FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2002
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Commission file number: 33-850626
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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
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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 October 31, 2002
- ---------------------------------- -------------------------------
(Common stock, .625 par value) 492,770
FULTON BANCSHARES CORPORATION
INDEX
Page
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets - September 30, 2002
and December 31, 2001 4
Condensed consolidated statements of income - three months
ended September 30, 2002 and 2001 5
Condensed consolidated statements of comprehensive income -
three months ended September 30, 2002 and 2001 6
Condensed consolidated statements of income - nine
months ended September 30, 2002 and 2001 7
Condensed consolidated statements of comprehensive income -
nine months ended September 30, 2002 and 2001 8
Condensed consolidated statements of cash flows - nine months
ended September 30, 2002 and 2001 9
Notes to condensed consolidated financial statements 10 - 11
Management's discussion and analysis of financial
condition and results of operations 12 - 19
PART II - OTHER INFORMATION 20
Signatures 21
Certifications of Principal Executive Officer and Principal
Financial Officer 22 - 25
Exhibits 26 - 28
PART I - FINANCIAL INFORMATION
FULTON BANCSHARES CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001
(Unaudited)
(000 Omitted)
ASSETS
Cash and due from banks $ 3,827 $ 5,529
Available-for-sale securities 37,496 30,799
Federal Reserve, Atlantic Central Bankers
Bank, Federal Home Loan Bank,
at cost which approximates market 1,356 1,101
Loans, net of allowance for loan losses 105,810 103,656
Bank building, equipment, furniture &
fixtures, net 3,919 3,674
Other real estate owned 0 83
Accrued interest/dividends receivable 1,069 903
Cash surrender value of life insurance 4,600 4,431
Other assets 609 679
---------- ---------
Total assets $ 158,686 $ 150,855
========== =========
LIABILITIES
Deposits:
Noninterest-bearing deposits $ 15,159 $ 13,486
Interest-bearing deposits:
Savings deposits 32,735 29,230
Time deposits 67,585 74,322
Total deposits 115,479 117,038
Accrued interest payable 249 425
Other borrowed money 25,500 17,325
Other liabilities 995 823
---------- ---------
Total liabilities 142,223 135,611
---------- ---------
STOCKHOLDERS' EQUITY
Capital stock, common, par value - $ 0.625;
4,000,000 shares authorized; 492,770
shares issued and outstanding at
September 30, 2002 and December 31, 2001 310 310
Surplus 2,051 2,051
Retained earnings 13,945 13,036
Net unrealized gains/(losses)
available - for-sale securities 247 ( 63)
Treasury stock: 2,230 shares,at cost ( 90) ( 90)
---------- ---------
Total stockholders' equity 16,463 15,244
---------- ---------
Total liabilities and
stockholders' equity $ 158,686 $ 150,855
========== =========
* Condensed from audited financial statements
The accompanying notes are an integral part of these
condensed financial statements.
FULTON BANCSHARES CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
September 30, September 30,
2002 2001
(000 Omitted)
Interest & Dividend Income $ 1,923 $ 2,139
Interest & fees on loans
Interest & dividends on investment
securities:
U.S. Government securities 230 199
Obligations of state & political
subdivisions 27 32
Interest on federal funds sold 7 21
Other interest & dividend income 313 174
---------- ----------
Total interest & dividend income 2,500 2,565
---------- ----------
Interest Expense
Interest on deposits 878 1,150
Interest on federal funds purchased 2 0
Interest on other borrowed money 238 226
---------- ----------
Total interest expense 1,118 1,376
---------- ----------
Net interest income before provision
for loan losses 1,382 1,189
Provision for loan losses 115 0
---------- ----------
Net interest income after provision for
loan losses 1,267 1,189
---------- ----------
Other Income
Service charges on deposit accounts 55 46
Other fee income 38 22
Other non-interest income 64 68
Securities gains (losses) 0 0
---------- ----------
Total other income 157 136
---------- ----------
Other Expense
Salaries and employee benefits 452 416
Fixed asset expenses (including
depreciation) 175 182
FDIC insurance premiums 5 5
Other noninterest expenses 333 268
---------- ----------
Total other expenses 965 871
---------- ----------
Net income before income taxes 459 454
Applicable income taxes 78 95
---------- ----------
Net income $ 381 $ 359
========== ==========
Weighted average number of shares
outstanding $ 492,770 $ 492,745
Net income per share $ 0.77 $ 0.73
Cash dividends declared per share $ 0.26 $ 0.25
The accompanying notes are an integral part of these
condensed financial statements.
FULTON BANCSHARES CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
(000 Omitted)
Net income $ 381 $ 359
Other comprehensive income, net of tax
Unrealized gain (loss) on investments
available for sale 306 125
----- -----
Comprehensive income $ 687 $ 484
===== =====
The accompanying notes are an integral part of these
condensed financial statements.
FULTON BANCSHARES CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
(000 Omitted)
Interest & Dividend Income
Interest & fees on loans $ 5773 $ 6,562
Interest & dividends on investment securities:
U.S. Government securities 717 560
Obligations of state & political
subdivisions 79 108
Interest on federal funds sold 12 52
Other interest & dividend income 937 400
--------- --------
Total interest & dividend income 7,518 7,682
--------- --------
Interest Expense
Interest on deposits 2,617 3,409
Interest on federal funds purchased 3 1
Interest on other borrowed money 694 724
--------- --------
Total interest expense 3,314 4,134
--------- --------
Net interest income before provision for
loan losses 4,204 3,548
Provision for loan losses 240 15
--------- --------
Net interest income after provision for
loan losses 3,964 3,533
--------- --------
Other Income
Service charges on deposit accounts 146 133
Other fee income 120 77
Other non-interest income 208 198
Securities gains (losses) 1 26
--------- --------
Total other income 475 434
--------- --------
Other Expense
Salaries and employee benefits 1,311 1,190
Fixed asset expenses (including depreciation) 552 547
FDIC insurance premiums 15 15
Other noninterest expenses 956 831
--------- --------
Total other expenses 2,834 2,583
--------- --------
Net income before income taxes 1,605 1,384
Applicable income taxes 351 316
--------- --------
Net income $ 1,254 $ 1,068
Weighted average number of shares outstanding $ 492,770 $492,745
Net income per share $ 2.54 $ 2.17
Cash dividends declared per share $ .70 $ .65
The accompanying notes are an integral part of these
condensed financial statements.
FULTON BANCSHARES CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
Net income $ 1,254 $ 1,068
Unrealized gain (loss) on investments
available for sale, net of tax 309 160
Reclassification adjustment for gains
(losses) included in net
income, net of tax 1 26
------- -------
Comprehensive income $ 1,564 $ 1,254
======= =======
The accompanying notes are an integral part of these
condensed financial statements.
FULTON BANCSHARES, CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
Cash flows from operating activities:
Net income $ 1,254 $ 1,068
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 248 270
Provision for loan losses 240 15
Gain on sale - Securities ( 1) ( 26)
Gain on sale - OREO ( 9) 0
Other - Net ( 428) ( 177)
-------- --------
Net cash provided by operating activities 1,304 1,150
-------- --------
Cash flows from investing activities:
Purchase of investment securities -
Available-for-sale ( 21,478) ( 17,578)
Purchase of Federal Home Loan Bank Stock ( 255) 419
Sales of available-for-sale securitieS 825 1,720
Maturities of available-for-sale securities 14,426 11,438
Net (increase) in loans ( 2,394) ( 3,795)
Sale of OREO 92 0
Purchases of & deposits on bank premises and
equipment - net ( 493) ( 156)
-------- --------
Net cash provided (used) by investing activities ( 9,277) ( 7,952)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits ( 1,559) 15,275
Dividends paid ( 345) ( 320)
Net increase (decrease) in other borrowed money 8,175 ( 5,000)
-------- --------
Net cash provided (used) by financing activities 6,271 9,955
Net increase (decrease) in cash and cash equivalents ( 1,702) 3,153
Cash and cash equivalents, beginning balance 5,529 4,276
-------- --------
Cash and cash equivalents, ending balance $ 3,827 $ 7,429
======== =========
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $ 3,148 $ 3,483
Income taxes 572 371
Supplemental schedule of noncash investing and
financing activities:
Change in net unrealized gain on investments
available for sale (net of deferred taxes) 310 186
The accompanying notes are an integral part of these
condensed financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
Review of Interim Financial Statements
The condensed consolidated financial statements as of and for
the three and nine months ended September 30, 2002 and 2001
have been reviewed by independent certified public
accountants. Their report on the review is attached as
Exhibit 99 to the 10-Q filing.
Note 1. Basis of Presentation
The financial information presented at and for the three and
nine months ended September 30, 2002 and 2001 is unaudited.
Information presented at December 31, 2001 is condensed from
audited year-end financial statements. However, unaudited
information reflects all adjustments (consisting solely of
normal recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the
financial position, results of operations and cash flows for
the interim period.
Note 2. Principles of Consolidation
The consolidated financial statements include the accounts of
the corporation and its wholly-owned subsidiaries, Fulton
County National Bank & Trust Company and the Fulton County
Community Development Corporation. All significant
intercompany transactions and accounts have been eliminated.
Note 3. Cash Flows
For purposes of the statements of cash flows, the corporation
has defined cash and cash equivalents as those amounts
included 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 increase or decrease in
deposits in banks, loans and time deposits in the statements
of cash flows.
Note 4. Federal Income Taxes
For financial reporting purposes the provision for loan
losses charged to operating expense is based on management's
judgment, whereas for federal income tax purposes, the amount
allowable under present tax law is deducted. Additionally,
certain expenses are charged to operating expense in the
period the liability is incurred for financial reporting
purposes, whereas for federal income tax purposes, these
expenses are deducted when paid. As a result of these timing
differences, deferred income taxes are provided in the
financial statements. Federal income taxes were computed
after reducing pretax accounting income for nontaxable
municipal and loan income.
Note 5. Other Commitments
In the normal course of business, the Corporation makes
various commitments and incurs certain contingent
liabilities which are not reflected in the accompanying
financial statements. These commitments include various
guarantees and commitments to extend credit and the
Corporation does not anticipate any losses as a result of
these transactions.
Note 6. Investment Securities
The carrying amounts of investment securities and their
approximate fair values at September 30, 2002 were as
follows:
Amortized Gross Gross
Cost Unrealized Unrealized
Gains (Losses) Fair Value
Debt and equity securities available for sale:
FNMA/FHLMC non -
cumulative
preferred stocks $ 14,329,151 $ 150,000 ($ 280,151) $ 14,199,000
State & municipal
securities 2,082,203 70,034 ( 11,061) 2,141,176
U.S. Government
agencies 14,179,892 329,446 0 14,509,338
Mortgage-backed
securities 5,400,555 14,064 ( 11,619) 5,403,000
Corporate bonds 997,332 121,118 0 1,118,450
Equity securities 132,000 3,700 ( 10,700) 125,000
----------- --------- ----------- ------------
$ 37,121,133 $ 688,362 ($ 313,531) $ 37,495,964
There were no securities categorized "Held-to-maturity" or
"Trading" at September 30, 2002.
Note 7. Comprehensive Income
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 owners and distributions to owners.
Consequently, a "Statement of Comprehensive Income" has
been included in this filing.
FULTON BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Net after tax income for the first nine months of 2002 was
$1,254,000 compared to $ 1,068,000 for the same period in 2001,
representing an increase of $ 186,000, or 17.4%. Net income on an
adjusted per share basis for the first nine months of 2002 was
$ 2.54, an increase of $ .37 from the $ 2.17 per share realized
during the nine months ended September 30, 2001.
RESULTS OF OPERATIONS
Third Quarter 2002 vs. Third Quarter 2001
Interest income for the third quarter of 2002 was $ 2,500,000
compared with $ 2,565,000 earned during the same period in 2001,
for a decrease of $ 65,000, or 2.5%. The decrease was due
primarily to a significant decrease in interest rates earned on
loans and investments and a higher average balance of investments,
which typically produce lower yields than loans, in 2002 compared
with the same period in 2001. Management expects average rates
earned to decrease over the rest of 2002.
Interest expense for the third quarter of 2002 was
$ 1,118,000, a decrease of $ 258,000, or 18.8% over the $ 1,376,000
incurred for the same period in 2001. The decrease was due
primarily to a decrease in interest rates paid on deposits and
short-term borrowings. Management expects average rates paid to
decrease over the rest of 2002.
Net interest income for the third quarter of 2002 totaled
$ 1,382,000, up $ 193,000, or 16.2%, from the third quarter of
2001.
Nine Months 2002 vs. Nine Months 2001
Interest income for the first nine months of 2002 was
$ 7,518,000 compared with $ 7,682,000 for the nine months ended
September 30, 2001, for a decrease of $ 164,000, or 2.1%. The
decrease was due primarily to a significant decrease in interest
rates earned on loans and investments and a higher average balance
of investments, which typically produce lower yields than loans, in
2002 compared with the same period in 2001. Management expects
average rates paid to decrease over the rest of 2002.
Interest expense for the first nine months of 2002 was
$ 3,314,000, a decrease of $820,000, or 19.8% over the $ 4,134,000
incurred for the same period in 2001. The decrease was due
primarily to a significant decrease in interest rates paid on
deposits and short-term borrowings. Management expects average
rates paid to decrease over the rest of 2002.
NET INTEREST MARGIN
The net interest margin for the first nine months of 2002 was
3.99% compared with 3.68% for the first nine months of 2001.
Liquidity and interest rate risk are continuously monitored through
Asset-Liability Committee reports. Management plans to protect its
net interest margin by competitively pricing loans and deposits and
by structuring interest-earning assets and liabilities in such a
way that they can be repriced in response to changes in market
interest rates.
NON-INTEREST INCOME
Third Quarter 2002 vs. Third Quarter 2001
Third quarter 2002 non-interest income increased to
$ 157,000 from $ 136,000, or 15.4%. Service charges on deposit
accounts increased $ 9,000, or 19.6%. Other fee income increased
$ 16,000, or 72.7%, primarily as a result of instituting ATM
surcharges. Other non-interest income decreased 5.9%. No
securities gains or losses were reported for the third quarter 2002
or 2001.
Nine Months 2002 vs. Nine Months 2001
Non-interest income for the first nine months of 2002
increased 9.4% over the same period in 2001. Service charges on
deposit accounts increased $ 13,000, or 9.8%. Other fee income
increased $ 43,000, or 55.8%, primarily as a result of instituting
ATM surcharges. Other non-interest income increased $ 10,000, or
5.1%, primarily due to a $ 9,000 gain on sale of OREO reported in
2002. Securities gains of $ 1,000 were reported for the first nine
months of 2002 compared with $ 26,000 for the same period in 2001.
NON-INTEREST EXPENSES
Third Quarter 2002 vs. Third Quarter 2001
Non-interest expenses for the third quarter of 2002 totaled
$ 965,000, an increase of $ 94,000, or 10.8%, over the $ 871,000 for
the third quarter of 2001. Salaries and employee-related expenses
were up $ 36,000, or 8.7%, primarily due to the addition of
personnel to staff a branch office opened in early February, 2002,
and merit pay increases. Fixed asset expenses decreased $ 7,000, or
3.8%, primarily due to increased equipment and building maintenance
costs and depreciation expense associated with the opening of a new
branch in February 2002, offset by reduced depreciation expense on
assets that became fully depreciated at the end of 2001. Other non-
interest expenses increased by $ 65,000, or 24.3%, due to increases
in advertising and promotion costs, OCC assessments, data
processing, PA shares tax, telephone, and other operating expenses.
Nine Months 2002 vs. Nine Months 2001
Non-interest expenses for the first nine months of 2002 totaled
$ 2,834,000, an increase of $ 251,000, or 9.7%, over the $ 2,583,000
for the same period of 2001. Salaries and employee-related expenses
were up $ 121,000, or 10.2%, primarily due to the addition of
personnel to staff a branch office opened in early February, 2002,
and merit pay increases. Fixed asset expenses increased $ 5,000, or
0.9%, primarily due to increased equipment and building maintenance
costs and depreciation associated with the opening of a new branch
in February 2002, partially offset by decreased depreciation expense
on assets that became fully depreciated at the end of 2001. Other
non-interest expenses increased to $ 125,000, or 15.0%, due to
increases in advertising and promotion costs, OCC assessments, data
processing, PA shares tax, telephone, and other operating expenses.
INCOME TAXES
The income tax provision for the third quarter of 2002 was
$ 78,000 compared with $ 95,000 for the third quarter of 2001, while
the provision was $ 351,000 for the nine months ended September 30,
2002 compared to $ 316,000 for the first nine months of 2001.
Effective income tax rates (compared to the marginal federal income
tax bracket of 34% applicable to each period) were as follows:
Three Months Ended September 30 Nine Months Ended September 30
2002 2001 2002 2001
17.0% 20.9% 21.9% 22.8%
PROVISION FOR LOAN LOSSES
A $ 240,000 provision for loan losses was made for the
first nine months of 2002 compared with $ 15,000 for the first nine
months of 2001. The provisions were made based on management's
evaluation of the reserve for possible loan losses at September 30,
2002 and 2001.
A summary of the allowance for loan losses for the nine
month periods is as follows:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(In 000's)
September 30, September 30,
2002 2001
Allowance for loan losses
Beginning of period $ 845 $ 847
-------- --------
Loans charged-off during the period:
Real estate loans 0 0
Installment loans 50 20
Commercial and all other loans 4 13
-------- --------
Total Charge-offs 54 33
-------- --------
Recoveries of loans previously charged-off:
Real estate loans 0 0
Installment loans 3 14
Commercial and all other loans 1 2
-------- --------
Total Recoveries 4 16
-------- --------
Net loans (charged-off) received ( 50) ( 17)
Provision for loan losses charged to
operations 240 15
-------- --------
Allowance for loan losses-end of period $ 1,035 $ 845
======== ========
Loans 90 days or more past due (still accruing interest)
and those on nonaccrual status were as follows at September 30:
NONPERFORMING LOANS
(In 000's)
90 Days of More Nonaccrual
Past Due Status
2002 2001 2002 2001
Real estate loans $ 1,580 $ 105 $ 80 $ 268
Installment loans 5 12 0 0
Demand and time loans 94 285 0 34
------- ------ ----- -----
Total loans $ 1,679 $ 402 $ 80 $ 302
======= ====== ===== =====
There were no restructured loans for any of the time
periods set forth above.
The bank utilizes a comprehensive systematic review of its
loan portfolio on a quarterly basis in order to determine the
adequacy of the allowance for loan losses. Each quarter the loan
portfolio is categorized into various pools as follows:
POOL #1 Specific allowances for any individually identified
problem loans
POOL #2 Commercial
POOL #3 Residential Real Estate
POOL #4 Consumer Demand and Installment
POOL #5 Farm Loans
POOL #6 Off-Balance Sheet Commitments
Lines of credit and non-secured commercial loans with
balances of $ 250,000 and over are individually reviewed. Also,
loans that are 90 days or more past due or have been previously
classified as substandard are individually reviewed. Allocations to
the allowance for loan losses are based upon classifications
assigned to those specific loans.
Loan classifications utilized are based on past experience
and are as follows:
Allowance Factors
-----------------
Loss Charge-off
Doubtful 50%
Substandard 3%
Special Mention 1%
The remaining portion of the pools are evaluated as groups
with allocations made to the allowance based on historical loss
experience, current and anticipated trends in delinquencies, trends
in volume and terms of loans, concentrations or credit, and general
economic conditions within the bank?s trading area.
Delinquencies and losses are well below peer group
averages and management is not aware of any problem loans that are
indicative of trends, events, or uncertainties that would
significantly impact operations, liquidity or capital.
The reasons for the increase in the provision for loan
losses for the nine months ended September 30, 2002 compared to 2001
are significant increases in delinquent and classified loans.
Delinquencies 30-89 days and still accruing have increased 60.1%
over the past four quarters and represent 4.3% of total loans
reported at September 30, 2002 compared with 3.1% at September 30,
2001. Real estate loan delinquencies represent 85.6% of total loans
delinquent 30-89 days compared with 78.4% at September 30, 2001.
Loans past due 90 days or more still accruing interest have
increased 317.7% over the past four quarters and represent 1.6% of
total loans at September 30, 2002 compared with 0.4% at
September 30, 2001. Ninety-four percent of the total loans 90 days
or more delinquent were fully secured by real estate. Classified
loans on September 30, 2002 were $ 4,874,000 compared with
$ 2,569,000 on September 30, 2001, an increase of 89.7%. The Bank
has identified farm loans as a concentration of credit. At
September 30, 2002, farm loans comprised $ 3,680,000, or 75.5% of
the classified loans.
FINANCIAL CONDITION
Assets
Total assets on September 30, 2002 were $ 158,686,000
compared with $ 150,855,000, on December 31, 2001 for an increase of
5.2%. Management intends to contain growth and concentrate on
maintaining adequate profit margins. Net loans on September 30,
2002 stood at $ 105,810,000 an increase of 2.1% from $ 103,656,000
on December 31, 2001. The loan loss reserve at September 30, 2002
was $ 1,035,000 and is considered adequate, in management?s
judgment, to absorb possible loan losses on existing loans.
Liabilities
Total deposits decreased 1.3% to $ 115,479,000 as of
September 30, 2002 compared with $ 117,038,000 at December 31, 2001.
Non-interest-bearing demand deposits and interest-bearing savings
deposits increased 12.4% and 12.0%, respectively, while interest-
bearing time deposits decreased 9.1%.
Capital
Total equity capital as of September 30, 2002 was
$ 16,463,000, representing 10.4% of total assets, an increase of
$ 1,219,000 from the $ 15,244,000 reported on December 31, 2001.
Accumulated earnings for the first nine months of 2002 and $ 310,000
increase in net unrealized gains (net of tax effect) were partially
offset by dividends declared and paid of $ 345,000. On July 20,
2000, the Board of Directors announced the approval of a plan to
purchase, in open and privately negotiated transactions, up to 2% of
its shares of outstanding common stock. As of September 30, 2002,
the company had repurchased 2,230 shares, representing 0.45% of its
shares of outstanding common stock. 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.
REGULATORY CAPITAL
The Company maintains capital ratios that are well above
the minimum total capital levels required by federal regulatory
authorities, including risk-based capital guidelines. A comparison
of Fulton Bancshares Corporation?s capital ratios to regulatory
minimum requirements at September 30, 2002 is as follows:
Fulton Regulatory
Bancshares Minimum
Corporation Requirements
Leverage ratio 10.20% 4.0%
Risk-based capital ratios:
Tier I (core capital) 14.50% 4.0%
Combined tier I and tier II
(core capital plus
allowance for loan losses 15.42% 8.0%
BALANCE SHEET ANALYSIS
The following table highlights the changes in the balance
sheet. Since quarter-end balances can be distorted by one-day
fluctuations, an analysis of changes in the quarterly averages is
provided to give a better indication of balance sheet trends.
AVERAGE BALANCE SHEETS
(In 000's)
Third Quarter
2002 2001
ASSETS
Federal funds sold $ 1,577 $ 2,736
Securities available for sale 38,258 25,597
Other investments 965 833
Loans 105,617 105,887
--------- ---------
Total interest-earning
assets 146,417 135,053
Cash and due from banks 3,517 3,612
Bank premises and equipment 3,936 3,551
All other assets 6,025 5,608
Allowance for loan losses ( 931) ( 867)
--------- ---------
Total Assets $ 158,964 $ 146,957
========= =========
LIABILITIES
Interest-bearing deposits
domestic offices $ 109,047 $ 103,237
Federal funds purchased 362 0
Other borrowings 17,121 15,000
--------- ---------
Total interest-bearing
liabilities 126,530 118,237
Noninterest-bearing deposits 15,479 13,038
All other liabilities 971 891
--------- ---------
Total Liabilities 142,980 132,156
STOCKHOLDERS' EQUITY
Common stockholder's equity $ 15,891 $ 14,869
Net unrealized holding gains
(losses), net of tax 93 ( 68)
Total stockholders'
equity 15,984 14,801
--------- ---------
Total liabilities and
stockholders'
equity $ 158,964 $ 146,957
========= =========
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The company maintains controls and procedures designed to
ensure that information required to be disclosed in the reports
that the company files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Based upon their
evaluation of those controls and procedures performed within 90
days of the filing date of this report, the chief executive and
chief financial officers of the company concluded that the
company?s disclosure controls and procedures were adequate.
(b) Changes in internal controls.
The Company made no significant changes in its internal
controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation of the
controls by the chief executive and chief financial officers.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
None
Item 2 - Changes in Securities
- ------------------------------
None
Item 3 - Defaults Upon Senior Securities
- ----------------------------------------
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 5 - Other Information
- --------------------------
None
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit Number Referred to Description of
Item 601 of Regulation S-K Exhibit
99 Report of Independent
Accountant on Interim
Financial Statements
99.1 Certification of Chief
Executive Officer
pursuant to 18 U.S.C.
Section 1350
99.2 Certification of Chief
Financial Officer
pursuant to 18 U.S.C.
Section 1350
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: October 31, 2002 /s/Clyde H. Bookheimer
--------------------- ------------------------------
Clyde H. Bookheimer,
President and Chief
Executive Officer
Date: October 31, 2002 /s/Doriann Hoffman
--------------------- -----------------------------
Doriann Hoffman,
Vice President
(Chief Financial
Officer)
CERTIFICATION
I, Clyde H. Bookheimer, President and CEO, certify, that:
--------------------------------------
1. I have reviewed this quarterly report on Form 10-Q of
Fulton Bancshares Corporation.
- ------------------------------
2. Based on my knowledge, the quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report.
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and we have:
(a) designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
(c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date.
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or
operation of the internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls.
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect the internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: October 31, 2002 By:/s/Clyde H. Bookheimer
---------------- ---------------------------
Clyde H. Bookheimer
President & CEO
(Principal Executive Officer)
CERTIFICATION
I, Doriann Hoffman, Vice President and CFO, certify, that:
---------------------------------------
1. I have reviewed this quarterly report on Form 10-Q of
Fulton Bancshares Corporation.
- ------------------------------
2. Based on my knowledge, the quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report.
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and we have:
(a) designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
(c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date.
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or
operation of the internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls.
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect the internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: October 31, 2002 By: /s/Doriann Hoffman
---------------- --------------------------
Doriann Hoffman
Vice President and CFO
(Principal Financial Officer)
EXHIBIT 99
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors
Fulton Bancshares Corporation and Subsidiaries
McConnellsburg, Pennsylvania
We have reviewed the accompanying condensed consolidated
balance sheet of Fulton Bancshares Corporation and Subsidiaries as of
September 30, 2002 and the related condensed consolidated statements
of income, comprehensive income, and cash flows for the interim
periods ended September 30, 2002 and 2001. These condensed
consolidated financial statements are the responsibility of the
corporation's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public Accountants.
A review of interim financial information consists principally of
applying analytical procedures to financial data and making inquiries
of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the condensed consolidated
financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements for them to be in conformity with
generally accepted accounting principles.
/s/ Smith Elliott Kearns & Company, LLC
----------------------------------------
SMITH ELLIOTT KEARNS & COMPANY, LLC
Chambersburg, Pennsylvania
November 8, 2002
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fulton Bancshares
Corporation (the "Company") on Form 10-Q for the period ending
September 30, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Clyde H.
Bookheimer, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the final condition and results of
operations of the Company.
/s/ Clyde H. Bookheimer
----------------------------
Chief Executive Officer
October 31, 2002
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fulton Bancshares
Corporation (the "Company") on Form 10-Q for the period ending
September 30, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Doriann Hoffman,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the final condition and results of operations
of the Company.
/s/Doriann Hoffman
-----------------------------
Chief Financial Officer
October 31, 2002
Page 36 of 36 pages