months or less $ 884
Over three months through six months 1,884
Over six months through twelve months 1,046
Over twelve months 5,741
$ 9,555
RETURN ON EQUITY AND ASSETS (APPLYING DAILY AVERAGE BALANCES)
The following table presents a summary of significant
earnings and capital ratios:
1996 1995 1994
Assets $ 100,187 $ 94,771 $ 90,315
Net income $ 1,232 $ 1,059 $ 789
Equity $ 9,866 $ 8,730 $ 6,530
Cash dividends paid $ 327 $ 272 $ 209
Return on assets 1.23% 1.13% .87%
Return on equity 12.49% 12.13% 12.08%
Dividend payout ratio 26.5% 25.7% 26.5%
Equity to asset ratio 9.85% 9.21% 7.23%
- -76-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED SUMMARY OF OPERATIONS
Years Ended December 31
1996 1995 1994 1993 1992
(000 omitted)
Interest income $ 7,513 $ 7,298 $ 6,417 $ 6,349 $ 6,687
Interest expense 3,725 3,732 3,269 3,575 3,953
Net interest income 3,788 3,566 3,148 2,774 2,734
Provision for loan losses 65 62 48 70 84
Net interest income after
provision for loan
losses 3,723 3,504 3,100 2,704 2,650
Other income:
Trust 43 42 41 30 26
Service charges - Deposits 130 99 102 127 132
Other service charges,
collection and exchange,
charges, commission fees 102 69 80 67 79
Other operating income
(loss) 114 71 21 94 19
Total other income 389 281 244 318 256
Income before operating
expense 4,112 3,785 3,344 3,022 2,906
Operating expenses:
Salaries and employees
benefits 1,129 1,072 957 934 905
Occupancy and equipment
expense 418 370 325 258 259
Other operating expenses 875 862 954 905 808
Total operating
expenses 2,425 2,304 2,236 2,097 1,972
Income before income taxes 1,687 1,481 1,108 925 934
Income tax 455 422 319 225 247
Net income applicable
to common stock $ 1,232 $ 1,059 $ 789 $ 700 $ 687
Per share data:
Earnings per common share $ 2.49 $ 2.20 $ 1.79
$
1.59 $ 1.56
Cash dividend - Common .66 $ .55 * $ .48 $ .44
$
.43
Weighted average number
of common shares 495,000 480,476 440,000 440,000 440,000
* Based on 495,000 shares outstanding
- -77-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
STATEMENTS OF AVERAGE BALANCES AND AVERAGE RATES
($ 000 omitted) 1996 1995 1994 1993 1992
LOANS
Lines of credit $ 3,492 $ 3,556 $ 3,606 $ 3,611 $ 3,529
Tax free 2,458 3,027 1,930 2,846 2,637
Commercial 12,702 10,356 10,533 11,873 12,728
Mortgage 32,833 33,430 34,458 34,793 31,103
Consumer 11,045 10,642 10,535 10,981 12,076
Total loans 62,530 61,011 61,062 64,104
62,073
INVESTMENT SECURITIES
U.S. Government 254 404 564 665 583
U.S. Government agencies 6,984 5,361 4,743 6,206 7,170
State & municipal 3,040 1,586 906 553 841
Mortgage-backed securities 18,730 19,777 17,744 13,741 11,397
Other 679 468 407 468 585
Total investment
securities 29,687 27,596 24,364 21,633 20,576
OTHER SHORT-TERM INVESTMENTS
Federal funds sold 430 661 536 1,713 603
TOTAL EARNING ASSETS 92,647 89,268 85,962 87,450 83,252
TOTAL ASSETS $ 99,844 $ 93,959 $ 90,315 $ 91,297 $ 86,916
Percent increase 6.3% 4.0% (1.1)% 5.0% 13.8%
DEPOSITS
Interest-bearing demand $ 15,758 $ 14,871 $ 14,876 $ 15,431 $ 15,822
Savings 14,578 14,663 16,641 16,052 15,338
Time 49,582 47,502 43,919 44,283 40,788
Total interest-
bearing deposits 79,918 77,036 75,436 75,766 71,948
OTHER BORROWINGS
Federal funds purchased 908 524 408 0 499
Liabilities for borrowed
money 288 185 200 1,030 2,222
TOTAL INTEREST-BEARING
LIABILITIES 81,114 77,745 76,044 76,796 74,669
- -78-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
STATEMENTS OF AVERAGE BALANCES AND AVERAGE RATES (CONTINUED)
1996 1995 1994 1993 1992
AVERAGE RATES EARNED
% % % % %
Loans
Commercial 9.31 9.95 8.90 7.77 8.32
Mortgage 8.64 8.99 7.94 7.42 7.99
Consumer 9.58 10.09 10.14 10.42 10.81
Tax free 5.91 6.05 6.73 6.21 6.15
Lines of credit 9.13 9.84 8.63 7.31 7.62
Total 9.09 9.22 8.45 7.92 8.48
Investment Securities
U.S. Government 6.40 6.40 6.11 5.90 5.90
U.S. Government agencies 6.09 5.86 5.35 5.34 7.61
State & municipal 5.02 5.08 5.34 7.18 6.69
Mortgage-backed securities 6.50 5.94 4.87 5.59 7.02
Other 6.32 6.54 6.17 7.06 8.00
Total 6.08 5.89 5.03 5.60 6.93
Other Short-Term Investments
Federal funds sold 5.30 5.85 4.02 3.63 2.99
Total earning assets 8.11 8.15 7.44 7.24 8.05
AVERAGE RATES PAID
Time & savings deposits 4.59 4.77 4.29 4.69 5.24
Federal funds purchased 5.61 6.09 3.93 0.00 5.00
Liabilities for borrowed money 5.55 6.36 3.74 3.26 2.88
Total interest-bearing
liabilities 4.59 4.78 4.29 4.67 5.31
- -79-
Item 9. Disagreements on Accounting and Financial Disclosures.
Not applicable.
- -80-
PART III
The information required by Items 10, 12 and 13 is
incorporated by reference from Fulton Bancshares
Corporation's definitive proxy statement for the 1997 Annual
Meeting of shareholders filed pursuant to Regulation 14A.
- -81-
Item 11. Executive Compensation
Shown below is information concerning the annual
compensation for services in all capacities to the Company,
the Bank, and FCCDC for the fiscal years ended December 31,
1996, 1995 and 1994 of the Chief Executive Officer. There
was no executive officer of the Company, the Bank, or FCCDC
whose total annual salary and bonus during that time frame
exceeded $ 100,000.
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted
Name and Annual Stock Options/ LTIP All Other
Principal Salary Bonus Compensation Award(s) SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
Clyde H.
Bookheimer
President &
CEO 1996 $ 83,200 $ 0 $ 0 $ 0 $ 0 $ 0 $ 60,987
1995 77,850 0 0 0 0 0 19,873
1994 70,200 0 0 0 0 0 7,255
Footnotes:
(1) All other compensation includes the following:
Fringe Benefits Deferred
(Personal Use of Bank Retirement Deferred Salary Directors
Directors Fees Owned Vehicle) Plan Continuation Plan Fees
1996 $ 6,000 $ 1,351 $ 9,027 $ 42,609 $ 2,000
1995 2,000 875 6,939 10,059 0
1994 2,000 1,037 4,218 0 0
The deferred salary continuation plan was funded by single premium
life insurance policies on the CEO, with the Bank named as beneficiary.
Actual payments to the CEO amounting to $ 73,000 annually will not begin
until 2005. At December 31, 1996, the cash surrender value of the policies
were $ 682,882. See a copy of this agreement as amended, at Exhibit 10.
- -82-
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(a) Certain documents filed as part of Form 10-K
Financial Statement Schedules and Exhibits
(1) Financial statements. See Item 8 of this
report for the index to financial
statements.
(2) Financial statement schedules. Not
applicable.
(3) Exhibits.
Exhibit Numbers
(2) Plan of acquisition, reorganization,
arrangement, liquidation or succession.
Not applicable.
(3) (a) Articles of incorporation. Incorporated
by reference to Exhibit 3A to the
Registrant's Registration Statement on
Form SB-2, Registration No. 33-85626.
(b) By-laws. Incorporated by reference to
Exhibit 3B to the Registrant's
Registration Statement on Form SB-2,
Registration No. 33-85626.
(4) Instruments defining the rights of
security holders including indentures.
The rights of the holders of Registrant's
common stock are contained in:
- -83-
(i) Articles of Incorporation of Fulton
Bancshares Corporation, filed as Exhibit
3A to Registrant's Registration
Statement on Form SB-2 (Registration No.
33-85626).
(ii)By-laws of Fulton Bancshares
Corporation, filed as Exhibit 3B to the
Registrant's Registration Statement on
Form SB-2 (Registration No. 33-85626).
(9) Voting trust agreement. Not applicable.
(10) Material contracts. See Exhibit 10.
(11) Statement re: computation of per share
earnings. Not applicable.
(12) Statements re: computation of ratios. Not
applicable.
(13) Annual report to security holders, Form 10-Q
or quarterly report to security holders. Not
applicable.
(16) Letter re: change in certifying accountant.
not applicable.
(18) Letter re: change in accounting principles.
Not applicable.
(21) Subsidiaries of the registrant. Filed
herewith as Exhibit 21.
(22) Published report regarding matters submitted
to vote of security holders. Not
applicable.
- -84-
(23) Consents of experts and counsel. Not
applicable.
(24) Power of attorney. Not applicable.
(27) Financial data schedule. Filed herewith.
(28) Information from reports furnished to state
insurance regulatory authorities. Not
applicable.
(99) Additional exhibits. Not applicable.
(b) Reports on Form 8-K. None.
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SIGNATURES
In accordance with the requirements of Section 13 or
15(d) of the Securities Act of 1934, this report was signed by the
following persons on behalf of the Registrant in the capacities and
on the dates indicated.
Signature Title Date
/s/ Clyde H. Bookheimer Director, President & March , 1997
Clyde H. Bookheimer CEO (Principal Executive
Officer)
/s/ Raleigh V. Barnett Director March , 1997
Raleigh V. Barnett
/s/ David L. Seiders Director March , 1997
David L. Seiders
/s/ John J. Kelso Director & Chairman March , 1997
John J. Kelso of the Board
/s/ Cecil B. Mellott Director March , 1997
Cecil B. Mellott
/s/ Robert C. Snyder Director & Vice- March , 1997
Robert C. Snyder Chairman
/s/ Ellis L. Yingling Director March , 1997
Ellis L. Yingling
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Exhibit Index
Exhibit No. Sequentially numbered pages
10 CEO Deferred Compensation
Agreement and Amendments 88 - 98
21 Subsidiaries of the Registrant 99
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EXHIBIT 10
FIRST AMENDMENT TO THE FULTON COUNTY NATIONAL BANK AND
TRUST COMPANY MCCONNELLSBURG, PA SALARY CONTINUATION
AGREEMENT DATED SEPTEMBER 1, 1995
THIS AMENDMENT is dated as of October 15, 1996, and is by
and between THE FULTON COUNTY NATIONAL BANK AND TRUST
COMPANY, a Pennsylvania corporation located in
McConnellsburg, Pennsylvania (the "Corporation") and CLYDE
H. BOOKHEIMER (the "Executive").
RECITALS:
1. On September 1st, 1995, the Corporation executed The
Fulton County National Bank and Trust Company
McConnellsburg PA Salary Continuation Agreement for
Clyde H. Bookheimer (the "Agreement").
2. The Board deems it to be in the best interests of the
Corporation to execute the First Amendment to The Fulton
County National Bank and Trust Company McConnellsburg PA
salary Continuation Agreement for Clyde H. Bookheimer
(the "First Amendment") to increase the retirement
benefit payable to Mr. Bookheimer from $ 61,500 annually
to $ 73,000 annually for the reasons stated in the
minutes of action authorizing the execution of this
First Amendment.
3. Article 8 of the Agreement provides that the Agreement
may be amended or terminated at any time only by a
written agreement signed by the Corporation and the
Executive. This First Amendment is intended to be such
signed agreement.
NOW, THEREFORE, the Agreement is amended as follows:
1. Article 2, Section 2.1.1 is hereby amended in its
entirety to read as follows:
"2. 1.1 Amount of Benefit - The benefit under this
Section 2.1 is $ 6,O83.33. Said amount shall be
increased each month between the date the Executive
reaches age 65 and the Executive's Normal Retirement
Date by .67% per month until retirement.
2. Schedule of the Agreement is hereby amended in its
entirety to read as follows:
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"THE FULTON COUNTY NATIONAL BANK & TRUST COMPANY
SCHEDULE A
Early Early
Retirement Retirement
Plan Year Monthly Benefit Annual Benefit
1 $ 780 $ 11,114
2 1,777 21,326
3 2,559 30,709
4 3,277 39,329
5 3,937 47,249
6 4,544 54,526
7 5,101 61,213
8 5,613 67,356
9 6,083 73,000
IN WITNESS OF THE ABOVE, Executive has executed this
First Amendment and the Corporation has caused its duly
authorized officers to execute this First Amendment.
Executive: Corporation:
THE FULTON COUNTY
NATIONAL BANK & TRUST
COMPANY
______________________ _________________________
CLYDE H. BOOKHEIMER Its _____________________
_________________________
Its _____________________
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THE FULTON COUNTY NATIONAL BANK AND TRUST COMPANY
MCCONNELLSBURG, PA
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made this 1st day of September, 1995,
by and between The Fulton County National Bank & Trust
Company, McConnellsburg, Pennsylvania ("Company"), and Clyde
H. Bookheimer (the "Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the
Company, the Company is willing to provide salary
continuation benefits to the Executive. The Company will
pay the benefits from its general assets.
AGREEMENT
The Executive and the Company agree as follows:
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Article I
Definitions
1.1 Definitions. Whenever used in this Agreement, the
following words and phrases shall have the meanings
specified:
1.1.1 "Change of Control" means the transfer of 51% or
more of the Company's outstanding voting common stock
followed within twelve (12 ) months by replacement of
fifty percent (50%) or more of the members of the
Company's Board of Directors (for reasons other than
death or disability).
1.1.2 "Code" means the Internal Revenue Code of 1986,
as amended. References to a Code Section shall be
deemed to be to that section as it now exists and to
any successor provision.
1.1.3 "Company" means The Fulton County National Bank &
Trust Company, and any successor thereto.
1.1.4 "Normal Retirement Date" means the Executive
attaining age 65, or his actual retirement date if
after age 65.
1.1.5 "Termination of Employment" means the Executive's
ceasing to be employed by the company for any reason
whatsoever, voluntary or involuntary, other than by
reason of an approved leave of absence.
1.1.6 "Plan Year" means each twelve-month period from
the effective date of this Agreement.
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Article 2
Retirement Benefits
2.1 Normal Retirement Benefit. If the Executive terminates
employment on or after the Normal Retirement Date for
reasons other than death, the Company shall pay to the
Executive the benefit described in this Section 2. 1.
2.1.1 Amount of Benefit. The benefit under this
Section 2.1 is $ 5,125. Said amount shall be increased
each month between the date the Executive reaches age
65 and the Executive's Normal Retirement Date by .67%
per month until retirement.
2.1.2 Payment of Benefit. The Company shall pay the
benefit to the Executive on the first day of each month
commencing with the month following the Executive's
Normal Retirement Date and continuing for 179
additional months.
2.2 Early Retirement Benefit. If the Executive terminates
employment before the Normal Retirement Date, and for
reasons other than death or following a Change of
Control, the Company shall pay to the Executive the
benefit described in this Section 2.2.
2.2.1 Amount of Benefit. The benefit under this
Section 2.2 is the benefit determined under Schedule A
based on the date of the Executive's Termination of
Employment.
2.2.2 Payment of Benefit. The Company shall pay the
benefit to the Executive on the first day of each month
commencing with the month following the Executive's
Normal Retirement Date and continuing for 179
additional months.
2.3 Change of Control Benefit. If Executive is in active
service at the time of a Change of Control, the
Executive shall be entitled to the Normal Retirement
Benefit described in Section 2. 1, whether or not
Termination of Service occurs prior to Normal
Retirement Date.
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Article 3
Survivor Benefits
3.1 Death During Active Service. If the Executive dies
while in the active Service of the Company, the Company
shall pay to the Executive's beneficiary the benefit
described in this Section 3.1.
3.1.1 Amount of Benefit. The benefit under Section 3.1
is the lifetime benefit that would have been paid to
the Executive under Section 2.1 calculated as if the
date of the Executive's death were the Normal
Retirement Date.
3.1.2 Payment of Benefit. The Company shall pay the
benefit to the Beneficiary on the first day of each
month commencing with the month following the
Executive's death and continuing for 179 additional
months.
3.2 Death During Benefit Period. If the Executive dies
after benefit payments have commenced under this
Agreement but before receiving all such payments, the
Company shall pay the remaining benefits to the
Executive's beneficiary at the same time and in the
same amounts they would have been paid to the Executive
had the Executive survived.
3.3 Death Following Active Service Before Benefits
Commence. If the Executive is entitled to benefit
payments under this Agreement, but dies prior to
receiving said benefit payments, the Company shall pay
the Executive's beneficiary the benefit described in
this Section 3.3.
3.3.1 Amount of Benefit. The benefit under Section 3.3
is the vested benefit that would have been paid to the
Executive pursuant to Schedule A.
3.3.2 Payment of Benefit. The Company shall pay the
benefit to the Beneficiary on the first day of each
month commencing with the month following the
Executive's death and continuing for 179 additional
months.
3.4 "Death After Change of Control". If Executive dies
following a Change of Control, provided Executive was
in active service at the time of the Change of Control,
the Company shall pay the Executive's beneficiary the
benefit described in this Section 3.4.
3.4.1 Amount of Benefit. The benefit under Section 3.4
is the lifetime benefit that would have been paid to
the Executive under Section 2.1 calculated as if the
date of the Executive's death were the Normal
Retirement Date.
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3.4.2 Payment of Benefit. The Company shall pay the
benefit to the Beneficiary on the first day of each
month commencing with the month following the
Executive's death and continuing for 179 additional
months.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall
designate a beneficiary by filing a written designation
with the Company. The Executive may revoke or modify
the designation at any time by filing a new
designation. However, designations will only be
effective if signed by the Executive and accepted by
the Company during the Executive's lifetime. The
Executive's beneficiary designation shall be deemed
automatically revoked if the beneficiary predeceases
the Executive, or if the Executive names a spouse as
beneficiary and the marriage is subsequently dissolved.
If the Executive dies without a valid beneficiary
designation, all payments shall be made to the
Executive's surviving spouse, if any, and if none, to
the Executive's surviving children and the descendants
of any deceased child by right of representation, and
if no children or descendants survive, to the
Executive's estate.
4.2 Facility of Payment. If a benefit is payable to a
minor, to a person declared incompetent, or to a person
incapable of handling the disposition of his or her
property, the Company may pay such benefit to the
guardian, legal representative or person having the
care or custody of such minor, incompetent person or
incapable person. The Company may require proof of
incompetency, minority or guardianship as it may deem
appropriate prior to distribution of the benefit. Such
distribution shall completely discharge the Company
from all liability with respect to such benefit.
Article 5
General Limitations
Notwithstanding any provisions of this Agreement to the
contrary, the Company shall not pay any benefit under this
Agreement:
5.1 Excess Parachute Payment. To the extent the
benefit would be an excess parachute payment under
Section 28OG of the Code.
5.2 Termination for Cause. If the Company terminates the
Executive's employment for:
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5.2.1 Gross negligence or gross neglect of duties;
5.2.2 Commission of a felony or of a gross misdemeanor
involving moral turpitude; or
5.2.3 Fraud, disloyalty, dishonesty or willful
violation of any law or significant Company policy
committed in connection with the Executive's employment
and resulting in an adverse effect on the Company.
5.3 Competition After Termination of Employment. No
benefits shall be payable, except for benefits paid due
to a Change of Control, if the Executive, without the
prior written consent of the Company, engages in,
becomes interested in, directly or indirectly, as a
sole proprietor, as a partner in a partnership, or as a
substantial shareholder in a corporation, or becomes
associated with, in the capacity of employee, director,
officer, principal, agent, trustee or in any other
capacity whatsoever, any enterprise conducted in the
trading area (a 25 mile radius) of the business of the
Company which enterprise is, or may deemed to be,
competitive with any business carried on by the Company
as of the date of termination of the Executive's
employment or his retirement.
5.4 Suicide. No benefits shall be payable if the Executive
commits suicide within two years after the date of this
Agreement, or if the Executive has made any material
misstatement of fact on any application for life
insurance purchased by the Company.
Article 6
Claims and Review Procedures
6.1 Claims Procedure. The Company shall notify the
Executive's beneficiary in writing, within ninety (90)
days of his or her written application for benefits, of
his or her eligibility or noneligibility for benefits
under the Agreement. If the Company determines that
the beneficiary is not eligible for benefits or full
benefits, the notice shall set forth (1) the specific
reasons for such denial, (2) a specific reference to
the provisions of the Agreement on which the denial is
based, (3) a description of any additional information
or material necessary for the claimant to perfect his
or her claim, and a description of why it is needed,
and (4) an explanation of the Agreement's claims review
procedure and other appropriate information as to the
steps to be taken if the beneficiary wishes to have the
claim reviewed. If the Company determines that there
are special circumstances requiring additional time to
make a decision, the Company shall notify the
beneficiary of the special circumstances and the date
by which a decision is expected to be made, and may
extend the time for up to an additional ninety-day
period.
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6.2 Review Procedure. If the beneficiary is determined by
the Company not to be eligible for benefits, or if the
beneficiary believes that he or she is entitled to
greater or different benefits, the beneficiary shall
have the opportunity to have such claim reviewed by the
Company by filing a petition for review with the
Company within sixty (60) days after receipt of the
notice issued by the Company. Said petition shall
state the specific reasons which the beneficiary
believes entitle him or her to benefits or to greater
or different benefits. Within sixty (60) days after
receipt by the Company of the petition, the Company
shall afford the beneficiary (and counsel, if any) an
opportunity to present his or her position to the
Company orally or in writing, and the beneficiary (or
counsel) shall have the right to review the pertinent
documents. The Company shall notify the beneficiary of
its decision in writing within the sixty-day period,
stating specifically the basis of its decision, written
in a manner calculated to be understood by the
beneficiary and the specific provisions of the
Agreement on which the decision is based. If, because
of the need for a hearing, the sixty-day period is not
sufficient, the decision may be deferred for up to
another sixty-day period at the election of the
Company, but notice of this deferral shall be given to
the beneficiary.
Article 7
Amendments and Termination
This Agreement may be amended or terminated only by a
written agreement signed by the Company and the Executive.
Article 8
Miscellaneous
8.1 Binding Effect. This Agreement shall bind the
Executive and the Company, and their beneficiaries,
survivors, executors, successors, administrators and
transferees.
8.2 No Guaranty of Employment. This Agreement is not an
employment policy or contract. It does not give the
Executive the right to remain an employee of the
Company, nor does it interfere with the Company's right
to discharge the Executive. It also does not require
the Executive to remain an employee nor interfere with
the Executive's right to terminate employment at any
time.
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8.3 Non-Transferability. Benefits under this Agreement
cannot be sold, transferred, assigned, pledged,
attached or encumbered in any manner.
8.4 Tax Withholding. The Company shall withhold any taxes
that are required to be withheld from the benefits
provided under this Agreement.
8.5 Applicable Law. The Agreement and all rights hereunder
shall be governed by the laws of Pennsylvania, except
to the extent preempted by the laws of the United
States of America.
8.6 Unfunded Arrangement. The Executive and beneficiary
are general unsecured creditors of the Company for the
payment of benefits under this Agreement. The benefits
represent the mere promise by the Company to pay such
benefits. The rights to benefits are not subject in
any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, attachment,
or garnishment by creditors. Any insurance on the
Executive's life is a general asset of the Company to
which the Executive and beneficiary have no preferred
or secured claim.
8.7 Recovery of Estate Taxes. If the Executive's gross
estate for federal estate tax purposes includes any amount
determined by reference to and on account of this Agreement,
and if the beneficiary is other than the Executive's estate,
then the Executive's estate shall be entitled to recover
from the beneficiary receiving such benefit under the terms
of the Agreement, an amount by which the total estate tax
due by Executive's estate, exceeds the total estate tax
which would have been payable if the value of such benefit
had not been included in the Executive's gross estate. If
there is more than one person receiving such benefit, the
right of recovery shall be against each such person. In the
event the beneficiary has a liability hereunder, the
beneficiary may petition the Company for a lump sum payment
in an amount not to exceed the beneficiary's liability
hereunder.
IN WITNESS WHEREOF, the Executive and a duly authorized
Company officer have signed this Agreement.
EXECUTIVE: COMPANY:
Fulton County National
Bank and Trust Company
______________________ By ____________________
Clyde H. Bookheimer
Title __________________
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Clyde H. Bookheimer
Schedule "A"
Early Early
Retirement Retirement
Plan Year Monthly Benefit Annual Benefit
1 $ 780 $ 9,364
2 1,497 17,967
3 2,156 25,871
4 2,761 33,133
5 3,317 39,806
6 3,828 45,937
7 4,298 51,570
8 4,729 56,745
9 5,125 61,500
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EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Fulton County National Bank and Trust, Pennsylvania; a
national bank organized February 24, 1887 under the
Pennsylvania Banking Code.
It converted to a national banking association on
September 5, 1933.
2. Fulton County Community Development Corporation, which
was formed on June 7, 1996 under the Pennsylvania
Business Corporation Law of 1988, as amended.
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