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, 2000
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 27, 2000
(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, 2000
and December 31, 1999 3
Condensed consolidated statements of income - three months
ended March 31, 2000 and 1999 4
Condensed consolidated statements of comprehensive income -
three months ended March 31, 2000 and 1999 5
Condensed consolidated statements of cash flows - three
months ended March 31, 2000 and 1999 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
Exhibits
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,
2000 1999 *
ASSETS (Unaudited)
(000 Omitted)
Cash and due from banks $ 3,316 $ 4,582
Federal funds sold 275 0
Available-for-sale securities 23,411 23,567
Federal Reserve, Atlantic Central Bankers Bank,
Federal Home Loan Bank, at cost which
approximates market 870 870
Loans, net of allowance for loan losses 94,761 90,995
Bank building, equipment, furniture &
fixtures, net 3,664 3,710
Other real estate owned 229 230
Accrued interest/dividends receivable 877 731
Cash surrender value of life insurance 3,062 3,028
Other assets 825 765
Total assets $ 131,290 $ 128,478
LIABILITIES
Deposits:
Noninterest-bearing deposits $ 13,137 $ 12,354
Interest-bearing deposits:
Savings deposits 29,313 29,913
Time deposits 62,727 61,044
Total deposits 105,177 103,311
Accrued interest payable 484 421
Other borrowed money 12,000 11,475
Other liabilities 604 518
Total liabilities 118,265 115,725
STOCKHOLDERS' EQUITY
Capital stock, common, par value - $ 0.625;
4,000,000 shares authorized; 495,000
shares issued and outstanding, at March 31,
2000 and December 31, 1999 309 309
Surplus 2,051 2,051
Retained earnings 11,319 11,076
Net unrealized gains/(losses) available-
for-sale securities ( 654) ( 683)
Total stockholders' equity 13,025 12,753
Total liabilities and
stockholders' equity $ 131,290 $ 128,478
* 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, 2000 AND 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Interest & Dividend Income
Interest & fees on loans $ 1,979 $ 1,752
Interest & dividends on investment
securities:
U.S. Government securities 232 227
Obligations of state & political
subdivisions 51 75
Interest on federal funds sold 2 0
Other interest & dividend income 91 83
Total interest & dividend income 2,355 2,137
Interest Expense
Interest on deposits 1,018 931
Interest on federal funds purchased 0 3
Interest on other borrowed money 147 113
Total interest expense 1,165 1,047
Net interest income before
provision for loan losses 1,190 1,090
Provision for loan losses 15 85
Net interest income after provision
for loan losses 1,175 1,005
Other Income
Service charges on deposit accounts 37 36
Other fee income 26 35
Other noninterest income 44 132
Securities gains (losses) 0 2
Total other income 107 205
Other Expense
Salaries and employee benefits 399 337
Fixed asset expenses (including
depreciation) 181 150
FDIC insurance premiums 5 3
Other noninterest expenses 265 267
Total other expenses 850 757
Net income before income taxes 432 453
Applicable income taxes 100 81
Net income $ 332 $ 372
Weighted average number of shares
outstanding 495,000 495,000
Net income per share $ .67 $ .75
Cash dividends declared per share $ .18 .17
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, 2000 AND 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Net income $ 332 $ 372
Unrealized gain (loss) on investments available for
sale, net of tax 29 ( 74)
Comprehensive income $ 361 $ 298
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, 2000 and 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Cash flows from operating activities:
Net income $ 332 $ 372
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 93 71
Provision for loan losses 15 85
Other - Net ( 108) ( 64)
Net cash provided by operating activities 332 464
Cash flows from investing activities:
Purchase of investment securities -
Available-for-sale 0 ( 690)
Net (increase) in federal funds sold ( 275) 0
Purchase of Federal Home Loan Bank Stock 0 ( 193)
Sales of available-for-sale securities 0 1,843
Maturities of available-for-sale securities 202 2,053
Net (increase) in loans ( 3,781) ( 3,577)
Proceeds of director's life insurance 0 360
Purchases of & deposits on bank premises
and equipment - net ( 46) ( 294)
Net cash (used) by investing activities ( 3,900) ( 498)
Cash flows from financing activities:
Net increase (decrease) in deposits 1,866 ( 3,076)
Dividends paid ( 89) ( 84)
Net increase (decrease)in federal funds
Borrowed 0 ( 2,100)
Net increase (decrease) in other
borrowed money 525 4,750
Net cash provided (used) by financing
activities 2,302 ( 510)
Net (decrease) in cash and cash equivalents ( 1,266) ( 544)
Cash and cash equivalents, beginning balance 4,582 3,301
Cash and cash equivalents, ending balance $ 3,316 $ 2,757
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $ 1,102 $ 892
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) 29 ( 74)
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, 2000
(UNAUDITED)
Review of Interim Financial Statements
The condensed consolidated financial statements as of and for
the three months ended March 31, 2000 and 1999 have been
reviewed by independent certified public accountants. Their
report on the review is attached as Exhibit 99 to the 10-Q
filing.
Note 1. Basis of Presentation
The financial information presented at and for the three
months ended March 31, 2000 and 1999 is unaudited.
Information presented at December 31, 1999 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,
2000 and 1999.
Note 7. Investment Securities
The carrying amounts of investment securities and their
approximate fair values at March 31, 2000 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
Debt securities available for sale:
FNMA/FHLMC non-
cumulative
preferred
stocks $ 5,239,344 $ 0 ($ 427,329) $ 4,812,015
State & municipal
securities 4,096,586 33,729 ( 182,111) 3,948,204
U.S. Government
agencies 10,251,087 0 ( 273,089) 9,977,998
Mortgage-backed
securities 4,683,134 1,270 ( 142,897) 4,541,507
Equity
securities 132,000 0 0 132,000
$ 24,402,151 $ 34,999 ($ 1,025,426) $ 23,411,724
There were no securities categorized "Held-to-maturity" or
"Trading" at March 31, 2000.
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 2000 was
$ 332,000 compared to $ 372,000 for the same period in 1999,
representing a decrease of $ 40,000, or 10.8%. Net income on an
adjusted per share basis for the first three months of 2000 was
$ .67, a decrease of $ .08 from the $ .75 per share realized during
the quarter ended March 31, 1999.
INTEREST INCOME
Interest income for the first quarter of 2000 was $ 2,355,000
compared with $ 2,137,000 as of March 31, 1999, for an increase of
$ 218,000, or 10.2%. The increase was due primarily to a higher
average balance of loans, which typically produce higher yields
than investments, in 2000 compared with the same period in 1999.
Management expects average rates earned for the rest of 2000 to be
higher than the previous year since interest rates have increased.
INTEREST EXPENSE
Interest expense for the quarter ended March 31, 2000 was
$ 1,165,000, an increase of $ 118,000, or 11.3% over the
$ 1,047,000 incurred for the same period in 1999. The increase was
due primarily to higher average balances of borrowed monies, which
were used to fund loan growth. Management expects interest expense
to be higher for the rest of 2000 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 2000 was
4.00% compared to 4.01% for the first quarter of 1999. 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 2000 and the
same period in 1999 was $ 107,000 and $ 205,000, respectively.
Service charges on deposit accounts increased 2.8% over the same
period in 1999. Other fee income decreased 25.7% because of
decreases in fiduciary fees and other miscellaneous fee income.
Other noninterest income decreased $ 88,000, or 66.7%, primarily
due to director life insurance benefit income of $ 91,000 reported
during the first quarter of 1999.
Page 9 of 14 pages
NONINTEREST EXPENSES
Noninterest expenses for the first quarter of 2000 were
$ 850,000, an increase of $ 93,000, or 12.3%, from the $ 757,000
reported for the same period of 1999. Salaries and employee-
related expenses were up 18.4% over the first quarter of 1999
primarily due to the addition of two branch offices during July,
1999 and November, 1999. Fixed asset expenses were up 20.7%
primarily due to increased equipment and building maintenance costs
and depreciation for the additional branch offices. Other
noninterest expenses were controlled at $ 270,000 for the first
quarters of both 2000 and 1999.
INCOME TAXES
The income tax provision for the first quarter of 2000 was
$ 100,000 compared to $ 81,000 for the same period in 1999. The
increase was due primarily to a 32% decrease in tax-exempt interest
on obligations of state and political subdivisions, and the receipt
of nontaxable director life insurance benefits in 1999.
PROVISION FOR LOAN LOSSES
A $ 15,000 provision for loan losses was made for the first
three months of 2000 compared with $ 85,000 for the same period in
1999. The provisions were based on management's evaluation
of the reserve for possible loan losses at March 31, 2000 and 1999.
A summary of the allowance for loan losses is as follows:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(In 000's)
March 31, 2000 March 31, 1999
Allowance for loan losses
Beginning of period $ 800 $ 580
Loans charged-off during the period:
Real estate loans 0 0
Installment loans 8 9
Commercial and all other loans 1 10
Total charge-offs 9 19
Recoveries of loans previously
charged-off:
Real estate loans 0 0
Installment loans 2 1
Commercial and all other
loans 1 7
Total recoveries 3 8
Net loans (charged-off) recovered ( 6) ( 11)
Provision for loan losses charged to
operations 15 85
Allowance for loan losses - end of
period $ 809 $ 654
Page 10 of 14 pages
The following shows the summary of nonperforming loans.
NONPERFORMING LOANS
(In 000's)
March 31, 2000 December 31, 1999
Past Due 90 Days Past Due 90 Days
or More and Still or More and Still
Accruing Nonaccruing Accruing
Nonaccruing
Real estate
loans $ 163 $ 0 $ 168 $ 0
Installment
loans 35 0 0 0
Commercial and
all other
loans 2 0 0 0
Total
loans $ 200 $ 0 $ 168 $ 0
ASSETS
Total assets on March 31, 2000 were $ 131,290,000, compared
with $ 128,478,000, on December 31, 1999 for an increase of 2.2%.
Management intends to contain growth and concentrate on maintaining
adequate profit margins. Net loans on March 31, 2000 stood at
$ 94,761,000, an increase of 4.1% from $ 90,995,000 on December 31,
1999. The loan loss reserve at the end of the first quarter of
2000 was $ 809,000 compared with $ 800,000 at year-end 1999 and is
considered adequate, in management's judgment, to absorb possible
loan losses on existing loans.
LIABILITIES
Total deposits increased 1.8% to $ 105,177,000 as of March 31,
2000 compared with $ 103,311,000 at December 31, 1999.
Noninterest-bearing demand deposits increased 6.3% and certificates
of deposit increased 2.7% while interest-bearing savings deposits
decreased 2.0%.
CAPITAL
Total equity as of March 31, 2000 was $ 13,025,000
representing 9.9% of total assets, an increase of $ 272,000 from
the $ 12,753,000 reported on December 31, 1999. Accumulated
earnings for the first three months of 2000 were partially offset
by a $ 29,000 decrease in net unrealized holding losses (net of
deferred tax) and dividends declared and paid of $ 89,100.
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, 2000 is as follows:
Page 11 of 14 pages
Fulton Bancshares Regulatory Minimum
Corporation Requirements
Leverage ratio 10.5% 4.0%
Risk based capital ratios:
Tier I (core capital) 14.3% 4.0%
Combined tier I and tier
II (core capital plus
allowance for loan losses) 15.2% 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
2000 1999
ASSETS
Federal funds sold $ 137 $ 0
Securities available for sale 23,328 27,782
Other investments 870 685
Loans 93,586 83,313
Total interest-earning assets 117,921 111,780
Cash and due from banks 3,491 2,648
Bank premises and equipment 3,686 2,724
All other assets 4,323 4,142
Allowance for loan losses ( 803) ( 604)
Total assets $ 128,618 $ 120,690
LIABILITIES
Interest-bearing deposits in domestic
offices $ 92,135 $ 86,386
Federal funds purchased 4 237
Other short-term borrowings 11,052 10,292
Total interest-bearing liabilities 103,191 96,915
Noninterest-bearing deposits 12,284 10,572
All other liabilities 416 743
Total liabilities 115,891 108,230
STOCKHOLDERS' EQUITY
Common stockholders' equity 13,429 12,371
Net unrealized holding losses, net
of tax ( 702) 89
Total stockholders' equity 12,727 12,460
Total liabilities and stockholders'
equity $ 128,618 $ 120,690
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
EXHIBIT 99
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors
Fulton Bancshares Corporation and Subsidiaries
McConnellsburg, Pennsylvania
We have reviewed the accompanying consolidated statement of
financial condition of Fulton Bancshares Corporation and Subsidiaries
as of March 31, 2000 and the related consolidated statement of changes
in stockholders' equity for the three months ended March 31, 2000 and
the consolidated statements of income, comprehensive income, and cash
flows for the three months ended March 31, 2000 and 1999. These
financial statements are the responsibility of the corporation's
management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public Accountants.
A review of interim financial information consists principally of
applying analytical procedures to financial data and making inquiries
of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the consolidated financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying consolidated
financial statements for them to be in conformity with generally
accepted accounting principles.
/s/ Smith Elliott Kearns & Company, LLC
SMITH ELLIOTT KEARNS & COMPANY, LLC
Chambersburg, Pennsylvania
May 9, 2000
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<FISCAL-YEAR-END> DEC-31-1999
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0
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<COMMON> 309
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