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 SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending October 31, 1996
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
- ------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 Market Street, Fulton, MO 65251
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
573-682-6617
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(Registrant's telephone number)
None
----------------------------------------
(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
------ ------
As of December 10, 1996, there were 1,719,250 shares of the Registrant's
Common Stock, $.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-QBS
OCTOBER 31, 1996
INDEX PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 1
CONSOLIDATED STATEMENTS OF INCOME 2
CONSOLIDATED STATEMENTS OF CASH FLOWS 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4-6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 7-10
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 - LEGAL PROCEEDINGS 11
ITEM 2 - CHANGES IN SECURITIES 11
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 11
ITEM 5 - OTHER INFORMATION 11
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
October 31, April 30,
1996 1996
----------- ---------
(Unaudited)
ASSETS
Cash and cash equivalents, including
interest-bearing accounts of $9,005 at
October 31, 1996 and $2,499 at
April 30, 1996 $ 10,447 $2,924
Investment securities available-for-sale 2,710 3,216
Stock in Federal Home Loan Bank of
Des Moines 637 637
Loans held for sale 3,824 2,306
Loans receivable, net (allowance for loan
losses of $802 at October 31, 1996
and $782 at April 30, 1996) 79,802 73,893
Accrued interest receivable 756 608
Premises and equipment, net 1,498 1,307
Foreclosed real estate 198 198
Other assets 491 407
-------- -------
TOTAL ASSETS $100,363 $85,496
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Customer deposits $ 66,926 $70,316
Advances from Federal Home Loan Bank
of Des Moines 7,000 5,000
Advances from borrowers for taxes
and insurance 1,046 620
Accrued interest payable 297 299
Other liabilities 615 144
------- -------
TOTAL LIABILITIES 75,884 $76,379
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value
per share, 1,000,000 authorized, none issued --- ---
Common stock, $.01 par value per share;
6,000,000 shares authorized, 1,719,250 issued
and outstanding at October 31, none issued
and outstanding at April 30 17 ---
Paid-in capital 16,533 ---
Retained earnings - substantially restricted 9,292 9,096
Unrealized gain on securities available
-for-sale, net of taxes 12 21
Unearned ESOP shares (1,375) ---
-------- -------
TOTAL STOCKHOLDERS' EQUITY 24,479 9,117
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $100,363 $85,496
======== =======
See accompanying notes to Consolidated Financial Statements
1
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
Three Months Ended Six Months Ended
October 31, October 31,
1996 1995 1996 1995
-------------------- -------------------
(Unaudited)
Interest Income
Mortgage loans $1,417 $1,198 $2,842 $2,365
Consumer and other loans 212 197 428 374
Investment securities 60 77 126 159
Interest-earning deposits 122 66 134 119
------ ------ ----- -----
TOTAL INTEREST INCOME 1,811 1,538 3,530 3,017
Interest Expense
Deposits 955 870 1,862 1,701
Advances from Federal Home Loan
Bank of Des Moines 123 79 229 157
------ ----- ----- -----
1,078 949 2,091 1,858
------ ----- ----- -----
NET INTEREST INCOME 733 589 1,439 1,159
Provision for loan losses --- --- 25 ---
------ ----- ----- -----
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 733 589 1,414 1,159
Noninterest Income
Loan servicing fees 80 68 156 133
Service charges and other fees 34 31 69 64
Income from foreclosed assets 8 5 13 9
Other 4 48 50 48
------ ------ ------ ------
TOTAL NONINTEREST INCOME 126 152 288 254
Noninterest Expense
Employee salaries and benefits 221 198 446 408
Occupancy costs 71 45 135 95
Advertising 16 4 26 11
Data processing 47 26 93 66
Federal insurance premiums 454 36 498 73
Directors' fees 22 23 43 43
Other 76 76 148 158
------ ------ ------ ------
TOTAL NONINTEREST EXPENSE 907 408 1,389 854
------ ------ ------ ------
INCOME (LOSS) BEFORE
INCOME TAXES (48) 333 313 559
Income Taxes (Benefit) (15) 125 117 208
------ ------ ------ ------
NET INCOME (LOSS) $ (33) $ 208 $ 196 $ 351
====== ====== ====== ======
Earnings (Loss) per share ($0.02) N/A $0.12 N/A
===== =====
See accompanying notes to Consolidated Financial Statements
2
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
October 31,
1996 1995
---------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 196 $ 351
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 64 53
Amortization of premiums and discounts (9) 1
Provisions for loan losses (25) ---
Proceeds from sales of loans held for sale 8,593 11,769
Origination of loans held for sale (10,110) (11,888)
Stock and patronage dividends 47 1
Change to assets and liabilities
increasing (decreasing) cash flows
Accrued interest receivable (148) (88)
Other assets (135) (35)
Accrued interest payable (2) 43
Other liabilities 315 (83)
------- ------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,214) 124
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities
Available-for-sale 500 200
Loans originated, net of repayments (5,884) (1,717)
Purchase of premises and equipment (252) (94)
Expenditures on foreclosed real estate --- (2)
------ -----
NET CASH USED IN INVESTING
ACTIVITIES (5,636) (1,613)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (3,390) 3,197
Advances from Federal Home Bank of Des Moines:
Borrowings 8,000 ---
Repayments (6,000) ---
Net increase (decrease) in advance payments
by borrowers for taxes and insurance 427 451
Proceeds from sale of common stock 16,711 ---
Loan to ESOP (1,375)
------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 14,373 3,648
------- -------
NET INCREASE IN CASH 7,523 2,159
Cash, beginning of period 2,924 4,188
------- -------
CASH, END OF PERIOD $10,447 $ 6,347
======= =======
See accompanying notes to Consolidated Financial Statements
3
FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--Basis of Presentation
- -----------------------------
The consolidated interim financial statements as of October 31, 1996, included
in this report have been prepared by Fulton Bancorp, Inc. ("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 October 31, 1996, interim financial statements. The results of operations
for the period ended October 31, 1996, are not necessarily indicative of the
operating results for the full year. The April 30, 1996, Consolidated
Statement of Financial Condition presented with the interim financial
statements was audited and received an unqualified opinion.
NOTE B--Formation of Holding Company and Conversion to Stock Form
- ------------------------------------------------------------------
On October 17, 1996, the Company became the holding company for Fulton Savings
Bank, FSB (the "Bank") upon the Bank's conversion from a federally chartered
mutual savings bank to a federally chartered capital stock savings bank. The
conversion was accomplished through the sale and issuance by the Company of
1,719,250 shares of common stock at $10 per share. Proceeds from the sale of
common stock, net of expenses incurred to date of $642,494 were $16,532,813,
inclusive of $1,375,400 related to shares held by the Bank's Employee Stock
Ownership Plan ("ESOP"). The financial statements included herein have
not been restated as a result of the consummation of the conversion.
NOTE C--Earnings Per Share
- --------------------------
Earnings per share data is not relevant for any period prior to October 31,
1996, since the Company had no stockholders prior to the initial stock
offering completed October 17, 1996. Earnings per share is presented for
October 31, 1996, based on the average shares issued and outstanding during
the period.
NOTE D--Employee Stock Ownership Plan
- -------------------------------------
In connection with the conversion to stock form as described in Note B, the
Bank established an 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 25% vested
after each year of credited service beyond one year. 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.
4
FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE D--Employee Stock Ownership Plan (Continued)
- -------------------------------------------------
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 and
accrued interest. ESOP compensation expense was $-0- for the three months
and six months ended October 31, 1996.
A summary of ESOP shares at October 31, 1996, is as follows:
Shares committed for release -0-
Unreleased shares 137,540
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TOTAL 137,540
=======
Fair value of unreleased shares $1,925,560
==========
NOTE E--Accounting Changes
- --------------------------
Effective October 1996, the Company adopted Statement of Position ("SOP")
93-6, "Employers' Accounting for Employee Stock Ownership Plans". SOP 93-6
applies to shares acquired by employee stock ownership plans after December
31, 1992, but not yet committed to be released as of the beginning of the year
SOP 93-6 is adopted. SOP 93-6 changes the measure of compensation expenses
recorded by employers for leveraged employee stock ownership plans from the
cost of the ESOP shares to the fair value of the ESOP shares during the
periods in which they become committed to be released. To the extent that
fair value of the Bank's ESOP shares differs from the cost of such shares, the
differential will be charged or credited to equity. Employers with internally
leveraged employee stock ownership plans such as the Company will not report
the loans receivable from the ESOP as an asset and will not report the ESOP
debt from the employer as a liability.
The Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures, an amendment of SFAS No. 114", effective
May 1, 1995. These statements address the accounting by creditors for
impairment of certain loans. They apply to all creditors and to all loans,
uncollateralized as well as collateralized, except for large groups of
small-balance homogeneous loans that are collectively evaluated for
impairment, loans measured at fair value or at lower of cost or fair value,
leases, and debt securities. The Bank considers all one-to four-family
residential mortgage loans, construction loans, and all consumer and other
loans to be smaller homogeneous loans.
These statements apply to all loans that are restructured involving a
modification of terms. Loans within the scope of these statements are
considered impaired when, based on current information and events, it is
probable that all principal and interest will not be collected in accordance
with the contractual terms of the loans. Management determines the impairment
of loans based on knowledge of the borrower's ability to repay the loan
according to the contractual agreement as well as the borrower's repayment
history.
5
FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE E--Accounting Changes (Continued)
- --------------------------------------
Management applies its normal loan review procedures in determining when a
loan is impaired. The Bank applies SFAS No. 114 on a loan by loan basis. All
nonaccrual loans are considered impaired. Impaired loans are measured based on
present value of expected cash flows, the loan's observable market price or
the fair value of the underlying collateral. If the value computed is less
than the recorded value, a valuation allowance is recorded for the difference
as a component of the provision for loan loss expense. Management has elected
to continue to use its existing nonaccrual methods for recognizing interest
income on impaired loans.
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities. In June 1996, the FASB issued SFAS 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities". SFAS 125 provides accounting and reporting standards for
transfers and servicing of financial assets and the extinguishment of
liabilities based on consistent application of a financial components approach
that focuses on control. It distinguishes transfers of financial assets that
are sales from transfers that are secured borrowings. Under the financial
components approach, after a transfer of financial assets, an entity
recognizes all financial and servicing assets it controls and liabilities it
has incurred and derecognizes financial assets it no longer controls and
liabilities that have been extinguished. The financial components approach
focuses on the assets and liabilities that exist after the transfer. Many of
these assets and liabilities are components of financial assets that existed
prior to the transfer. If a transfer does not meet the criteria for a sale,
the transfer is accounting for as a secured borrowing with pledge of
collateral.
SFAS 125 extends the "available for sale" or "trading" approach in SFAS 115 to
nonsecurity financial assets that can contractually be repaid or otherwise
settled in such a way that the holder of the assets would not recover
substantially all of its recorded investment. SFAS 125 also amends SFAS 115
to prevent a security from being classified as held to maturity if the
security can be prepaid or otherwise settled in such a way that the holder of
the security would not recover substantially all of its recorded investment.
SFAS 125 provides implementation guidance for accounting for (i)
securitizations, (ii) transfers of partial interests, (iii) servicing of
financial assets, (iv) securities lending transactions, (v) repurchase
agreements including "dollar rolls", (vi) loan syndications and
participations, (vii) risk participations in banker's acceptances, (viii)
factoring arrangements, (ix) transfers of receivables with recourse, (x)
transfers of sales type and direct financing lease receivables, and (xi)
extinguishments of liabilities.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
In addition, the extension of the SFAS 125 approach to certain nonsecurity
financial assets and the amendment of SFAS 115 is effective for financial
assets held on or acquired after January 1, 1997. Reclassifications that are
necessary because of the amendment do not call into question an entity's
ability to hold other debt securities to maturity in the future. Management
of the Company does not expect the adoption of SFAS 125 will have a material
effect on the Company's financial position or results of operations.
Note F--Subsequent Change in Fiscal Year-End
- --------------------------------------------
On November 13, 1996, the Board of Directors of the Company determined to
change the Company's fiscal year-end from April 30 to June 30. The Company
will begin reporting on the basis of its new fiscal year-end beginning with
the quarter ending December 31, 1996.
6
FULTON BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- --------
Fulton Bancorp, Inc. ("Company") is a Delaware corporation that was organized
for the purpose of becoming the holding company for Fulton Savings Bank, FSB
("Bank") 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.
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
investments portfolio, and its cost of funds, which consists of interest paid
on deposits and borrowings. The Company's operating results are also
affected by the level of noninterest income and expenses. Noninterest income
consists primarily of loan servicing fees and service charges and other fees.
Noninterest expenses include employee salaries and benefits, occupancy costs,
deposit insurance premiums, data processing expenses and other operating
costs.
On September 30, 1996, the Bank recorded the effect of a one-time special
assessment to be paid by institutions whose deposit accounts are insured by
the Savings Association Insurance Fund ("SAIF"). The assessment was 0.657% of
assessable deposits as of March 31, 1995, which for the Bank totalled
$427,000. The assessment was designed to recapitalize the SAIF and permit the
eventual merger of the SAIF with the Bank Insurance Fund. As a result of the
recapitalization of the SAIF, the Bank's deposit insurance premiums will be
reduced to $0.065 per $100 of deposits beginning in 1997.
The discussion and analysis included herein covers certain changes in results
of operations during the three and six month periods ended October 31, 1996
and 1995, as well as those material changes in liquidity and capital resources
that have occurred since April 30, 1996.
The following should be read in conjunction with the Company's Prospectus
dated September 6, 1996, which contains the latest audited financial
statements and notes thereto, together with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained therein.
Therefore, only material changes in financial condition and results of
operation are discussed herein.
Comparison of Financial Condition at October 31 and April 30, 1996
Assets of the Company increased from $85.5 million at April 30, 1996, to
$100.4 million at October 31, 1996, primarily the result of the public stock
offering. Cash and interest-bearing deposits increased $7.5 million and
loans, including loans held for sale, increased $7.4 million as the Company
was able to lend a portion of offering proceeds. Deposits of the Company
decreased $3.4 million from $70.3 million at April 30, 1996, to $66.9 million
at October 31, 1996. Stockholders' equity increased from $9.1 million at
April 30, 1996, to $24.5 million at October 31, 1996.
Nonperforming assets of $516,000 or 0.60% of total assets at April 30,
1996, decreased to $381,000 or 0.38 % of total assets at October 31, 1996.
Comparison of the three months ended October 31, 1996 to the three months
ended October 31, 1995
- --------------------------------------------------------------------------
Net Income. The Company incurred a net loss of ($33,000) for the quarter
ended October 31, 1996, compared to net income of $208,000 for the quarter
ended October 31, 1995. Results for the current quarter were significantly
affected by the one-time special assessment to recapitalize the Savings
Association Insurance Fund. Without this one-time assessment, which totaled
$427,000, net income for the quarter ended October 31, 1996, would have been
$235,000.
7
FULTON BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Comparison of the three months ended October 31, 1996 to the three months
ended October 31, 1995 (Continued)
- --------------------------------------------------------------------------
Net Interest Income. Net interest income was $733,000 for the quarter
ended October 31, 1996, an increase of $144,000 or 24% from $589,000 for the
quarter ended October 31, 1995. Interest income increased $273,000 while
interest expense increased $129,000.
Interest Income. Interest income increased by $273,000 or 18% from
$1,538,000 for the quarter ended October 31, 1995, to $1,811,000 for the
quarter ended October 31, 1996. Interest income from mortgage loans
receivable increased $219,000 from $1,198,000 for the quarter ended October
31, 1995, to $1,417,000 for the quarter ended October 31, 1996. The increase
was due to an increase in mortgage loans and adjustments on adjustable-rate
mortgages. Interest income on consumer and other loans increased by $15,000
from $197,000 for the quarter ended October 31, 1995, to $212,000 for the
quarter ended October 31, 1996. The increase was due to an increase in loans
and rates on loans. Interest and dividend income on investment securities
decreased $17,000 from $77,000 for the quarter ended October 31, 1995, to
$60,000 for the quarter ended October 31, 1996. This decrease was due to a
decrease in investments. Interest income on interest- bearing deposits
increased $56,000 from $66,000 for the quarter ended October 31, 1995, to
$122,000 for the quarter ended October 31, 1996. This increase was due to the
investment of the proceeds from the public offering in interest-bearing
deposits.
Provision for Loan Losses. There was no provision for loan losses during
either the three months ended October 31, 1996, or the three months ended
October 31, 1995. During such periods, management considered the allowance
for loan losses to be adequate to provide for estimated loan losses.
Interest Expense. Interest expense increased $129,000 from $949,000 for
the quarter ended October 31, 1995, to $1,078,000 for the quarter ended
October 31, 1996. The increase results from increased rates and a higher
average deposit base during the conversion process which was completed on
October 17, 1996.
Noninterest Income. Noninterest income for the three months ended
October 31, 1996, decreased $26,000 from $152,000 for the three months ended
October 31, 1995, to $126,000 for the three months ended October 31, 1996.
Loan servicing fees increased $12,000 from servicing a larger loan servicing
portfolio. Other income decreased $44,000 resulting primarily from the
patronage equity dividend of $47,000 received during the quarter ended
October 31, 1995, and no dividend received for the three months ended October
31, 1996.
Noninterest Expense. Noninterest expense increased $499,000 or 122%
from $408,000 for the quarter ended October 31, 1995, to $907,000 for the
quarter ended October 31, 1996. This increase was primarily due to the
$427,000 one-time SAIF assessment.
Comparison of the six months ended October 31, 1996, to the six months ended
October 31, 1995
- -----------------------------------------------------------------------------
Net Income. Net income for the six months ended October 31, 1996,
decreased $155,000 from $351,000 for the six months ended October 31, 1995 to
$196,000 for the six months ended October 31, 1996. Without the one-time SAIF
assessment, net income for the six months ended October 31, 1996, would have
been $464,000.
Net Interest Income. Net interest income was $1,439,000 for the six
months ended October 31, 1996, an increase of $280,000 from the net interest
income of $1,159,000 for the six months ended October 31, 1995. Total
interest income and interest expense increased $513,000 and $233,000,
respectively, for the six months ended October 31, 1996.
8
FULTON BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Comparison of the six months ended October 31, 1996, to the six months ended
October 31, 1995 (Continued)
- ----------------------------------------------------------------------------
Interest Income. Total interest income increased $513,000 from
$3,017,000 for the six months ended October 31, 1995, to $3,530,000 for the
six months ended October 31, 1996. The increase was due primarily from
increases in interest income on mortgage loans and consumer and other loans.
The interest income from mortgage loans increased by $477,000 from $2,365,000
for the six months ended October 31, 1995, to $2,842,000 for the six months
ended October 31, 1996. This increase was primarily due to an increase in
loan rates and adjustments on adjustable-rate mortgages. The interest income
on consumer and other loans increased $54,000 from $374,000 for the six months
ended October 31, 1995, to $428,000 for the six months ended October 31,1996.
This increase was due to an increase in loans and rates on loans.
Interest and dividend income on investment securities decreased $33,000
from $159,000 for the six months ended October 31, 1995, to $126,000 for the
six months ended October 31, 1996. The decrease was primarily due to
decreasing investments. Interest income on interest-earning deposits
increased $15,000 from $119,000 for the six months ended October 31, 1995, to
$134,000 for the six months ended October 31, 1996, primarily due to the
investment of proceeds from the public offering.
Interest Expense. Interest expense on deposits increased $161,000 from
$1,701,000 for the six months ended October 31, 1995, to $1,862,000 for the
six months ended October 31, 1996. The increase was due primarily to higher
customer deposits for most of the six months ended October 31, 1996, which, in
turn, was due to interest in the conversion and stock offering. Interest on
advances from Federal Home Loan Bank of Des Moines increased $72,000 from
$157,000 for the six months ended October 31, 1995, to $229,000 for the six
months ended October 31, 1996, resulting from additional borrowings to meet
liquidity and loan demands.
Provision for Loan Losses. Provision for loan losses increased by
$25,000 for the six months ended October 31, 1996. The Company recorded no
provision for loan losses for the six months ended October 31, 1995.
Noninterest Income. Noninterest income increased by $34,000 from
$254,000 for the six months ended October 31, 1995, to $288,000 for the six
months ended October 31, 1996. The increase was primarily due to increased
loan servicing fees from additional loans. The patronage equity dividend of
$47,000 received during the six months ended October 31, 1995 from the
Company's data processor was replaced in part by a gain on the sale of this
data processing company in the six months ended October 31, 1996, in the
amount of $41,000.
Noninterest Expense. Noninterest expense increased by $535,000 from
$854,000 for the six months ended October 31, 1995, to $1,389,000 for the six
months ended October 31, 1996. Federal insurance premiums increased $425,000
from the one-time SAIF assessment. Employee salaries and benefits increased
by $38,000, occupancy costs increased $40,000, advertising costs increased
$15,000, data processing costs increased $27,000 and other decreased $10,000.
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 to supplement its supply of
lendable funds. At October 31, 1996, FHLB advances totaled $7,000,000.
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
October 31, 1996, the Bank had approved loan commitments totaling $8.3 million
and had undisbursed loans in process of $3,675,000.
9
FULTON BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (Continued)
- -------------------------------------------
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 October 31, 1996, certificates of deposit amounted to $52.2 million or
78.0% of total deposits, including $21.4 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 and maturities of investment securities.
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 5% of the average daily balance of its net withdrawable deposits
and short-term borrowing. The Bank's liquidity ratio was 14.65% at October
31, 1996. 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 October 31, 1996.
Percent of Adjusted
Amount Total Assets
-----------------------------
(Unaudited)
Tangible capital $15,995 15.9%
Tangible capital requirement 1,505 1.5
------ ----
EXCESS $14,490 14.4%
======= ====
Core capital $15,995 15.9%
Core capital requirement 3,010 3.0
------- ----
EXCESS $12,985 12.9%
======= ====
Risk-based capital $16.306 28.2
Risk-based capital requirement 4,621 8.0
------- ----
EXCESS $11.685 20.2%
======= ====
10
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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
27 Financial Data Schedule
11
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
/s/ Kermit D. Gohring
Date: December 12, 1996 By:---------------------
Kermit D. Gohring
President
/s/ Bonnie K. Smith
Date: December 12, 1996 By:---------------------
Bonnie K. Smith
Secretary-Treasurer
(Principal Accounting
Officer)