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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, 2000
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 23, 2001
(Common stock, .625 par value) 492,745
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended
December 31, 2000 are incorporated by reference into Parts I
and II. Portions of the Proxy Statement for 2000 Annual
Meeting of Security Holders are incorporated by reference in
Part III of this Form 10-K.
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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 2000, 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 investment companies and
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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 agent for the account of
- -6-
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 investments; (22) providing tax planning and
- -7-
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.
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. In addition to local
community banks, 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 firms, regulated small
- -13-
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, certificates
of deposit and club accounts. The Bank makes secured and
unsecured commercial, consumer, mortgage and construction
loans. Consumer loans include revolving credit lines. 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, night
deposit services, notary public services, payroll deduction
plan, bond coupon collections, foreign money exchange, safe
deposit boxes, signature guarantees, travelers checks, money
orders, cashiers checks, treasury securities, U.S. Savings
Bonds, individual retirement accounts, and utility and
municipal payments. The Bank also offers its customers
access to discount brokerage services, mutual funds, and
other alternative investment products through its affiliation
- -14-
with Sentry Trust Company. 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,
western Franklin 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 short term or
- -15-
seasonal basis; (2) mortgage and construction loans, (3)
loans to individuals for consumer purchases such as
appliances, furniture, vacations, etc.: (4) loans secured by
marketable stock and bonds providing adequate margins for
market fluctuations; (5) short term working capital loans
secured by the assignment of accounts receivable and
inventory; (6) automobile loans, (7) second liens on
commercial and residential real estate, (8) home equity lines
of credit, and (9) PHEAA student loans. Loans of these types
will be considered desirable by the Bank provided such loans
meet the test of sound credit.
The Bank has 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 80%
1 to 4-family residential 85%
Improved property 85%
Owner-occupied 1 to 4 family and
home equity 90%
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 from
nor exposed to loan concentrations to a single customer, the
loss of which would have a material adverse effect on the
financial condition of the Bank. 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 20% of loan
portfolio).
Employees
As of December 31, 2000, the Bank has forty-eight
(48) 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
- -19-
company. A 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 changing 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 greater than 8.0 greater than 4.0
Greater than 4.0*
Significantly
Undercapitalized greater than 6.0 greater than 3.0
Greater than 3.0
Critically
undercapitalized greater than 2.0
* 3.0 for those banks having the highest available
regulatory rating.
Based on the above criteria, the Bank is classified
as "well capitalized".
- -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 $ 250 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 drive-up facility, is located in
McConnellsburg, Pennsylvania. The Bank currently has six
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
September 26, 1988. On July 15, 1999, the Bank opened a
branch, including an ATM, at the Sandy Ridge Mall in
- -25-
Orbisonia, PA. To service the western portion of Franklin
County, the Bank opened a branch, including an ATM, on Route
30 in St. Thomas, PA on November 15, 1999. On
January 7, 1997 ATM's were opened at the Warfordsburg and
Hustontown branches. In June, 1998 the Bank opened an ATM at
the Shade Gap branch and added an ATM to its main office
drive-up facility. The main office, Warfordsburg,
Hustontown, Orbisonia and Shade Gap branches are owned by the
Bank. The Penn's Village branch is rented.
The Bank closed its Shade Gap branch (except for
the ATM facility) on June 30, 2000.
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, 1999, the approximate number of shareholders of
record was 515.
Market Cash Market Cash
Price Dividend Price Dividend
2000 1999
First Quarter $ 51.00 $ .18 $ 55.00 $ .17
Second Quarter 40.00 .18 60.00 .17
Third Quarter 37.00 .23 60.00 .20
Fourth Quarter 34.125 .27 51.00 .32
Dividend restrictions are detailed in Note 15 of
the annual shareholders report and are incorporated herein by
reference.
- -26-
Item 6. Selected Financial Data.
2000 1999 1998 1997 1996
Income (000 omitted)
Interest income $ 10,039 $ 8,804 $ 8,192 $ 7,898 $ 7,513
Interest expense 5,210 4,325 4,151 4,036 3,725
Provision for
loan losses 45 195 185 20 65
Net interest
income after
provision for
loan losses 4,784 4,284 3,856 3,842 3,723
Securities gains
(losses) 6 6 4 3 ( 2)
Other operating
income 516 583 718 470 391
Other operating
expenses 3,370 3,011 2,745 2,626 2,425
Income before
income taxes 1,936 1,862 1,833 1,689 1,687
Applicable income
tax 466 395 406 384 455
Net income $ 1,470 $ 1,467 $ 1,427 $ 1,305 $ 1,232
Per share amounts are based on following weighted averages:
2000 - 494,054 1998 - 495,000 1996 - 495,000
1999 - 495,000 1997 - 495,000
Income before
income taxes $ 3.92 $ 3.76 $ 3.70 $ 3.41 $ 3.41
Applicable income
taxes .94 .80 .82 .77 .92
Net income 2.98 2.96 2.88 2.64 2.49
Cash dividend paid .86 .86 .72 .70 .66
Book value 28.75 25.76 25.21 23.04 20.50
- -27-
Item 6. Selected Financial Data (Continued).
2000 1999 1998 1997 1996
Income (000 omitted)
Year-End Balance Sheet Figures (000 omitted)
Total assets $ 140,480 $ 128,478 $ 119,649 $ 105,770 $ 102,355
Net loans 102,058 90,995 80,214 70,416 63,791
Total investment
securities 24,643 24,436 29,183 25,922 28,474
Deposits-non-
interest
bearing 13,025 12,354 11,553 8,159 10,000
Deposits-interest
bearing 92,107 90,957 87,788 82,062 81,632
Total deposits 105,132 103,311 99,341 90,221 91,632
Liabilities for
borrowed money 20,000 11,475 7,100 3,470 0
Total stock-
holders'
equity 14,204 12,753 12,479 11,407 10,149
Ratios
Average equity/
average assets 9.82 10.36 10.51 10.29 9.80
Return on
average equity 11.17 11.43 12.23 11.98 12.57
Return on
average assets 1.10 1.18 1.29 1.23 1.23
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 included on pages 27
through 32 of the annual report to shareholders is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data,
some of which is required under Guide 3 (statistical
disclosures by bank holding companies) are shown on pages 2
through 26 of the annual shareholders report for the year
ended December 31, 2000 and are incorporated herein by
reference. Additional schedules required in addition to
those included in the annual shareholders report are
submitted herewith.
- -28-
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 3.9% to 4.0% 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 2000 1999 1998
Average Average Average
(000 omitted) Balance Interest Rate Balance Interest Rate Balance Interest Rate
Investment securities:
Taxable interest
income $ 21,344 $ 1,329 6.2% $ 20,274 $ 1,189 5.9% $ 20,510 $ 1,185 5.8%
Nontaxable interest
income 3,997 200 5.0 5,903 292 4.9 5,793 286 4.9
Total investment
securities 25,341 1,529 6.0 26,177 1,481 5.7 26,303 1,471 5.6
Loans (net of unearned
discounts) 98,052 8,506 8.7 87,902 7,322 8.3 75,610 6,702 8.8
Other short-term
investments 73 4 5.5 18 1 5.5 343 19 5.5
Total interest
earning assets 123,466 $ 10,039 8.1 114,097 $ 8,804 7.7% 102,256 $ 8,192 8.0%
Allowance for loan
losses ( 815) ( 695) ( 578)
Cash and due from banks 3,495 3,201 2,560
Bank premises and
equipment 3,624 3,137 2,557
Other assets 4,234 4,245 4,207
Total assets $ 134,004 $ 123,985 $ 111,002
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand
deposits $ 10,204 $ 218 2.1 $ 16,951 $ 401 2.4% $ 16,779 $ 455 2.7%
Savings deposits 18,618 482 2.6 13,834 351 2.5 13,616 357 2.6
Time deposits 62,871 3,553 5.7 56,443 2,990 5.3 54,621 3,102 5.7
Short-term borrowings 15,913 957 6.0 11,804 583 4.9 4,426 237 5.4
Total interest
bearing
liabilities 107,606 $ 5,210 4.8 99,032 $ 4,325 4.4% 89,442 $ 4,151 4.6
Demand deposits 12,368 11,362 9,146
Other liabilities 866 666 749
Total liabilities 120,840 111,060 99,337
Stockholders'
equity 13,164 12,925 11,665
Total liabilities &
stockholders'
equity $ 134,004 $ 123,985 $ 111,002
Net interest income/net
yield on average
earning assets $ 4,829 3.9% $ 4,479 3.9% $ 4,041 4.0%
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 2000, 1999 and 1998.
- -29-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
CHANGES IN NET INTEREST INCOME TAX EQUIVALENT YIELDS
2000 Versus 1999 1999 Versus 1998
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) $ 845 $ 339 $ 1,184 $ 1,082 ($ 462) $ 620
Taxable
investment
securities 63 77 140 ( 14) 18 4
Nontaxable
investment
securities ( 94) 2 ( 92) 5 1 6
Other short-term
investments 3 0 3 ( 18) 0 ( 18)
Total interest
Income 817 418 1,235 1,055 ( 443) 612
Interest Expense
Interest bearing
Demand ( 160) ( 23) ( 183) 5 ( 59) ( 54)
Savings
deposits 121 10 131 6 ( 12) ( 6)
Time deposits 341 222 563 104 ( 216) ( 112)
Short-term
borrowings 203 171 374 398 ( 52) 346
Total interest
expense 505 380 885 513 ( 339) 174
Net interest
income $ 350 $ 438
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.
- -30-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
The following table shows the maturities of investment
securities at book value as of December 31, 2000, 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:
Corporate
Book value $ 0 $ 499 $ 0 $ 0 $ 499
Yield 0% 5.62% 0% 0% 5.62%
U. S. Government agencies
Book value 0 9,250 500 0 9,750
Yield 0% 4.53% 5.22% 0% 4.66%
State and municipal
Book value 245 534 1,819 1,062 3,660
Yield 8.26% 6.82% 7.49% 7.39% 7.41%
Mortgage-Backed
Book value 0 0 0 4,145 4,145
Yield 0% 0% 0% 4.97% 4.97%
Total book value $ 245 $ 10,283 $ 2,319 $ 5,207 $ 18,054
Yield 8.26% 4.79% 7.00% 5.46% 5.32%
Other Debt Securities:
FHLMC/FNMA non-
cumulative preferred
stock
Book value $ 5,489
Yield 7.51%
Equity Securities:
Total Equity Securities $ 1,384
Yield 4.54%
Total Investment Securities $ 24,927
Yield 5.76%
- -31-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
LOAN PORTFOLIO
The following table presents the loan portfolio at the end of
each of the last five years:
2000 1999 1998 1997 1996
(000 omitted)
Commercial, financial and
agricultural $ 13,097 $ 12,294 $ 11,401 $ 7,180 $ 7,648
Real estate - Construction 0 0 0 0 0
Real estate - Mortgage 80,020 69,273 58,915 53,624 47,519
Installment and other
personal loans (net of
unearned discount) 9,788 10,228 10,478 10,099 9,068
Total loans $ 102,905 $ 91,795 $ 80,794 $ 70,903 $ 64,235
Presented below are the approximate maturities of the loan
portfolio (excluding real estate mortgages and installments) at
December 31, 2000:
Under One One to Over Five
Year Five Years Years Total
(000 omitted)
Commercial, financial and
agricultural $ 9,876 $ 1,772 $ 1,449 $ 13,097
Real estate - Construction 0 0 0 0
Total $ 9,876 $ 1,772 $ 1,449 $ 13,097
The following table presents the approximate amount of fixed
rate loans and variable rate loans due as of December 31, 2000:
Fixed Rate Variable
Loans Rate Loans
(000 omitted)
Due within one year $ 11,500 $ 12,882
Due after one but within five years 16,979 8,766
Due after five years 26,665 26,113
Total $ 55,144 $ 47,761
- -32-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
SUMMARY OF LOAN LOSS EXPERIENCE
Years Ended December 31
2000 1999 1998 1997 1996
(000 omitted)
Average total loans
outstanding (net of
unearned income) $ 98,052 $ 87,902 $ 75,610 $ 68,171 $ 62,530
Allowance for loan losses,
beginning of period $ 800 $ 580 $ 487 $ 444 $ 345
Additions to provision
for loan losses charged
to operations 45 195 185 20 65
Loans charged off during
the year
Commercial 3 14 67 6 0
Installment 29 34 47 40 9
Total charge-off's 32 48 114 46 9
Recoveries of loans
previously charged off:
Commercial 24 63 16 49 33
Installment 10 10 6 20 10
Total recoveries 34 73 22 69 43
Net loans charged off ( 2) ( 25) 92 ( 23) ( 34)
Allowance for loan losses, $ 847 $ 800 $ 580 $ 487 $ 444
Ratio of net loans
charged off to average
loans outstanding ( .01)%( .03)% .12% ( .03)% ( .05)%
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.
- -33-
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.
2000 1999 1998 1997 1996
(000 omitted)
Nonaccrual loans $ 0 $ 0 $ 0 $ 413 $ 310
Accrual loans:
Restructured $ 0 $ 0 $ 0 $ 0 $ 0
30 through 89 days
past due 1,787 1,084 1,458 1,466 1,716
90 days or more
past due 549 168 442 431 1,041
Total accrual
loans $ 2,336 $ 1,252 $ 1,900 $ 1,897 $ 2,757
See Note 3 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.
- -34-
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
2000 1999 1998
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 $ 108 12.73% $ 107 13.37% $ 82 14.11%
Real estate -
Constr-
uction 0 0.00 0 0.00 0 0.00
Real estate -
Mortgage 659 77.76 609 76.13 423 72.92
Instal-
lment 80 9.51 84 10.50 75 12.97
Total $ 847 100.00% $ 800 100.00% $ 580 100.00%
Years Ended December 31
1997 1996
Percentage Percentage
Allowance of Loans to Allowance of Loans to
Amount Total Loans Amount Total Loans
(000 omitted)
Commercial,
financial and
agricultural $ 49 10.13% $ 53 11.91%
Real estate -
Construction 0 0.00 0 0.00
Real estate -
Mortgage 368 75.63 328 73.98
Installment 70 14.24 63 14.11
Total $ 487 100.00% $ 444 100.00%
- -35-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
DEPOSITS
The average amounts of deposits are summarized below:
Years Ended December 31
2000 1999 1998
(000 omitted)
Demand deposits $ 12,368 $ 11,362 $ 9,146
Interest bearing demand deposits 10,204 16,951 16,779
Savings deposits 18,618 13,834 13,616
Time deposits 62,871 56,443 54,621
Total deposits $ 104,061 $ 98,590 $ 94,162
The following is a breakdown of maturities of time
deposits of $ 100,000 or more as of December 31, 2000:
Maturity (000 omitted)
Certificates of Deposit
Three months or less $ 3,843
Over three months through six months 2,924
Over six months through twelve months 4,548
Over twelve months 1,797
$ 13,112
RETURN ON EQUITY AND ASSETS (APPLYING DAILY AVERAGE BALANCES)
The following table presents a summary of significant
earnings and capital ratios:
2000 1999 1998
Assets $ 134,004 $ 123,985 $ 111,002
Net income $ 1,470 $ 1,467 $ 1,427
Equity $ 13,164 $ 12,925 $ 11,665
Cash dividends paid $ 425 $ 426 $ 356
Return on assets 1.10% 1.18% 1.27%
Return on equity 11.17% 11.43% 11.95%
Dividend payout ratio 28.9% 29.0% 24.9%
Equity to asset ratio 9.82% 10.36% 10.60%
- -36-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED SUMMARY OF OPERATIONS
Years Ended December 31
2000 1999 1998 1997 1996
(000 omitted)
Interest income $ 10,039 $ 8,804 $ 8,192 $ 7,898 $ 7,513
Interest expense 5,210 4,325 4,151 4,036 3,725
Net interest income 4,829 4,479 4,041 3,862 3,788
Provision for loan losses 45 195 185 20 65
Net interest income after
provision for loan
losses 4,784 4,284 3,856 3,842 3,723
Other income:
Trust 18 12 97 63 43
Service charges - Deposits 177 160 140 146 130
Other service charges,
collection and exchange,
charges, commission fees 124 127 123 93 102
Other operating income 203 290 362 171 114
Total other income 522 589 722 473 389
Income before operating
expense 5,306 4,873 4,578 4,315 4,112
Operating expenses:
Salaries and employees
benefits 1,509 1,314 1,242 1,178 1,129
Occupancy and equipment
expense 728 647 569 465 418
Other operating expenses 1,133 1,050 934 983 878
Total operating
Expenses 3,370 3,011 2,745 2,626 2,425
Income before income taxes 1,936 1,862 1,833 1,689 1,687
Income tax 466 395 406 384 455
Net income applicable
to common stock $ 1,470 $ 1,467 $ 1,427 $ 1,305 $ 1,232
Per share data:
Earnings per common share $ 2.98 $ 2.96 $ 2.88 $ 2.64 $ 2.49
Cash dividend - Common .86 .86 .72 .70 .66
Weighted average number
of common shares 494,054 495,000 495,000 495,000 495,000
* Based on 495,000 shares outstanding
- -37-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
STATEMENTS OF AVERAGE BALANCES AND AVERAGE RATES
($ 000 omitted) 2000 1999 1998 1997 1996
LOANS
Lines of credit $ 3,024 $ 2,921 $ 3,332 $ 3,290 $ 3,492
Tax free 785 846 1,281 2,201 2,458
Commercial 21,292 18,413 14,203 13,966 12,702
Mortgage 54,534 48,070 40,916 35,415 32,833
Consumer 18,417 17,652 15,878 13,299 11,045
Total loans 98,052 87,902 75,610 68,171 62,530
INVESTMENT SECURITIES
U.S. Government 0 0 0 0 254
U.S. Government agencies 10,210 8,465 5,863 6,931 6,984
State & municipal 3,997 5,903 5,793 5,090 3,040
Mortgage-backed securities 4,532 5,988 9,324 13,861 18,730
FNMA & FHLMC preferred
stock 5,339 5,021 4,746 2,443 124
Other 1,263 800 577 392 679
Total investment
securities 25,341 26,177 26,303 28,717 29,687
OTHER SHORT-TERM INVESTMENTS
Federal funds sold 73 18 343 255 430
TOTAL EARNING ASSETS 123,466 114,097 102,256 97,143 92,647
TOTAL ASSETS $ 134,004 $ 123,985 $ 111,002 $ 105,864 $ 99,844
Percent increase -
Earning assets 8.2% 11.5% 5.3% 4.8% 3.8%
DEPOSITS
Interest-bearing
Demand (NOW) $ 10,204 $ 16,951 $ 16,979 $ 15,528 $ 15,758
Savings (MMA & savings) 18,618 13,834 13,616 13,816 14,578
Time 62,871 56,443 54,621 53,738 49,582
Total interest-
bearing deposits 91,693 87,228 85,016 83,082 79,918
OTHER BORROWINGS
Federal funds purchased 118 70 622 276 908
Liabilities for borrowed
money 15,795 11,734 3,804 1,838 288
TOTAL INTEREST-BEARING
LIABILITIES 107,606 99,032 89,442 85,196 81,114
- -38-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
STATEMENTS OF AVERAGE BALANCES AND AVERAGE RATES (CONTINUED)
2000 1999 1998 1997 1996
AVERAGE RATES EARNED
% % % % %
Loans
Commercial 9.21 8.32 9.23 9.11 9.31
Mortgage 8.24 8.01 8.61 8.67 8.64
Consumer 8.97 8.74 8.77 8.89 9.58
Tax free 5.48 5.53 5.82 5.62 5.91
Lines of credit 9.55 8.35 8.81 9.19 9.13
Total 8.60 8.37 8.72 8.73 9.09
Investment Securities
U.S. Government 0.00 0.00 0.00 0.00 6.40
U.S. Government agencies 6.22 6.05 5.95 6.17 6.09
State & municipal 4.99 4.94 4.93 5.00 5.02
Mortgage-backed securities 6.34 5.44 5.50 6.46 6.50
Corporate bonds 7.51 0.00 0.00 0.00 0.00
Other 6.09 5.96 5.99 7.27 6.32
Total 6.03 5.65 5.57 6.22 6.08
Other Short-Term Investments
Federal funds sold 5.59 4.43 5.49 5.51 5.30
Total earning assets 8.07 7.72 7.90 8.13 8.11
AVERAGE RATES PAID
Time & savings deposits 4.64 4.29 4.60 4.71 4.59
Federal funds purchased 4.87 5.05 5.57 5.61 5.61
Liabilities for borrowed money 6.03 4.91 5.32 5.68 5.55
Total interest-bearing
liabilities 4.84 4.37 4.64 4.74 4.59
- -39-
Item 9. Disagreements on Accounting and Financial Disclosures.
Not applicable.
- -40-
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 2001 Annual
Meeting of shareholders filed pursuant to Regulation 14A.
- -41-
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,
2000, 1999 and 1998 of the Chief Executive Officer. There
were no other officers 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 2000 $ 124,708 $ 0 $ 0 $ 0 $ 0 $ 0 $ 86,814
1999 117,208 0 0 0 0 0 61,990
1998 112,000 0 0 0 0 0 47,566
Footnotes:
(1) All other compensation includes the following:
Fringe Benefits Deferred
(Personal Use of Bank Retirement Supplemental Executive Directors
Directors Owned Vehicle) Plan Retirement Plan Fees
2000 $ 0 $ 1,356 $ 10,641 $ 74,817 $ 0
1999 0 1,234 12,149 48,607 0
1998 0 908 7,906 38,752 0
The supplemental executive retirement 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 $ 96,000 annually will not begin
until 2005. At December 31, 2000, the cash surrender value of the policies
was $ 1,170,308.
- -42-
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. See Item 8
of this report.
Schedule I - Distribution of assets,
liabilities and stockholders' equity,
interest rates and interest differential
tax equivalent yields
Schedule II - Changes in net interest
income tax equivalent yields
Schedule III - Investment portfolio
Schedule IV - Loan portfolio
Schedule V - Summary of loan loss
experience
Schedule VI - Nonaccrual and delinquent
loans
Schedule VII - Allocation of allowance for
loan losses
Schedule VIII - Schedule of deposits,
return on equity and assets
Schedule IX - Consolidated summary of
operations
- -43-
(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:
(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.
- -44-
(10) Material contracts. None.
(11) Statement re: computation of per share
earnings. See Item 5 of this report.
(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.
(23) Consents of experts and counsel. Filed
herewith.
(24) Power of attorney. Not applicable.
(27) Financial data schedule. Filed herewith
under Item 8.
(28) Information from reports furnished to state
insurance regulatory authorities. Not
applicable.
(99) Additional exhibits. Not applicable.
(b) Reports on Form 8-K. None.
- -45-
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 , 2001
Clyde H. Bookheimer CEO (Principal Executive
Officer)
/s/ David L. Seiders Director March , 2001
David L. Seiders
/s/ Cecil B. Mellott Director & Vice March , 2001
Cecil B. Mellott Chairman
/s/ Robert C. Snyder Director & March , 2001
Robert C. Snyder Chairman
/s/ Ellis L. Yingling Director & Vice March , 2001
Ellis L. Yingling Chairman
/s/ Clair R. Miller Director March ____, 2001
Clair R. Miller
- -46-
Exhibit Index
Exhibit No.
13 Annual report to shareholders
21 Subsidiaries of the Registrant
23.1 Independent Auditor's Consent
27 Financial data schedule
- -47-
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets 2
Statements of income 3
Statements of changes in stockholders' equity 4
Statements of cash flows 5 and 6
Notes to consolidated financial statements 7 - 21
ACCOMPANYING FINANCIAL INFORMATION
Selected five year financial data 22
Changes in income and expense 23
Summary of quarterly financial data 24
Statements of average balances and average rates 25 and 26
Management's discussion and analysis of consolidated financial
condition
and results of operations 27 - 32
Stock market analysis and dividends 32
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, 2000 and 1999 and the related
consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the three years ended December 31, 2000.
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 auditing
standards generally accepted in the United States of America. 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, 2000 and 1999, and the
results of their operations and their cash flows for each of the
three years ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
Chambersburg, Pennsylvania
February 13, 2001
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
2000
1999
ASSETS
Cash and due from banks
$ 4,275,716
$ 4,582,361
Investment securities available for sale
23,390,869
23,566,617
Federal Reserve, Atlantic Central Bankers
Bank
and Federal Home Loan Bank stocks
1,252,150
869,650
Loans, net of reserve for loan losses
2000 - $ 847,121; 1999 - $ 800,267
102,058,473
90,994,618
Premises and equipment
3,647,287
3,710,386
Cash surrender value of life insurance
4,212,760
3,028,486
Accrued interest receivable
965,383
730,627
Real estate owned other than premises
86,610
229,878
Other assets
591,074
765,301
Total assets
$ 140,480,322
$ 128,477,924
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest bearing
$ 13,025,353
$ 12,353,909
Interest bearing
92,106,363
90,956,690
105,131,716
103,310,599
Other borrowed funds
20,000,000
11,475,000
Accrued interest payable
502,398
421,393
Other liabilities
642,647
517,665
Total liabilities
126,276,761
115,724,657
Stockholders' Equity
Common stock: par value $.625 per share;
4,000,000
shares authorized; shares issued and
outstanding -
2000 - 492,745; 1999 - 495,000
309,375
309,375
Additional paid-in capital
2,051,275
2,051,275
Retained earnings
12,121,797
11,076,084
Accumulated other comprehensive income
(loss)
(
188,154)
( 683,467)
Treasury stock: 2,255 shares at cost
(
90,732)
0
Total stockholders' equity
14,203,561
12,753,267
Total liabilities and stockholders'
equity
$ 140,480,322
$ 128,477,924
The Notes to Consolidated Financial
Statements are an integral part of these
statements.
- -2-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2000, 1999 and 1998
2000
1999
1998
Interest Income
Interest and fees on loans
$ 8,505,771
$ 7,322,507
$ 6,702,568
Interest and dividends on investment securities:
Other U. S. Government agencies
635,046
512,438
349,045
Mortgage-backed securities
287,347
326,034
512,814
Obligations of state and political subdivisions
199,461
291,740
285,745
FNMA and FHLMC preferred stock
313,952
294,715
281,664
Interest on federal funds sold
4,107
792
18,863
Other interest and dividends
92,949
55,550
41,765
Total interest income
10,038,633
8,803,776
8,192,464
Interest Expense
Interest on deposits
4,252,368
3,741,753
3,914,252
Interest on federal funds purchased
5,760
3,557
34,615
Interest on other borrowed money
951,684
579,538
202,481
Total interest expense
5,209,812
4,324,848
4,151,348
Net interest income before provision for loan losses
4,828,821
4,478,928
4,041,116
Provision for Loan Losses
45,000
195,000
185,000
Net interest income after provision for loan losses
4,783,821
4,283,928
3,856,116
Other Income
Service charges on deposit accounts
177,226
159,652
140,424
Other service charges and fees
111,181
117,567
123,099
Earnings - Cash surrender value of life insurance
197,110
160,185
175,184
Life insurance death benefit income
0
113,576
0
Trust services
18,390
21,233
96,743
Gain/(loss) on sale of investment securities
5,905
5,918
3,671
Gain/(loss) on sale of other real estate
0
0
177,906
Other income
12,647
10,783
5,046
Total other income
522,459
588,914
722,073
Other Expenses
Salaries, fees and employee benefits
1,508,929
1,314,159
1,241,650
Net occupancy expense of bank premises and
furniture and equipment expense
727,963
646,955
568,556
FDIC insurance premiums
20,811
11,258
10,948
Other expenses
1,112,743
1,038,913
923,905
Total other expenses
3,370,446
3,011,285
2,745,059
Income before income taxes
1,935,834
1,861,557
1,833,130
Applicable income tax
465,520
395,115
405,798
Net income
$ 1,470,314
$ 1,466,442
$ 1,427,332
Earnings per common share
$ 2.98
$ 2.96
$ 2.88
The Notes to Consolidated Financial Statements are an integral part of
these statements.
- -3-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2000, 1999 and 1998
Accumulated
Other
Additional
Comprehensive
Total
Common
Paid-In
Retained
Income
Treasury
Stockholders'
Stock
Capital
Earnings
(Loss)
Stock
Equity
Balance, December 31, 1997
$ 309,375
$ 2,051,275
$ 8,964,410
$ 81,544
$ 0
$ 11,406,604
Comprehensive income:
Net income
1,427,332
1,427,332
Change in unrealized gain on
investment securities available
for sale, net of tax of $ 546
1,061
1,061
Total comprehensive income
1,428,393
Cash dividends ($ .72 per share)
( 356,400)
( 356,400)
Balance, December 31, 1998
309,375
2,051,275
10,035,342
82,605
0
12,478,597
Comprehensive income:
Net income
1,466,442
1,466,442
Change in unrealized (loss) on
investment securities available
for sale, net of tax of $ 394,643
( 766,072)
( 766,072)
Total comprehensive income
700,370
Cash dividends ($ .86 per share)
( 425,700)
( 425,700)
Balance, December 31, 1999
309,375
2,051,275
11,076,084
( 683,467)
0
12,753,267
Comprehensive income:
Net income
1,470,314
1,470,314
Change in unrealized gain on
investment securities available
for sale, net of tax of $ 255,161
495,313
495,313
Total comprehensive income
1,965,627
Purchases of treasury stock
(2,300 shares)
( 92,532)
( 92,532)
Issuance of treasury stock
(45 shares)
1,800
1,800
Cash dividends ($ .86 per share)
( 424,601)
( 424,601)
Balance, December 31, 2000
$ 309,375
$ 2,051,275
$ 12,121,797
($ 188,154)
($ 90,732)
$ 14,203,561
The Notes to Consolidate Financial Statements are an integral part of these
statements.
- -4-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999 and 1998
2000
1999
1998
Cash flows from operating activities:
Net income
$ 1,470,314
$ 1,466,442
$ 1,427,332
Adjustments to reconcile net income to net
cash provided by operating activities:
Compensation - treasury stock issued
1,800
0
0
Depreciation and amortization
385,535
336,727
284,866
Provision for loan losses
45,000
195,000
185,000
Deferred income taxes
( 47,409)
( 114,841)
( 50,535)
Life insurance death benefit income
0
( 113,577)
0
(Increase) decrease in CSV - life insurance
( 164,274)
( 132,237)
( 145,702)
(Gain) on disposal of other real estate
0
0
( 177,906)
(Gain) on sale of investment securities
( 5,905)
( 5,918)
( 3,671)
(Increase) decrease in other assets
( 34,045)
( 11,437)
122,485
(Increase) decrease in interest receivable
( 234,755)
2,643
( 63,281)
Increase in interest payable
81,005
29,153
12,468
Increase in other liabilities
124,987
180,802
49,173
Net cash provided by operating activities
1,622,253
1,832,757
1,640,229
Cash flows from investing activities:
Sales of investment securities available for sale
1,155,569
3,906,168
5,375,879
Maturities of investment securities available for sale
1,476,328
3,171,671
5,208,580
Purchases of investment securities available for sale
( 1,690,544)
( 3,193,591)
( 13,043,399)
Net (increase) in loans
( 11,108,857)
( 10,975,268)
( 9,983,626)
Purchases of property and equipment
( 187,876)
( 1,379,978)
( 545,272)
Purchases of FRB, ACBB and FHLB stock
( 382,500)
( 292,800)
( 796,500)
Purchases of officers' life insurance
( 1,020,000)
0
0
Proceeds from sales of other real estate
0
0
307,357
Purchases of other real estate
0
( 89,878)
0
Insurance benefits received
0
383,285
0
Net cash (used) by investing activities
( 11,757,880)
( 8,470,391)
( 13,476,981)
Cash flows from financing activities:
Net increase in deposits
1,821,115
3,969,449
9,119,864
Dividends paid
( 424,601)
( 425,700)
( 356,400)
Net increase (decrease) in federal funds purchased
0
( 2,100,000)
2,100,000
Proceeds from long-term borrowings
5,000,000
5,000,000
5,000,000
Net increase (decrease) in line-of-credit
3,525,000
1,475,000
( 3,470,000)
Purchases of treasury stock
( 90,732)
0
0
Net cash provided by financing activities
9,830,782
7,918,749
12,393,464
Net increase (decrease) in cash and cash equivalents
( 304,845)
1,281,115
556,712
Cash and cash equivalents at beginning of year
4,582,361
3,301,246
2,744,534
Cash and cash equivalents at end of year
$ 4,277,516
$ 4,582,361
$ 3,301,246
The Notes to Consolidated Financial Statements are an integral part of
these statements.
- -5-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999 and 1998
2000
1999
1998
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest
$ 5,128,808
$ 4,295,695
$ 4,138,880
Income taxes
505,575
511,000
438,625
Supplemental schedule of noncash investing and
financing activities:
Unrealized holding gain (loss), net of tax
$ 495,313
($ 766,072)
$ 1,061
Other real estate owned transferred to
premises and equipment
$ 140,000
$ 0
$ 0
The Notes to Consolidated Financial Statements are an integral part of these
statements.
- -6-
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:
? Fulton County National Bank and Trust Company, which is engaged
in providing banking and bank related services, principally in
Fulton, southern Huntingdon and western Franklin Counties. Its
six branches are located in McConnellsburg (2), Warfordsburg,
Hustontown, Orbisonia and St. Thomas.
? 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 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.
- -7-
Note 1. Significant Accounting Policies (Continued)
Investment Securities
Under SFAS 115, the corporation's investments in securities
are classified in three categories and accounted for as
follows:
? 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 Bank had no trading securities in
2000 or 1999.
? Securities to be Held to Maturity. Bonds and notes for
which the Bank 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.
? Securities Available for Sale. Securities available for
sale consist of equity securities, bonds and notes not
classified as trading securities nor as securities to be
held to maturity, and FNMA and FHLMC preferred stock.
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
other comprehensive income. 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, 2000 and 1999.
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. 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 doubtful. Interest accrued but not
collected as of the date of placement on nonaccrual status is
reversed and charged against current income unless fully
collateralized.
- -8-
Note 1. Significant Accounting Policies (Continued)
Interest income generally is not recognized on specific
impaired loans unless the likelihood of further loss is
remote. Interest payments received on such loans are applied
as a reduction of loan principal balance. Interest income on
other impaired loans is recognized only to the extent of
interest payments received.
Loan origination fees and certain direct loan origination
costs are deferred and the net amount amortized as an
adjustment of the related loan's yield. These amounts are
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.
Real Estate Owned Other Than Premises
Other real estate owned includes foreclosed properties for
which the institution has taken physical possession in
connection with loan foreclosure proceedings. Assets received
in foreclosure are recorded at the lower of the outstanding
principal balance of the related loans or the estimated fair
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 and subsequent adjustments to the
carrying amount of the property are charged to expense when
incurred.
Earnings per Share
Earnings per common share were computed based on weighted
averages of 494,054 shares in 2000 and 495,000 shares of
common stock outstanding in 1999 and 1998.
Federal Income Taxes
As a result of certain timing differences between financial
statement and federal income tax
reporting, including depreciation, loan losses, deferred
compensation, and loan costs, deferred income taxes are
provided in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to
be realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes. 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.
- -9-
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.
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.
Short-Term Borrowings. The carrying amounts of federal
funds purchased and other short- term borrowings
maturing within 90 days approximate their fair values. Fair values
of other short-term borrowings are estimated using discounted
cash flow analyses based on the Bank's current incremental
borrowing rates for similar types of borrowing arrangements.
Long-Term Borrowings. The fair values of the corporation's
long-term borrowings are estimated using discounted cash
flow analyses based on the corporation's current
incremental borrowing rates 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 Bank expenses advertising costs as incurred. Advertising
expenses for the years ended
December 31, 2000, 1999 and 1998 were $ 102,434, $ 81,904 and
$ 70,719, respectively.
- -10-
Note 1. Significant Accounting Policies (Continued)
Comprehensive income
The corporation has adopted Statement of Financial Accounting
Standards (SFAS) No. 130 - Reporting Comprehensive Income.
Under SFAS No. 130, comprehensive income is defined as the
change in equity from transactions and other events from
nonowner sources. It includes all changes in equity except
those resulting from investments by stockholders and
distributions to stockholders. Comprehensive income includes
net income and certain elements of "other comprehensive
income" such as foreign currency transactions; accounting for
futures contracts; employers accounting for pensions; and
accounting for certain investments in debt and equity
securities.
The corporation has elected to report its comprehensive
income in the statement of stockholders' equity. The only
element of "other comprehensive income" that the corporation
has is the unrealized gain or loss on available for sale
securities.
The components of the change in net unrealized gains (losses)
on securities were as follows:
2000
1999 1998
Gross unrealized holding gains/(losses) arising during the year $
756,379 ($ 1,154,797)
$ 5,278
Reclassification adjustment for (gains)/losses realized in net
income ( 5,905) ( 5,918)
( 3,671)
Net unrealized holding gains/(losses) before taxes 750,474 (
1,160,715)
1,607
Tax effect ( 255,161) 394,643
( 546)
Net change $ 495,313 ($ 766,072)
$ 1,061
Note 2. Investments
The amortized cost and fair value of investment securities
available for sale at December 31 were:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
2000
Obligations of U. S. Government
corporations and agencies $ 9,750,245 $ 11,290
$ 38,808 $ 9,722,727
Obligations of states and political
subdivisions 3,659,558 30,780
76,421 3,613,917
Mortgage-backed securities 4,145,519 4,872 48,751
4,101,640
Corporate bonds 499,285 23,485 0
522,770
FNMA and FHLMC preferred stock 5,489,344 3,815
195,344 5,297,815
Other stocks 132,000 0 0
132,000
Totals $ 23,675,951 $ 74,242 $ 359,324 $
23,390,869
1999
Obligations of U. S. Government
corporations and agencies $ 10,251,331 $ 0
$ 285,834 $ 9,965,497
Obligations of states and political
subdivisions 4,089,437 37,491
200,993 3,925,935
Mortgage-backed securities 4,890,061 1,826 129,196
4,762,691
FNMA and FHLMC preferred stock 5,239,344 0
458,850 4,780,494
Other stocks 132,000 0 0
132,000
Totals $ 24,602,173 $ 39,317 $ 1,074,873 $
23,566,617
- -11-
Note 2. Investments (Continued)
The amortized cost and fair value of investment securities
available for sale at December 31, 2000, by contractual maturity,
are shown below. Contractual maturities will differ from expected
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 $ 244,948 $ 246,313
Due after one year through five years 10,283,706 10,271,621
Due after five years through ten years 2,167,646 2,201,791
Due after ten years 1,212,788 1,139,689
Mortgage-backed securities 4,145,519 4,101,640
FNMA and FHLMC preferred stock 5,489,344 5,297,815
Other stocks 132,000 132,000
$ 23,675,951 $ 23,390,869
Proceeds from sales of securities available for sale during
2000 were $ 1,155,569. Gross gains and losses on those sales
were $ 10,400 and $ 4,495, respectively. Proceeds from
maturities of investment securities during 2000 were $
1,476,328, resulting in no gains or losses. Included in
stockholders' equity at December 31, 2000 is $ 188,154 of
unrealized holding losses on securities available for sale,
net of $ 96,928 in deferred taxes.
Proceeds from sales of securities available for sale during
1999 were $ 3,906,168. Gross gains and losses on those sales
were $ 8,989 and $ 3,071, respectively. Proceeds from
maturities of investment securities during 1999 were $
3,171,671, resulting in no gains or losses. Included in
stockholders' equity at December 31, 1999 is $ 683,467 of
unrealized holding losses on securities available for sale,
net of $ 352,089 in deferred taxes.
Proceeds from sales of securities available for sale during
1998 were $ 5,375,879. Gross gains and losses on those sales
were $ 17,200 and $ 13,529, respectively. Proceeds from
maturities of investment securities during 1998 were $
5,208,580, resulting in no gains or losses. Included in
stockholders' equity at December 31, 1998 is $ 82,605 of
unrealized holding gains on securities available for sale, net
of $ 42,554 in deferred taxes.
The corporation is required to maintain minimum investments in
certain stocks, which are recorded at cost since they are not
actively traded and therefore, have no readily determinable
market value. Consequently, the corporation owns the following
equity securities at December 31:
2000 1999
Federal Home Loan Bank $ 1,171,300 $ 788,800
Atlantic Central Bankers Bank 10,000 10,000
Federal Reserve Bank 70,850 70,850
$ 1,252,150 $ 869,650
Securities with a cost basis of $ 8,750,000 (fair value of $
8,724,838) and $ 10,250,000 (fair value of $ 9,965,497) at
December 31, 2000 and 1999, respectively, were pledged to
secure public funds and for other purposes as required or
permitted by law.
- -12-
Note 3. Loans
Loans consist of the following at December 31 (in thousands):
2000
1999
Real estate loans:
Secured by farmland $ 16,257 $ 14,342
Secured by 1-4 family residential 42,075 39,716
Secured by multifamily (5 or more) residential properties
373 171
Secured by nonfarm nonresidential 21,287 15,044
Loans to finance agricultural production:
Loans to farmers 3,814 3,702
Commercial and industrial loans 8,902 8,224
Loans to individuals for household, family
and other personal expenditures 9,765 10,180
Obligations of states and political subdivisions in the U. S. 381 368
All other loans 51 48
102,905 91,795
Less: reserve for loan losses ( 847) (
800)
$ 102,058 $ 90,995
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 - - - - - - -
2000 1999 1998
Real estate mortgages $ 479 $ 168 $ 405
Installment loans 29 0 37
Time and demand loans 41 0 0
Total $ 549 $ 168 $ 442
There were no loans on nonaccrual status at December 31, 2000,
1999 and 1998.
Loan balances are stated net of deferred loan origination
(fees) costs. These net (fees) costs amounted to the
following at December 31:
2000 1999
Installment $ 5,120 $ 11,541
Time and demand 1,300 1,571
Mortgage ( 55,572) ( 57,349)
($ 49,152) ($ 44,237)
At December 31, 2000 and 1999, the total recorded investment
in impaired loans was $ 0.
Note 4. Reserve for Loan Losses
Activity in the reserve for loan losses is summarized as
follows:
2000 1999
1998
Balance at beginning of period $ 800,267 $ 580,694 $ 487,250
Recoveries 34,093 72,416 22,352
Current year provision charged to income 45,000
195,000 185,000
Total 879,360 848,110 694,602
Losses 32,239
47,843 113,908
Balance at end of period $ 847,121 $ 800,267 $ 580,694
- -13-
Note 5. 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 $ 1,194,845 and
$ 1,040,715 at December 31, 2000 and 1999, respectively.
During 2000, $ 508,307 of new loans were made and repayments
totaled $ 354,177. During 1999, $ 222,431 of new loans were
made and repayments totaled $ 201,443.
Outstanding loans to employees totaled $ 815,000 and $ 739,510
at December 31, 2000 and 1999, respectively.
Note 6. Premises and Equipment
A summary of premises and equipment is as follows:
Accumulated Depreciated
Description
Cost Depreciation Cost
2000
Premises and improvements
(including land $ 441,101) $ 3,379,786 $ 628,335 $ 2,751,451
Equipment, furniture and fixtures 2,454,542 1,633,959 820,583
Vehicles 92,602 17,349
75,253
$ 5,926,930 $ 2,279,643 $ 3,647,287
1999
Premises and improvements
(including land $ 441,101) $ 3,228,460 $ 544,996 $ 2,683,464
Equipment, furniture and fixtures 2,339,635 1,346,221 993,414
Vehicles 56,945 23,437
33,508
$ 5,625,040 $ 1,914,654 $ 3,710,386
Depreciation and amortization expense amounted to $ 385,535 in
2000, $ 336,727 in 1999, and
$ 284,866 in 1998.
Note 7. Financial Instruments With Off-Balance-Sheet
Risk/Commitments
The corporation 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 corporation has in particular classes of financial
instruments.
- -14-
Note 7. Financial Instruments With Off-Balance-Sheet
Risk/Commitments (Continued)
The corporation'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 corporation
uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments.
Contract or
Notional Amount
2000 1999
Financial instruments whose contract amounts
represent credit risk at December 31:
Commitments to extend credit $ 14,847,246 $ 14,215,598
Standby letters of credit and financial
guarantees written 594,000 322,500
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.
The corporation evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the corporation upon extension of credit
is based on management's credit evaluation of the customer.
Collateral held varies but may include accounts receivable,
inventory, real estate, equipment, and income-producing
commercial properties.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the corporation 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 corporation holds
collateral supporting those commitments when deemed necessary
by management.
Note 8. Retirement Plan
The corporation maintains a 401-K profit-sharing plan covering
substantially all full-time employees. The plan allows
contributions of up to 15% by employees. Additional
contributions can be made at the discretion of the board of
directors. The corporation contributions made to the plan
were $ 72,000 for 2000, $ 60,000 for 1999 and $ 52,735 for
1998.
Note 9. Federal Income Taxes
The components of federal income tax expense are summarized as
follows:
2000 1999
1998
Current year provision $ 510,921 $ 507,944
$ 455,085
Deferred income taxes (benefits) ( 47,409)
( 114,841) ( 50,535)
Income tax effect of securities transactions
2,008 2,012 1,248
Applicable income taxes $ 465,520 $ 395,115 $ 405,798
Federal income taxes were computed after reducing pretax
accounting income for nontaxable interest and dividend income
in the amount of $ 433,970, $ 516,446 and $ 550,702 for 2000,
1999 and 1998, respectively.
- -15-
Note 9. Federal Income Taxes (Continued)
A reconciliation of the effective income tax rate to the
federal statutory rate is as follows:
2000 1999
1998
Applicable federal income tax rate 34.0% 34.0% 34.0%
Reductions resulting from:
Nontaxable investment income and other items,
net of nondeductible expenses (10.0) (12.8) (11.9)
Effective income tax rate 24.0% 21.2% 22.1%
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:
2000 1999
1998
Total deferred tax assets $ 490,170 $ 684,995 $ 225,970
Total deferred tax liabilities ( 143,588) ( 130,661) (
181,120)
Net deferred tax asset $ 346,582 $ 554,334 $ 44,850
The corporation has not recorded a valuation allowance for the
deferred tax assets as management believes 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 $ 3,220. 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 leases expire on
January 7, 2011 (as extended) and December 31, 2005,
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, 2000, 1999 and 1998 was
$ 58,413, $ 59,573 and $ 59,435, respectively.
Based on the current monthly rent, future minimum rental
payments for the next five years are as follows:
2001 $ 61,308
2002 61,308
2003 61,308
2004 57,530
2005 38,638
Note 11. Other Assets
Other assets include the following at December 31:
2000 1999
Net deferred tax asset $ 346,582 $ 554,334
Prepaid expenses 186,874 165,710
Others 57,618
45,257
$ 591,074 $ 765,301
- -16-
Note 12. Deposits
Included in interest-bearing deposits at December 31 are NOW
and Money Market Account balances totaling $ 14,765,334 and $
16,281,186 for 2000 and 1999, respectively.
Time deposits of $ 100,000 and over aggregated $ 13,111,812
and $ 12,462,940 at December 31, 2000 and 1999, respectively.
Interest expense on time deposits of $ 100,000 and over was
$ 717,000, $ 624,000 and $ 617,000 for 2000, 1999 and 1998,
respectively.
The amount of time deposits maturing over the next 5 years is
as follows:
2001 $ 52,659,985
2002 5,125,631
2003 5,122,759
2004 1,383,304
2005 455,142
$ 64,746,821
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
$ 3,872,958 and $ 3,125,902 at December 31, 2000 and 1999,
respectively.
Overdrafts of $ 22,506 and $ 13,661 at December 31, 2000 and
1999, 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
2000 1999
Cash $
8,172 $ 54,335
Investment in the Fulton County National Bank
& Trust Company 14,017,147 12,517,526
Investment in Fulton County Community
Development Corporation 46,242 49,433
Securities available for sale 132,000
132,000
Total assets $ 14,203,561 $ 12,753,294
Liabilities
Accounts payable $ 0 $
27
Stockholders' Equity
Common stock, par value $ .625 per share, 4,000,000 shares
authorized; shares issued and outstanding - 2000 - 492,745;
1999 - 495,000 309,375 309,375
Additional paid-in capital 2,051,275 2,051,275
Retained earnings 12,121,797 11,076,084
Accumulated other comprehensive income (loss) ( 188,154)
( 683,467)
Treasury stock: 2,255 shares at cost ( 90,732)
0
Total stockholders' equity 14,203,561 12,753,267
Total liabilities and stockholders' equity $ 14,203,561
$ 12,753,294
- -17-
Note 13. Fulton Bancshares Corporation (Parent Company Only)
Financial Information (Continued)
2000 1999
1998
Statements of Income
Years Ended December 31
Cash dividends from wholly-owned subsidiary $ 510,050
$ 534,000 $ 516,000
Investment income 1,090 840
370
Equity in undistributed income of subsidiaries 1,001,117
971,628 943,412
Printing, supplies, amortization and
other expenses ( 41,943) ( 40,026)
( 32,450)
Net income $ 1,470,314 $ 1,466,442
$ 1,427,332
Statements of Cash Flows
Years Ended December 31
Cash flows from operating activities:
Net income $ 1,470,314 $ 1,466,442 $
1,427,332
Adjustments to reconcile net income
to cash provided by operating activities:
Equity in undistributed income of
subsidiary ( 1,001,117) ( 971,628) (
943,412)
Increase (decrease) in accounts payable (
27) 27 0
Net cash provided by operating activities 469,170
494,841 483,920
Cash flows from investing activities:
Investment in subsidiary 0 ( 15,000) 0
Purchases of investment securities available
for sale 0 0 (
132,000)
Net cash (used) by investing activities 0 (
15,000) ( 132,000)
Cash flows from financing activities:
Dividends paid ( 424,601) ( 425,700) (
356,400)
Purchases of treasury stock ( 90,732) 0
0
Net cash provided (used) by financing activities ( 515,333)
( 425,700) ( 356,400)
Net change in cash ( 46,163) 54,141 (
4,480)
Beginning cash 54,335 194
4,674
Ending cash $ 8,172 $ 54,335 $
194
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, 2000 and 1999.
Note 15. Regulatory Matters
Dividends paid by Fulton Bancshares Corporation are generally
provided from the Fulton County National Bank and Trust
Company's dividends to it. The Federal Reserve Board, which
regulates bank holding companies, establishes guidelines which
indicate that cash dividends should be covered by current year
earnings and the debt to equity ratio of the holding company
must be below thirty percent.
- -18-
Note 15. Regulatory Matters (Continued)
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 $ 3,287,791, $ 3,223,813, and $ 2,964,040 at
December 31, 2000, 1999 and 1998, respectively. The Bank is
also subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory,
and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on
the Bank's financial statements. Under capital adequacy
guidelines, the Bank is required to maintain minimum capital
ratios. The "leverage ratio", which compares capital to
adjusted total balance sheet assets is required to be at least
3%. "Tier I" and "Tier II" capital ratios compare capital to
risk-weighted assets and off-balance sheet activity. The Tier
I ratio is required to be at least 4%. The combined Tier I
and Tier II ratio is required to be at least 8%.
At December 31 the corporation's actual ratios and required
levels were as follows:
- - - -
Actual - - - -
Required 2000
1999
Leverage (total capital/total assets) 3.0% 10.2% 10.0%
Tier 1 (Tier 1 core capital/risk weighted assets) 4.0%
13.8% 14.5%
Total capital (total capital plus allowance for loan
losses/
risk weighted assets) 8.0% 14.6% 15.3%
As of December 31, 2000 the most recent notification from the
Comptroller of the Currency categorized the Bank as well
capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since
that notification that management believes have changed the
Bank's category.
Note 16. Liabilities for Borrowed Money
At December 31, 1999 the Bank had an outstanding five year
loan with Federal Home Loan Bank of Pittsburgh of $
10,000,000. Interest is payable monthly at a floating rate of
5.16% with the principal maturing September 24, 2009. During
2000 the borrowing was refinanced with a
$ 15,000,000 ten year loan with Federal Home Loan Bank of
Pittsburgh. The floating interest rate was 5.93% at December
31, 2000 and is payable monthly. The loan matures on July 12,
2010.
The Bank has established credit at Federal Home Loan Bank
(FHLB) of Pittsburgh to improve liquidity. The Bank may
borrow up to approximately $ 42 million from FHLB under the
terms of certain commitment agreements, less any borrowings
outstanding. The rates and terms of the commitments are
flexible and are not fixed until the funds are withdrawn, but
funds may not be borrowed for more than one year. Borrowings
were $ 5,000,000 and $ 1,475,000 at December 31, 2000 and
1999, respectively. The variable interest rate was 6.64% at
December 31, 2000. Collateral for the borrowings consists of
certain investments and mortgages approximating $ 42 million
at December 31, 1999.
Note 17. Real Estate Owned Other Than Premises
These assets consist of the following at December 31:
2000 1999
Rental property (St. Thomas, PA), at depreciated cost $ 86,610
$ 89,878
Foreclosed real estate 0 140,000
$ 86,610 $ 229,878
The rental property was originally purchased for expansion
purposes and the Bank intends to hold it until a decision is
made if the property is needed. The foreclosed real estate
was converted to property used in operations of the Bank in
2000.
- -19-
Note 17. Fair Value of Financial Instruments
The estimated fair values of the corporation's financial
instruments under Statement on Financial Accounting Standards
(SFAS) No. 107, Disclosure About Fair Value of Financial
Instruments were as follows at December 31, 2000 and 1999:
Carrying Amount Fair Value
(000 Omitted)
2000 1999 2000 1999
FINANCIAL ASSETS
Cash and due from banks $ 4,276 $ 4,582 $ 4,276 $ 4,582
Securities available for sale 23,391 23,567 23,391
23,567
Other bank stock 1,252 870 1,252 870
Loans receivable (net) 102,058 90,995 101,361 89,548
Accrued interest receivable 965 731 965 731
FINANCIAL LIABILITIES
Time certificates 64,747 61,044 65,022 61,379
Other deposits 40,385 42,267 40,385 42,267
Accrued interest payable 502 421 502 421
Other borrowed funds 20,000 11,475 20,000 11,449
Note 18. Deferred Compensation and Other Benefit Programs
The Bank has adopted several benefit programs, some of which
result in the deferral of payments for services rendered:
(1) The Supplemental Executive Retirement Plan - This Plan is
funded by single premium life insurance on the CEO and
certain other Bank executives, with the Bank as beneficiary.
Actual payments to the executives will not begin until
their retirement.
(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 generally double their
current salary level, and is also funded by single premium life
insurance.
As a result of these plans, the following items are recognized
in the financial statements:
2000 1999
1998
Asset
Cash surrender value of life insurance $ 4,212,760 $ 3,028,486 $
3,165,957
Liabilities
Supplemental executive retirement plan 352,031 258,920 173,093
Deferred directors fees liability 162,189 116,079 98,308
Income
Earnings on cash surrender value of life insurance 197,110
160,185 175,184
Death benefits received from insurance policies 0 113,576
0
- -20-
Note 18. Deferred Compensation and Other Benefit Programs
(Continued)
2000 1999
1998
Expenses
Life insurance expense $ 32,836 $ 27,948 $ 29,482
Supplemental executive retirement expense 93,111 85,827
61,727
Deferred directors fees 46,974 43,047 27,707
Director emeritus fees 12,000 12,003 17,000
Death benefits paid to beneficiaries 857 12,099 0
Note 19. Concentrations of Credit Risk
The corporation 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 20% of loan portfolio).
Management evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if
deemed necessary 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.
The corporation maintains deposit balances at correspondent
banks, which provide check collection and item processing
services to the corporation. At times, the balances with
these correspondent banks may exceed federally insured limits,
which management considers to be a normal business risk.
- -21-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
SELECTED FIVE-YEAR FINANCIAL DATA
2000
1999 1998 1997 1996
Income (000 omitted)
Interest income $ 10,039 $ 8,804 $ 8,192 $ 7,898
$ 7,513
Interest expense 5,210 4,325 4,151 4,036
3,725
Provision for loan losses 45 195
185 20 65
Net interest income after
provision for loan losses 4,784 4,284 3,856 3,842
3,723
Securities gains (losses) 6 6 4 3
( 2)
Other operating income 516 583 718 470
391
Other operating expenses 3,370 3,011 2,745
2,626 2,425
Income before income taxes 1,936 1,862 1,833 1,689
1,687
Applicable income tax 466 395
406 384 455
Net income $ 1,470 $ 1,467 $ 1,427 $ 1,305
$ 1,232
Per share amounts are based on following weighted averages:
2000 - 494,054 1998 - 495,000
1996 - 495,000
1999 - 495,000 1997 - 495,000
Income before income taxes $ 3.92 $ 3.76 $ 3.70 $ 3.41
$ 3.41
Applicable income taxes .94 .80 .82 .77 .92
Net income 2.98 2.96 2.88 2.64 2.49
Cash dividend paid .86 .86 .72 .70 .66
Book value 28.75 25.76 25.21
23.04 20.50
Year-End Balance Sheet Figures (000 omitted)
Total assets $ 140,480 $ 128,478 $ 119,649
$ 105,770 $ 102,355
Net loans 102,058 90,995 80,214 70,416
63,791
Total investment securities 24,643 24,436 29,183
25,922 28,474
Deposits-noninterest bearing 13,025 12,354 11,553
8,159 10,000
Deposits-interest bearing 92,107 90,957 87,788 82,062
81,632
Total deposits 105,132 103,311 99,341 90,221
91,632
Liabilities for borrowed money 20,000 11,475 7,100
3,470 0
Total stockholders' equity 14,204 12,753 12,479
11,407 10,149
Ratios (includes net unrealized gain/loss on AFS securities)
Average equity/average assets 9.82 10.36 10.60 10.29 9.80
Return on average equity 11.17 11.43 11.95 11.98 12.49
Return on average assets 1.10 1.18 1.27 1.23 1.23
- -22-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CHANGES IN INCOME AND EXPENSE - 2000 AND 1999
The schedule below reflects comparative changes in income and
expense included in the Consolidated Statements of Income for 2000
and 1999 together with changes in asset and liability volumes
associated with these income and expense items.
2000 Compared to
1999 1999 Compared to 1998
Average Volumes
Income/Expense Average Volumes Income/Expense
($ 000 omitted) $ % $
% $ % $ %
Loans 10,150 11.5 1,182 16.1 12,292 16.3 620 9.3
Investment securities ( 836) ( 3.2) 50 3.4 ( 126)
( .5) 10 .7
Other investments 55 305.6 3 418.6
( 325) ( 94.8) ( 18) ( 94.7)
Total 9,369 8.2 1,235 14.0 11,841 11.6 612
7.5
Interest/borrowed funds 4,109 34.8 374 64.2 7,378 166.7
346 145.9
Interest bearing demand
deposits 482 5.0 19 9.4 486 5.3 (
5) ( 2.4)
Savings deposits ( 2,445) ( 11.6) ( 71)
( 12.8) ( 96) ( .5) ( 55) ( 9.1)
Time deposits 6,428 11.4 563 18.8 1,822 3.3 (112)
( 3.6)
Total 8,574 8.7 885 20.5 9,590 10.7 174
4.2
Net interest income 350 7.8 438 10.8
Provision for loan losses ( 150) ( 76.9)
10 5.4
Net interest income after
provision for loan losses 500 11.7
428 11.1
Security transactions 0 0.0
2 50.0
Other operating income ( 66) ( 11.4)
(135) (18.8)
Income before operating expense 434 8.9
295 6.4
Salaries & employee benefits 195 14.8
73 5.9
Occupancy & equipment expense 81 12.5
78 13.7
FDIC insurance premiums 10 84.9
0 0.0
Other operating expenses 74 7.1
115 12.4
Total operating expenses 360 11.9
266 9.7
Income before income taxes 74 4.0
29 1.6
Applicable income taxes 70 17.8
( 11) ( 2.7)
Net income 4 .3
40 2.8
- -23-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
SUMMARY OF QUARTERLY FINANCIAL DATA
The unaudited quarterly results of operations for the years
ended December 31, 2000 and 1999 are as follows:
2000
1999
($ 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 $ 2,355 $ 2,469 $ 2,585 $ 2,630 $ 2,137 $ 2,171 $
2,250 $ 2,246
Interest expense 1,165 1,240 1,377 1,428 1,047
1,059 1,092 1,127
Net interest income 1,190 1,229 1,208 1,202 1,090 1,112 1,158
1,119
Provision for loan losses 15 15
15 0 85 15 80 15
Net interest income
after provision for
loan losses 1,175 1,214 1,193 1,202 1,005 1,097 1,078 1,104
Securities gains (losses) 0 5 2 ( 1) 2 0 0
4
Other income 107 119 124 166 203 102 136 142
Other expenses 850 803 866 851
757 706 743 805
Operating income
before income taxes 432 535 453 516 453 493 471
445
Applicable income taxes 100 140 106
120 81 125 96 93
Net income $ 332 $ 395 $ 347 $ 396 $ 372 $ 368 $
375 $ 352
Net income applicable
to common stock
Per share data:
Net income $ .67 $ .80 $ .70 $ .81 $ .75 $ .74 $ .76 $ .71
- -24-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
STATEMENTS OF AVERAGE BALANCES AND AVERAGE RATES
($ 000 omitted) 2000
1999 1998 1997 1996
LOANS
Lines of credit $ 3,024 $ 2,921 $ 3,332 $ 3,290 $ 3,492
Tax free 785 846 1,281 2,201 2,458
Commercial 21,292 18,413 14,203 13,966 12,702
Mortgage 54,534 48,070 40,916 35,415 32,833
Consumer 18,417 17,652 15,878 13,299 11,045
Total loans 98,052 87,902 75,610
68,171 62,530
INVESTMENT SECURITIES
U.S. Government 0 0 0 0 254
U.S. Government agencies 10,210 8,465 5,863 6,931 6,984
State & municipal 3,997 5,903 5,793 5,090 3,040
Mortgage-backed securities 4,532 5,988 9,324 13,861 18,730
FNMA & FHLMC preferred stock 5,339 5,021 4,746 2,443 124
Corporate bonds 262 0 0 0 0
Other 1,001 800 577
392 555
Total investment securities 25,341
26,177 26,303 28,717 29,687
OTHER SHORT-TERM INVESTMENTS
Federal funds sold 73 18 343
255 430
TOTAL EARNING ASSETS 123,466 114,097
102,256 97,143 92,647
TOTAL ASSETS $ 134,004 $ 123,985 $ 111,002
$ 105,864 $ 99,844
Percent increase - earning assets 8.2% 11.5% 5.3% 4.8%
3.8%
DEPOSITS
Interest-bearing demand (NOW) $ 10,204 $ 16,951 $ 16,779
$ 15,528 $ 15,758
Savings (MMA & sav.) 18,618 13,834 13,616 13,816 14,578
Time 62,871 56,443 54,621 53,738 49,582
Total interest-bearing deposits 91,693 87,228
85,016 83,082 79,918
OTHER BORROWINGS
Federal funds purchased 118 70 622 276 908
Liabilities for borrowed money 15,795 11,734 3,804
1,838 288
15,913 11,804 4,426 2,114 1,196
TOTAL INTEREST-BEARING
LIABILITIES 107,606 99,032 89,442 85,196 81,114
- -25-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
STATEMENTS OF AVERAGE BALANCES AND AVERAGE RATES (CONTINUED)
2000 1999 1998 1997
1996
AVERAGE RATES EARNED
% % % %
%
Loans
Commercial 9.21 8.32 9.23 9.11 9.31
Mortgage 8.24 8.01 8.61 8.67 8.64
Consumer 8.97 8.74 8.77 8.89 9.58
Tax free 5.48 5.53 5.82 5.62 5.91
Lines of credit 9.55 8.35 8.81 9.19
9.13
Total 8.60 8.37 8.72 8.73 9.09
Investment Securities
U.S. Government 0.00 0.00 0.00 0.00 6.40
U.S. Government agencies 6.22 6.05 5.95 6.17 6.09
State & municipal 4.99 4.94 4.93 5.00
5.02
Mortgage-backed securities 6.34 5.44 5.50 6.46 6.50
Corporate bonds 7.51 0.00 0.00 0.00 0.00
Other 6.09 5.96 5.99 7.27 6.32
Total 6.03 5.65 5.57 6.22 6.08
Other Short-Term Investments
Federal funds sold 5.59 4.43 5.49 5.51 5.30
Total earning assets 8.07 7.72 7.90 8.13 8.11
AVERAGE RATES PAID
Time & savings deposits 4.64 4.29 4.60 4.71 4.59
Federal funds purchased 4.87 5.05 5.57 5.61 5.61
Liabilities for borrowed money 6.03 4.91 5.32 5.68 5.55
Total interest-bearing liabilities 4.84 4.37 4.64 4.74
4.59
- -26-
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 $ 1,470,000 for 2000, compared to $ 1,467,000
for 1999, representing an increase of $ 3,000, or .3%. Net income
on an adjusted per share basis for 2000 was $ 2.98, up $ .02 from
the $ 2.96 per share realized during 1999.
Interest income for 2000 was $ 10,039,000, up $ 1,235,000, or
14.0% more than 1999. The increase was due primarily to higher
average balances of loans, which typically produce higher yields
than investments, compared to 1999.
Average earning assets increased 8.2% and 11.5% in 2000 and
1999, respectively. Average loan demand, which typically produces
higher yields than investments, increased 11.5% in 2000. Net loans
at December 31, 2000 stood at $ 102,058,000 compared to $ 90,995,000
as of December 31, 1999, an increase of 12.2%. Average investment
securities decreased 3.2% in 2000, with the decrease concentrated in
mortgage-backed securities and obligations of state and political
subdivisions, while U.S. Government Agency securities, FHLMC
preferred stock and FHLB stock increased.
Total interest expense was $ 5,210,000 for 2000, an increase
of $ 885,000, or 20.5% from the
$ 4,325,000 for 1999. Average time deposits, which pay higher
yields, increased 11.4% in 2000. Interest-bearing deposits stood at
$ 92,107,000 at December 31, 2000 compared with $ 90,957,000 as of
December 31, 1999, an increase of 1.3%. Average interest-bearing
demand deposits and other savings deposits increased 5.0%, while
average savings deposits decreased 11.6%. Average borrowed funds
increased 34.8%.
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.
Net interest income for 2000 totaled $ 4,829,000, up 7.8% from
1999. 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 decreased $ 66,000 from 1999 to 2000. The
decrease in 2000 resulted primarily from $ 114,000 directors and
officers life insurance benefit income in 1999, which was partially
offset by a
$ 37,000 increase in earnings on cash surrender value of directors
and officers life insurance in 2000.
- -27-
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 14.8% and 5.8% for 2000
and 1999, respectively, primarily due to the addition of two branch
offices in July and November 1999, and merit pay increases.
Occupancy and furniture and equipment expenses increased 12.5% and
13.8% in 2000 and 1999, respectively. These increases were due
primarily to increased depreciation and building maintenance costs
and expense associated with the addition of two new full-service
banking facilities during 1999. Other operating expenses increased
7.9% and 12.3%, respectively in 2000 and 1999, respectively,
primarily due to increases in advertising, printing and supplies,
shares tax and other overhead expenses.
Applicable income taxes changed between 1998, 1999 and 2000
because of changes in pretax accounting income and taxable income.
The effective income tax rate for 2000 was 24.0% compared to 21.2%
and 22.1% for 1999 and 1998, respectively. The increase in the
effective income tax rate for 2000 was due primarily to a 32%
decrease in tax-exempt interest on obligations of state and
political subdivisions, and the 1999 receipt of nontaxable director
life insurance benefits. The 1999 decrease was due primarily to an
increase in tax-exempt interest on obligations of state and
political subdivisions, the dividends received deduction for FNMA
and FHLMC preferred stock, 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, 2000 were $ 140,480,000, a 9.3%
increase over December 31, 1999. Net loans at December 31, 2000
totaled $ 102,058,000, an increase of 12.2% over December 31, 1999.
The provision for loan losses was $ 45,000 in 2000 compared to
$ 195,000 in 1999. The provisions were based on management's
evaluation of the adequacy of the reserve balance and represent
amounts 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
2000
1999 2000 1999
Real estate mortgages $ 479 $ 168 $ 0 $ 0
Installment loans 29 0 0 0
Demand and time loans 41 0 0 0
Total $ 549 $ 168 $ 0 $ 0
Total deposits increased to $ 105,132,000 at December 31, 2000
compared with $ 103,311,000 at December 31, 1999. Noninterest
bearing deposits and interest-bearing deposits increased 5.4% and
1.3%, respectively.
- -28-
Stockholders' equity reached $ 14,204,000 at December 31, 2000
for an 11.4% increase over the prior year. Accumulated earnings for
2000 were partially offset by dividends declared and paid of $
425,000. Total equity also improved due to a $ 495,000 decrease in
net unrealized losses on available-for-sale securities (net of
deferred tax). Total stockholders' equity represented 10.1% and
9.9% of total assets at the end of 2000 and 1999, respectively.
Cash dividends of $ .86 per share were paid in 2000 and 1999. It is
the intention of management and the Board of Directors to continue
to pay a fair return on the stockholders' investment while retaining
adequate earnings to allow for continued growth.
LIQUIDITY
Liquidity and interest rate sensitivity are related to, 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. Adequate liquidity 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.
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
Investment securities $ 881 $ 1,002 $ 2,284
$ 5,095 $ 14,414 $ 23,676
Real estate, commercial
and consumer loans 9,407 11,892 18,620 5,162 57,825
102,906
$ 10,288 $ 12,894 $ 20,904 $ 10,257 $ 72,239 $
126,582
Rate Sensitive Liabilities
Short-term borrowings $ 5,000 $ 0 $ 0
$ 0 $ 0 $ 5,000
Long-term borrowings 7,500 0 7,500 0 0 15,000
Certificates of deposit
over $ 100,000 1,798 2,048 2,924 4,548 1,797
13,115
Other certificates
of deposit 11,068 5,184 9,372 15,718 10,290 51,632
Money market deposit
accounts 1,095 1,096 2,191 0 0 4,382
Other interest-bearing
deposits 5,744 5,744 11,489 0 0
22,977
$ 32,205 $ 14,072 $ 33,476 $ 20,266 $ 12,087
$ 112,106
Cumulative GAP ($ 21,917) ($ 23,095) ($ 35,667) ($ 45,676) $ 14,476
Loan rates have generally increased over the past twelve
months. Based on current economic indicators and predictions,
management anticipates that interest rates will steadily decrease
over the first half of 2001 and remain relatively stable over the
remainder of the year. 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.
- -29-
LIQUIDITY (CONTINUED)
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.
CAPITAL FUNDS
Internal capital generation has been the primary method
utilized by Fulton Bancshares Corporation to increase its capital
stock. Stockholders' equity exceeded $ 14.2 million at December 31,
2000. Regulatory authorities have established capital guidelines in
the form of the "leverage" 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
2000 1999 Requirements
Leverage ratio 10.2% 10.0% 3%
Risk-based capital ratio
Tier I (core capital) 13.8% 14.5% 4%
Combined Tier I and Tier II
(core capital plus allowance
for loan losses) 14.6% 15.3% 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.
The following chart indicates the growth in equity capital for
the past three years.
2000 1999
1998
Equity capital at December 31
($ 000 omitted) $ 14,204 $ 12,753
$ 12,479
Equity capital as a percent of assets
at December 31 10.11% 9.93%
10.43%
Return on average assets 1.10% 1.18%
1.27%
Return on average equity 11.17% 11.43%
11.95%
Cash dividend payout ratio 28.91% 29.05%
24.97%
MARKET RISK MANAGEMENT
The Bank has risk management policies to monitor and limit
exposure to market risk, and works diligently to take advantage of
profit opportunities available in interest rate movements.
Management continuously monitors liquidity and interest rate
risk through its Asset-Liability Committee reporting, and reprices
products in order to maintain desired net interest margins.
Management expects to continue to direct its marketing efforts
toward attracting more low cost retail deposits while competitively
pricing its time deposits in order to maintain favorable interest
spreads, while minimizing structural interest rate risk.
- -30-
MARKET RISK MANAGEMENT (CONTINUED)
The following table sets forth the projected maturities and
average rates for all rate sensitive assets and liabilities based on
the following assumptions. All fixed and variable rate loans were
based on original maturities since the bank has not experienced, and
does not expect, a significant rewriting of loans. Investments are
based on maturity date except certain long-term agencies, which are
classified by call date. The bank has historically experienced very
little deposit runoff and has generally had net gains in deposits over
the years. Based on this experience, it was estimated that maximum
runoff of noninterest-bearing checking, NOW checking and other savings
would be 10%, and maximum runoff of money market deposits would be 33%.
It was estimated that maximum runoff of time deposits would be 25% and
these deposits are classified by original maturity date.
- - - - - - - - -
Principal/Notional Amount Maturing In - - - - - - - - -
(In millions)
Fair
Rate sensitive assets 2001 2002 2003
2004 2005 Thereafter Total Value
Fixed rate loans $ 11,553 $ 5,572 $ 4,738 $ 3,831 $ 3,234
$ 25,059 $ 53,987 $ 53,290
Average interest rates 8.66% 8.98% 8.85% 8.72% 8.49% 8.51% 8.64%
Variable rate loans 17,956 1,811 1,772 1,714 1,654 24,011 48,918 48,918
Average interest rates 9.47% 8.69% 8.61% 8.56% 8.59% 8.51% 8.88%
Fixed rate securities 6,057 2,056 6,823 1,043 979 2,810 19,768 19,768
Average interest rates 6.29% 6.27% 5.97% 6.01% 6.15% 5.12% 5.98%
Variable rate securities 588 676 321 250 200 2,840 4,875 4,875
Average interest rates 6.75% 5.66% 6.41% 6.85% 6.85% 7.51% 6.75%
Rate sensitive liabilities
Noninterest-bearing
checking 1,302 1,172 1,055 949 855 7,692 13,025 13,025
Average interest rates N/A N/A N/A N/A N/A N/A N/A
Savings and interest-
bearing checking 3,744 3,037 2,510 2,110 1,799 14,160 27,360 27,360
Average interest rates 2.29% 2.29% 2.29% 2.29% 2.29% 2.29% 2.29%
Time deposits 13,165 11,155 9,647 7,581 5,800 17,399 64,747 65,022
Average interest rates 5.99% 5.99% 5.54% 4.86% 5.58% 5.58% 5.93%
Variable rate borrowings 5,000 15,000 20,000 20,000
Average interest rates 6.64% 5.93% 6.11%
Significant Events
Trust and estate services previously provided by the Fulton
County National Bank & Trust Company (Bank) are now serviced by Sentry
Trust Company (Sentry) acting as agent for the Bank's trust assets.
Pursuant to the service agreement entered into by the Bank and Sentry,
Sentry opened a branch office in the Penn's Village Shopping Center in
McConnellsburg, PA on January 2, 1999.
Local business people and bankers in Franklin County, PA, formed
Sentry in 1997. It is an independent, nondepository trust company
chartered by the Pennsylvania Department of Banking. To date, Sentry
manages approximately $ 475 million in assets and its staff of
professionals have an average of more than 15 years of experience.
- -31-
It is the Bank's goal to continue to provide quality trust
services to its customers and to offer, through Sentry, additional
services such as investment management, estate planning, cash
management, employee benefit planning, financial and business
planning, discount brokerage, and tax planning. The Bank refers
customers to Sentry as a full service provider. Sentry will have
the full authority to act as agent for the Bank with respect to
investment management, personal trust administration, estate
planning, estate settlement services, cash management, qualified
retirement plans, and financial planning. The authority to act as
agent for the Bank shall extend only to those matters that have been
vested in the Bank by reason of a trust, plan or other document
appointing the Bank as a fiduciary to the individual, entity or
plan.
The Bank has completed its second year with Sentry and we
believe the trust services arrangement has expanded services and
benefits to the customers of the Bank and have made this a
successful arrangement. The Bank and Sentry working together serve
the people of Fulton, southern Huntingdon and western Franklin
counties. The Bank does not anticipate a significant impact to
future net income as a result of this change.
FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Financial Accounting Standards Board (FASB) issued Statement
No. 133 as amended by SFAS No. 138, Accounting For Derivative
Instruments and Hedging Activities, effective for fiscal years
beginning after June 15, 2000. This Statement establishes
accounting and reporting standards for derivative instruments and
hedging activities, including certain derivative instruments
embedded in other contracts, and requires that an entity recognize
all derivatives as assets or liabilities in the balance sheet and
measure them at fair value. If certain conditions are met, an
entity may elect to designate a derivative as follows: (a) a hedge
of the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment, (b) a hedge of
exposure to variable cash flows of a forecasted transaction, or (c)
a hedge of the foreign currency exposure of an unrecognized firm
commitment, an available-for-sale security, a foreign currency
denominated forecasted transaction, or a net investment in a
foreign operation. The Statement generally provides for matching
the timing of the recognition of the gain or loss on derivatives
designated as hedging instruments with the recognition of the
changes in fair value of the item being hedged. Depending on the
type of hedge, such recognition will be either net income or other
comprehensive income. For a derivative not designated as a hedging
instrument, changes in fair value will be recognized in net income
in the period of change. Management is currently evaluating the
impact of adopting this Statement on the consolidated financial
statements, but does not anticipate that it will have a material
impact.
In September 2000, the FASB issued Statement No. 140
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This Statement provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. It replaces
previously issued statement No. 125. Statement No. 140 revises
accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but
otherwise carries over most of Statement No. 125's provisions
without reconsideration. Statement No. 140 is effective for
transfers, servicing and extinguishments occurring after March 31,
2001. Management is evaluating the impact of this statement, but
does not anticipate that it will have material impact.
STOCK MARKET ANALYSIS AND DIVIDENDS
The corporation's common stock is traded inactively in the
over-the-counter market. As of December 31, 2000 the approximate
number of shareholders of record was 524.
Market Cash Market Cash
Price Dividend Price Dividend
2000 1999
First Quarter $ 51.00 $ .18 $ 55.00 $ .17
Second Quarter 40.00 .18 60.00 .17
Third Quarter 37.00 .23 60.00 .20
Fourth Quarter 34.125 .27 51.00 .32
- -32-
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.
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
Board of Directors and Shareholders
Fulton Bancshares Corporation
We consent to the incorporation by reference in registration
statements (Form SB-2 No. 33-85626) of Fulton Bancshares Corporation
of our report dated February 13, 2001, appearing in this annual
report on Form 10-K of Fulton Bancshares Corporation for the year
ended December 31, 2000.
SMITH ELLIOTT KEARNS & COMPANY, LLC
Chambersburg, PA
March 23, 2001
4,276
0
0
0
0
23,391
23,391
102,905
847
140,480
105,132
5,000
1,145
15,000
0
0
309
13,894
140,480
8,506
1,436
97
10,039
4,252
5,210
4,829
6
3,370
1,935
1,470
0
0
1,470
2.98
2.98
3.91
0
549
0
0
800
32
34
847
847
0
0