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, 1998 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 24, 1998
(Common stock, .625 par value) 495,000
Page 1 of 14 pages
FULTON BANCSHARES CORPORATION
INDEX
Page
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets - March 31, 1998
and December 31, 1997 3
Condensed consolidated statements of income - three months
ended March 31, 1998 and 1997 4
Condensed consolidated statements of comprehensive income -
three months ended March 31, 1998 and 1997 5
Condensed consolidated statements of cash flows - three
months ended March 31, 1998 and 1997 6
Notes to condensed consolidated financial statements 7 and 8
Management's discussion and analysis of financial
condition and results of operations 9 - 12
PART II - OTHER INFORMATION 13
Signatures 14
Page 2 of 14 page
PART I - FINANCIAL INFORMATION
FULTON BANCSHARES CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997 *
ASSETS (Unaudited)
(000 Omitted)
Cash and due from banks $ 2,339 $ 2,744
Available-for-sale securities 24,305 25,345
Federal Reserve, Atlantic Central Bankers Bank,
Federal Home Loan Bank, at cost which
approximates market 577 577
Loans, net of allowance for loan losses 73,077 70,416
Bank building, equipment, furniture &
fixtures, net 2,457 2,407
Other real estate owned 269 269
Accrued interest/dividends receivable 691 670
Cash surrender value of life insurance 3,054 3,020
Other assets 351 322
Total assets $ 107,120 $ 105,770
LIABILITIES
Deposits:
Noninterest-bearing deposits $ 8,583 $ 8,159
Interest-bearing deposits:
Savings deposits 28,214 27,766
Time deposits 53,615 54,296
Total deposits 90,412 90,221
Accrued interest payable 444 380
Federal funds borrowed 1,295 0
Other borrowed money 3,000 3,470
Other liabilities 342 293
Total liabilities 95,493 94,364
STOCKHOLDERS' EQUITY
Capital stock, common, par value - $ 0.625;
4,000,000 shares authorized; 495,000
shares issued and outstanding, at March 31,
1998 and December 31, 1997 309 309
Surplus 2,051 2,051
Retained earnings 9,232 8,964
Net unrealized gains/(losses) available-
for-sale securities 35 82
Total stockholders' equity 11,627 11,406
Total liabilities and
stockholders' equity $ 107,120 $ 105,770
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed
financial statements.
Page 3 of 14 pages
FULTON BANCSHARES CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
(000 Omitted)
Interest & Dividend Income
Interest & fees on loans $ 1,666 $ 1,472
Interest & dividends on investment
securities:
U.S. Government securities 210 363
Obligations of state & political
subdivisions 68 60
Interest on federal funds sold 2 6
Other interest & dividend income 71 38
Total interest & dividend income 2,017 1,939
Interest Expense
Interest on deposits 957 960
Interest on federal funds purchased 14 1
Interest on other borrowed money 51 8
Total interest expense 1,022 969
Net interest income before
provision for loan losses 995 970
Provision for loan losses 35 15
Net interest income after provision
for loan losses 960 955
Other Income
Service charges on deposit accounts 39 36
Other fee income 52 19
Other noninterest income 54 51
Securities gains (losses) 4 0
Total other income 149 106
Other Expense
Salaries and employee benefits 298 272
Fixed asset expenses (including
depreciation) 133 111
FDIC insurance premiums 3 3
Other noninterest expenses 242 227
Total other expenses 676 613
Net income before income taxes 433 448
Applicable income taxes 84 116
Net income $ 349 $ 332
Weighted average number of shares
outstanding 495,000 495,000
Net income per share $ .71 $ .67
Cash dividends declared per share $ .165 .16
The accompanying notes are an integral part of these condensed
financial statements.
Page 4 of 14 pages
FULTON BANCSHARES, CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, 1998 and 1997
(UNAUDITED)
1998 1997
(000 Omitted)
Net income $ 349 $ 332
Unrealized (loss) on investments available for
sale, net of tax ( 47) ( 119)
Comprehensive income $ 302 $ 213
The accompanying notes are an integral part of these condensed
financial statements.
Page 5 of 14 pages
FULTON BANCSHARES, CORPORATION AND ITS WHOLLY-OWNED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997
(UNAUDITED)
1998 1997
(000 Omitted)
Cash flows from operating activities:
Net income $ 349 $ 332
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 64 46
Provision for loan losses 35 15
Other - Net 47 ( 2)
Net cash provided by operating activities 495 391
Cash flows from investing activities:
Improvements to OREO 0 ( 1)
Purchase of investment securities -
Available-for-sale ( 4,555) ( 1,475)
Purchase FNMA/FHLMC Preferred Stock ( 499) ( 1,820)
Purchase of Federal Home Loan Bank Stock 0 ( 4)
Sales of available-for-sale securities 5,176 869
Maturities of available-for-sale securities 851 1,039
Net (increase) in loans ( 2,697) ( 1,969)
Purchase of officers/directors life
insurance policies 0 ( 270)
Purchases of & deposits on bank premises
and equipment - net ( 111) ( 126)
Net cash (used) by investing activities ( 1,835) ( 3,757)
Cash flows from financing activities:
Net increase in deposits 191 395
Dividends paid ( 81) ( 79)
Net increase in federal funds borrowed 1,295 0
Net increase (decrease) in other
borrowed money ( 470) 2,500
Net cash provided by financing activities 935 2,816
Net (decrease) in cash and cash equivalents ( 405) ( 550) (
Cash and cash equivalents, beginning balance 2,744 4,226
Cash and cash equivalents, ending balance $ 2,339 $ 3,676
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $ 893 $ 865
Income taxes 0 8
Supplemental schedule of noncash investing
and financing activities:
Change in net unrealized gain on investments
available for sale (net of deferred taxes) ( 47) ( 119) (
The accompanying notes are an integral part of these condensed
financial statements.
Page 6 of 14 pages
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
Note 1. Basis of Presentation
The financial information presented at and for the three
months ended March 31, 1998 and 1997 is unaudited.
Information presented at December 31, 1997 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 7 of 14 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,
1998 and 1997.
Note 7. Investment Securities
The carrying amounts of investment securities and their
approximate fair values at March 31, 1998 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
Investment securities available for sale:
FNMA/FHLMC non-
cumulative
preferred
stocks $ 4,686,594 $ 27,962 ($ 13,975) $ 4,700,581
State & municipal
securities 5,951,015 128,960 ( 26,663) 6,053,312
U.S. Government
agencies 3,753,507 235 ( 16,162) 3,737,580
Mortgage-backed
securities 9,860,989 15,624 ( 63,247) 9,813,366
$ 24,252,105 $ 172,781 ($ 120,047) $ 24,304,839
There were no securities categorized "Held-to-maturity" or
"Trading" at March 31, 1998.
Note 8. Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting of Comprehensive Income", became effective for
fiscal years and interim reporting periods beginning after
December 15, 1997.
Comprehensive income is defined as the change in equity from
transactions and other events from nonowner sources. It
includes all changes in equity except those resulting from
investments by owners and distributions to owners.
Consequently, a "Statement of Comprehensive Income" has been
included in this filing.
Page 8 of 14 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 1998 was
$ 349,000 compared to $ 332,000 for the same period in 1997,
representing an increase of $ 17,000, or 5.1%. Net income on an
adjusted per share basis for the first three months of 1998 was
$ .71, an increase of $ .04 from the $ .67 per share realized during
the quarter ended March 31, 1997.
INTEREST INCOME
Interest income for the first quarter of 1998 was $ 2,017,000
compared with $ 1,939,000 as of March 31, 1997, for an increase of
$ 78,000, or 4.0%. The increase was due primarily to a higher average
balance of loans, which typically produce higher yields than
investments, in 1998 compared with the same period in 1997.
Management expects average rates earned for the rest of 1998 to be
comparable to the previous year since interest rates have remained
relatively stable and inflation appears to be under control.
INTEREST EXPENSE
Interest expense for the quarter ended March 31, 1998 was
$ 1,022,000, an increase of $ 53,000, or 5.5% over the $ 969,000
incurred for the same period in 1997. The increase was due primarily
to higher average balances of borrowed monies, which were used to fund
loan growth, in 1998 compared with the same period in 1997.
Management expects interest expense to be higher for the rest of 1998
because borrowed monies or more costly time deposits most likely will
be used to fund the loan growth.
NET INTEREST MARGIN
The net interest margin for the first quarter of 1998 was
4.09% compared to 4.24% for the first quarter of 1997. Management
plans to protect its net interest margin 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 1998 and the
same period in 1997 was $ 149,000 and $ 106,000, respectively.
Service charges on deposit accounts increased 8.3% over the same
period in 1997. Other fee income increased $ 33,000 primarily because
of a $ 17,000 increase in fiduciary fees and $ 11,000 timing
difference in the recognition of safe deposit box rental income in
1998. Earnings on cash surrender value of directors/officers life
insurance policies of $ 42,000 were reported in the first three months
of 1998 compared with $ 35,000 in the prior period. Management
anticipates further increases in noninterest income because of
additional earnings on cash surrender value of life insurance
policies. Gains on sales of other real estate owned are also expected
to be reported during 1998.
Page 9 of 14 pages
NONINTEREST EXPENSES
Noninterest expenses for the first quarter of 1998 were
$ 676,000, an increase of $ 63,000, or 10.3%, from the $ 613,000
reported for the same period of 1997. Salaries and employee-related
expenses were up 9.6% over the first quarter of 1997 due to additions
to the full-time staff and merit pay increases. Fixed asset expenses
were up 19.8% primarily due to increased equipment and building
maintenance costs and depreciation. Other noninterest expenses
increased 6.6% compared with the first three months of 1997 primarily
due to increases in advertising and promotion expenses, insurance
costs and other overhead expenses.
INCOME TAXES
The income tax provision for the first quarter of 1998 was
$ 89,000 compared to $ 116,000 for the same period in 1997. The
income tax provision decreased primarily due to increases in tax-
exempt interest on obligations of state and municipal subdivisions,
the tax-exempt dividends on FNMA and FHLMC non-cumulative preferred
stock dividend, and the nontaxable income related to the increase in
the cash surrender value of directors and officers life insurance.
PROVISION FOR LOAN LOSSES
A $ 35,000 provision for loan losses was made for the first
three months of 1998 compared with a $ 15,000 provision for the same
period in 1997. The provisions were based on management's evaluation
of the reserve for possible loan losses at March 31, 1998 and 1997.
A summary of the allowance for loan losses is as follows:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(In 000's)
March 31, 1998 March 31, 1997
Allowance for loan losses
Beginning of period $ 487 $ 444
Loans charged-off during the period:
Real estate loans 0 0
Installment loans 0 6
Commercial and all other loans 1 0
Total charge-offs 1 6
Recoveries of loans previously
charged-off:
Real estate loans 0 0
Installment loans 3 4
Commercial and all other
loans 7 0
Total recoveries 10 4
Net loans charged-off (recovered) ( 9) 2
Provision for loan losses charged to
operations 35 15
Allowance for loan losses - end of
period $ 531 $ 457
Page 10 of 14 pages
The following shows the summary of nonperforming loans.
NONPERFORMING LOANS
(In 000's)
March 31, 1998 December 31, 1997
Past Due 90 Days Past Due 90 Days
or More and Still or More and Still
Accruing Nonaccruing Accruing Nonaccruing
Real estate
loans $ 482 $ 0 $ 390 $ 361
Installment
loans 30 0 21 0
Commercial and
all other
loans 0 65 20 52
Total
loans $ 512 $ 65 $ 431 $ 413
ASSETS
Total assets on March 31, 1998 were $ 107,120,000, an increase
of 1.3% from $ 105,770,000 on December 31, 1997. Management intends
to contain growth and concentrate on maintaining adequate profit
margins. Net loans on March 31, 1998 stood at $ 73,077,000, an
increase of 3.8% from $ 78,416,000 on December 31, 1997. The loan
loss reserve at the end of the first quarter of 1998 was $ 531,000
compared with $ 487,000 at year-end 1997 and is considered adequate,
in management's judgment, to absorb possible loan losses on existing
loans.
LIABILITIES
Total deposits increased .2% to $ 90,412,000 as of March 31,
1998 compared with $ 90,221,000 at December 31, 1997. Noninterest-
bearing demand deposits and interest-bearing savings deposits
increased while certificates of deposit decreased.
CAPITAL
Total equity as of March 31, 1998 was $ 11,627,000 representing
10.9% of total assets, an increase of $ 221,000 from the $ 11,406,000
reported on December 31, 1997. Accumulated earnings for the first
three months of 1998 were partially offset by a $ 47,000 decrease in
net unrealized holding gains (net of deferred tax) and dividends
declared of $ 81,675.
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, 1998 is as follows:
Page 11 of 14 pages
Fulton Bancshares Regulatory Minimum
Corporation Requirements
Leverage ratio 10.83% 4.0%
Risk based capital ratios:
Tier I (core capital) 16.41% 4.0%
Combined tier I and tier
II (core capital plus
allowance for loan losses) 17.17% 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
1998 1997
ASSETS
Federal funds sold $ 141 $ 484
Securities available for sale 24,435 28,363
Other investments 577 573
Loans 73,156 65,367
Total interest-earning assets 98,309 94,787
Cash and due from banks 2,213 2,502
Bank premises and equipment 2,393 2,172
All other assets 4,237 3,769
Allowance for loan losses ( 512) ( 451)
Total assets $ 106,640 $ 102,779
LIABILITIES
Interest-bearing deposits in domestic
offices $ 81,804 $ 82,466
Federal funds purchased 952 31
Other short-term borrowings 3,636 571
Total interest-bearing liabilities 86,392 83,068
Noninterest-bearing deposits 8,107 9,032
All other liabilities 692 510
Total liabilities 95,191 92,610
STOCKHOLDERS' EQUITY
Common stockholders' equity 11,375 10,379
Net unrealized holding losses, net
of tax 74 ( 210)
Total stockholders' equity 11,449 10,169
Total liabilities and stockholders'
equity $ 106,640 $ 102,779
Page 12 of 14 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 13 of 14 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 14 of 14 pages
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<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,339
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 24,305
<INVESTMENTS-MARKET> 24,305
<LOANS> 73,608
<ALLOWANCE> 531
<TOTAL-ASSETS> 107,120
<DEPOSITS> 90,412
<SHORT-TERM> 4,295
<LIABILITIES-OTHER> 786
<LONG-TERM> 0
0
0
<COMMON> 309
<OTHER-SE> 11,627
<TOTAL-LIABILITIES-AND-EQUITY> 107,120
<INTEREST-LOAN> 1,666
<INTEREST-INVEST> 278
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<INTEREST-INCOME-NET> 995
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<EXPENSE-OTHER> 676
<INCOME-PRETAX> 433
<INCOME-PRE-EXTRAORDINARY> 349
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 349
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<YIELD-ACTUAL> 4.09
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