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, 1999
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, 2000
(Common stock, .625 par value) 495,000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended
December 31, 1999 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.
- -1-
Item 1. Business.
Description of the Company
Fulton Bancshares Corporation (the "Company"), a
Pennsylvania business corporation, is a bank holding company
registered with and supervised by the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board").
The Company was incorporated on March 29, 1989 under the
business corporation law of the Commonwealth of Pennsylvania
for the purpose of becoming a bank holding company. Since
commencing operations, the Company's business has consisted
primarily of managing and supervising the Fulton County
National Bank and Trust Company (the "Bank"), and its
principal source of income has been dividends paid by the
Bank. The Company has two wholly-owned subsidiaries - the
Bank, and Fulton County Community Development Corporation
("FCCDC"), which was formed on June 7, 1996 to support
efforts of the local downtown business revitalization project
by making low interest loans to eligible small businesses for
the purpose of facade improvement. FCCDC had minimal
activity in 1999, 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.
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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
- -5-
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.
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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:
<TABLE>
<S> <C> <C>
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%
</TABLE>
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, 1999, the Bank has forty-four
(44) 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:
<TABLE>
<S> <C> <C> <C> <C>
Total Tier 1 Tier 1 Under a
Risk-Based Risk-Based Leverage Capital Order
Ratio Ratio Ratio or Directive
CAPITAL CATEGORY
Well capitalized > 10.0 > 6.0 > 5.0 No
Adequately
capitalized > 8.0 > 4.0 > 4.0*
Undercapitalized < 8.0 < 4.0 < 4.0*
Significantly
undercapitalized< 6.0 < 3.0 < 3.0
Critically
undercapitalized < 2.0
</TABLE>
* 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 plans to close 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.
<TABLE>
<S> <C> <C> <C> <C>
Market Cash Market Cash
Price Dividend Price Dividend
1999 1998
First Quarter $ 55.00 $ .17 $ 45.00 $ .165
Second Quarter 60.00 .17 50.00 .165
Third Quarter 60.00 .20 50.00 .19
Fourth Quarter 51.00 .32 55.00 .20
</TABLE>
Dividend restrictions are detailed in Note 15 of
the annual shareholders report and are incorporated herein by
reference.
- -26-
Item 6. Selected Financial Data.
<TABLE>
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
Income (000 omitted)
Interest income $ 8,804 $ 8,192 $ 7,898 $ 7,513 $ 7,298
Interest expense 4,325 4,151 4,036 3,725 3,732
Provision for
loan losses 195 185 20 65 62
Net interest
income after
provision for
loan losses 4,284 3,856 3,842 3,723 3,504
Securities gains
(losses) 6 4 3 ( 2) 5
Other operating
income 583 718 470 391 276
Other operating
expenses 3,011 2,745 2,626 2,425 2,304
Income before
income taxes 1,862 1,833 1,689 1,687 1,481
Applicable income
tax 395 406 384 455 422
Net income $ 1,467 $ 1,427 $ 1,305 $ 1,232 $ 1,059
</TABLE>
Per share amounts are based on following weighted averages:
1999 - 495,000 1997 - 495,000 1995 - 480,476
1998 - 495,000 1996 - 495,000
<TABLE>
<S> <C> <C> <C> <C> <C>
Income before
income taxes $ 3.76 $ 3.70 $ 3.41 $ 3.41 $ 3.08
Applicable income
taxes .80 .82 .77 .92 .88
Net income 2.96 2.88 2.64 2.49 2.20
Cash dividend paid .86 .72 .70 .66 .55
Book value 25.76 25.21 23.04 20.50 19.08
</TABLE>
- -27-
Item 6. Selected Financial Data (Continued).
<TABLE>
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
Income (000 omitted)
Year-End Balance Sheet Figures (000 omitted)
Total assets $ 128,478 $ 119,649 $ 105,770 $ 102,355 $ 96,449
Net loans 90,995 80,214 70,416 63,791 59,871
Total investment
securities 24,436 29,183 25,922 28,474 29,365
Deposits-non-
interest
bearing 12,354 11,553 8,159 10,000 7,959
Deposits-interest
bearing 90,957 87,788 82,062 81,632 78,399
Total deposits 103,311 99,341 90,221 91,632 86,358
Liabilities for
borrowed money 11,475 7,100 3,470 0 0
Total stock-
holders'
equity 12,753 12,479 11,407 10,149 9,445
Ratios
Average equity/
average assets 10.36 10.51 10.29 9.80 9.29
Return on
average equity 11.43 12.23 11.98 12.57 12.13
Return on
average assets 1.18 1.29 1.23 1.23 1.13
</TABLE>
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, 1999 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
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
ASSETS 1999 1998
1997
Average Average Average
(000 omitted) Balance Interest Rate Balance Interest Rate Balance
Interest Rate
Investment securities:
Taxable interest
income $ 20,274 $ 1,189 5.9% $ 20,510 $ 1,185 5.8% $ 23,627 $
1,532 6.5%
Nontaxable interest
income 5,903 292 4.9 5,793 286 4.9 5,090
254 5.0
Total investment
securities 26,177 1,481 5.7 26,303 1,471 5.6 28,717
1,786 6.2
Loans (net of unearned
discounts) 87,902 7,322 8.3 75,610 6,702 8.8 68,171
6,09
8 8.9
Other short-term
investments 18 1 5.5 343 19 5.5 255
14 5.5
Total interest
earning assets 114,097 8,804 7.7% 102,256 $ 8,192 8.0%
9
7,143 $ 7,898 8.1%
Allowance for loan
losses ( 695) ( 578) ( 475)
Cash and due from banks 3,201 2,560 2,847
Bank premises and
equipment 3,137 2,557 2,371
Other assets 4,245 4,207 3,978
Total assets $ 123,985 $ 111,002 $ 105,864
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand
deposits $ 16,951 $ 401 2.4% $ 16,779 $ 455 2.7% $ 15,528
$
412 2.6%
Savings deposits 13,834 351 2.5 13,616 357 2.6 13,816 368 2.7
Time deposits 56,443 2,990 5.3 54,621 3,102 5.7 53,738 3,136
5.8
Short-term borrowings 11,804 583 4.9 4,426 237 5.4
2,114
120 5.7
Total interest
bearing
liabilities 99,032 $ 4,325 4.4% 89,442 $ 4,151 4.6 85,196
$
4,036 4.7%
Demand deposits 11,362 9,146 8,848
Other liabilities 666 749 927
Total liabilities 111,060 99,337 94,971
Stockholders'
equity 12,925 11,665 10,893
Total liabilities &
stockholders'
equity $ 123,985 $ 111,002 $ 105,864
Net interest income/net
yield on average
earning assets $ 4,479 3.9% $ 4,041 4.0% $ 3,862 4.0%
</TABLE>
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 1999, 1998 and 1997.
- -29-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
CHANGES IN NET INTEREST INCOME TAX EQUIVALENT YIELDS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1999 Versus 1998 1998 Versus 1997
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) $ 1,082 ($ 462) $ 620 $ 662 ($ 58) $ 604
Taxable
investment
securities ( 14) 18 4 ( 202) ( 145) ( 347)
Nontaxable
investment
securities 5 1 6 35 ( 3) 32
Other short-term
investments ( 18) 0 ( 18) 5 0 5
Total interest
Income 1,055 ( 443) 612 500 ( 206) 294
Interest Expense
Interest bearing
Demand 5 ( 59) ( 54) 33 10 43
Savings
deposits 6 ( 12) ( 6) ( 5) ( 6) ( 11)
Time deposits 104 ( 216) ( 112) 51 ( 85) ( 34)
Short-term
borrowings 398 ( 52) 346 132 ( 15) 117
Total interest
expense 513 ( 339) 174 211 ( 96) 115
Net interest
income $ 438 $ 179
</TABLE>
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, 1999, and weighted average
yields of such securities. Yields are shown on a tax equivalent basis,
assuming a 34% federal income tax rate.
<TABLE>
<S> <C> <C> <C> <C> <C>
After 1 year After 5 years
Within but within but within After
1 year 5 years 10 years 10 years Total
(000 omitted)
Bonds:
U. S. Treasury
Book value $ 0 $ 0 $ 0 $ 0 $ 0
Yield 0% 0% 0% 0% 0%
U. S. Government agencies
Book value 0 9,751 500 0 10,251
Yield 0% 4.61% 5.22% 0% 4.64%
State and municipal
Book value 250 2,256 990 594 4,090
Yield 8.18% 7.41% 7.58% 7.02% 7.45%
Mortgage-Backed
Book value 0 27 14 4,849 4,890
Yield 0% 5.24% 4.31% 4.69% 4.69%
Total book value $ 250 $ 12,034 $ 1,504 $ 5,443 $ 19,231
Yield 8.18% 5.11% 6.82% 4.94% 5.25%
Other Debt Securities:
FHLMC/FNMA non-
cumulative preferred
stock
Book value $ 5,239
Yield 7.50%
Equity Securities:
Total Equity Securities $ 1,002
Yield 5.69%
Total Investment Securities $ 25,472
Yield 5.73%
</TABLE>
- -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:
<TABLE>
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
(000 omitted)
Commercial, financial and
agricultural $ 12,294 $ 11,401 $ 7,180 $ 7,648 $ 11,135
Real estate - Construction 0 0 0 0 386
Real estate - Mortgage 69,273 58,915 53,624 47,519 37,822
Installment and other
personal loans (net of
unearned discount) 10,228 10,478 10,099 9,068 10,872
Total loans $ 91,795 $ 80,794 $ 70,903 $ 64,235 $ 60,215
</TABLE>
Presented below are the approximate maturities of the loan
portfolio (excluding real estate mortgages and installments) at
December 31, 1999:
<TABLE>
<S> <C> <C> <C> <C>
Under One One to Over Five
Year Five Years Years Total
(000 omitted)
Commercial, financial and
agricultural $ 7,991 $ 2,213 $ 2,090 $ 12,294
Real estate - Construction 0 0 0 0
Total $ 7,991 $ 2,213 $ 2,090 $ 12,294
</TABLE>
The following table presents the approximate amount of fixed
rate loans and variable rate loans due as of December 31, 1999:
<TABLE>
<S> <C> <C>
Fixed Rate Variable
Loans Rate Loans
(000 omitted)
Due within one year $ 10,024 $ 11,144
Due after one but within five years 16,530 8,515
Due after five years 21,555 24,027
Total $ 48,109 $ 43,686
</TABLE>
- -32-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<S> <C> <C> <C> <C> <C>
Years Ended December 31
1999 1998 1997 1996 1995
(000 omitted)
Average total loans
outstanding (net of
unearned income) $ 87,902 $ 75,610 $ 68,171 $ 62,530 $ 61,011
Allowance for loan losses,
beginning of period $ 580 $ 487 $ 444 $ 345 $ 358
Additions to provision
for loan losses charged
to operations 195 185 20 65 62
Loans charged off during
the year
Commercial 14 67 6 0 35
Installment 34 47 40 9 48
Total charge-off's 48 114 46 9 83
Recoveries of loans
previously charged off:
Commercial 63 16 49 33 1
Installment 10 6 20 10 7
Total recoveries 73 22 69 43 8
Net loans charged off ( 25) 92 ( 23) ( 34) 75
Allowance for loan losses, $ 800 $ 580 $ 487 $ 444 $ 345
Ratio of net loans
charged off to average
loans outstanding ( .03)% .12% ( .03)% ( .05)%
.12%
</TABLE>
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.
<TABLE>
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
(000 omitted)
Nonaccrual loans $ 0 $ 0 $ 413 $ 310 $ 310
Accrual loans:
Restructured $ 0 $ 0 $ 0 $ 0 $ 0
30 through 89 days
past due 1,084 1,458 1,466 1,716 2,533
90 days or more
past due 168 442 431 1,041 253
Total accrual
loans $ 1,252 $ 1,900 $ 1,897 $ 2,757 $ 2,786
</TABLE>
See Note 5 of the notes to consolidated financial
statements for details of income recognized and foregone revenue on
nonaccrual loans for the past three years.
Management has not identified any significant problem
loans in the accrual loan categories shown above.
- -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
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
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 $ 107 13.37% $ 82 14.11% $ 49 10.13%
Real estate -
Constr-
uction 0 0.00 0 0.00 0 0.00
Real estate -
Mortgage 609 76.13 423 72.92 368 75.63
Instal-
lment 84 10.50 75 12.97 70 14.24
Total $ 800 100.00% $ 580 100.00% $ 487 100.00%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Years Ended December 31
1996 1995
Percentage Percentage
Allowance of Loans to Allowance of Loans to
Amount Total Loans Amount Total Loans
(000 omitted)
Commercial,
financial and
agricultural $ 53 11.91% $ 123 35.68%
Real estate -
Construction 0 0.00 2 0.64
Real estate -
Mortgage 328 73.98 157 45.62
Installment 63 14.11 63 18.06
Total $ 444 100.00% $ 345 100.00%
</TABLE>
- -35-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
DEPOSITS
The average amounts of deposits are summarized below:
<TABLE>
<S> <C> <C> <C>
Years Ended December 31
1999 1998 1997
(000 omitted)
Demand deposits $ 11,362 $ 9,146 $ 8,848
Interest bearing demand deposits 16,951 16,779 15,528
Savings deposits 13,834 13,616 13,816
Time deposits 56,443 54,621 53,738
Total deposits $ 98,590 $ 94,162 $ 91,930
</TABLE>
The following is a breakdown of maturities of time
deposits of $ 100,000 or more as of December 31, 1999:
Maturity (000 omitted)
Certificates of Deposit
Three months or less $ 3,075
Over three months through six months 6,682
Over six months through twelve months 1,863
Over twelve months 843
$ 12,463
RETURN ON EQUITY AND ASSETS (APPLYING DAILY AVERAGE BALANCES)
The following table presents a summary of significant
earnings and capital ratios:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Assets $ 123,985 $ 111,002 $ 105,864
Net income $ 1,467 $ 1,427 $ 1,305
Equity $ 12,925 $ 11,665 $ 10,893
Cash dividends paid $ 426 $ 356 $ 347
Return on assets 1.18% 1.29% 1.23%
Return on equity 11.43% 12.23% 11.98%
Dividend payout ratio 29.0% 24.9% 26.6%
Equity to asset ratio 10.36% 10.51% 10.29%
</TABLE>
- -36-
FULTON BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED SUMMARY OF OPERATIONS
Years Ended December 31
<TABLE>
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
(000 omitted)
Interest income $ 8,804 $ 8,192 $ 7,898 $ 7,513 $ 7,298
Interest expense 4,325 4,151 4,036 3,725 3,732
Net interest income 4,479 4,041 3,862 3,788 3,566
Provision for loan losses 195 185 20 65 62
Net interest income after
provision for loan
losses 4,284 3,856 3,842 3,723 3,504
Other income:
Trust 12 97 63 43 42
Service charges - Deposits 160 140 146 130 99
Other service charges,
collection and exchange,
charges, commission fees 127 123 93 102 69
Other operating income 290 362 171 114 71
Total other income 589 722 473 389 281
Income before operating
expense 4,873 4,578 4,315 4,112 3,785
Operating expenses:
Salaries and employees
benefits 1,314 1,242 1,178 1,129 1,072
Occupancy and equipment
expense 647 569 465 418 370
Other operating expenses 1,050 934 983 878 862
Total operating
Expenses 3,011 2,745 2,626 2,425 2,304
Income before income taxes 1,862 1,833 1,689 1,687 1,481
Income tax 395 406 384 455 422
Net income applicable
to common stock $ 1,467 $ 1,427 $ 1,305 $ 1,232 $ 1,059
Per share data:
Earnings per common share $ 2.96 $ 2.88 $ 2.64
$
2.49 $ 2.20
Cash dividend - Common .86 .72 .70 .66 $ .55
Weighted average number
of common shares 495,000 495,000 495,000 495,000 480,476
</TABLE>
* Based on 495,000 shares outstanding
- -37-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
STATEMENTS OF AVERAGE BALANCES AND AVERAGE RATES
<TABLE>
<S> <C> <C> <C> <C> <C>
($ 000 omitted) 1999 1998 1997 1996 1995
LOANS
Lines of credit $ 2,921 $ 3,332 $ 3,290 $ 3,492 $ 3,556
Tax free 846 1,281 2,201 2,458 3,027
Commercial 18,413 14,203 13,966 12,702 10,356
Mortgage 48,070 40,916 35,415 32,833 33,430
Consumer 17,652 15,878 13,299 11,045 10,642
Total loans 87,902 75,610 68,171 62,530 61,011
INVESTMENT SECURITIES
U.S. Government 0 0 0 254 404
U.S. Government agencies 8,465 5,863 6,931 6,984 5,361
State & municipal 5,903 5,793 5,090 3,040 1,586
Mortgage-backed securities 5,988 9,324 13,861 18,730 19,777
FNMA & FHLMC preferred
stock 5,021 4,746 2,443 124 0
Other 800 577 392 679 468
Total investment
securities 26,177 26,303 28,717 29,687 27,596
OTHER SHORT-TERM INVESTMENTS
Federal funds sold 18 343 255 430 661
TOTAL EARNING ASSETS 114,097 102,256 97,143 92,647 89,268
TOTAL ASSETS $ 123,985 $ 111,002 $ 105,864 $ 99,844 $ 93,959
Percent increase (decrease) 11.5% 4.9% 6.0% 6.3% 4.0%
DEPOSITS
Interest-bearing
demand $ 16,951 $ 16,979 $ 15,528 $ 15,758 $ 14,871
Savings 13,834 13,616 13,816 14,578 14,663
Time 56,443 54,621 53,738 49,582 47,502
Total interest-
bearing deposits 87,228 85,016 83,082 79,918
77,036
OTHER BORROWINGS
Federal funds purchased 70 622 276 908 524
Liabilities for borrowed
money 11,734 3,804 1,838 288 185
TOTAL INTEREST-BEARING
LIABILITIES 99,032 89,442 85,196 81,114 77,745
</TABLE>
- -38-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
STATEMENTS OF AVERAGE BALANCES AND AVERAGE RATES (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
AVERAGE RATES EARNED
% % % % %
Loans
Commercial 8.32 9.23 9.11 9.31 9.95
Mortgage 8.01 8.61 8.67 8.64 8.99
Consumer 8.74 8.77 8.89 9.58 10.09
Tax free 5.53 5.82 5.62 5.91 6.05
Lines of credit 8.35 8.81 9.19 9.13 9.84
Total 8.37 8.72 8.73 9.09 9.22
Investment Securities
U.S. Government 0.00 0.00 0.00 6.40 6.40
U.S. Government agencies 6.05 5.95 6.17 6.09 5.86
State & municipal 4.94 4.93 5.00 5.02 5.08
Mortgage-backed securities 5.44 5.50 6.46 6.50 5.94
Other 5.96 5.99 7.27 6.32 6.54
Total 5.65 5.57 6.22 6.08 5.89
Other Short-Term Investments
Federal funds sold 4.43 5.49 5.51 5.30 5.85
Total earning assets 7.72 7.90 8.13 8.11 8.15
AVERAGE RATES PAID
Time & savings deposits 4.29 4.60 4.71 4.59 4.77
Federal funds purchased 5.05 5.57 5.61 5.61 6.09
Liabilities for borrowed money 4.91 5.32 5.68 5.55 6.36
Total interest-bearing
liabilities 4.37 4.64 4.74 4.59 4.78
</TABLE>
- -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 2000 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,
1999, 1998 and 1997 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
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 1999 $ 117,208 $ 0 $ 0 $ 0 $ 0 $ 0 $ 61,990
1998 112,000 0 0 0 0 0 47,566
1997 101,825 0 0 0 0 0 59,889
</TABLE>
Footnotes:
(1) All other compensation includes the following:
<TABLE>
<S> <C> <C> <C> <C> <C>
Fringe Benefits Deferred
(Personal Use of Bank Retirement Supplemental Executive Directors
Directors Owned Vehicle) Plan Retirement Plan Fees
1999 $ 0 $ 1,234 $ 12,149 $ 48,607 $ 0
1998 0 908 7,906 38,752 0
1997 0 1,140 6,081 52,668 0
</TABLE>
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 $ 73,000 annually will not begin
until 2005. At December 31, 1999, the cash surrender value of the policies
was $ 789,884.
- -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 , 2000
Clyde H. Bookheimer CEO (Principal Executive
Officer)
/s/ David L. Seiders Director March , 2000
David L. Seiders
/s/ Cecil B. Mellott Director & Vice March , 2000
Cecil B. Mellott Chairman
/s/ Robert C. Snyder Director & March , 2000
Robert C. Snyder Chairman
/s/ Ellis L. Yingling Director & Vice March , 2000
Ellis L. Yingling Chairman
/s/ Clair R. Miller Director March ____, 2000
Clair R. Miller
- -46-
Exhibit Index
Exhibit No. Sequentially numbered
pages
13 Annual report to shareholders
21 Subsidiaries of the Registrant
23.1 Independent Auditor's Consent
27 Financial data schedule
- -47-
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 15, 2000, appearing in this annual
report on Form 10-K of Fulton Bancshares Corporation for the year
ended December 31, 1999.
SMITH ELLIOTT KEARNS & COMPANY, LLC
Chambersburg, PA
March 23, 2000
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, 1999 and 1998
and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the three years ended
December 31, 1999. These consolidated financial statements are the
responsibility of the corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present
fairly, in all
material respects, the financial position of the Fulton Bancshares Corporation
and its wholly-owned subsidiaries
as of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three
years ended December 31, 1999 in conformity with generally accepted accounting
principles.
Chambersburg, Pennsylvania
February 15, 2000
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
1999
1998
ASSETS
Cash and due from banks
$ 4,582,361
$ 3,301,246
Investment securities available for sale
23,566,617
28,605,661
Federal Reserve, Atlantic Central Bankers
Bank and Federal Home Loan Bank stocks
869,650
576,850
Loans, net of reserve for loan losses
1999 - $ 800,267; 1998 - $ 580,694
90,994,618
80,214,351
Premises and equipment
3,710,386
2,667,135
Cash surrender value of life insurance
3,028,486
3,165,957
Accrued interest receivable
730,627
733,269
Real estate owned other than premises
229,878
140,000
Other assets
765,301
244,380
Total assets
$ 128,477,924
$ 119,648,849
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest bearing
$ 12,353,909
$ 11,553,431
Interest bearing
90,956,690
87,787,719
103,310,599
99,341,150
Federal funds purchased
0
2,100,000
Other borrowed funds
11,475,000
5,000,000
Accrued interest payable
421,393
392,241
Other liabilities
517,665
336,861
Total liabilities
115,724,657
107,170,252
Stockholders' Equity
Common stock: par value $.625 per share;
4,000,000 issued and outstanding
309,375
309,375
Additional paid-in capital
2,051,275
2,051,275
Retained earnings
11,076,084
10,035,342
Accumulated other comprehensive income
( 683,467)
82,605
Total stockholders' equity
12,753,267
12,478,597
Total liabilities and stockholders'
equity
$ 128,477,924
$ 119,648,849
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, 1999, 1998 and 1997
1999
1998
1997
Interest Income
Interest and fees on loans
$ 7,321,940
$ 6,702,101
$ 6,098,379
Interest and dividends on investment
securities:
Other U. S. Government agencies
512,438
349,045
427,721
Mortgage-backed securities
326,034
512,814
86,014
Obligations of state and
political subdivisions
291,740
285,745
254,330
FNMA & FHLMC preferred stock
294,715
281,664
168,904
Interest on federal funds sold
792
18,863
14,059
Other interest & dividends
56,117
42,232
38,405
Total interest income
8,803,776
8,192,464
7,897,812
Interest Expense
Interest on deposits
3,741,753
3,914,252
3,915,899
Interest on federal funds purchased
3,557
34,615
15,506
Interest on other borrowed money
579,538
202,481
104,546
Total interest expense
4,324,848
4,151,348
4,035,951
Net interest income before provision
for loan losses
4,478,928
4,041,116
3,861,861
Provision for Loan Losses
195,000
185,000
20,000
Net interest income after provision
for loan losses
4,283,928
3,856,116
3,841,861
Other Income
Service charges on deposit accounts
159,652
140,424
145,539
Other service charges & fees
126,742
123,099
93,447
Earnings - Cash surrender value of
life insurance
160,185
175,184
153,602
Life insurance death benefit income
113,576
0
0
Trust department income
12,058
96,743
62,626
Gain/(loss) on sale of investment
securities
5,918
3,671
3,052
Gain/(loss) on sale of other real
estate
0
177,906
2,228
Other income
10,783
5,046
12,111
Total other income
588,914
722,073
472,605
Other Expenses
Salaries, fees and employee benefits
1,314,159
1,241,650
1,177,559
Net occupancy expense of bank premises
and furniture and equipment expense
646,955
568,556
464,990
FDIC insurance premiums
11,258
10,948
11,467
Other expenses
1,038,913
923,905
971,807
Total other expenses
3,011,285
2,745,059
2,625,823
Income before income taxes
1,861,557
1,833,130
1,688,643
Applicable income tax
395,115
405,798
384,051
Net income
$ 1,466,442
$ 1,427,332
$ 1,304,592
Earnings per common share
$ 2.96
$ 2.88
$ 2.64
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, 1999, 1998 and 1997
Accumulated
Additional
Other
Total
Common
Paid-In
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
Balance, December
31, 1996
$309,375
$ 2,051,275
$ 8,006,318
($ 218,468)
$ 10,148,500
Comprehensive
income:
Net income
1,304,592
1,304,592
Change in unrealized gain
on investment securities
Available for sale, net
of tax of $ 154,552
300,012
300,012
Total comprehensive
income
1,604,604
Cash dividends ($ .70 per
share)
( 346,500)
( 346,500)
Balance, December
31, 1997
309,375
2,051,275
8,964,410
81,544
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
12,478,597
Comprehensive
income:
Net income
1,466,442
1,466,442
Change in unrealized gain
on investment securities
Available for sale, net
of tax of $ 394,653
( 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)
$ 12,753,267
The Notes to Consolidated Financial Statements are an integral part of these
statements.
- -4-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
1999
1998
1997
Cash flows from operating activities:
Net income
$ 1,466,442
$ 1,427,332
$ 1,304,592
Adjustments to reconcile net income to
net
Cash provided by operating activities:
Depreciation and amortization
336,727
284,866
228,463
Provision for loan losses
195,000
185,000
20,000
Deferred income taxes
( 114,841)
( 50,535)
( 39,851)
Life insurance death benefit income
( 113,577)
0
0
(Increase) decrease in CSV - life
insurance
( 132,237)
( 145,702)
( 129,967)
(Gain) loss on disposal of other real
estate
0
( 177,906)
( 2,228)
(Gain) loss on sale of investment
securities
( 5,918)
( 3,671)
( 3,052)
(Increase) decrease in other assets
( 11,437)
122,485
( 65,915)
(Increase) decrease in interest
receivable
2,643
( 63,281)
( 35,053)
Increase in interest payable
29,153
12,468
6,824
Increase in other liabilities
180,802
49,173
89,376
Net cash provided by operating activities
1,832,757
1,640,229
1,373,189
Cash flows from investing activities:
Sales of investment securities available
for sale
3,906,168
5,375,879
7,954,592
Maturities of investment securities
available for sale
3,171,671
5,208,580
2,843,455
Purchases of investment securities
available for sale
( 3,193,591)
( 13,043,399)
( 7,783,675)
Net (increase) in loans
( 10,975,268)
( 9,983,626)
( 6,784,589)
Purchases of property and equipment
( 1,379,978)
( 545,272)
( 486,609)
Purchases of FRB, ACBB and FHLB stock
( 292,800)
( 796,500)
( 4,300)
Purchases of officers' life insurance
0
0
( 516,000)
Proceeds from sales of other real estate
0
307,357
218,874
Purchases of other real estate
( 89,878)
0
( 8,980)
Insurance benefits received
383,285
0
0
Net cash (used) by investing activities
( 8,470,391)
( 13,476,981)
( 4,567,232)
Cash flows from financing activities:
Net increase (decrease) in deposits
3,969,449
9,119,864
( 1,410,994)
Dividends paid
( 425,700)
( 356,400)
( 346,500)
Net increase (decrease) in federal funds
purchased
( 2,100,000)
2,100,000
0
Proceeds from long-term borrowings
5,000,000
5,000,000
0
Net increase (decrease) in line-of-credit
1,475,000
( 3,470,000)
3,470,000
Net cash provided by financing activities
7,918,749
12,393,464
1,712,506
Net increase (decrease) in cash and cash
equivalents
1,281,115
556,712
( 1,481,537)
Cash and cash equivalents at beginning of
year
3,301,246
2,744,534
4,226,071
Cash and cash equivalents at end of year
$ 4,582,361
$ 3,301,246
$ 2,744,534
The Notes to Consolidated Financial Statements are an integral part of these
statements.
- -5-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
1999
1998
1997
Supplemental disclosure of cash flows
information:
Cash paid during the year for:
Interest
$ 4,295,695
$ 4,138,880
$ 4,029,127
Income taxes
511,000
438,625
449,509
Supplemental schedule of noncash
investing and
financing activities:
Unrealized holding gain (loss), net of
tax
($ 766,072)
$ 1,061
$ 300,012
Loans transferred to other real estate
owned
$ 0
$ 0
$ 140,000
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 seven
branches are located in McConnellsburg (2), Shade Gap, Warfordsburg, Hustontown,
Orbisonia and St.
Thomas. The Orbisonia and St. Thomas branches were added in 1999.
? 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. However, the amount of the change
that
is reasonably
possible cannot be estimated.
- -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 1999 or 1998.
? 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
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, 1999 and 1998.
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.
Assets Received in Foreclosure
Assets received in foreclosure are recorded at the lower of the outstanding
principal balance of the
related loans or the estimated 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: 495,000 shares of common
stock outstanding
in 1999, 1998 and 1997.
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.
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, 1999, 1998 and 1997 were $ 81,904, $ 70,719 and $ 56,327,
respectively.
- -10-
Note 1. Significant Accounting Policies (Continued)
Comprehensive income
In 1998 the corporation 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 1997 financial
statements have been
reclassified to reflect these changes in reporting format.
The components of the change in net unrealized gains (losses) on securities were
as follows:
1999 1998 1997
Gross unrealized holding gains/(losses) arising during
the year ($ 1,154,797) $ 5,278 $ 457,616
Reclassification adjustment for (gains)/losses realized
in net income ( 5,918) ( 3,671) ( 3,052)
Net unrealized holding gains/(losses) before taxes ( 1,160,715) 1,607
454,564
Tax effect 394,643 ( 546) ( 154,552)
Net change ($ 766,072) $ 1,061 $ 300,012
Note 2. Investments
The amortized cost and fair value of investment securities available for
sale
at December 31, 1999
were:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
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
The amortized cost and fair value of investment securities available for
sale
at December 31, 1998
were:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Obligations of U. S. Government
corporations and agencies $ 8,753,985 $ 20,969 $ 5,574 $
8,769,380
Obligations of states and
political subdivisions 5,930,727 168,100 33,465 6,065,362
Mortgage-backed securities 8,679,447 11,186 73,214 8,617,419
FNMA and FHLMC preferred stock 4,984,344 48,625 11,469
5,021,500
Other stocks 132,000 0 0
132,000
Totals $ 28,480,503 $ 248,880 $ 123,722 $ 28,605,661
- -11-
Note 2. Investments (Continued)
The amortized cost and fair value of investment securities available for sale at
December 31, 1999, 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 $ 249,777 $ 252,588
Due after one year through five years 12,006,208 11,699,490
Due after five years through ten years 1,490,444 1,490,638
Due after ten years 594,339 448,716
Mortgage-backed securities 4,890,061 4,762,691
FNMA and FHLMC preferred stock 5,239,344 4,780,494
Other stocks 132,000 132,000
$ 24,602,173 $ 23,566,617
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:
1999 1998
Federal Home Loan Bank $ 788,800 $ 496,000
Atlantic Central Bankers Bank 10,000 10,000
Federal Reserve Bank 70,850 70,850
$ 869,650 $ 576,850
Securities with a cost basis of $ 10,250,000 (fair value of $ 9,965,497) and
$ 8,750,000 (fair value of
$ 8,769,380) at December 31, 1999 and 1998, respectively, were pledged to secure
public funds and
for other purposes as required or permitted by law.
Note 3. Reserve for Loan Losses
Activity in the reserve for loan losses is summarized as follows:
1999 1998 1997
Balance at beginning of period $ 580,694 $ 487,250 $ 443,659
Recoveries 72,416 22,352 69,918
Current year provision charged to income 195,000 185,000
20,000
Total 848,110 694,602 533,577
Losses 47,843 113,908 46,327
Balance at end of period $ 800,267 $ 580,694 $ 487,250
- -12-
Note 4. Premises and Equipment
A summary of premises and equipment is as follows:
Accumulated Depreciated
Description Cost Depreciation Cost
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
1998
Premises and improvements
(including land $ 279,586) $ 2,332,377 $ 476,662 $ 1,855,715
Equipment, furniture and fixtures 1,855,740 1,089,217 766,523
Vehicles 56,945 12,048 44,897
$ 4,245,062 $ 1,577,927 $ 2,667,135
Depreciation and amortization expense amounted to $ 336,727 in 1999, $
284,866
in 1998, and
$ 228,463 in 1997.
Note 5. Loans
Loans consist of the following at December 31 (in thousands):
1999 1998
Real estate loans:
Secured by farmland $ 14,342 $ 8,116
Secured by 1-4 family residential 39,716 42,159
Secured by multifamily (5 or more) residential properties 171 249
Secured by nonfarm nonresidential 15,044 8,391
Loans to finance agricultural production:
Loans to farmers 3,702 2,599
Commercial and industrial loans 8,224 7,459
Loans to individuals for household, family
and other personal expenditures 10,180 10,439
Obligations of states and political subdivisions in the U. S. 368 1,343
All other loans 48 39
91,795 80,794
Less: reserve for loan losses ( 800) ( 580)
$ 90,995 $ 80,214
Loans 90 days or more past due (still accruing interest) and those on
nonaccrual status were as
follows at December 31 (in thousands):
90 Days or More Nonaccrual
- - - - - Past Due - - - - - - - - - - - - - - Status - - - - - - - -
1999 1998 1997 1999 1998 1997
Real estate mortgages $ 168 $ 405 $ 390 $ 0 $ 0 $ 361
Installment loans 0 37 21 0 0 0
Time and demand loans 0 0 20 0 0 52
Total $ 168 $ 442 $ 431 $ 0 $ 0 $ 413
- -13-
Note 5. Loans (Continued)
The amounts of foregone interest and recognized interest income on loans placed
on nonaccrual status
were:
Foregone Interest Interest Income
at December 31 Recognized
1999 $ 0 $ 0
1998 0 0
1997 43,582 27,746
A mortgage loan in the amount of $ 310,000 and listed on nonaccrual status at
December 31, 1997
was restructured in early 1998. As a result, $ 37,393 in foregone interest at
December 31, 1997 was
realized as interest income in 1998. This loan had an outstanding balance of
$ 280,023 and $ 286,000
at December 31, 1999 and 1998, respectively, and is on a current payment status.
Loan balances are stated net of deferred loan origination (fees) costs. These
net (fees) costs amounted
to the following at December 31:
1999 1998
Installment $ 11,541 $ 12,613
Time and demand 1,571 8,085
Mortgage ( 57,349) ( 78,268)
($ 44,237) ($ 57,570)
At December 31, 1999 and 1998, the total recorded investment in impaired loans
was $ 0. The
average recorded investment in impaired loans amounted to approximately $ 0 and
$ 23,000 for 1999
and 1998, respectively.
Note 6. Loans to Related Parties
The Bank has granted loans to the officers and directors of the corporation and
its subsidiary and to
their associates. Related party loans are made on substantially the same terms,
including interest rates
and collateral, as those prevailing at the time for comparable transactions with
unrelated persons and
do not involve more than normal risk of collectibility. The aggregate dollar
amount of these loans
was $ 1,040,715 and $ 1,019,727 at December 31, 1999 and 1998, respectively.
During 1999,
$ 222,431 of new loans were made and repayments totaled $ 201,443. During 1998,
$ 995,310 of
new loans were made and repayments totaled $ 801,811.
Outstanding loans to employees totaled $ 739,510 and $ 808,569 at Decemb
er 31,
1999 and 1998,
respectively.
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
1999 1998
Financial instruments whose contract amounts
represent credit risk at December 31:
Commitments to extend credit $ 14,215,598 $ 12,986,325
Standby letters of credit and financial
guarantees written 322,500 229,500
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.
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 $ 60,000
for 1999, $ 52,735 for 1998 and $ 53,291 for 1997.
Note 9. Federal Income Taxes
The components of federal income tax expense are summarized as follows:
1999 1998 1997
Current year provision $ 507,944 $ 455,085 $ 422,864
Deferred income taxes (benefits) ( 114,841) ( 50,535) (
39,851)
Income tax effect of securities transactions 2,012
1,248
1,038
Applicable income taxes $ 395,115 $ 405,798 $ 384,051
Federal income taxes were computed after reducing pretax accounting income for
nontaxable interest
and dividend income in the amount of $ 516,446, $ 550,702 and $ 494,737 for
1999, 1998 and 1997,
respectively.
- -15-
Note 9. Federal Income Taxes (Continued)
A reconciliation of the effective income tax rate to the federal statutory
rate
is as follows:
1999 1998 1997
Applicable federal income tax rate 34.0% 34.0% 34.0%
Reductions resulting from:
Nontaxable investment income and other items,
net of nondeductible expenses (12.8) (11.9) (11.3)
Effective income tax rate 21.2% 22.1% 22.7%
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:
1999 1998 1997
Total deferred tax assets $ 684,995 $ 225,970 $ 159,363
Total deferred tax liabilities ( 130,661) ( 181,120) (
164,502)
Net deferred tax asset (liability) $ 554,334 $ 44,850 ($
5,139)
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
$ 3,254. These charges are
to be adjusted on specified dates and by agreed upon amounts or by the net
change in the consumer
price index. The original leases expire on January 7, 2001 and December 31,
2003, 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, 1999, 1998 and 1997 was
$ 59,573, $ 59,435
and $ 60,635, respectively.
Based on the current monthly rent, future minimum rental payments for the next
five years are as
follows:
2000 $ 59,947
2001 49,500
2002 39,053
2003 39,053
2004 39,053
Note 11. Other Assets
Other assets include the following at December 31:
1999 1998
Net deferred tax asset $ 554,334 $ 44,850
Prepaid expenses 165,710 160,074
Others 45,257 39,456
$ 765,301 $ 244,380
- -16-
Note 12. Deposits
Included in interest-bearing deposits at December 31 are NOW and Money Market
Account balances
totaling $ 16,281,186 and $ 18,049,411 for 1999 and 1998, respectively.
Time deposits of $ 100,000 and over aggregated $ 12,462,940 and $ 12,030,190
at December 31,
1999 and 1998, respectively. Interest expense on time deposits of $ 100,000 and
over was $ 624,000,
$ 617,000 and $ 571,000 for 1999, 1998 and 1997, respectively.
The amount of time deposits maturing over the next 5 years is as follows:
2000 $ 42,890,429
2001 6,212,163
2002 4,695,255
2003 5,421,940
2004 1,824,370
$ 61,044,157
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
$ 3,125,902 and $ 3,486,275 at December 31, 1999 and 1998, respectively.
Overdrafts of $ 13,661 and $ 39,524 at December 31, 1999 and 1998,
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 1999
1998
Cash $ 54,335 $ 194
Investment in the Fulton County National Bank
& Trust Company 12,517,526 12,307,525
Investment in Fulton County Community
Development Corporation 49,433 38,878
Securities available for sale 132,000 132,000
Total assets $ 12,753,294 $ 12,478,597
Liabilities
Accounts payable $ 27 $ 0
Stockholders' Equity
Common stock, par value $ .625 per share, 4,000,000 shares
authorized and 495,000 shares issued at December 31, 1999
and 1998 309,375 309,375
Additional paid-in capital 2,051,275 2,051,275
Retained earnings 11,076,084 10,035,342
Accumulated other comprehensive income ( 683,467)
82,605
Total stockholders' equity 12,753,267 12,478,597
Total liabilities and stockholders' equity $ 12,753,294 $
12,478,597
- -17-
Note 13. Fulton Bancshares Corporation (Parent Company Only) Financial
Information (Continued)
1999 1998 1997
Statements of Income
Years Ended December 31
Cash dividends from wholly-owned subsidiary $ 534,000 $ 516,000
$ 361,000
Investment income 840 370 0
Equity in undistributed income of subsidiaries 971,628 943,412 975,66
1
Printing, supplies, amortization and
other expenses ( 40,026) ( 32,450) ( 32,069)
Net income $ 1,466,442 $ 1,427,332 $ 1,304,592
Statements of Cash Flows
Years Ended December 31
Cash flows from operating activities:
Net income $ 1,466,442 $ 1,427,332 $ 1,304,592
Adjustments to reconcile net income
to cash provided by operating activities:
Equity in undistributed income of
subsidiary ( 971,628) ( 943,412) ( 975,661)
Increase in accounts payable 27
0
0
Net cash provided by operating activities 494,841 483,920
328,931
Cash flows from investing activities:
Investment in subsidiary ( 15,000) 0 0
Purchases of investment securities available
for sale 0 ( 132,000) 0
Net cash (used) by investing activities ( 15,000) ( 132,000)
0
Cash flows from financing activities:
Dividends paid ( 425,700) ( 356,400) ( 346,500)
Net cash provided (used) by financing activities ( 425,700) (
356,400)
( 346,500)
Net change in cash 54,141 ( 4,480) ( 17,569)
Beginning cash 194 4,674 22,243
Ending cash $ 54,335 $ 194 $ 4,674
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, 1999 and 1998.
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 $ 3,223,813,
$ 2,964,040, and
$ 2,685,625 at December 31, 1999, 1998 and 1997, 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
4%. "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 1999 1998
Leverage (total capital/total assets) 4.0% 10.0% 10.3%
Tier 1 (Tier 1 core capital/risk weighted assets) 4.0% 14.5% 15.8%
Total capital (total capital plus allowance for loan losses/
risk weighted assets) 8.0% 15.3% 16.7%
As of December 31, 1999 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, 1998 the Bank had an outstanding five year loan with Federal
Home Loan Bank of
Pittsburgh of $ 5,000,000. Interest is payable monthly at a floating rate of
4.54% with the principal
maturing September 24, 2003. During 1999 the borrowing was refinanced with a
$ 10,000,000 ten
year loan with Federal Home Loan Bank of Pittsburgh. The floating interest rate
was 5.16% at
December 31, 1999 and is payable monthly. The loan matures on September 24,
2009.
The Bank has established credit at Federal Home Loan Bank (FHLB) of Pittsburgh
to improve
liquidity. The Bank may borrow up to approximately $ 34 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 $ 1,475,000 and $ 0 at December
31, 1999 and
1998, respectively. The variable interest rate was 4.06% at December 31, 1999.
Collateral for the
borrowings consists of certain investments and mortgages approximating $ 34
million at
December 31, 1999.
- -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, 1999 and 1998:
Carrying Amount Fair Value
(000 Omitted)
1999 1998 1999 1998
FINANCIAL ASSETS
Cash and due from banks $ 4,582 $ 3,301 $ 4,582 $ 3,301
Securities available for sale 23,567 28,606 23,567 28,606
Other bank stock 870 577 870 577
Loans receivable (net) 90,995 80,214 89,548 80,844
Accrued interest receivable 731 733 731 733
FINANCIAL LIABILITIES
Time certificates 61,044 56,300 61,379 56,978
Other deposits 42,267 43,041 42,267 43,041
Accrued interest payable 421 392 421 392
Other borrowed funds 11,475 5,000 11,449 4,987
Federal funds purchased 0 2,100 0 2,100
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:
1999 1998 1997
Asset
Cash surrender value of life insurance $ 3,028,486 $ 3,165,957 $
3,020,255
Liabilities
Supplemental executive retirement plan 258,920 173,093 111,366
Deferred directors fees liability 116,079 98,308 71,444
Income
Earnings on cash surrender value of life insurance 160,185 175,184
153
,602
Death benefits received from insurance policies 113,576 0 0
- -20-
Note 18. Deferred Compensation and Other Benefit Programs (Continued)
1999 1998 1997
Expenses
Life insurance expense $ 27,948 $ 29,482 $ 23,635
Supplemental executive retirement expense 85,827 61,727 58,698
Deferred directors fees 43,047 27,707 37,424
Director emeritus fees 12,003 17,000 16,000
Death benefits paid to beneficiaries 12,099 0 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
1999 1998 1997 1996 1995
Income (000 omitted)
Interest income $ 8,804 $ 8,192 $ 7,898 $ 7,513 $
7,298
Interest expense 4,325 4,151 4,036 3,725
3,732
Provision for loan losses 195 185 20 65
62
Net interest income after
provision for loan losses 4,284 3,856 3,842 3,723
3,504
Securities gains (losses) 6 4 3 ( 2) 5
Other operating income 583 718 470 391 276
Other operating expenses 3,011 2,745 2,626 2,425
2,304
Income before income taxes 1,862 1,833 1,689 1,687
1,481
Applicable income tax 395 406 384 455
422
Net income $ 1,467 $ 1,427 $ 1,305 $ 1,232 $
1,059
Per share amounts are based on following weighted averages:
1999 - 495,000 1997 - 495,000 1995 - 480,476
1998 - 495,000 1996 - 495,000
Income before income taxes $ 3.76 $ 3.70 $ 3.41 $ 3.41 $
3.08
Applicable income taxes .80 .82 .77 .92 .88
Net income 2.96 2.88 2.64 2.49 2.20
Cash dividend paid .86 .72 .70 .66 .55
Book value 25.76 25.21 23.04
20.50
19.08
Year-End Balance Sheet Figures (000 omitted)
Total assets $ 128,478 $ 119,649 $ 105,770 $ 102,355
$ 96,449
Net loans 90,995 80,214 70,416 63,791
59,8
71
Total investment securities 24,436 29,183 25,922 28,474
29,3
65
Deposits-noninterest bearing 12,354 11,553 8,159 10,000
7,95
9
Deposits-interest bearing 90,957 87,788 82,062 81,632
78,3
99
Total deposits 103,311 99,341 90,221 91,632
86,3
58
Liabilities for borrowed money 11,475 7,100 3,470
0 0
Total stockholders' equity 12,753 12,479 11,407 10,149
9,445
Ratios
Average equity/average assets 10.36 10.60 10.29 9.80 9.29
Return on average equity 11.43 11.95 11.98 12.49
12.13
Return on average assets 1.18 1.27 1.23 1.23 1.13
- -22-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
CHANGES IN INCOME AND EXPENSE - 1999 AND 1998
The schedule below reflects comparative changes in income and expense
included
in the Consolidated
Statements of Income for 1999 and 1998 together with changes in asset and
liability volumes associated with
these income and expense items.
1999 Compared to 1998 1998 Compared to 1997
Average Volumes Income/Expense
Average Volumes Income/Expense
($ 000 omitted) $ % $
% $ % $ %
Loans 12,292 16.3 620 9.3 7,439 10.9 604 9.9
Investment securities ( 126) ( .5) 10 .7 (2,596)
(
8.9) ( 315)
(17.6)
Other investments ( 325) ( 94.8) ( 18) ( 94.7)
88 34.5
5 35.7
Total 11,841 11.6 612 7.5 4,931 5.1 294 3.7
Interest/borrowed funds 7,378 166.7 346 145.9 2,312
109.4
117 97.5
Interest bearing demand
deposits 172 1.0 ( 54) ( 11.9) 1,252 8.1 43 10.4
Savings deposits 218 1.6 ( 6) ( 1.7) ( 200) ( 1.5)
(
11)
( 3.0)
Time deposits 1,822 3.3 (112) ( 3.6) 883 1.6
(
34) ( 1.1)
Total 9,590 10.7 174 4.2 4,247 5.0 115 2.9
Net interest income 438 10.8 179 4.6
Provision for loan losses 10 5.4
165 8
25.0
Net interest income after
provision for loan losses 428 11.1
14
0.4
Security transactions 2 50.0
1 33.
3
Other operating income (135) (18.8)
248
52.8
Income before operating expense 295 6.4 263 6.1
Salaries & employee benefits 73 5.9
64 5.
4
Occupancy & equipment expense 78 13.7 104 22.4
FDIC insurance premiums 0 0.0 (
1) ( 9.1)
Other operating expenses 115 12.4
(
48)
( 4.9)
Total operating expenses 266 9.7 119 4.5
Income before income taxes 29 1.6 144 8.5
Applicable income taxes ( 11) ( 2.7)
22 5.7
Net income 40 2.8 122 9.4
- -23-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
SUMMARY OF QUARTERLY FINANCIAL DATA
The unaudited quarterly results of operations for the years ended December
31,
1999 and 1998 are
as follows:
1999 1998
($ 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 $ 2,137 $ 2,171 $ 2,250 $ 2,246 $ 2,017
$
2,016 $ 2,104
$ 2,055
Interest expense 1,047 1,059 1,092 1,127 1,022
1,020
1,039 1,070
Net interest income 1,090 1,112 1,158 1,119 995 996
1,
065 985
Provision for loan losses 85 15 80 15 35
150
0 0
Net interest income
after provision for
loan losses 1,005 1,097 1,078 1,104 960 846 1,065
985
Securities gains (losses) 2 0 0 4 4 0 0 0
Other income 203 102 136 142 145 297 116 160
Other expenses 757 706 743 805 676
731
709 629
Operating income
before income taxes 453 493 471 445 433 412 472 516
Applicable income taxes 81 125 96 93 84
96
120 106
Net income $ 372 $ 368 $ 375 $ 352 $ 349
$
316 $ 352
$ 410
Net income applicable
to common stock
Per share data:
Net income $ .75 $ .74 $ .76 $ .71 $ .71 $ .64
$
.71 $ .82
- -24-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
STATEMENTS OF AVERAGE BALANCES AND AVERAGE RATES
(000 omitted) 1999 1998 1997 1996 1995
LOANS
Lines of credit $ 2,921 $ 3,332 $ 3,290 $ 3,492
$
3,556
Tax free 846 1,281 2,201 2,458 3,027
Commercial 18,413 14,203 13,966 12,702 10,356
Mortgage 48,070 40,916 35,415 32,833 33,430
Consumer 17,652 15,878 13,299
11,045 10,642
Total loans 87,902 75,610 68,171
62,530
61,011
INVESTMENT SECURITIES
U.S. Government 0 0 0 254 404
U.S. Government agencies 8,465 5,863 6,931 6,984 5,361
State & municipal 5,903 5,793 5,090 3,040 1,586
Mortgage-backed securities 5,988 9,324 13,861 18,730 19,777
FNMA & FHLMC preferred stock 5,021 4,746 2,443 124 0
Other 800 577 392 555
468
Total investment securities 26,177 26,303 28,717
29,687
27,596
OTHER SHORT-TERM INVESTMENTS
Federal funds sold 18 343 255 430
661
TOTAL EARNING ASSETS 114,097 102,256
97,143 92,647
89,268
TOTAL ASSETS $ 123,985 $ 111,002 $ 105,864 $ 99,844
$ 93,959
Percent increase 11.5% 4.9% 6.0% 6.3% 4.0%
DEPOSITS
Interest-bearing demand $ 16,951 $ 16,779 $ 15,528 $ 15,758
$
14,871
Savings 13,834 13,616 13,816 14,578 14,663
Time 56,443 54,621 53,738 49,582 47,502
Total interest-bearing deposits 87,228 85,016
83,082 79,918
77,036
OTHER BORROWINGS
Federal funds purchased 70 622 276 908 524
Liabilities for borrowed money 11,734 3,804 1,838
288
185
TOTAL INTEREST-BEARING
LIABILITIES 99,032 89,442 85,196 81,114 77,745
- -25-
FULTON BANCSHARES CORPORATION AND SUBSIDIARIES
STATEMENTS OF AVERAGE BALANCES AND AVERAGE RATES (CONTINUED)
1999 1998 1997 1996 1995
AVERAGE RATES EARNED
% % % % %
Loans
Commercial 8.32 9.23 9.11 9.31 9.95
Mortgage 8.01 8.61 8.67 8.64 8.99
Consumer 8.74 8.77 8.89 9.58 10.09
Tax free 5.53 5.82 5.62 5.91 6.05
Lines of credit 8.35 8.81 9.19 9.13 9.84
Total 8.37 8.72 8.73 9.09 9.22
Investment Securities
U.S. Government 0.00 0.00 0.00 6.40 6.40
U.S. Government agencies 6.05 5.95 6.17 6.09 5.86
State & municipal 4.94 4.93 5.00 5.02 5.08
Mortgage-backed securities 5.44 5.50 6.46 6.50 5.94
Other 5.96 5.99 7.27 6.32 6.54
Total 5.65 5.57 6.22 6.08 5.89
Other Short-Term Investments
Federal funds sold 4.43 5.49 5.51 5.30 5.85
Total earning assets 7.72 7.90 8.13 8.11 8.15
AVERAGE RATES PAID
Time & savings deposits 4.29 4.60 4.71 4.59 4.77
Federal funds purchased 5.05 5.57 5.61 5.61 6.09
Liabilities for borrowed money 4.91 5.32 5.68 5.55 6.36
Total interest-bearing liabilities 4.37 4.64 4.74 4.59 4.78
- -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 $ 1,467,000 for 1999, compared to $ 1,427,000 for 1998,
representing an increase of
$ 40,000, or 2.8%. Net income on an adjusted per share basis for 1999 was
$ 2.96, up $ .08 from the $ 2.88 per
share realized during 1998.
Interest income for 1999 was $ 8,804,000, up $ 612,000, or 7.5% more than
1998.
The increase was
due primarily to higher average balances of loans, which typically produce
higher yields than investments,
compared to 1998.
Average earning assets increased 11.6% and 5.1% in 1999 and 1998,
respectively.
Average loan
demand, which typically produces higher yields than investments, increased 16.3%
in 1999. Net loans at
December 31, 1999 stood at $ 90,995,000 compared to $ 80,214,000 as of December
31, 1998, an increase of
13.4%. Average investment securities decreased .5% in 1999, with the decrease
concentrated in mortgage-
backed securities and obligations of state and political subdivisions, while
U.S. Government Agency securities
increased.
Total interest expense was $ 4,325,000 for 1999, an increase of $ 174,000,
or
4.2% from the
$ 4,151,000 for 1998. Average time deposits, which pay higher yields, increased
3.3% in 1999. Interest-bearing
deposits stood at $ 90,957,000 at December 31, 1999 compared with $ 87,788,000
as of December 31, 1998, an
increase of 3.6%. Average interest-bearing demand deposits and other savings
deposits increased 1.0% and
1.6%, respectively. Average borrowed funds increased 166.7%.
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 1999 totaled $ 4,479,000, up 10.8% from 1998.
Management continuously
monitors liquidity and interest rate risk through its Asset-Liability Committee
reporting and reprices products to
maintain a desired net interest margin.
Other income represents service charges on deposit accounts, commissions on
loan insurance, fees for
travelers' checks and other services, safe deposit box rents, fees for trust
services, securities gains (losses), gains
(losses) on sales of other real estate owned, and earnings on cash surrender
value of directors and officers life
insurance.
Other income increased $ 133,000 from 1998 to 1999. The increase in 1999
resulted primarily from a
$ 178,000 gain on sale of other real estate owned reported in 1998 which was
partially offset by a $ 114,000
directors and officers life insurance benefit income in 1999, and a $ 76,000
decrease in fiduciary fees, since,
effective January 4, 1999, the Bank's Trust Department was serviced by an agent.
- -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 5.8% and 5.4% for 1999 and 1998,
respectively, primarily due
to salary and related benefit increases. Occupancy and furniture and equipment
expenses increased 13.8% and
22.4% in 1999 and 1998, respectively. These increases were due primarily to
increased equipment and building
maintenance costs and expense associated with the addition of two new full-
service banking facilities during
1999. Other operating expenses increased 12.3% in 1999 compared to a decrease
of 4.9% in the previous year,
primarily due to increases in advertising, printing and supplies, shares tax and
other overhead expenses.
Applicable income taxes changed between 1997, 1998 and 1999 because of
changes
in pretax
accounting income and taxable income. The effective income tax rate for 1999
was 21.2% compared to 22.1%
and 22.7% for 1998 and 1997, respectively. The decrease in the effective income
tax rate for 1999 and 1998
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, 1999 were $ 128,478,000, a 7.4% increase over
December 31, 1998.
Net loans at December 31, 1999 totaled $ 90,995,000, an increase of 13.4% over
December 31, 1998.
The provision for loan losses was $ 195,000 in 1999 compared to $ 185,000
in
1998. 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
1999 1998 1999 1998
Real estate mortgages $ 168 $ 405 $ 0 $ 0
Installment loans 0 37 0 0
Demand and time loans 0 0 0 0
Total $ 168 $ 442 $ 0 $ 0
A mortgage loan in the amount of $ 310,000 and listed on nonaccrual status
at
both December 31,
1997 and 1996 was restructured in early 1998. As a result, $ 37,393 in foregone
interest at December 31, 1997
was realized as interest income in 1998. This loan has an outstanding balance
of $ 280,000 at December 31,
1999 and is on a current payment status.
Total deposits increased to $ 103,311,000 at December 31, 1999 compared with
$ 99,341,000 at
December 31, 1998. Noninterest bearing deposits and interest-bearing deposits
increased 6.9% and 3.6%,
respectively.
- -28-
Stockholders' equity reached $ 12,753,000 at December 31, 1999 for a 2.2%
increase over the prior
year. Accumulated earnings for 1999 were partially offset by dividends declared
and paid of $ 426,000 and a
$ 766,000 decrease in net unrealized gains on available-for-sale securities (net
of deferred tax). Total
stockholders' equity represented 9.9% and 10.4% of total assets at the end of
1999 and 1998, respectively. Cash
dividends paid in 1999 were up $ 69,000, or 19.4% over 1998. 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 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. Cash provides liquidity on hand and transaction
balances held at correspondent
banks. Liquidity available to meet credit demands and/or adverse deposit flows
is also made available from
sales or maturities of short-term assets. Additional sources of funds to meet
credit needs is provided by access
to the marketplace to obtain interest-bearing deposits and other borrowings
, including special programs
available through Federal Home Loan Bank.
Interest rate sensitivity is the matching or mismatching of the maturity and
rate structure of the
interest-bearing assets and liabilities. It is the objective of management to
control the difference in the timing of
the rate changes for these assets and liabilities to preserve a satisfactory net
interest margin. The following
table approximately reflects the matching of assets and liabilities maturing
within one year and thereafter,
which management feels is adequate to meet customer cash and credit needs while
maintaining a desired
interest rate spread.
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 $ 1,036 $ 196 $ 763 $ 2,346
$
20,261
$ 24,602
Real estate, commercial
and consumer loans 9,249 12,133 19,442 3,925 47,046
91,795
$ 10,285 $ 12,329 $ 20,205 $ 6,271 $ 67,307 $ 116,397
Rate Sensitive Liabilities
Short-term borrowings $ 1,475 $ 0 $ 0 $ 0
$ 0
$ 1,475
Long-term borrowings 0 0 10,000 0 0 10,000
Certificates of deposit
over $ 100,000 1,836 1,238 2,286 4,397
2,706 12,463
Other certificates
of deposit 8,888 6,166 8,095 9,976 15,456 48,581
Money market deposit
accounts 1,216 2,434 2,434 0 0 6,084
Other interest-bearing
deposits 2,383 4,765 4,765 11,915 0
23,828
$ 15,798 $ 14,603 $ 27,580 $ 26,288 $ 18,162 $ 102,431
Cumulative GAP ($ 5,513) ($ 7,787) ($ 15,162) ($ 35,179)
$
13,966
Loan rates have generally increased over the past twelve months. Based on
current economic
indicators and predictions, management anticipates that interest rates will
increase during early 2000 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 $ 12.75 million at
December 31, 1999. 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
1999 1998 Requirements
Leverage ratio 10.0% 10.3% 4%
Risk-based capital ratio
Tier I (core capital) 14.5% 15.8% 4%
Combined Tier I and Tier II
(core capital plus allowance
for loan losses) 15.3% 16.7% 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.
1999 1998 1997
Equity capital at December 31
($ 000 omitted) $ 12,753 $ 12,479 $ 11,407
Equity capital as a percent of assets
at December 31 9.93% 10.43% 10.78%
Return on average assets 1.18% 1.27% 1.23%
Return on average equity 11.43% 11.95% 11.98%
Cash dividend payout ratio 29.05% 24.97% 26.56%
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 2000 2001 2002 2003
2004 Thereafter Total Value
Fixed rate loans $ 10,024 $ 5,468 $ 4,659 $ 3,632 $ 2,771 $ 21,555
$
48,109
$ 46,662
Average interest rates 8.50% 8.82% 8.76% 8.50% 8.49% 8.49%
8.57%
Variable rate loans 11,144 2,146 2,206 2,113 2,050 24,027
43,686 43,686
Average interest rates 8.82% 8.07% 8.04% 7.98% 7.95% 7.74%
8.07%
Fixed rate securities 310 5,150 1,593 7,933 2,710 2,757
20,45
3 20,453
Average interest rates 5.44% 6.00% 6.01% 5.78% 6.55% 5.50%
5.91%
Variable rate securities 1,205 723 603 482 201 935 4,149 4,149
Average interest rates 6.06% 6.06% 6.06% 6.06% 6.06% 6.06%
6.06%
Rate sensitive liabilities
Noninterest-bearing
checking 1,235 1,112 1,001 901 811 7,294 12,354
12,3
54
Average interest rates N/A N/A N/A N/A N/A N/A N/A
Savings and interest-
bearing checking 4,391 3,490 2,831 2,341 1,968 14,892
29,9
13 29,913
Average interest rates 2.30% 2.30% 2.30% 2.30% 2.30% 2.30%
2.30%
Time deposits 10,721 8,040 6,030 4,523 3,392 28,338 61,044
61,379
Average interest rates 5.23% 5.54% 5.99% 5.57% 4.87% 4.87%
5.34%
Variable rate borrowings 11,475 11,475 11,475
Average interest rates 5.02% 5.02%
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.
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 $ 250 million in assets and its staff of professionals have an
average of 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.
Now that the Bank has completed its first year with Sentry, we believe the
trust services arrangement
expanded services and benefits to the customers of the Bank and make this a
successful arrangement. The Bank and
Sentry working together serves 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
In June, 1998 the Financial Accounting Standards Board (FASB) issued SFAS
No.
133 - "Accounting for
Derivative Instruments and Hedging Activities" effective for fiscal years
beginning after June 15, 1999. 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 the
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 the fair value of the item being
hedged. Depending on the type of hedge, such recognition will be in 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.
STOCK MARKET ANALYSIS AND DIVIDENDS
The corporation's common stock is traded inactively in the 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
1999 1998
First Quarter $ 55.00 $ .17 $ 45.00 $ .165
Second Quarter 60.00 .17 50.00 .165
Third Quarter 60.00 .20 55.00 .19
Fourth Quarter 51.00 .32 55.00 .20
- -32-
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,582
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<FED-FUNDS-SOLD> 0
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<INVESTMENTS-HELD-FOR-SALE> 0
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