FCNB Faces Unhappy Shareholders

Fulton Bancshares Corp., parent company of The Fulton County National Bank and Trust Co. (FCNB), held its annual shareholders meeting on May 19, re-electing three bank directors and ratifying its choice of auditors, while also responding to sharp questioning from many of the more than 50 shareholders attending.

Meeting at the Fulton Theatre building of FCNB’s main office in McConnellsburg, shareholders interrupted official business to question procedure, express frustration and ask pointed questions of bank officials.

The bank is presently taking numerous corrective actions to address concerns raised by the Office of the Comptroller of the Currency (OCC) in an agreed-to consent order stemming from an examination report that began at the bank in August 2004. In compliance with that OCC consent order, FCNB has temporarily suspended shareholder dividends.

Following the establishment of a quorum in person or by proxy by meeting Chairman Robert L. Thomas, directors Martin R. Brown, David L. Seiders and Robert L. Thomas were elected to an additional three-year term as Class C directors.

It was announced that Brown will be the new chairman of the board of directors, succeeding Cecil B. Mellott. The bank also announced its intention to increase the number of bank directors in the near future.

Currently the eight-member board of directors includes Brown, 53; Seiders, 65; Thomas, 50; Mellott, 68; Clair R. Miller, 68; Clyde H. Bookheimer, 65; Robert C. Snyder, 73; and Ellis L. Yingling, 72.

A majority of shareholders also ratified the selection of Smith Elliott Kearns & Co. LLC Certified Public Accountants, of Chambersburg, as the independent auditors of the corporation for the year ending December 31, 2005. The motion to ratify was met with vocal opposition from the floor that then began a question and answer session from unhappy shareholders. The motion to ratify was approved by a count of proxy votes following shareholder questioning.

During the 90-minute meeting, shareholders, who were not asked to identify themselves, questioned whether the bank’s investments were in violation of its bylaws; had the accounting firm failed in doing its job; and was the bank defined as “troubled.” They also asked what the reason was for the dismissal of its former president and CEO; whether some board members should be stepping down and if the board was open to an acquisition. Questions were fielded by Chairman Thomas and Nick Bybel of the bank’s law firm, Shumaker and Williams of Harrisburg.

Speaking on behalf of the board of directors, Thomas acknowledged that “we have issues that need to be fixed.” He said, however, “The most important thing we want to convey to our Fulton Bancshares Corp. shareholders, and bank depositors, customers, suppliers and neighbors is that the bank is in strong financial condition. The bank’s capital, which is a type of financial condition measurement, remains strong and in excess of regulatory requirements.”

Although the board gave few detailed answers to these questions, it was expressed often that the bank is in a strong financial condition with capital in excess of regulatory requirements.

Senior Vice President and CFO David W. Cathell reported that in 2004 the bank liquidated all preferred stock at $1.3 million loss. He said that preferred stock provided significant income and tax savings in past years, but it was highly interest rate sensitive and the bank would have had an impairment loss regardless if the stock was sold. He said the concentration in stock was criticized by the OCC and the board decided to sell its whole position before year-end.

Cathell also reported that the bank had signed a consent order with the OCC on March 23, 2005, agreeing to improve employee training and development; establish and maintain consistent internal policies and procedures; design methods to test procedures; commit more resources to technology; and engage consultants and attract experienced management. He said that to ensure the resources are available, dividend payments were suspended until approved by the OCC.

He went on to say, “The board is committed to the mission we have charted and is grateful for the support of our dedicated employees, our shareholders and our fellow citizens. We pledge to you our best efforts in serving the community banking needs of Fulton, Franklin, Huntingdon and Bedford counties and surrounding areas of Pennsylvania and Maryland, and in fulfilling the faith placed in us by our shareholders.”

Fulton Bancshares Corp. is publicly traded under the symbol FULB. Last Monday, the corporation filed a Securities and Exchange Commission (SEC) Form 10-Q, saying its net after-tax income for the first quarter ending March 31, 2005, was $60,000 compared to $283,000, a 79 percent decrease over the same period last year. Net income on an adjusted per share basis for the first three months of 2005 was 12 cents compared to 57 cents in the previous year.

Due primarily to a decrease in the average balance of loans and investment in 2005, interest income for the first quarter decreased slightly, by 7 percent, to $1,784,00 over the same quarter last year. Interest expense in the first quarter decreased by $38,000, or 5 percent, compared to the same time last year. The SEC filing stated the decrease was primarily due to a decrease in the average balance of deposits and borrowings that offset higher deposit rates paid in 2005.

Total assets at the end of the quarter remain strong at $140,878,000, down by 1 percent from Dec. 31, 2004, and total deposits decreased by 1 percent, too, on March 31 from the end of last year. Shareholders’ equity decreased by 1 percent, to $15,291,000, during the same three-month period.

Fulton Bancshares Corp. quarterly report SEC Form 10-Q can be found at FULB.OB online.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.