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, 1999
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 29, 1999
(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, 1999
and December 31, 1998 3
Condensed consolidated statements of income - three months
ended March 31, 1999 and 1998 4
Condensed consolidated statements of comprehensive income -
three months ended March 31, 1999 and 1998 5
Condensed consolidated statements of cash flows - three
months ended March 31, 1999 and 1998 6
Notes to condensed consolidated financial statements 7 and 8
Management's discussion and analysis of financial
condition and results of operations 9 - 13
PART II - OTHER INFORMATION 14
Signatures 15
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,
1999 1998 *
ASSETS (Unaudited)
(000 Omitted)
Cash and due from banks $ 2,757 $ 3,301
Available-for-sale securities 25,289 28,606
Federal Reserve, Atlantic Central Bankers Bank,
Federal Home Loan Bank, at cost which
approximates market 770 577
Loans, net of allowance for loan losses 83,706 80,214
Bank building, equipment, furniture &
fixtures, net 2,890 2,667
Other real estate owned 140 140
Accrued interest/dividends receivable 793 733
Cash surrender value of life insurance 2,930 3,166
Other assets 241 245
Total assets $ 119,516 $ 119,649
LIABILITIES
Deposits:
Noninterest-bearing deposits $ 9,965 $ 11,553
Interest-bearing deposits:
Savings deposits 29,542 31,488
Time deposits 56,758 56,300
Total deposits 96,265 99,341
Accrued interest payable 431 392
Federal funds borrowed 0 2,100
Other borrowed money 9,750 5,000
Other liabilities 378 337
Total liabilities 106,824 107,170
STOCKHOLDERS' EQUITY
Capital stock, common, par value - $ 0.625;
4,000,000 shares authorized; 495,000
shares issued and outstanding, at March 31,
1999 and December 31, 1998 309 309
Surplus 2,051 2,051
Retained earnings 10,323 10,036
Net unrealized gains/(losses) available-
for-sale securities 9 83
Total stockholders' equity 12,692 12,479
Total liabilities and
stockholders' equity $ 119,516 $ 119,649
* 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, 1999 AND 1998
(UNAUDITED)
1999 1998
(000 Omitted)
Interest & Dividend Income
Interest & fees on loans $ 1,752 $ 1,666
Interest & dividends on investment
securities:
U.S. Government securities 227 210
Obligations of state & political
subdivisions 75 68
Interest on federal funds sold 0 2
Other interest & dividend income 83 71
Total interest & dividend income 2,137 2,017
Interest Expense
Interest on deposits 931 957
Interest on federal funds purchased 3 14
Interest on other borrowed money 113 51
Total interest expense 1,047 1,022
Net interest income before
provision for loan losses 1,090 995
Provision for loan losses 85 35
Net interest income after provision
for loan losses 1,005 960
Other Income
Service charges on deposit accounts 36 39
Other fee income 35 52
Other noninterest income 132 54
Securities gains (losses) 2 4
Total other income 205 149
Other Expense
Salaries and employee benefits 337 298
Fixed asset expenses (including
depreciation) 150 133
FDIC insurance premiums 3 3
Other noninterest expenses 267 242
Total other expenses 757 676
Net income before income taxes 453 433
Applicable income taxes 81 84
Net income $ 372 $ 349
Weighted average number of shares
outstanding 495,000 495,000
Net income per share $ .75 $ .71
Cash dividends declared per share .17 .165
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, 1999 AND 1998
(UNAUDITED)
1999 1998
(000 Omitted)
Net income $ 372 $ 349
Unrealized (loss) on investments available for
sale, net of tax ( 74) ( 47)
Comprehensive income $ 298 $ 302
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, 1999 and 1998
(UNAUDITED)
1999 1998
(000 Omitted)
Cash flows from operating activities:
Net income $ 372 $ 349
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 71 64
Provision for loan losses 85 35
Other - Net ( 64) 47
Net cash provided by operating activities 464 495
Cash flows from investing activities:
Purchase of investment securities -
Available-for-sale ( 690) ( 4,555)
Purchase FNMA/FHLMC Preferred Stock 0 ( 499)
Purchase of Federal Home Loan Bank Stock ( 193) 0
Sales of available-for-sale securities 1,843 5,176
Maturities of available-for-sale securities 2,053 851
Net (increase) in loans ( 3,577) ( 2,697)
Proceeds of director's life insurance 360 0
Purchases of & deposits on bank premises
and equipment - net ( 294) ( 111)
Net cash (used) by investing activities ( 498) ( 1,835)
Cash flows from financing activities:
Net increase (decrease) in deposits ( 3,076) 191
Dividends paid ( 84) ( 81)
Net increase (decrease)in federal funds
borrowed ( 2,100) 1,295
Net increase (decrease) in other
borrowed money 4,750 ( 470)
Net cash provided (used) by financing
activities ( 510) 935
Net (decrease) in cash and cash equivalents ( 544) ( 405)
Cash and cash equivalents, beginning balance 3,301 2,744
Cash and cash equivalents, ending balance $ 2,757 $ 2,339
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $ 892 $ 893
Income taxes 0 0
Supplemental schedule of noncash investing
and financing activities:
Change in net unrealized gain on investments
available for sale (net of deferred taxes) ( 74) ( 47)
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, 1999
(UNAUDITED)
Note 1. Basis of Presentation
The financial information presented at and for the three
months ended March 31, 1999 and 1998 is unaudited.
Information presented at December 31, 1998 is condensed from
audited year-end financial statements. However, unaudited
information reflects all adjustments (consisting solely of
normal recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the
financial position, results of operations and cash flows for
the interim period.
Note 2. Principles of Consolidation
The consolidated financial statements include the accounts of
the corporation and its wholly-owned subsidiaries, Fulton
County National Bank & Trust Company and the Fulton County
Community Development Corporation. All significant
intercompany transactions and accounts have been eliminated.
Note 3. Cash Flows
For purposes of the statements of cash flows, the corporation
has defined cash and cash equivalents as those amounts
included in the balance sheet captions "cash and due from
banks" and "federal funds sold". As permitted by Statement
of Financial Accounting Standards No. 104, the corporation
has elected to present the net increase or decrease in
deposits in banks, loans and time deposits in the statements
of cash flows.
Note 4. Federal Income Taxes
For financial reporting purposes the provision for loan
losses charged to operating expense is based on management's
judgment, whereas for federal income tax purposes, the amount
allowable under present tax law is deducted. Additionally,
certain expenses are charged to operating expense in the
period the liability is incurred for financial reporting
purposes, whereas for federal income tax purposes, these
expenses are deducted when paid. As a result of these timing
differences, deferred income taxes are provided in the
financial statements. Federal income taxes were computed
after reducing pretax accounting income for nontaxable
municipal and loan income.
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,
1999 and 1998.
Note 7. Investment Securities
The carrying amounts of investment securities and their
approximate fair values at March 31, 1999 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
Debt securities available for sale:
FNMA/FHLMC non-
cumulative
preferred
stocks $ 4,984,344 $ 15,541 ($ 21,194) $ 4,978,691
State & municipal
securities 6,126,859 150,972 ( 66,715) 6,211,116
U.S. Government
agencies 8,253,252 1,259 ( 25,271) 8,229,240
Mortgage-backed
securities 5,779,727 5,558 ( 47,131) 5,738,154
Equity
securities 132,000 0 0 132,000
$ 25,276,182 $ 173,330 ($ 160,311) $ 25,289,201
There were no securities categorized "Held-to-maturity" or
"Trading" at March 31, 1999.
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 1999 was
$ 372,000 compared to $ 349,000 for the same period in 1998,
representing an increase of $ 23,000, or 6.6%. Net income on an
adjusted per share basis for the first three months of 1999 was $ .75,
an increase of $ .04 from the $ .71 per share realized during the
quarter ended March 31, 1998.
INTEREST INCOME
Interest income for the first quarter of 1999 was $ 2,137,000
compared with $ 2,017,000 as of March 31, 1998, for an increase of
$ 120,000, or 5.9%. The increase was due primarily to a higher
average balance of loans, which typically produce higher yields than
investments, in 1999 compared with the same period in 1998.
Management expects average rates earned for the rest of 1999 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, 1999 was
$ 1,047,000, an increase of $ 25,000, or 2.4% over the $ 1,022,000
incurred for the same period in 1998. The increase was due primarily
to higher average balances of borrowed monies, which were used to fund
loan growth, in 1999 compared with the same period in 1998.
Management expects interest expense to be higher for the rest of 1999
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 1999 was
4.01% compared to 4.09% for the first quarter of 1998. 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 1999 and the
same period in 1998 was $ 205,000 and $ 149,000, respectively.
Service charges on deposit accounts decreased $ 3,000, or 7.7% over
the same period in 1998. Other fee income decreased $ 17,000, or
32.7%, primarily because of a $ 21,000 decrease in fiduciary fees,
since effective January 4, 1999, the Bank's trust department was
serviced by an agent. Other noninterest income increased $ 78,000, or
144.4%, primarily due to director life insurance benefit income of
$ 91,000.
Page 9 of 14 pages
NONINTEREST EXPENSES
Noninterest expenses for the first quarter of 1999 were
$ 757,000, an increase of $ 81,000, or 12.0%, from the $ 676,000
reported for the same period of 1998. Salaries and employee-related
expenses were up 13.1% over the first quarter of 1998 due to additions
to the full-time staff and merit pay increases. Fixed asset expenses
were up 12.8% primarily due to increased equipment and building
maintenance costs and depreciation. Other noninterest expenses
increased 10.3% compared with the first three months of 1998 primarily
due to increases in advertising and promotion expenses, printing and
supplies expense and other overhead expenses.
INCOME TAXES
The income tax provision for the first quarter of 1999 was
$ 81,000 compared to $ 84,000 for the same period in 1998.
PROVISION FOR LOAN LOSSES
An $ 85,000 provision for loan losses was made for the first
three months of 1999 compared with a $ 35,000 provision for the same
period in 1998. The provisions were based on management's evaluation
of the reserve for possible loan losses at March 31, 1999 and 1998.
A summary of the allowance for loan losses is as follows:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(In 000's)
March 31, 1999 March 31, 1998
Allowance for loan losses
Beginning of period $ 580 $ 487
Loans charged-off during the period:
Real estate loans 0 0
Installment loans 9 0
Commercial and all other loans 10 1
Total charge-offs 19 1
Recoveries of loans previously
charged-off:
Real estate loans 0 0
Installment loans 1 3
Commercial and all other
loans 7 7
Total recoveries 8 10
Net loans charged-off (recovered) 11 ( 9)
Provision for loan losses charged to
operations 85 35
Allowance for loan losses - end of
period $ 654 $ 531
Page 10 of 14 pages
The following shows the summary of nonperforming loans.
NONPERFORMING LOANS
(In 000's)
March 31, 1999 December 31, 1998
Past Due 90 Days Past Due 90 Days
or More and Still or More and Still
Accruing Nonaccruing Accruing Nonaccruing
Real estate
loans $ 33 $ 0 $ 405 $ 0
Installment
loans 0 0 37 0
Commercial and
all other
loans 38 0 0 0
Total
loans $ 71 $ 0 $ 442 $ 0
ASSETS
Total assets on March 31, 1999 were $ 119,516,000, compared with
$ 119,649,000, on December 31, 1998. Management intends
to contain growth and concentrate on maintaining adequate profit
margins. Net loans on March 31, 1999 stood at $ 83,706,000, an
increase of 4.4% from $ 80,214,000 on December 31, 1998. The loan
loss reserve at the end of the first quarter of 1999 was $ 654,000
compared with $ 580,000 at year-end 1998 and is considered adequate,
in management's judgment, to absorb possible loan losses on existing
loans.
LIABILITIES
Total deposits decreased 3.1% to $ 96,265,000 as of March 31,
1999 compared with $ 99,341,000 at December 31, 1998. Certificates of
deposit increased 0.8% while noninterest-bearing demand deposits and
interest-bearing savings deposits decreased 13.7% and 6.2%,
respectively.
CAPITAL
Total equity as of March 31, 1999 was $ 12,692,000 representing
10.6% of total assets, an increase of $ 213,000 from the $ 12,479,000
reported on December 31, 1998. Accumulated earnings for the first
three months of 1999 were partially offset by a $ 74,000 decrease in
net unrealized holding gains (net of deferred tax) and dividends
declared of $ 84,150.
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, 1999 is as follows:
Page 11 of 14 pages
Fulton Bancshares Regulatory Minimum
Corporation Requirements
Leverage ratio 10.4% 4.0%
Risk based capital ratios:
Tier I (core capital) 15.5% 4.0%
Combined tier I and tier
II (core capital plus
allowance for loan losses) 16.3% 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)
Balance Sheets Condensed Average
First Quarter First Quarter
1999 1998
ASSETS
Federal funds sold $ 0 $ 141
Securities available for sale 27,782 24,435
Other investments 685 577
Loans 83,313 73,156
Total interest-earning assets 111,780 98,309
Cash and due from banks 2,648 2,213
Bank premises and equipment 2,724 2,393
All other assets 4,142 4,237
Allowance for loan losses ( 604) ( 512)
Total assets $ 120,690 $ 106,640
LIABILITIES
Interest-bearing deposits in domestic
offices $ 86,386 $ 81,804
Federal funds purchased 237 952
Other short-term borrowings 10,292 3,636
Total interest-bearing liabilities 96,915 86,392
Noninterest-bearing deposits 10,572 8,107
All other liabilities 743 692
Total liabilities 108,230 95,191
STOCKHOLDERS' EQUITY
Common stockholders' equity 12,371 11,375
Net unrealized holding losses, net
of tax 89 74
Total stockholders' equity 12,460 11,449
Total liabilities and stockholders'
equity $ 120,690 $ 106,640
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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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
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<INVESTMENTS-CARRYING> 25,289
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<DEPOSITS> 96,265
<SHORT-TERM> 9,750
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0
0
<COMMON> 309
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