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 December 31, 1997
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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
- ------------------------------------------ ----------------------
(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)
573-682-6617
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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 13, 1998, there were 1,714,150 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, 1997
INDEX PAGE
- ----- ----
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
CONDITION AND RESULTS OF OPERATIONS 7-9
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 - LEGAL PROCEEDINGS 10
ITEM 2 - CHANGES IN SECURITIES 10
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 10
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 10
ITEM 5 - OTHER INFORMATION 10
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
December 31, June 30,
1997 1997
---------------------------
(Unaudited)
ASSETS
Cash, including interest-bearing accounts
of $14,666 and $6,318 respectively $ 15,402 $ 7,095
Investment securities, available-for-sale 1,200 1,899
Stock in Federal Home Loan Bank of Des Moines 725 637
Loans held for sale 4,589 4,463
Loans receivable 83,192 83,714
Accrued interest receivable 703 729
Premises and equipment 1,438 1,483
Foreclosed real estate 157 198
Other assets 582 339
-------- --------
TOTAL ASSETS $107,988 $100,557
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 68,896 $ 67,509
Advances from Federal Home Loan Bank of
Des Moines 12,464 6,500
Advances from borrowers for property
taxes and insurance 246 757
Accrued interest payable 87 97
Other liabilities 399 437
-------- --------
TOTAL LIABILITIES 82,092 75,300
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 17 17
Paid-in capital 16,680 16,601
Retained earnings - substantially restricted 10,400 9,911
Unrealized gain (loss) on securities
available-for-sale, net of taxes 1 ---
Unearned ESOP shares (1,202) (1,272)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 25,896 25,257
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $107,988 $100,557
======== ========
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,
1997 1996 1997 1996
------------------ -----------------
(Unaudited)
Interest Income
Mortgage loans $1,659 $1,461 $3,251 $2,840
Consumer and other loans 236 213 462 426
Investment securities 25 86 54 148
Interest-earning deposits 162 182 259 204
------ ------ ------ ------
TOTAL INTEREST INCOME 2,082 1,942 4,026 3,618
Interest Expense
Deposits 874 909 1,735 1,826
Advances from Federal Home
Loan Bank of Des Moines 172 112 280 237
------ ------ ------ ------
1,046 1,021 2,015 2,063
------ ------ ------ ------
NET INTEREST INCOME 1,036 921 2,011 1,555
Provision for loan losses 20 --- 60 ---
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,016 921 1,951 1,555
Non-interest Income
Loan servicing fees 93 79 174 158
Income from sale of loans 126 --- 217 ---
Service charges and other fees 22 35 44 68
Income (loss) from foreclosed
assets (20) (6) (39) 6
Other 11 6 27 19
------ ------ ------ ------
TOTAL NON-INTEREST INCOME 232 114 423 251
Non-interest Expense
Employee salaries and benefits 463 299 742 525
Occupancy costs 70 87 137 148
Advertising 18 15 33 29
Data processing 37 48 79 92
Federal insurance premiums 12 41 24 495
Directors' fees 21 21 43 43
Other 112 75 267 165
------ ------ ------ ------
TOTAL NON-INTEREST EXPENSE 733 586 1,325 1,497
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 515 449 1,049 309
Income Taxes 192 164 387 111
------ ------ ------ ------
NET INCOME $ 323 $ 285 $ 662 $ 198
====== ====== ====== ======
Basic Earnings per Share $ 0.20 $ 0.18 $ 0.41 $ 0.13
====== ====== ====== ======
Diluted Earnings Per Share $ 0.20 $ 0.18 $ 0.41 $ 0.13
====== ====== ====== ======
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,
1997 1996
-----------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 662 $ 198
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 87 77
Provision for loan losses 60 ---
Provisions for loss on foreclosed real estate 40 ---
Gain on loan sales (210) ---
Proceeds from sales of loans held for sale 17,327 13,781
Origination of loans held for sale (17,452) (14,769)
ESOP shares released 147 49
Change to assets and liabilities increasing
(decreasing) cash flows
Accrued interest receivable 26 25
Other assets (48) (37)
Accrued interest payable (9) (11)
Other liabilities (38) (199)
NET CASH PROVIDED (USED IN) -------- --------
OPERATING ACTIVITIES 592 (886)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities
Available-for-sale 700 1,000
Purchase of securities available-for-sale --- (1,203)
Loans originated, net of repayments 461 (5,601)
Purchase of premises and equipment (28) (198)
Purchase of Federal Home Loan Bank Stock (87) ---
Carrying value of other real estate investment disposal --- 409
-------- --------
NET CASH PROVIDED (USED IN) INVESTING ACTIVITIES 1,046 (5,593)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 1,387 (3,562)
Advances from Federal Home Bank of Des Moines:
Borrowings 6,000 9,000
Repayments (36) (9,500)
Net increase (decrease) in advance payments
by borrowers for taxes and insurance (510) (443)
Proceeds from sale of common stock --- 16,549
Loan to ESOP --- (1,375)
Dividends paid (172) ---
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,669 10,669
-------- --------
NET INCREASE IN CASH 8,307 4,190
Cash, beginning of period 7,095 3,154
-------- --------
CASH END OF PERIOD $ 15,402 $ 7,344
======== ========
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, 1997,
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, 1997, interim financial statements. The results of
operations for the period ended December 31, 1997, 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").
NOTE C--Earnings Per Share
- --------------------------
During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS No. 128").
The Statement requires restatement of all prior-period earnings per share
("EPS") data presented. It replaces the presentation of primary EPS with
basic EPS and requires dual presentation of basic and diluted EPS on the face
of the statement of income. 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.
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
------------------ ----------------
(In thousands, except per share amounts)
Basic earnings per share:
Income available to common
shareholders $323 $285 $662 $198
==== ==== ==== ====
Average common shares
outstanding 1,597 1,582 1,595 1,582
===== ===== ===== =====
Basic earnings per share $0.20 $0.18 $0.41 $0.13
===== ===== ===== =====
Diluted earnings per share:
Income available to common
shareholders $323 $285 $662 $198
==== ==== ==== ====
Average common shares
outstanding 1,597 1,582 1,595 1,582
Dilutive potential common
shares outstanding due to
common stock options and
grants 27 -- 13 --
Average number of common ------ ------ ------ ------
shares and dilutive
potential common shares
outstanding 1,624 1,582 1,608 1,582
===== ===== ===== =====
Diluted earnings per share $0.20 $0.18 $0.41 $0.13
===== ===== ===== =====
-4-
FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 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 and
accrued interest. ESOP compensation expense was $155,000 for the six months
ended December 31, 1997.
A summary of ESOP shares at December 31, 1997, is as follows:
Shares allocated 17,290
Unreleased shares 120,250
-------
TOTAL 137,540
=======
Fair value of unreleased shares $2,660,531
==========
Note E--Stock Based Compensation Plans
- --------------------------------------
The Board of Directors adopted and the shareholders subsequently approved a
Management Recognition and Development Plan ("MRDP") and an 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 68,770 shares of restricted stock which vest 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 will approximate
34% of the cost of the MRDP awards in the first year, 31% the second year, 18%
the third, and 17% in the remaining two years.
-5-
FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE E--Stock Based Compensation Plans (Continued)
- --------------------------------------------------
Under the SOP, options to acquire shares of the Company's common stock may be
granted to certain officers, directors and employees of the Company 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 to 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 will not adopt the accounting provisions and will continue to
apply its current method of accounting. Accordingly, adoption of SFAS No. 123
will have no impact on the Company's consolidated financial position or
results of operations.
NOTE F--Accounting Changes
- --------------------------
In June 1997, the FASB issued Statements No. 130, Reporting of Comprehensive
Income and No. 131, Disclosures about Segments of an Enterprise and Related
Information. Both statements are effective for financial statements for
periods beginning after December 15, 1997. Statement No. 130 establishes
standards for reporting and display of comprehensive income in a full set of
general purpose financial statements. An enterprise shall continue to display
an amount for net income but will also be required to display other
comprehensive income, which includes other changes in equity. Statement No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers.
Note G--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
began reporting on the basis of its new fiscal year-end with the quarter ended
December 31, 1996.
Note H--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 Federal Financial Institutions Examination council requires
all insured financial institutions to complete an inventory of core computer
functions and set priorities for meeting Year 2000 conversion goals. The
Company's material software applications are provided by a third party data
processing service. The Company has been informed by the third party service
that all critical applications will be completed by March 31, 1999. Estimated
cost to the Company is not expected to be material since all critical
applications are supported by the third party data processing service.
-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, 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.
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 were
reduced to $0.065 per $100 of deposits beginning January 1, 1997.
The discussion and analysis included herein covers certain changes in results
of operations during the three and six month periods ended December 31, 1997
and 1996, as well as those material changes in liquidity and capital resources
that have occurred since June 30, 1997.
The following should be read in conjunction with the Company's 1997 Annual
Report to Shareholders 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 1997 and June 30, 1997
- -----------------------------------------------------------------------
The Company's assets increased $7.4 million, or 7.4%, to $108.0 million at
December 31, 1997. Management took advantage of favorable rates and terms
available on Federal Home Loan advances which funded $6.0 million of the
growth. Deposits grew by $1.4 million, primarily certificates of deposit.
Cash and interest-earning deposits increased $8.3 million, as the proceeds of
the most recent Federal Home Loan Bank advances have not yet been invested in
loans. The level of loans held for investment remained stable, declining
approximately $0.5 million as loan sales remained strong. The balance of
mortgages sold to and serviced for others increased by $7.5 million to $98.0
million from $90.4 million at June 30, 1997.
Nonperforming assets totaled $674,000 or 0.62% of total assets at December 31,
1997. The composition of the assets includes six mortgage loans totaling
$442,000, sixteen consumer loans totaling $74,000 and foreclosed real estate.
The mortgage loans are considered well secured and in process of collection.
Comparison of the three months ended December 31, 1997, to the three months
- ---------------------------------------------------------------------------
ended December 31, 1996
- -----------------------
Fulton Bancorp earned net income of $323,000 for the quarter ended December
31, 1997, up $38,000 from the $285,000 earned for the three months ended
December 31, 1996. Higher net interest and noninterest income were the
primary causes of the increase, offsetting a rise in salaries and benefits.
-7-
FULTON BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Net interest income increased $115,000, or 12.5%, to $1.04 million for the
quarter ended December 31, 1997, as an increase in interest income out paced a
rise in interest expense. A higher average level of mortgage loans and
improved yields helped total interest income rise by $140,000, or 7.2%. The
1997 period includes the effect of the conversion proceeds for the full
period. Declining rates on deposits and slightly lower average balances
partially offset a $60,000 increase in interest expense on Federal Home Loan
Bank advances, holding total interest expense to a $25,000, or 2.4%, increase.
Noninterest income increased to $232,000 during the current quarter, more than
double the $114,000 for the comparative 1996 period. The Company recorded
$126,000 in gains on the sale of loans, and loan servicing fees increased
$14,000, or 17.7%. Both increases were due to continued strong loan sales
However, deposit service charges declined $13,000 and management recognized an
additional $20,000 for potential losses on foreclosed real estate.
Noninterest expense rose 25.1% over the comparative prior period to $733,000.
The $147,000 increase was due to higher salaries and benefits. The Company
recognized $175,000 in expense related to the Management Recognition and
Development Stock Compensation Plan referred to previously. Plan expenses are
greatest in the first two years of the program and fall significantly
thereafter. Lower occupancy and data processing costs, as well as lower
deposit insurance premiums partially offset the higher MRDP expenses.
Comparison of the six months ended December 31, 1997, to the six months ended
- -----------------------------------------------------------------------------
December 31, 1996
- -----------------
Fulton Bancorp earned $662,000, or $0.41 per share, for the six months ended
December 31, 1997, a $464,000 rise from the $198,000, or $0.13 per share,
reported for the comparative 1996 period. The increase was primarily due to
higher net interest income, a 68.5% rise in noninterest income and lower
noninterest expense.
Net interest income increased due to higher interest income and lower interest
expense. A $6.6 million rise in average mortgage loans boosted mortgage
interest income by $411,000, or 14.5%, to $3.3 million. At the same time,
total interest expense declined $48,000 as interest on deposits dropped
$91,000 to $1.7 million, due largely to lower rates paid. The 1997 period
includes the effect of the conversion proceeds for the full period. Lower
interest on deposits more than offset a moderate rise in interest paid on a
higher volume of FHLB advances.
Noninterest income for the six months ended December 31, 1997 rose $172,000,
or 68.5%, to $423,000. Recognition of gains on loan sales and increases in
the related servicing income exceeded a recorded loss on foreclosed real
estate. The bank recognized gains of $217,000 on the sale of loans pursuant
to adoption of Statement of Financial Accounting Standards No. 125. Servicing
income rose 10.1% to $174,000 from $158,000 in the prior period, due to a
higher volume of serviced loans. A $39,000 loss on foreclosed real estate
reflects a charge down in the carrying value of the parcel owned.
Noninterest expense declined by $172,000 to $1.3 million. The absence of a
one-time, $427,000 Savings Association Insurance Fund assessment levied in
1996 offset a $217,000 rise in salaries and benefits related to the adoption
of the Management Recognition and Development Plan. As noted earlier, the
majority of MRDP compensation expense is recognized in the first two years of
the program. A $102,000 increase in other noninterest expense is due
primarily to higher expenses related to being a publicly traded company.
Provision for loan losses totaled $60,000 for the six months ended December
31, 1997. The provision reflects management's commitment to maintaining
adequate allowances considering the strong loan growth experienced.
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,
-8-
FULTON BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and capital resources (Continued)
- -------------------------------------------
economic conditions and competition. The Bank utilizes advances from the
Federal Home Loan Bank to supplement its supply of lendable funds. At
December 31, 1997, FHLB advances totaled $12,464,000.
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, 1997, the Bank had approved loan commitments totaling $3.9
million and had undisbursed loans in process of $6.1 million.
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, 1997, certificates of deposit amounted to $53.4 million or
70.5% of total deposits, including $21.1 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 4% of the average daily balance of its net withdrawable deposits
and short-term borrowing. The Bank's liquidity ratio was 18.49% at December
31,1997. 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, 1997.
Percent of Adjusted
Amount Total Assets
-----------------------------
(Unaudited)
Tangible capital $17,372 16.2%
Tangible capital requirement 1,613 1.5
------- ----
EXCESS $15,759 14.7%
======= ====
Core capital $17,372 16.2%
Core capital requirement 3,226 3.0
------- ----
EXCESS $14,146 13.2%
======= ====
Risk-based capital $18,142 29.6%
Risk-based capital requirement 4,909 8.0
------- ----
EXCESS $13,233 21.6%
======= ====
-9-
PAGE
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
The Annual Meeting of Stockholders of the company ("Meeting") was held on
January 27, 1997. The results of the vote on the matters presented at the
Meeting is as follows:
1. The following individuals were elected as directors, each for a
three-year term:
Vote For Vote Withheld
-----------------------------------------
Richard W. Gohring 1,425,791 8,150
Dennis J. Adrain 1,425,841 8,100
The terms of Directors Billy M. Conner, Kermit D. Gohring, Clifford
E. Hamilton, Jr., Bonnie K. Smith and David W. West continued
after the meeting.
2. The Fulton Bancorp, Inc. 1997 Stock Option Plan was approved by
stockholders by the following vote:
For: 988,152 ; Against: 424,211 ; Abstain: 21,578
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3. The Fulton Bancorp, Inc. 1997 Management Recognition and
Development Plan was approved by stockholders by the following
vote:
For: 949,595 ; Against: 412,928 ; Abstain: 21,418
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
ITEM 27 FINANCIAL DATA SCHEDULE
-10-
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 February 17, 1998 By: /s/ Kermit D. Gohring
-----------------------------------
Kermit D. Gohring
President
Date February 17, 1998 By: /s/ Bonnie K. Smith
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Bonnie K. Smith
Secretary - Treasurer
(Principal Accounting Officer)