UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending December 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 February 10, 1997, 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-QSB
DECEMBER 31, 1996
INDEX PAGE
- ----- ----
PART I - FINANCIAL INFORMATION
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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
CONDITION AND RESULTS OF OPERATIONS 7-10
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)
December 31, June 30,
1996 1996
------------ --------
(Unaudited)
ASSETS
Cash, including interest-bearing accounts of $5,637
at December 31, 1996 and $1,306 at June 30, 1996 $ 7,344 $ 3,154
Investment securities, available-for-sale 3,405 3,207
Stock in Federal Home Loan Bank of Des Moines 637 637
Loans held for sale 1,537 548
Loans receivable (allowance for loan losses of $811
at December 31, 1996 and $800 at June 30, 1996) 84,141 78,541
Accrued interest receivable 679 705
Premises and equipment 1,510 1,398
Foreclosed real estate 198 198
Other assets 11 383
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TOTAL ASSETS $99,462 $88,771
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $67,726 $71,288
Advances from Federal Home Loan Bank of Des Moines 6,500 7,000
Advances from borrowers for property taxes and
insurance 303 746
Accrued interest payable 89 100
Other liabilities 159 363
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TOTAL LIABILITIES 74,777 79,497
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
December 31, none issued and outstanding
at June 30 17 ---
Paid-in capital 16,546 ---
Retained earnings - substantially restricted 9,458 9,260
Unrealized gain on securities available-for-sale,
net of taxes 5 14
Unearned ESOP shares (1,341) ---
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TOTAL STOCKHOLDERS' EQUITY 24,685 9,274
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $99,462 $88,771
======= =======
See accompanying notes to Consolidated Financial Statements
-1-
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
------------------ ----------------
(Unaudited)
Interest Income
Mortgage loans $1,461 $1,190 $2,840 $2,377
Consumer and other loans 213 193 426 389
Investment securities 86 67 148 146
Interest-earning deposits 182 62 204 126
------ ------ ------ ------
TOTAL INTEREST INCOME 1,942 1,512 3,618 3,038
Interest Expense
Deposits 909 882 1,826 1,777
Advances from Federal Home Loan Bank
of Des Moines 112 78 237 157
------ ------ ------ ------
1,021 960 2,063 1,934
------ ------ ------ ------
NET INTEREST INCOME 921 552 1,555 1,104
Provision for loan losses --- 25 --- 25
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 921 527 1,555 1,079
Non-interest Income
Loan servicing fees 79 72 158 139
Service charges and other fees 35 30 68 61
Income (loss) from foreclosed assets (6) (2) 6 1
Other 6 3 19 64
------ ------ ------ ------
TOTAL NON-INTEREST INCOME 114 103 251 265
Non-interest Expense
Employee salaries and benefits 299 224 525 415
Occupancy costs 87 59 148 110
Advertising 15 7 29 11
Data processing 48 30 92 70
Federal insurance premiums 41 39 495 76
Directors' fees 21 22 43 46
Other 75 91 165 156
------ ------ ------ ------
TOTAL NON-INTEREST EXPENSE 586 472 1,497 884
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 449 158 309 460
Income Taxes 164 63 111 175
------ ------ ------ ------
NET INCOME $ 285 $ 95 $ 198 $ 285
====== ====== ====== ======
Net Income Per Share $ 0.18 * $ 0.13 *
====== ====== ====== ======
*Operating as Fulton Savings Bank, FSB, a mutual institution.
See accompanying notes to Consolidated Financial Statements
-2-
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
December 31,
1996 1995
-----------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 198 $ 285
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 85 70
Amortization of premiums and discounts (8) 1
Provisions for loan losses --- 25
Proceeds from sales of loans held for sale 13,781 12,408
Origination of loans held for sale (14,769) (14,140)
Stock and patronage dividends --- (33)
ESOP shares released 49 ---
Change to assets and liabilities increasing
(decreasing) cash flows
Accrued interest receivable 25 (75)
Other assets (37) 52
Accrued interest payable (11) 35
Other liabilities (199) 20
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CASH USED IN
OPERATING ACTIVITIES ( 886) (1,352)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities
Available-for-sale 1,000 200
Purchase of securities available-for-sale (1,203)
Loans originated, net of repayments (5,601) (3,844)
Purchase of premises and equipment (198) (107)
Carrying value of other real estate investment disposal 409 ---
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (5,593) (3,751)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (3,562) 1,768
Advances from Federal Home Bank of Des Moines:
Borrowings 9,000 ---
Repayments (9,500) ---
Net increase (decrease) in advance payments
by borrowers for taxes and insurance (443) (474)
Proceeds from sale of common stock 16,549 ---
Loan to ESOP (1,375) ---
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,669 1,294
-------- --------
NET INCREASE (DECREASE) IN CASH 4,190 (3,809)
Cash, beginning of period 3,154 5,998
-------- --------
CASH, END OF PERIOD $ 7,344 $ 2,189
======== ========
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 December 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 December 31, 1996, interim financial statements. The results of
operations for the period ended December 31, 1996, are not necessarily
indicative of the operating results for the full year.
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 of $643,370 was $16,549,130, 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 quarter prior to December 31,
1996, since the Company had no stockholders prior to the initial stock
offering completed October 17, 1996. Earnings per share is presented for
December 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 $49,000 for the three and
six months ended December 31, 1996.
A summary of ESOP shares at December 31, 1996, is as follows:
Shares committed for release 3,458
Unreleased shares 134,082
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TOTAL 137,540
=======
Fair value of unreleased shares $2,061,511
==========
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--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
begins 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 non-interest income and expenses. Non-interest
income consists primarily of loan servicing fees 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.
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 December 31, 1996
and 1995, as well as those material changes in liquidity and capital resources
that have occurred since June 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 December 31 and June 30, 1996
- ------------------------------------------------------------------
Assets of the Company increased from $88.8 million at June 30, 1996, to
$99.5 million at December 31 1996, primarily the result of the public stock
offering. Cash and interest-bearing deposits increased $4.2 million and
loans, including loans held for sale, increased $6.6 million as the Company
was able to lend a portion of offering proceeds. Deposits of the Company
decreased $3.6 million from $71.3 million at June 30, 1996, to $67.7 million
at December 31, 1996. Advances from Federal Home Loan Bank of Des Moines
decreased $0.5 to $6.5 million. Stockholders' equity increased from $9.3
million at June 30, 1996, to $24.7 million at December 31, 1996.
Nonperforming assets of $396,000 or 0.45% of total assets at June 30,
1996, increased to $730,000 or 0.73 % of total assets at December 31, 1996.
Comparison of the three months ended December 31, 1996 to the three months
- --------------------------------------------------------------------------
ended December 31, 1995
-----------------------
Net Income. The Company experienced net income of $285,000 for the
quarter ended December 31, 1996, compared to net income of $95,000 for the
quarter ended December 31, 1995. The increase primarily results from
investment of the conversion proceeds in new loans and interest earning
assets.
-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 December 31, 1996 to the three months
- --------------------------------------------------------------------------
ended December 31, 1995 (Continued)
- -----------------------------------
Net Interest Income. Net interest income was $921,000 for the quarter
ended December 31, 1996, an increase of $369,000 or 67% from $552,000 for the
quarter ended December 31, 1995. Interest income increased $430,000 while
interest expense increased $61,000.
Interest Income. Interest income increased by $430,000 or 28% from
$1,512,000 for the quarter ended December 31, 1995, to $1,942,000 for the
quarter ended December 31, 1996. Interest income from mortgage loans
receivable increased $271,000 from $1,190,000 for the quarter ended December
31, 1995, to $1,461,000 for the quarter ended December 31, 1996. The increase
was due to an increase in mortgage loans and adjustments on adjustable-rate
mortgages. Interest income on interest-bearing deposits increased $120,000
from $62,000 for the quarter ended December 31, 1995, to $182,000 for the
quarter ended December 31, 1996. This increase was due to the investment of a
portion of the proceeds from the public offering in interest-bearing deposits.
Interest Expense. Interest expense increased $61,000 from $960,000 for
the quarter ended December 31, 1995, to $1,021,000 for the quarter ended
December 31, 1996. The increase results from increased rates on higher
average deposit base during the conversion process which was completed on
October 17, 1996, and an increase the average balance of advances from Federal
Home Loan Bank of Des Moines.
Provision for Loan Losses. There was no provision for loan losses during
the quarter ended December 31, 1996, as compared to $25,000 provision for the
quarter ended December 31, 1995. During the quarter ended December 31, 1996,
management considered the allowance for loan losses to be adequate to provide
for estimated loan losses.
Non-interest Income. Non-interest income for the quarter ended December
31, 1996, increased $11,000 from $103,000 for the quarter ended December 31,
1995, to $114,000 for the quarter ended December 31, 1996. Loan servicing
fees and service charges and other fees increased $7,000 and $5,000,
respectively for the quarter.
Non-interest Expense. Non-interest expense increased $114,000 or 24%
from $472,000 for the quarter ended December 31, 1995, to $586,000 for the
quarter ended December 31, 1996. The increase was primarily due increases in
employee salaries and benefits of $75,000, occupancy costs of $28,000, data
processing of $18,000 and a decrease in other non-interest expenses of
$16,000.
Comparison of the six months ended December 31, 1996, to the six months ended
- -----------------------------------------------------------------------------
December 31, 1995
- -----------------
Net Income. Net income for the six months ended December 31, 1996,
decreased $87,000 from $285,000 for the six months ended December 31, 1995 to
$198,000 for the six months ended December 31, 1996. The decrease was
primarily due to the $427,000 one-time SAIF assessment. Without the one-time
SAIF assessment, net income for the six months ended December 31, 1996, would
have been $467,000, or $0.29 per share.
Net Interest Income. Net interest income was $1,555,000 for the six
months ended December 31, 1996, an increase of $451,000 from the net interest
income of $1,104,000 for the six months ended December 31, 1995. Total
interest income and interest expense increased $580,000 and $129,000,
respectively, for the six months ended December 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 December 31, 1996, to the six months ended
- -----------------------------------------------------------------------------
December 31, 1995 (Continued)
- -----------------------------
Interest Income. Total interest income increased $580,000 from
$3,038,000 for the six months ended December 31, 1995, to $3,618,000 for the
six months ended December 31, 1996. The increase was due primarily from
increases in interest income on mortgage loans, consumer and other loans and
investment of a portion of the conversion proceeds in interest-bering
deposits. The interest income from mortgage loans increased by $463,000 from
$2,377,000 for the six months ended December 31, 1995, to $2,840,000 for the
six months ended December 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 $37,000 from $389,000
for the six months ended December 31, 1995, to $426,000 for the six months
ended December 31,1996. This increase was due to an increase in loans and
rates on loans.
Interest income on interest-earning deposits increased $78,000 from
$126,000 for the six months ended December 31, 1995, to $204,000 for the six
months ended December 31, 1996, primarily due to the investment of proceeds
from the public offering.
Interest Expense. Interest expense on deposits increased $49,000 from
$1,777,000 for the six months ended December 31, 1995, to $1,826,000 for the
six months ended December 31, 1996. The increase was due primarily to higher
customer deposits for most of the six months ended December 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 $80,000 from
$157,000 for the six months ended December 31, 1995, to $237,000 for the six
months ended December 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 December 31, 1995. The Company recorded no
provision for loan losses for the six months ended December 31, 1996.
Non-interest Income. Non-interest income decreased by $14,000 from
$265,000 for the six months ended December 31, 1995, to $251,000 for the six
months ended December 31, 1996. The decrease was primarily from a $47,000
patronage dividend received in the six months ended December 31, 1995, and no
patronage dividend received in the six months ended December 31, 1996. Loan
servicing fees increased $19,000 from $139,000 for the six months ended
December 31, 1995, to $158,000 for the six months ended December 31, 1996 from
servicing a larger servicing portfolio.
Non-interest Expense. Non-interest expense increased by $613,000 from
$884,000 for the six months ended December 31, 1995, to $1,497,000 for the six
months ended December 31, 1996. Federal insurance premiums increased $419,000
from the one-time SAIF assessment. Employee salaries and benefits increased
by $110,000, occupancy costs increased $38,000, advertising costs increased
$18,000, data processing costs increased $22,000 and other increased $9,000.
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 December 31, 1996, FHLB advances totaled $6,500,000.
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
December 31, 1996, the Bank had approved loan commitments totaling $1.8
million and had undisbursed loans in process of $7.8 million.
-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 December 31, 1996, certificates of deposit amounted to $52.9 million or
78.2% of total deposits, including $34.1 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
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 5% of the average daily balance of its net withdrawable deposits
and short-term borrowing. The Bank's liquidity ratio was 12.85% at December
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 December 31, 1996.
Percent of Adjusted
Amount Total Assets
---------------------------
(Unaudited)
Tangible capital $16,209 16.3%
Tangible capital requirement 1,493 1.5
------- ----
EXCESS $14,716 14.8%
======= ====
Core capital $16,209 16.3%
Core capital requirement 2,985 3.0
------- ----
EXCESS 13,224 13.3%
======= ====
Risk-based capital $16,936 29.1
Risk-based capital requirement 4,654 8.0
------- ----
EXCESS $12,282 21.1%
======= ====
-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
Report on Form 8-K
------------------
The Company filed a Form 8-K on December 3, 1996, reporting under Item 8
the change in its fiscal year-end.
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
Date 02/13/97 By: /s/ Kermit D. Gohring
------------- -------------------------------
Kermit D. Gohring
President
Date 02/13/97 By: /s/ Bonnie K. Smith
-------------- ------------------------------
Bonnie K. Smith
Secretary - Treasurer
(Principal Accounting Officer)