FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997 Commission file number:33-850626
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 April 28, 1997
(Common stock, .625 par value) 495,000
Page 1 of 13 pages
FULTON BANCSHARES CORPORATION
INDEX
Page
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets - March 31, 1997
and December 31, 1996 3
Condensed consolidated statements of income - three months
ended March 31, 1997 and 1996 4
Condensed consolidated statements of cash flows - three
months ended March 31, 1997 and 1996 5
Notes to condensed consolidated financial statements 6 and 7
Management's discussion and analysis of financial
condition and results of operations 8 - 11
PART II - OTHER INFORMATION 12
Signatures 13
Page 2 of 13 page
PART I - FINANCIAL INFORMATION
FULTON BANCSHARES CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996 *
ASSETS (Unaudited)
(000 Omitted)
Cash and due from banks $ 3,676 $ 3,731
Federal funds sold 0 495
Available-for-sale debt securities 27,139 27,752
Federal Reserve, Atlantic Central Bankers Bank,
Federal Home Loan Bank and FNMA/FHLMC Preferred
Stocks, at cost which approximates market 2,547 722
Loans, net of allowance for loan losses 65,745 63,791
Bank building, equipment, furniture &
fixtures, net 2,169 2,149
Other real estate owned 338 337
Accrued interest receivable 749 635
Cash surrender value of life insurance 2,675 2,374
Other assets 551 369
Total assets $ 105,589 $ 102,355
LIABILITIES
Deposits:
Noninterest-bearing deposits $ 8,431 $ 10,000
Interest-bearing deposits:
Savings deposits 30,021 30,104
Time deposits 53,576 51,528
Total deposits 92,028 91,632
Accrued interest payable 477 373
Other borrowed money 2,500 0
Other liabilities 301 209
Total liabilities 95,306 92,206
STOCKHOLDERS' EQUITY
Capital stock, common, par value - $ 0.625;
4,000,000 shares authorized; 495,000
shares issued and outstanding, at March 31,
1997 and December 31, 1996 309 309
Surplus 2,051 2,051
Retained earnings 8,260 8,007
Net unrealized gains/(losses) available-
for-sale securities ( 337) ( 218)
Total stockholders' equity 10,283 10,149
Total liabilities and
stockholders' equity $ 105,589 $ 102,355
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed
financial statements.
Page 3 of 13 pages
FULTON BANCSHARES CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
(000 Omitted)
Interest & Dividend Income
Interest & fees on loans $ 1,472 $ 1,388
Interest & dividends on investment
securities:
U.S. Government securities 363 403
Obligations of state & political
subdivisions 60 22
Interest on federal funds sold 38 8
Other interest & dividend income 6 20
Total interest & dividend income 1,939 1,841
Interest Expense
Interest on deposits 960 943
Interest on federal funds purchased 1 0
Interest on other borrowed money 8 0
Total interest expense 969 943
Net interest income before
provision for loan losses 970 898
Provision for loan losses 15 0
Net interest income after provision
for loan losses 955 898
Other Income
Service charges on deposit accounts 36 29
Other fee income 19 31
Other noninterest income 51 17
Securities gains (losses) 0 2
Total other income 106 79
Other Expense
Salaries and employee benefits 272 266
Fixed asset expenses (including
depreciation) 111 102
FDIC insurance premiums 3 1
Other noninterest expenses 227 194
Total other expenses 613 563
Net income before income taxes 448 414
Applicable income taxes 116 114
Net income $ 332 $ 300
Weighted average number of shares
outstanding 495,000 495,000
Net income per share $ .67 $ .61
Cash dividends declared per share .16 .15
The accompanying notes are an integral part of these condensed
financial statements.
Page 4 of 13 pages
FULTON BANCSHARES, CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1997 and 1996
(UNAUDITED)
1997 1996
(000 Omitted)
Cash flows from operating activities:
Net income $ 332 $ 300
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 46 37
Provision for loan losses 15 0
Other - Net ( 2) ( 61)
Net cash provided by operating activities 391 276
Cash flows from investing activities:
Improvements to OREO ( 1) 0
Purchase of investment securities -
Available-for-sale ( 1,475) ( 4,370)
Purchase FNMA/FHLMC Preferred Stock ( 1,820) ( 150)
Purchase of Federal Home Loan Bank Stock ( 4) ( 72)
Sales of available-for-sale securities 869 3,855
Maturities of available-for-sale securities 1,039 969
Net (increase) in loans ( 1,969) ( 1,084)
Purchase of officers/directors life
insurance policies ( 270) ( 1,641)
Purchases of & deposits on bank premises
and equipment - net ( 126) ( 48)
Net cash (used) by investing activities ( 3,757) ( 2,541)
Cash flows from financing activities:
Net increase in deposits 395 1,215
Dividends paid ( 79) ( 74)
Net increase in other borrowed money 2,500 0
Net cash provided by financing activities 2,816 1,141
Net (decrease) in cash and cash equivalents ( 550) ( 1,124)
Cash and cash equivalents, beginning balance 4,226 3,456
Cash and cash equivalents, ending balance $ 3,676 $ 2,332
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $ 865 $ 844
Income taxes 8 120
Supplemental schedule of noncash investing
and financing activities:
Change in net unrealized (loss) on investments
available for sale (net of deferred taxes) ( 119) ( 285)
The accompanying notes are an integral part of these condensed
financial statements.
Page 5 of 13 pages
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
Note 1. Basis of Presentation
The financial information presented at and for the three
months ended March 31, 1997 and 1996 is unaudited.
Information presented at December 31, 1996 is condensed from
audited year-end financial statements. However, unaudited
information reflects all adjustments (consisting solely of
normal recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the
financial position, results of operations and cash flows for
the interim period.
Note 2. Principles of Consolidation
The consolidated financial statements include the accounts
of the corporation and its wholly-owned subsidiaries, Fulton
County National Bank & Trust Company and the Fulton County
Community Development Corporation. All significant
intercompany transactions and accounts have been eliminated.
Note 3. Cash Flows
For purposes of the statements of cash flows, the
corporation has defined cash and cash equivalents as those
amounts included in the balance sheet captions "cash and due
from banks" and "federal funds sold". As permitted by
Statement of Financial Accounting Standards No. 104, the
corporation has elected to present the net increase or
decrease in deposits in banks, loans and time deposits in
the statement of cash flows.
Note 4. Federal Income Taxes
For financial reporting purposes the provision for loan
losses charged to operating expense is based on management's
judgment, whereas for federal income tax purposes, the
amount allowable under present tax law is deducted.
Additionally, certain expenses are charged to operating
expense in the period the liability is incurred for
financial reporting purposes, whereas for federal income tax
purposes, these expenses are deducted when paid. As a
result of these timing differences, deferred income taxes
are provided in the financial statements. Federal income
taxes were computed after reducing pretax accounting income
for nontaxable municipal and loan income.
Page 6 of 13 pages
Note 5. Other Commitments
In the normal course of business, the bank makes various
commitments and incurs certain contingent liabilities which
are not reflected in the accompanying financial statements.
These commitments include various guarantees and commitments
to extend credit and the bank does not anticipate any losses
as a result of these transactions.
Note 6. Earnings Per Share of Common Stock
Earnings per share of common stock were computed based on an
average of 495,000 shares for the quarters ended March 31,
1997 and 1996.
Note 7. Investment Securities
The carrying amounts of investment securities and their
approximate fair values at March 31, 1997 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
Debt securities available for sale:
U.S. Government
treasuries $ 0 $ 0 $ 0 $ 0
State & municipal
securities 5,005,746 35,291 ( 45,406) 4,995,631
U.S. Government
agencies 7,254,265 0 ( 147,070) 7,107,195
Mortgage-backed
securities 15,390,465 15,503 ( 369,217) 15,036,751
$ 27,650,476 $ 50,794 ($ 561,693) $ 27,139,577
There were no securities categorized "Held-to-maturity" or
"Trading" at March 31, 1997.
Page 7 of 13 pages
FULTON BANCSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Net after tax income for the first quarter of 1997 was
$ 332,000 compared to $ 300,000 for the same period in 1996,
representing an increase of $ 32,000, or 10.7%. Net income on an
adjusted per share basis for the first three months of 1997 was
$ .67, an increase of $ .06 from the $ .61 per share realized during
the quarter ended March 31, 1996.
INTEREST INCOME
Interest income for the first quarter of 1997 was $ 1,939,000
compared with $ 1,841,000 as of March 31, 1996, for an increase of
$ 98,000, or 5.3%. The increase was due primarily to a higher average
balance of loans, which typically produce higher yields than
investments, in 1997 compared with the same period in 1996.
Management expects average rates earned for the rest of 1997 to be
higher than comparable periods of the previous year since interest
rates have generally begun to increase.
INTEREST EXPENSE
Interest expense for the quarter ended March 31, 1997 was
$ 969,000, an increase of $ 26,000, or 2.8% over the $ 943,000
incurred for the same period in 1996. The increase was due primarily
to a higher average balance of interest-earning deposits, primarily
certificates of deposit, in 1997 compared with the same period in
1996. Management expects average rates paid for the rest of 1997 to
be comparable to those of the previous year since deposit rates have
remained flat.
NET INTEREST MARGINS
Net interest margins for the first quarter of 1997 were 8.0%
higher than those reported in the first quarter of 1996. Management
plans to protect its net interest margins by competitively pricing its
loans and deposits and by structuring interest-earning assets and
liabilities so they can be repriced in response to changes in market
interest rates.
NONINTEREST INCOME
Noninterest income for the first three months of 1997 and the
same period in 1996 was $ 106,000 and $ 79,000, respectively. Service
charges on deposit accounts increased 24.1% over the same period in
1996. Other fee income decreased $ 12,000 primarily because of timing
differences in the recognition of safe deposit box rental income in
1996 and 1997. Earnings on cash surrender value of directors/officers
life insurance policies of $ 35,000 were reported in the first three
months of 1997 compared with $ 16,000 in the prior period. Management
anticipates further increases in noninterest income because of
additional earnings on cash surrender value of life insurance
policies. Additional gains on sales of other real estate owned are
also expected to be reported during 1997.
Page 8 of 13 pages
NONINTEREST EXPENSES
Noninterest expenses for the first quarter of 1997 were
$ 613,000, an increase of $ 50,000, or 8.9%, from the $ 563,000
reported for the same period of 1996. Salaries and employee-related
expenses were up 2.3% over the first quarter of 1996 due to merit pay
increases. Fixed asset expenses were up 8.8% primarily due to
increased equipment and building maintenance costs and depreciation.
Other noninterest expenses increased 17.9% compared with the first
three months of 1996 primarily due to increases in data processing,
bank shares tax and other overhead expenses.
INCOME TAXES
The income tax provision for the first quarter of 1997 was
$ 116,000 compared to $ 114,000 for the same period in 1996. The
income tax provision increased very little primarily due to an
increase in tax-exempt interest on obligations of state and municipal
subdivisions and the nontaxable income related to the increase in the
cash surrender value of directors and officers life insurance.
PROVISION FOR LOAN LOSSES
A $ 15,000 provision for loan losses was made for the first
three months of 1997 compared with no provision for the same period in
1996. The provisions were based on management's evaluation of the
reserve for possible loan losses at March 31, 1997 and 1996.
A summary of the allowance for loan losses is as follows:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(In 000's)
March 31, 1997 March 31, 1996
Allowance for loan losses
Beginning of period $ 444 $ 345
Loans charged-off during the period:
Real estate loans 0 0
Installment loans 6 1
Commercial and all other loans 0 0
Total charge-offs 6 1
Recoveries of loans previously
charged-off:
Real estate loans 0 0
Installment loans 4 8
Commercial and all other
loans 0 18
Total recoveries 4 26
Net loans charged-off (recovered) 2 ( 25)
Provision for loan losses charged to
operations 15 0
Allowance for loan losses - end of
period $ 457 $ 370
Page 9 of 13 pages
The following shows the summary of nonperforming loans.
NONPERFORMING LOANS
(In 000's)
March 31, 1997 December 31, 1996
Past Due 90 Days Past Due 90 Days
or More and Still or More and Still
Accruing Nonaccruing Accruing Nonaccruing
Real estate
loans $ 1,438 $ 310 $ 1,038 $ 310
Installment
loans 23 0 3 0
Commercial and
all other
loans 0 0 0 0
Total
loans $ 1,461 $ 310 $ 1,041 $ 310
ASSETS
Total assets on March 31, 1997 were $ 105,589,000, an increase
of 3.2% from $ 102,355,000 on December 31, 1996. Management intends
to contain growth and concentrate on maintaining adequate profit
margins. Net loans on March 31, 1997 stood at $ 65,745,000, an
increase of 3.1% from $ 63,791,000 on December 31, 1996. The loan
loss reserve at the end of the first quarter of 1997 was $ 457,000
compared with $ 444,000 at year-end 1996 and is considered adequate,
in management's judgment, to absorb possible loan losses on existing
loans.
LIABILITIES
Total deposits increased .4% to $ 92,028,000 as of March 31,
1997 compared with $ 91,632,000 at December 31, 1996. Demand, NOW and
certificates of deposit increased while money market and regular
savings deposits decreased.
CAPITAL
Total equity as of March 31, 1997 was $ 10,283,000 representing
9.7% of total assets, an increase of $ 134,000 from the $ 10,149,000
reported on December 31, 1996. Accumulated earnings for the first
three months of 1997 were partially offset by a $ 119,000 increase in
net unrealized holding losses (net of deferred tax) and dividends
declared of $ 79,200.
REGULATORY CAPITAL
The company maintains capital ratios that are well above the
minimum total capital levels required by federal regulatory
authorities, including risk-based capital guidelines. A comparison of
Fulton Bancshares Corporation's capital ratios to regulatory minimum
requirements at March 31, 1997 is as follows:
Page 10 of 13 pages
Fulton Bancshares Regulatory Minimum
Corporation Requirements
Leverage ratio 10.24% 4.0%
Risk based capital ratios:
Tier I (core capital) 16.22% 4.0%
Combined tier I and tier
II (core capital plus
allowance for loan losses) 16.92% 8.0%
The following table highlights the changes in the balance
sheet. Since quarter-end balances can be distorted by one-day
fluctuations, an analysis of changes in the quarterly averages is
provided to show balance sheet trends.
BALANCE SHEET ANALYSIS
(In 000's)
Condensed Average Balance Sheets
First Quarter First Quarter
1997 1996
ASSETS
Federal funds sold $ 484 $ 1,501
Securities available for sale 27,246 28,614
Other investments 1,690 548
Loans 65,367 60,412
Total interest-earning assets 94,787 91,075
Cash and due from banks 2,502 2,487
Bank premises and equipment 2,172 2,063
All other assets 3,769 2,401
Allowance for loan losses ( 451) ( 348)
Total assets $ 102,779 $ 97,678
LIABILITIES
Interest-bearing deposits in domestic
offices $ 82,466 $ 80,082
Federal funds purchased 31 31
Other short-term borrowings 571 0
Total interest-bearing liabilities 83,068 80,113
Noninterest-bearing deposits 9,032 7,432
All other liabilities 510 649
Total liabilities 92,610 88,194
STOCKHOLDERS' EQUITY
Common stockholders' equity 10,379 9,539
Net unrealized holding losses, net
of tax ( 210) ( 55)
Total stockholders' equity 10,169 9,484
Total liabilities and stockholders'
equity $ 102,779 $ 97,678
Page 11 of 13 pages
PART II - OTHER INFORMATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
Page 12 of 13 pages
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
/s/
Clyde H. Bookheimer,
President and Chief Executive
Officer
Date /s/
Doriann Hoffman, Vice
President (Principal Financial
Officer)
Page 13 of 13 pages
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,676
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 27,139
<INVESTMENTS-MARKET> 27,139
<LOANS> 66,202
<ALLOWANCE> 457
<TOTAL-ASSETS> 105,589
<DEPOSITS> 92,028
<SHORT-TERM> 2,500
<LIABILITIES-OTHER> 778
<LONG-TERM> 0
0
0
<COMMON> 309
<OTHER-SE> 9,974
<TOTAL-LIABILITIES-AND-EQUITY> 105,589
<INTEREST-LOAN> 1,472
<INTEREST-INVEST> 423
<INTEREST-OTHER> 44
<INTEREST-TOTAL> 1,939
<INTEREST-DEPOSIT> 960
<INTEREST-EXPENSE> 969
<INTEREST-INCOME-NET> 970
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 613
<INCOME-PRETAX> 448
<INCOME-PRE-EXTRAORDINARY> 332
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 332
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
<YIELD-ACTUAL> 4.24
<LOANS-NON> 310
<LOANS-PAST> 1,461
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 444
<CHARGE-OFFS> 6
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 457
<ALLOWANCE-DOMESTIC> 457
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
