UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURTITIES EXCHANGE
ACT OF 1934
For the quarterly period ending September 30, 1999
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-21273
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Fulton Bancorp, Inc.
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(Exact name of small business
issuer as specified in its charter)
Delaware 43-1754577
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 Market Street, Fulton, MO 65251
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(Address of principal executive offices) (Zip Code)
573-642-6617
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(Registrant's telephone number)
None
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(Former name, former address and former
fiscal year, if changed since last report)
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 twelve months (or for such 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 _____
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As of November 3, 1999, there were 1,653,949 shares of the Registrant's Common
Stock, $0.01 par value per share, outstanding.
Transitional Small Business Disclosure Format
Yes _____ No X
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FULTON BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
September 30, 1999
INDEX PAGE
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PART I - FINANCIAL INFORMATION
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ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 3
CONSOLIDATED STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
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ITEM 1 - LEGAL PROCEEDINGS 17
ITEM 2 - CHANGES IN SECURITIES 17
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4 - SUBMISSION OF MATTER TO VOTE OF SECURITY-HOLDERS 17
ITEM 5 - OTHER INFORMATION 18
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
FINANCIAL DATA SCHEDULE 20
2
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, June 30,
1999 1999
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(Dollars in thousands)
ASSETS
Cash, including interest-bearing accounts of $8,952,000
and $12,694,000, respectively $ 9,602 $ 13,290
Investment securities, available-for-sale 1,710 1,723
Stock in Federal Home Loan Bank of Des Moines 985 985
Loans held for sale -- --
Loans receivable, net of allowance for loan losses of
$1,259,000 and $1,171,000, respectively 101,591 99,305
Accrued interest receivable 723 740
Premises and equipment 1,342 1,376
Foreclosed real estate 158 158
Loan servicing assets 541 584
Other assets 485 490
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TOTAL ASSETS $ 117,137 $ 118,651
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 70,564 $ 72,639
Advances from Federal Home Loan Bank of Des Moines 18,021 18,199
Advances from borrowers for property taxes and insurance 1,443 1,136
Amounts collected for others on loans sold 737 681
Accrued interest payable 103 84
Other liabilities 437 297
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TOTAL LIABILITIES 91,305 93,036
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value per share, 1,000,000 shares
authorized, none issued -- --
Common stock, $0.01 par value per share, 6,000,000 shares
authorized, 1,765,411 and 1,719,250 issued, respectively 18 18
Additional paid-in capital 17,910 17,882
Treasury stock at cost, 111,462 shares (1,899) (1,899)
Retained earnings - substantially restricted 11,226 11,162
Unearned Employee Stock Ownership Plan ("ESOP") shares (960) (995)
Deferred Management Recognition and Development Plan ("MRDP") (439) (537)
Accumulated other comprehensive income (24) (16)
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TOTAL STOCKHOLDERS' EQUITY 25,832 25,615
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 117,137 $ 118,651
============= ============
See accompanying notes to Consolidated Financial Statements.
3
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
September 30,
1999 1998
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(Dollars in thousands,
except per share amounts)
Interest Income
Mortgage loans $1,883 $1,742
Consumer and other loans 208 214
Investment securities 41 30
Interest-earning deposits 117 186
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TOTAL INTEREST INCOME 2,249 2,172
Interest Expense
Deposits 830 884
Advances from Federal Home Loan Bank
of Des Moines 277 231
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TOTAL INTEREST EXPENSE 1,107 1,115
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NET INTEREST INCOME 1,142 1,057
Provision for loan losses 90 30
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,052 1,027
Non-interest Income
Loan servicing fees 65 69
Gain (loss) on sales of loans (10) 78
Service charges and other fees 24 25
Income (loss) from foreclosed assets 2 --
Other 1 1
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TOTAL NON-INTEREST INCOME 82 173
Non-interest Expense
Employee salaries and benefits 426 456
Occupancy costs 68 64
Advertising 6 11
Data processing 55 42
Federal insurance premiums 11 12
Directors' fees 32 23
Other 192 100
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TOTAL NON-INTEREST EXPENSE 790 708
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INCOME BEFORE INCOME TAXES 344 492
Income Taxes 156 182
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NET INCOME $ 188 $ 310
================ ================
Basic Earnings Per Share $ 0.13 $ 0.20
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Diluted Earnings Per Share $ 0.12 $ 0.19
================ ================
See accompanying notes to Consolidated Financial Statements.
4
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
1999 1998
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(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 188 $ 310
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 34 36
Provision for loan losses 90 30
Proceeds from sales of loans held for sale 4,773 6,722
Origination of loans held for sale (4,773) (7,321)
Loss (gain) on sales of loans held for sale 14 (77)
Amortization of servicing asset 26 32
ESOP shares released 64 62
MRDP compensation expense 98 175
Change to assets and liabilities increasing (decreasing) cash flows
Accrued interest receivable 17 (70)
Other assets 5 (4)
Accrued interest payable 19 14
Other liabilities 140 180
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 695 89
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities
available-for-sale -- 500
Purchase of securities available-for-sale -- (598)
Loans originated, net of repayments (2,369) (5,656)
Purchase of premises and equipment -- (6)
Purchase of Federal Home Loan Bank stock -- (246)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,369) (6,006)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (2,075) 1,410
Advances from Federal Home Loan Bank of Des Moines:
Borrowings -- 5,000
Repayments (178) (102)
Net increase (decrease) in advances for taxes and insurance 307 401
Net increase (decrease) in amounts collected for others on loans sold 56 407
Purchase of treasury shares -- (256)
Dividends paid (124) (132)
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NET CASH PROVIDED BY FINANCING ACTIVITIES (2,014) 6,728
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NET INCREASE (DECREASE) IN CASH (3,688) 811
Cash, beginning of period 13,290 13,778
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CASH, END OF PERIOD $ 9,602 $14,589
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See accompanying notes to Consolidated Financial Statements.
5
FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- Basis of Presentation
- -------------------------------
The consolidated interim financial statements as of September 30, 1999, included
in this report have been prepared by Fulton Bancorp, Inc. (the "Company")
without audit. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation are reflected in
the September 30, 1999, interim financial statements. The results of operations
for the period ended September 30, 1999, are not necessarily indicative of
operating results for the full year.
NOTE B -- Earnings Per Share
- ----------------------------
Basic EPS is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
A summary of EPS calculations for the three month periods ended September 30,
1999 and 1998, is as follows:
Three Months Ended
September 30,
1999 1998
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(In thousands, except per share amounts)
Basic earnings per share:
Income available to common shareholders $ 188 $ 310
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Average common shares outstanding 1,501 1,582
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Basic earnings per share $ 0.13 $ 0.20
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Diluted earnings per share:
Income available to common shareholders $ 188 $ 310
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Average common shares outstanding 1,501 1,582
Dilutive potential common shares outstanding
due to common stock options and grants 34 23
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Average number of common shares and
dilutive potential common shares outstanding 1,535 1,605
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Diluted earnings per share $ 0.12 $ 0.19
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6
FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE C -- Employee Stock Ownership Plan
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In connection with the conversion to stock form, the Company's subsidiary,
Fulton Savings Bank, FSB, (the "Bank"), established an Employee Stock Ownership
Plan ("ESOP") for the exclusive benefit of participating employees (all salaried
employees who have completed at least 1,000 hours of service in a twelve-month
period and have attained the age of 21). The ESOP borrowed funds from the
Company in an amount sufficient to purchase 137,450 shares (8% of the Common
Stock issued in the stock offering). The loan is secured by the shares purchased
and will be repaid by the ESOP with funds from contributions made by the Bank,
dividends received by the ESOP and any other earnings on ESOP assets. The Bank
presently expects to contribute approximately $203,300, including interest,
annually to the ESOP. Contributions will be applied to repay interest on the
loan first, then the remainder will be applied to principal. The loan is
expected to be repaid in approximately 10 years. Shares purchased with the loan
proceeds are held in a suspense account for allocation among participants as the
loan is repaid. Contributions to the ESOP and shares released from the suspense
account are allocated among participants in proportion to their compensation
relative to total compensation of all active participants. Benefits generally
become 20% vested after three years of credited service and then 20% per year
thereafter until 100% vested. Vesting is accelerated upon retirement, death or
disability of the participant. Forfeitures are returned to the Company or
reallocated to other participants to reduce future funding costs. Benefits may
be payable upon retirement, death, disability or separation from service. Since
the Bank's annual contributions are discretionary, benefits payable under the
ESOP cannot be estimated.
The Company accounts for its ESOP in accordance with Statement of Position 93-6,
Employers' Accounting for Employee Stock Ownership Plans. Accordingly, the debt
of the ESOP is eliminated in consolidation and the shares pledged as collateral
are reported as unearned ESOP shares in the consolidated balance sheets.
Contributions to the ESOP shall be sufficient to pay principal and interest
currently due under the loan agreement. As shares are committed to be released
from collateral, the Company reports compensation expense equal to the average
market price of the shares for the respective period, and the shares become
outstanding for earnings per share computations. Dividends on allocated ESOP
shares are recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are recorded as a reduction of debt. ESOP compensation
expense was $56,000 for the three months ended September 30, 1999.
7
FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A summary of ESOP shares at September 30, 1999, is as follows:
Shares distributed to terminated participants 208
Shares allocated 30,910
Shares released for allocation 10,373
Unreleased shares 96,049
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TOTAL 137,540
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Fair value of unreleased shares $1,776,907
==========
NOTE D - Stock Based Compensation Plans
- ---------------------------------------
The Board of Directors adopted and the shareholders subsequently approved a
Management Recognition and Development Plan ("MRDP") and a Stock Option Plan
("SOP") on October 23, 1997. These plans were established to assist the Company
and its subsidiary in attracting, retaining and motivating key management and
employees by aligning their financial interest with those of the shareholders of
the Company.
The MRDP is a fixed award of 68,761 shares of restricted stock which vests over
a five year period. The Company selected an amortization method which
recognizes a higher percentage of compensation cost in the earlier years than in
the later years of the service period. Compensation cost approximated 34% of
the cost of the MRDP awards in the first year and 31% the second year, and will
approximate 18% the third, and 17% in the remaining two years.
Under the SOP, options to acquire shares of the Company's common stock may be
granted to certain officer, directors and employees of the Bank. The options
will enable the recipient to purchase stock at an exercise price equal to the
fair market value of the stock at the date of the grant. On November 12, 1997,
the Company granted options for 171,925 shares at $19.75 per share. The options
will vest over a five year period following the date of grant and are
exercisable for up to ten years.
As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company has elected to apply the recognition provisions of Accounting Principles
Board Opinion No. 25, under which compensation expense is recorded on the date
of grant only if the current market price of the underlying stock exceeds the
exercise price. Accordingly, adoption of SFAS No. 123 will have no impact on
the Company's consolidated financial position or results of operations.
8
FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE E - Reclassifications
- --------------------------
Certain amounts in the prior period's consolidated financial statements have
been reclassified to conform with the current year presentation.
NOTE F - Comprehensive Income
- -----------------------------
On July 1, 1998 the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", which
established standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. For the three month periods ended September 30,
1999 and 1998, unrealized holding gains and losses on investments in debt and
equity securities available-for-sale were the Company's only other comprehensive
income component.
Comprehensive income for the three month periods ended September 30, 1999 and
1998 is summarized as follows:
Three Months Ended
September 30,
1999 1998
------- ------
(Dollars in thousands)
Net income $ 188 $ 310
Other comprehensive income:
Net unrealized holding gains (losses)
on investments in debt and equity
securities available-for-sale (8) 2
Adjustment for net securities (gains)
losses realized in net income, net
of applicable income taxes 0 0
------ ------
Total other comprehensive income (8) 0
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Comprehensive income $ 180 $ 312
====== ======
NOTE G - Plan of Merger
- ------------------------
The Company has entered into a plan of merger, dated as of May 18, 1999,
with Central Bancompany, Inc. ("Central"). Under the plan of merger, the Company
will merge with a subsidiary of Central, with the Company being the surviving
corporation. The Company will then merge into
9
FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Central, with Central being the surviving Corporation. Immediately after the
merger the Bank will merge with The Central Trust Bank, with The Central Trust
Bank being the surviving institution. As a result of this transaction, the
Company and the Bank will cease to exist. Under the merger agreement, each
outstanding share of common stock of the Company will automatically become
exchangeable for $19.15 in cash. The plan was approved by shareholders on
September 14, 1999 and is pending regulatory approval. For the three months
ended September 30, 1999, the Company has incurred $83,000 of costs associated
with the merger which are included in noninterest expense. Through September 30,
1999 cumulative costs associated with the merger are approximately $166,000 and
the Company anticipates the total expenses associated with the merger will
amount to approximately $375,000.
10
FULTON BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- -------
Fulton Bancorp, Inc. is a Delaware corporation that was organized for the
purpose of becoming the holding company for Fulton Savings Bank, FSB upon the
Bank's conversion from a federal mutual savings bank to a federal capital stock
savings bank. The Bank's conversion was completed on October 17, 1996. The
Bank is a community oriented financial institution that engages primarily in the
business of attracting deposits from the general public and using those funds to
originate residential and commercial mortgage loans within its market area. The
Bank's deposits are insured up to applicable limits by the Savings Association
Insurance Fund.
Pursuant to an Agreement and Plan of Merger dated as of May 18, 1999, by and
between the Company and Central Bancompany, Inc. ("Central"), the Company has
agreed to merge with a subsidiary of Central, with the Company being the
surviving corporation. The Company will then merge into Central, with Central
being the surviving corporation. Immediately after this merger, Fulton Savings
Bank will merge with The Central Trust Bank, with The Central Trust Bank being
the surviving institution. As a result of this transaction, the Company and
Fulton Savings Bank will cease to exist. Central intends to operate Fulton
Savings Bank's Fulton office as a branch of The Central Trust Bank and to
consolidate Fulton Savings Bank's Holts Summit office with The Central Trust
Bank's existing office in Holts Summit. Under the merger agreement, each
outstanding share of the Company's common stock will automatically become
exchangeable for $19.15 in cash. The Company's Stockholders approved the
Company's merger with Central at the Company's Special Meeting of Stockholders
held on September 14, 1999.
The Company's operating results depend primarily on its net interest income,
which is the difference between the income it receives on its loan and
investment portfolios, and its cost of funds, which consists of interest paid on
deposits and borrowings. The Company's operating results are also affected by
its level of non-interest income and expenses. Non-interest income consists
primarily of loan servicing fees, gain on sale of loans and service charges and
other fees. Non-interest expenses include employee salaries and benefits,
occupancy costs, deposit insurance premiums, data processing expenses and other
operating costs.
The discussion and analysis included herein covers certain changes in results of
operations during the three month periods ended September 30, 1999 and 1998, as
well as those material changes in liquidity and capital resources that have
occurred since June 30, 1999.
The following should be read in conjunction with the Company's 1999 Annual
Report on Form 10-KSB which contains the latest audited financial statements and
notes thereto, together with Management's Discussion and Analysis of Financial
Condition and Results of
11
Operations. Therefore, only material changes in financial condition and results
of operation are discussed herein.
Financial Condition at September 30, 1999 Compared to June 30, 1999
- -------------------------------------------------------------------
Loans receivable, net of the allowance for loan losses, increased $2.3 million
or 2.3% and were funded by a decrease in cash. Total assets decreased $1.5
million or 1.3% to $117.1 million at September 30, 1999 due primarily to a $2.1
million or 2.9% decrease in deposits, primarily certificates of deposit.
Total stockholders' equity increased $217,000 from June 30, 1999 to September
30, 1999. Employee Stock Ownership Plan (ESOP) and Management Recognition and
Development Plan (MRDP) transactions increased total stockholders equity
$162,000 in the aggregate; net income contributed $188,000; and dividends paid
totaled $124,000.
Nonperforming assets, which are defined as loans 90 days or more past due, loans
on nonaccrual status, and foreclosed real estate owned totaled $267,000 or 0.23%
of total assets at September 30, 1999 compared to $607,000 or 0.51% of total
assets at June 30, 1999.
Results of Operations for the Three Months Ended September 30, 1999 and 1998
- ----------------------------------------------------------------------------
Net income for the three months ended September 30, 1999 decreased $122,000
compared to the three months ended September 30, 1998. Diluted earnings per
share was 12 cents per share for the current quarter, compared to 19 cents per
share for the three months ended September 30, 1998, a decrease of 7 cents per
share or 36.8%. Net interest income increased $85,000 compared to the same
quarter of a year ago. However, that favorable variance was more than offset by
a $60,000 increase in the provision for loan losses, a $91,000 decrease in non-
interest income, and an $82,000 increase in non-interest expense. Income taxes
decreased $26,000.
The $85,000 or 8.0% increase in net interest income reflected a combination of a
$4.6 million or 4.2% increase in average total interest earning asset volume and
16 basis point increase in net interest margin to 3.94% for the current quarter.
Average mortgage loans increased $7.2 million or 8.3% and average investment
securities increased $0.9 million. Average interest bearing accounts at other
financial institutions decreased $3.3 million or 23.8% and average consumer and
other loans decreased $0.2 million. An increase in average Federal Home Loan
Bank advances of approximately $3.5 million funded a significant portion of the
increase in average total earning assets. Average total deposits increased $1.7
million. The increase in net interest margin primarily reflected a 33 basis
point decrease in the average rate paid for interest bearing liabilities, which
was offset in part by a decrease in average non-interest bearing fund sources.
The $90,000 provision for loan losses in the current quarter reflected
management's judgment of the provision necessary to maintain an adequate loan
reserve balance based upon loan growth and the quality of the loan portfolio. A
$30,000 provision for loan losses was recorded in the three month period ended
September 30, 1998. The increase in the provision
12
for loan losses for the current quarter compared to the same quarter in 1998
primarily reflected a strengthening of the allowance for loans losses
relationship to total loans outstanding from its 1998 levels. The allowance for
loan losses was 1.22% of total loans outstanding, including loans held for sale,
at September 30, 1999 compared to 1.17% at June 30, 1999, 1.00% at September 30,
1998, and 1.05% at June 30, 1998. At September 30, 1999 the allowance for loan
losses was 1,155.0% of nonperforming loans compared to 260.8% at June 30, 1999,
333.6% at September 30, 1998, and 626.5% at June 30, 1998.
The $91,000 or 52.6% decrease in non-interest income primarily reflected
decreases in gain (loss) on sales of loans and loan servicing fees. The decline
in gain (loss) on sales of loans primarily reflected the write-off of previously
recorded service assets on loans which pre-paid during the quarter, while the
decline in loan servicing fees was due to an increase in the amortization of
servicing assets.
The $82,000 or 11.6% increase in non-interest expense primarily reflected a
$92,000 increase in other non-interest expense plus increases in data processing
costs and directors fees. Those unfavorable variances were partially offset by
a $30,000 decrease in employee salaries and benefits. The increase in other
non-interest expense primarily reflected $83,000 of merger related expenses,
while the increase in data processing costs resulted from system upgrades.
Directors' fees per meeting were increased in January, 1999. The 6.6% decrease
in employee salaries and benefits, the largest component of non-interest
expense, was due primarily to a decrease of $77,000 in MRDP expense for the
current quarter compared to the same quarter of a year ago. The decrease in
MRDP expense was partially offset by a $13,000 or 5.8% increase in salary
expense, a reduction in deferred salary costs relating to loan originations, and
increases in other employee benefit plans.
The Company's effective income tax rate for the three months ended September 30,
1999 increased to 45.3% for the current quarter compared to 37.0% for the same
period last year due primarily to the nondeductibility of merger related
expenses.
Liquidity and Capital Resources
- -------------------------------
The Bank's primary sources of funds are deposits, proceeds from principal and
interest payments on loans, mortgage-backed securities, investment securities
and net operating income. While maturities and scheduled amortization of loans
and mortgage-backed securities are a somewhat predictable source of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Bank utilizes advances
from the Federal Home Loan Bank (FHLB) to supplement its supply of lendable
funds. At September 30, 1999, FHLB advances totaled $18,021,000.
The Bank must maintain an adequate level of liquidity to ensure availability of
sufficient funds to support loan growth and deposit withdrawals, satisfy
financial commitments and to take advantage of investment opportunities. At
September 30, 1999 the Bank had approved loan commitments totaling $2.9 million
and had undisbursed loans in process of $8.8 million.
13
Liquid funds necessary for normal daily operations are maintained in a working
checking account and a daily time account with the Federal Home Loan Bank of Des
Moines. It is the Bank's current policy to maintain adequate collected balances
in those deposit accounts to meet daily operating expenses, customer
withdrawals, and fund loan demand. Funds received from daily operating
activities are deposited on a daily basis in the checking account and
transferred, when appropriate, to the daily time account to enhance income.
At September 30, 1999, certificates of deposit amounted to $52.4 million or
74.2% of total deposits, including $34.7 million of fixed rate certificates
scheduled to mature within twelve months. Historically, the Bank has been able
to retain a significant amount of its deposits as they mature. Management
believes it has adequate resources to fund all loan commitments from savings
deposits, loan payments, maturities of investment securities and the ability to
obtain advances from the Federal Home Loan Bank of Des Moines.
The Office of Thrift Supervision requires a thrift institution to maintain an
average daily balance of liquid assets (cash and eligible investments) equal to
at least 4% of the average daily balance of its net withdrawable deposits and
short-term borrowing. The Bank's liquidity ratio was 11.59% at September
30,1999. The Bank consistently maintains liquidity levels in excess of
regulatory requirements, and believes this is an appropriate strategy for proper
asset and liability management.
The Office of Thrift Supervision requires institutions such as the Bank to meet
certain tangible, core, and risk-based capital requirements. Tangible capital
generally consists of stockholders' equity minus certain intangible assets.
Core capital generally consists of stockholders' equity. The risk-based capital
requirements presently address risk related to both recorded assets and off-
balance sheet commitments and obligations. The following table summarizes the
Bank's capital ratios and the ratios required by regulation (dollars in
thousands) at September 30, 1999.
Percent of Adjusted
Amount Total Assets
------- --------------------
(Unaudited)
Tangible capital $20,451 17.5%
Tangible capital requirement 1,754 1.5
------- ----
EXCESS $18,697 16.0%
======= ====
Core capital $20,451 17.5%
Core capital requirement 4,677 4.0
------- ----
EXCESS $15,774 13.5%
======= ====
Risk-based capital $21,303 31.4%
Risk-based capital requirement 5,422 8.0
------- ----
EXCESS $15,881 23.4%
======= ====
14
The Bank is considered a "well capitalized" institution under the prompt
corrective action regulations of the Office of Thrift Supervision.
Year 2000 Issue
- ---------------
The Year 2000 issue concerns computer software programs which use only two
digits to identify the calendar year in date fields. Software applications
utilizing two digit date fields could produce erroneous results at the turn of
the century. The Year 2000 issue presents several potential risks to the
Company.
The banking transactions of the Company's customers are processed by one or more
computer systems provided by a third-party data processing service. Failure of
one or more of those systems to function as a result of the Year 2000 date
change could result in the Company's inability to properly process customer
transactions. If that were to occur, the Company could lose customers to other
financial institutions, resulting in a loss of revenue.
A number of the Company's borrowers utilize computers and computer software to
varying degrees in conjunction with the operation of their businesses. The
customers and suppliers of the Company's borrowers may utilize computers as
well. Should the Company's borrowers, or the businesses on which they depend,
experience Year 2000 related computer problems, such borrowers' cash flow could
be disrupted, adversely effecting their ability to repay their loans with the
Company.
Concern on the part of certain depositors that the Year 2000 related problems
could impair access to their deposit account balances following the Year 2000
date change could result in the Company experiencing a deposit outflow prior to
December 31, 1999. Should the Year 2000 related problems occur which cause any
of the Bank's systems, or the systems of the third-party service bureau upon
which the Company depends, to become inoperative, increased personnel costs
could be incurred if additional staff is required to perform functions that the
inoperative systems would have other wise performed.
Management believes it is not possible to estimate the potential lost revenue
due to the Year 2000 issue, as the extent and longevity of such potential
problems cannot be predicted.
The Company has a Year 2000 Action Plan which management has used to identify
and correct Year 2000 compliance issues. The Company has reviewed all services
and operational components to identify technical and non-technical areas of
concern. Having identified these internal and external components, the Company
has replaced some of its computer hardware with Year 2000 compliant equipment.
The Company has requested third party providers to insure Year 2000 compliance
by requiring them to test their own systems and services. All third party
vendors have identified Year 2000 issues and are compliant or are completing
revisions to systems and software to become Year 2000 complaint. Testing
schedules have been established with each provider. The primary service
provider for the Company is Fiserv, which provides data processing services.
Fiserv has indicated that it is Year 2000 compliant. Further, the Company has
tested all of its internal computer software and has determined that they are
Year 2000 compliant.
15
As stated earlier, a number of the Company's borrowers utilize computers and
computer software to varying degrees in conjunction with the operation of their
businesses. The Company has contacted these borrowers to determine their status
relating to compliance with Year 2000 issues. Responses received from these
borrowers indicate that they are aware of the Year 2000 problem and are
compliant or taking the necessary steps to be compliant. The Company is
requiring new borrowers to be Year 2000 compliant before granting any extensions
of credit.
The Company has developed a business resumption and contingency plan. This plan
takes into account the actions the Company will implement if there is a
disruption caused by Year 2000 related computer problems. The Company feels that
the probability of an extended disruption is unlikely. Nevertheless, the
contingency plans being developed take into account disruptions caused by the
loss utilities such as power, water or telecommunications. The Company is
preparing to handle its business transactions off-line for a short period of
time. Such preparations will include the production of hard copy reports as of
December 30, 1999 for loan, deposit, general ledger, and central information
file systems and a complete back-up of the Bank's computer systems as of
December 31, 1999. In addition, the Bank is also preparing for the possibility
that there will be an increased cash demand in the first part of the year. In
order to have as much time as possible to ascertain the effectiveness of the
Bank's preparedness, the Bank will be closed for business on Saturday, January
1, 2000. All department heads will report to their respective offices on
Saturday, January 1, 2000 to perform tests and determine if further
implementation of the contingency plan is necessary. Every effort will be made
to correct any problems that might arise before the Bank opens to the public on
January 3, 2000.
To date, the Company has incurred costs of approximately $106,000 relating to
the Year 2000 issue. The majority of that amount was the result of the purchase
of Year 2000 compliant hardware and software. The Company presently anticipates
that total expense relating to the Year 2000 issue will not exceed $150,000.
16
FULTON BANCORP, INC AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any material legal proceedings at
this time. From time to time the Bank is involved in various claims and legal
actions arising in the ordinary course of business.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At a Special Meeting of Shareholders of Fulton Bancorp, Inc. ("Meeting") held on
September 14, 1999, shareholders approved the following resolution:
RESOLVED, that the Agreement and Plan of Merger, dated as of May 18, 1999,
by and between Central Bancompany, Inc. and Fulton Bancorp, Inc., pursuant
to which Fulton Bancorp, Inc. will merge with a wholly-owned subsidiary of
Central Bancompany, Inc. and each share of common stock of Fulton Bancorp,
Inc., par value $.01 per share, will be converted into the right to receive
$19.15 in cash, all on and subject to the terms and conditions contained
therein, having been presented to and considered at this Meeting, be hereby
approved in all respects.
Out of 1,653,949 shares of common stock of the Company entitled to vote at the
Meeting, the holders of 1,284,253 shares or 77.7% of the shares outstanding and
entitled to vote were present in person or by proxy. The following is a summary
of votes cast. No broker non-votes were received.
Percentage of
Number of Total Shares
Votes Cast Entitled to Vote
---------- ----------------
FOR 1,218,726 73.7%
AGAINST 59,166 3.6
ABSTAIN 6,361 0.4
17
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
27 -- Financial Data Schedule
18
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FULTON BANCORP, INC
Date 10-27-99 By: /s/ Kermit D. Gohring
------------------------------
Kermit D. Gohring
President
Date 10-27-99 By: /s/ Bonnie K. Smith
------------------------------
Bonnie K. Smith
Secretary - Treasurer
(Principal Accounting Officer)
19