SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-21273
FULTON BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 43-1754577
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
410 Market Street, Fulton, Missouri 65251
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 642-6618
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
Check whether the Registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB. [X]
The Registrant's revenues for the fiscal year under report were
$7,339,564.
As of June 30, 1997, there were issued and outstanding 1,719,250 shares
of the Registrant's Common Stock. The Common Stock is listed for trading on the
Nasdaq National Market under the symbol "FTNB." Based on the closing price, the
aggregate value of the Common Stock outstanding held by the nonaffiliates of the
Registrant on September 18, 1997 was $37,729,724 (1,465,232 shares at $25.75 per
share).
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
June 30, 1997 ("Annual Report") (Parts I and II).
2. Portions of Definitive Proxy Statement for the 1997 Annual Meeting
of Stockholders (Part III).
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PART I
ITEM 1. BUSINESS
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GENERAL
Fulton Bancorp, Inc. ("Company"), a Delaware corporation, was organized
in May 1996 for the purpose of becoming the holding company for Fulton Savings
Bank, FSB ("Savings Bank") upon its conversion from a federal mutual savings
bank to a federal stock savings bank ("Conversion"). The Conversion was
completed on October 17, 1996 through the issuance of 1,719,250 shares of common
stock by the Company at a price of $10.00 per share.
The Savings Bank, founded in 1912, is a federally chartered savings bank
located in Fulton, Missouri. The Savings Bank amended its charter from that of a
state-chartered mutual savings bank to become a federal mutual savings bank in
April 1995. In connection with the Conversion, the Savings Bank converted to a
federally chartered capital stock savings bank and became a subsidiary of the
Company. The Savings Bank is regulated by the OTS, its primary federal
regulator, and the FDIC, the insurer of its deposits. The Savings Bank's
deposits are insured by the FDIC's Savings Association Insurance Fund ("SAIF")
and have been federally insured since 1965. The Savings Bank has been a member
of the Federal Home Loan Bank ("FHLB") System since 1942. The Savings 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 the Savings Bank's
market area. The Savings Bank generally sells all of the fixed-rate and some of
the adjustable-rate residential mortgage loans that it originates while
retaining the servicing rights on such loans. The Savings Bank also originates
multi-family, commercial real estate, construction, land and consumer and other
loans. The Savings Bank frequently sells participation interests in the
non-residential mortgage loans it originates.
On November 13, 1996, the Board of Directors of the Company approved a
change in the Company's fiscal year end from April 30 to June 30.
MARKET AREA
The Savings Bank conducts operations in central Missouri through its
main office in Fulton, Missouri and its branch office in Holts Summit, Missouri,
both of which are in Callaway County. The Savings Bank also serves Boone County
and, to a lesser extent, Cole and Audrian Counties. Fulton, which is the county
seat, serves as the economic and employment center of Callaway County.
Additional employment is available in the nearby metropolitan areas of Columbia
(in Boone County) and Jefferson City (in Cole County). Columbia is the location
of the University of Missouri and provides significant employment in education
and medicine. Jefferson City is the state capital of Missouri, resulting in a
significant concentration of government employment and an historically stable
economy. Callaway County represents the Savings Bank's primary market area for
deposit generation as most of its depositors live in this county, particularly
in the areas surrounding the Savings Bank's offices. The Savings Bank's deposits
have increased slightly in recent years. However, because Callaway County has a
small population, the Savings Bank's ability to achieve deposit growth is
limited. The Savings Bank's lending activities have been concentrated in
Callaway County and the city of Columbia. Loan demand has been strong in recent
years, especially in the city of Columbia.
While Callaway County is a more rural county with a much lower
population base and overall smaller economy than Cole and Boone Counties, the
economy has been stable historically due to the economies in the contiguous
counties. The Callaway County economy, which had been based on agriculture, has
diversified in recent years to include employment in health care, education,
manufacturing and local/state government. The County's largest employers are
Fulton State Hospital and Union Electric Company, which operates a large
electrical generation plant. The economy of Columbia and Boone County
historically has been very stable due to the presence of the University of
Missouri. Callaway and Boone Counties have an estimated combined population of
159,000, with Callaway County having an estimated population of only 35,000.
Over the last five years, both Callaway and Boone County have experienced growth
in population and households exceeding the state and national averages in
percentage terms, although the actual numbers are small given the relatively
small size of these counties.
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LENDING ACTIVITIES
GENERAL. The principal lending activity of the Savings Bank is the
origination of conventional mortgage loans for the purpose of purchasing or
refinancing owner-occupied, one- to four-family residential property. The
Savings Bank also originates multi-family, commercial real estate, construction,
land and consumer and other loans. The Savings Bank's net loans receivable
totalled $83.7 million at June 30, 1997, representing 83.25% of consolidated
total assets.
LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition
of the Savings Bank's loan portfolio by type of loan at the dates indicated. The
Savings Bank had no concentration of loans exceeding 10% of total gross loans
other than as disclosed below.
At April 30,
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June 30, 1997 1996 1995
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Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Mortgage loans:
One- to four-family.... $53,461 58.37% $46,741 59.61% $46,244 65.37%
Multi-family........... 4,279 4.67 3,845 4.90 3,588 5.07
Commercial............. 9,507 10.38 8,706 11.10 6,560 9.27
Construction........... 12,295 12.33 7,686 9.80 5,142 7.27
Land................... 3,524 3.85 1,518 1.94 1,188 1.68
------- ------ ------- ------ ------- ------
Total mortgage loans... 82,066 89.60 68,496 87.35 62,722 88.66
Consumer and other loans. 9,525 10.40 9,922 12.65 8,020 11.34
------- ------ ------- ------- ------- -------
Total loans.......... 91,591 100.00% 78,418 100.00% 70,742 100.00%
====== ====== ======
Less:
Undisbursed loan funds. 6,959 3,743 2,175
Allowance for loan losses. 919 782 762
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Loan receivable, net... $83,713 $73,893 $67,805
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RESIDENTIAL REAL ESTATE LENDING. The primary lending activity of the
Savings Bank is the origination of mortgage loans to enable borrowers to
purchase existing one- to four-family homes. At June 30, 1997, $53.5 million, or
58.37% of the Savings Bank's total gross loan portfolio, consisted of loans
secured by one- to four-family residences. The Savings Bank presently originates
both ARM loans and fixed-rate mortgage loans. The Savings Bank's loans are
generally underwritten and documented in accordance with the guidelines
established by Freddie Mac. The Savings Bank generally sells to Freddie Mac or
Fannie Mae all of the fixed-rate mortgage loans that it originates. Generally,
the Savings Bank sells whole loans to Freddie Mac and Fannie Mae on a
servicing-retained basis. All loans are sold without recourse. The Savings Bank
also sells a portion of the ARM loans that it originates to other financial
institutions. Such loans generally are sold on a servicing-retained basis and
the Savings Bank occasionally retains a participation interest in the loan. The
Savings Bank's decision to hold or sell loans is based on its asset/liability
management policies and goals and the market conditions for mortgages. See "--
Lending Activities -- Loan Originations, Sales and Purchases." At June 30, 1997,
$71.6 million, or 78.14% of the Savings Bank's total gross loans, were subject
to periodic interest rate adjustments.
The Savings Bank offers ARM loans at rates and terms competitive with
market conditions. Substantially all of the ARM loans originated by the Savings
Bank meet the underwriting standards of Freddie Mac. The Savings Bank offers ARM
products that adjust either annually or every three years. These ARM products
utilize the national quarterly cost of funds index as published by the OTS plus
a margin of 3.0%. The initial interest rate on the Savings Bank's ARM loans is
generally at or near the fully indexed rate. Until May 1996, the Savings Bank's
ARM loans
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utilized the 8th District cost of funds index. Accordingly, most of the Savings
Bank's ARM portfolio is based on this index. The Savings Bank switched from the
8th District to the national cost of funds index because it believes that the
national cost of funds index is more stable and cannot easily be influenced by
the deposit pricing and borrowing costs of a few institutions. Both the 8th
District and the national cost of funds indices are lagging market indices,
which means that upward adjustments in these indices may occur more slowly than
changes in the Savings Bank's cost of interest-bearing liabilities, especially
during periods of rapidly increasing interest rates. ARM loans held in the
Savings Bank's portfolio do not permit negative amortization of principal and
carry no prepayment restrictions. The periodic interest rate cap (the maximum
amount by which the interest rate may be increased or decreased in a given
period) on the Savings Bank's ARM loans is generally 1.0% to 1.5% per adjustment
period and the lifetime interest rate cap is generally 4.5% to 6.0% over the
initial interest rate of the loan. The terms and conditions of the ARM loans
offered by the Savings Bank, including the index for interest rates, may vary
from time to time. Borrower demand for ARM loans versus fixed-rate mortgage
loans is a function of the level of interest rates, the expectations of changes
in the level of interest rates and the difference between the initial interest
rates and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.
The Savings Bank also offers ARM loans for non-owner-occupied one- to
four-family homes. The rates on such loans are generally slightly higher than
for a comparable loan for an owner-occupied residence. Loans secured by
non-owner-occupied residences generally involve greater risks than loans secured
by owner-occupied residences. Payments on loans secured by such properties are
often dependent on the successful operation or management of the properties. In
addition, repayment of such loans may be subject to a greater extent to adverse
conditions in the real estate market or the economy. The Savings Bank requires
that borrowers with loans secured by non-owner-occupied homes submit annual
financial statements.
The retention of ARM loans in the Savings Bank's loan portfolio helps
reduce the Savings Bank's exposure to changes in interest rates. There are,
however, unquantifiable credit risks resulting from the potential of increased
costs due to increased rates to be paid by the customer. It is possible that
during periods of rising interest rates the risk of default on ARM loans may
increase as a result of repricing and the increased payments required by the
borrower. Another consideration is that although ARM loans allow the Savings
Bank to increase the sensitivity of its asset base to changes in interest rates,
the extent of this interest sensitivity is limited by the periodic and lifetime
interest rate adjustment limits. Because of these considerations, the Savings
Bank has no assurance that yields on ARM loans will be sufficient to offset
increases in the Savings Bank's cost of funds.
While one- to four-family residential real estate loans are normally
originated with 15 to 30 year terms, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in the Savings
Bank's loan portfolio contain due-on-sale clauses providing that the Savings
Bank may declare the unpaid amount due and payable upon the sale of the property
securing the loan. Typically, the Savings Bank enforces these due-on-sale
clauses to the extent permitted by law and as business judgment dictates. Thus,
average loan maturity is a function of, among other factors, the level of
purchase and sale activity in the real estate market, prevailing interest rates
and the interest rates payable on outstanding loans.
The Savings Bank generally requires title insurance insuring the status
of its lien or a title abstract and acceptable attorney's opinion on all loans
where real estate is the primary source of security. The Savings Bank also
requires that fire and casualty insurance (and, if appropriate, flood insurance)
be maintained in an amount at least equal to the outstanding loan balance.
The Savings Bank's lending policies generally limit the maximum
loan-to-value ratio on mortgage loans secured by owner-occupied properties to
95% of the lesser of the appraised value or the purchase price, with the
condition that private mortgage insurance is generally required on loans with
loan-to-value ratios greater than 80%. The maximum loan-to-value ratio on
mortgage loans secured by non-owner-occupied properties generally is 80%.
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MULTI-FAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE LENDING.
Multi-family residential and commercial real estate lending has been a constant
part of the Savings Bank's lending strategy in recent years. At June 30, 1997,
the Savings Bank's gross loan portfolio included $4.3 million in multi-family
real estate loans and $9.5 million in commercial real estate loans. The Savings
Bank frequently sells participation interests in the larger multi-family and
commercial real estate loans that it originates. The Savings Bank retains the
servicing rights on such loans and generally retains 10% or 20% of the loan
balance.
Multi-family and commercial real estate loans originated by the Savings
Bank are predominately adjustable-rate loans and generally are for terms of up
to 25 years. The maximum loan-to-value ratio for multi-family and commercial
real estate loans generally is 75%. Multi-family loans typically are secured by
small to medium sized projects. The Savings Bank's commercial real estate loan
portfolio consists predominantly of loans secured by residential care
facilities, nursing homes, medical buildings, small shopping centers, small
office buildings and churches, most of which are located in the Savings Bank's
market area. Appraisals on properties that secure multi-family and commercial
real estate loans are performed by an independent appraiser engaged by the
Savings Bank before the loan is made. Underwriting of multi-family and
commercial real estate loans includes a thorough analysis of the cash flows
generated by the real estate to support the debt service and the financial
resources, experience, and income level of the borrowers. Annual operating
statements on each multi-family and commercial real estate loan are required and
reviewed by management.
Multi-family and commercial real estate lending affords the Savings Bank
an opportunity to receive interest at rates higher than those generally
available from one- to four-family residential lending. However, loans secured
by such properties usually are greater in amount, more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than one- to
four-family residential mortgage loans. Because payments on loans secured by
multi-family and commercial properties are often dependent on the successful
operation and management of the properties, repayment of such loans may be
affected by adverse conditions in the real estate market or the economy. The
Savings Bank seeks to minimize these risks by limiting the maximum loan-to-value
ratio to 75% and strictly scrutinizing the financial condition of the borrower,
the quality of the collateral and the management of the property securing the
loan. The Savings Bank also obtains loan guarantees from financially capable
parties based on a review of personal financial statements.
CONSTRUCTION LENDING. The Savings Bank originates residential
construction loans to individuals and, occasionally, to builders, to construct
one- to four-family homes. In addition, the Savings Bank occasionally originates
construction loans for multi-family or commercial properties. In addition, the
Savings Bank occasionally originates speculative construction loans, i.e, where
purchasers for the finished homes may be identified either during or following
the construction period. The Savings Bank limits the number of speculative loans
to a single builder in order to limit risk. At June 30, 1997, the Savings Bank's
construction loan portfolio totalled $11.3 million, or 12.33% of total gross
loans. At such date, the Savings Bank's construction loan portfolio consisted of
118 residential construction loans totalling $11.1 million and 4 commercial real
estate construction loans totalling $0.2 million.
Construction loans are generally made in connection with permanent
financing. Construction loans that are not made in connection with the granting
of permanent financing on the property are for terms of six months.
Construction lending is considered to involve a higher level of risk as
compared to one- to four-family residential lending because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. The nature of these loans is such that
they are more difficult to evaluate and monitor. If the estimate of value proves
to be inaccurate, the Savings Bank may be confronted at, or prior to, the
maturity of the loan, with a project the value of which is insufficient to
assure full repayment. The Savings Bank attempts to minimize these risks by
limiting the maximum loan-to-value ratio on construction loans to 85% for
residential construction loans and 80% for non-residential construction loans
and by conditioning disbursements on the presentation of itemized bills and an
inspection of the construction site. For non-residential construction loans, the
Savings Bank generally obtains personal guarantees and requires borrowers to
submit annual financial statements.
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LAND LENDING. The Savings Bank occasionally originates loans for the
acquisition of land upon which the purchaser can then build or make improvements
necessary to build or to sell as improved lots. At June 30, 1997, the Savings
Bank's land loan portfolio totalled $3.5 million and consisted of 49 loans. Land
loans originated by the Savings Bank are generally adjustable-rate loans and
have maturities of ten to 20 years.
Loans secured by undeveloped land or improved lots involve greater risks
than one- to four-family residential mortgage loans because such loans are more
difficult to evaluate. If the estimate of value proves to be inaccurate, in the
event of default and foreclosure the Savings Bank may be confronted with a
property the value of which is insufficient to assure full repayment. The
Savings Bank attempts to minimize this risk by limiting the maximum
loan-to-value ratio on land loans to 65%.
CONSUMER AND OTHER LENDING. The Savings Bank originates a variety of
consumer and other non-mortgage loans. Consumer loans generally have shorter
terms to maturity and higher interest rates than mortgage loans. The Savings
Bank's consumer and other loans consist primarily of secured consumer loans,
automobile loans, home improvement loans, deposit account loans and student
loans. The Savings Bank also engages in a small amount of commercial business
lending. Such loans include asset-based loans secured by inventory and
short-term working capital loans. At June 30, 1997, the Savings Bank's consumer
and other loans totalled approximately $9.5 million, or 10.40% of the Savings
Bank's total gross loans.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount that can
be recovered on such loans. At June 30, 1997, the Savings Bank had no material
delinquencies in its consumer loan portfolio.
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MATURITY OF LOAN PORTFOLIO. The following table sets forth contractual
amortization of loans at June 30, 1997. Demand loans, loans having no stated
schedule of repayments and no stated maturity, and overdrafts are reported as
becoming due within one year. Amounts presented are the gross loan balances
before adjustments for undisbursed loan proceeds, unearned discounts and
allowance for loan losses. The table does not include any estimate of
prepayments which significantly shorten the average life of all loans and may
cause the Savings Bank's actual repayment experience to differ from that shown
below.
After After
One Year 5 Years
Within Through Through Beyond
One Year 5 Years 10 Years 10 Years Total
-------- ------- -------- -------- -----
(In Thousands)
Mortgage loans:
One- to four-family....... $3,033 $10,127 $13,132 $27,169 $53,461
Multi-family.............. 705 791 1,286 1,497 4,279
Commercial................ 430 1,714 2,530 4,833 9,507
Construction.............. 11,295(1) -- -- -- 11,295
Land...................... 1,439 517 703 865 3,524
Consumer and other loans.... 3,749 4,755 888 133 9,525
-------- -------- -------- -------- -------
Total gross loans....... $20,651 $17,904 $18,539 $34,497 $91,591
======= ======= ======= ======= =======
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(1) Includes 89 loans totalling $10.1 million that will convert to permanent
loans.
The following table sets forth the dollar amount of all loans due after
June 30, 1998 that have fixed interest rates and have floating or adjustable
interest rates.
Fixed- Floating- or
Rates Adjustable-Rates
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(In Thousands)
Mortgage loans:
One- to four-family....................... $5,651 $44,777
Multi-family.............................. -- 3,574
Commercial................................ 1,164 7,913
Construction.............................. -- --
Land...................................... 39 2,046
Consumer and other loans.................... 5,358 418
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Total gross loans....................... $12,212 $58,728
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Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Savings Bank the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan market rates are substantially higher than rates on existing mortgage loans
and, conversely, decrease when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.
LOAN SOLICITATION AND PROCESSING. Loan applicants come primarily through
existing customers, referrals by realtors, homebuilders and existing customers,
and walk-ins. The Savings Bank also uses radio and newspaper advertising to
create awareness of its loan products. Upon receipt of a loan application from a
prospective borrower, a credit report and other data are obtained to verify
specific information relating to the loan applicant's employment, income and
credit standing. An appraisal of the real estate offered as collateral generally
is undertaken by an independent fee appraiser certified by the State of
Missouri.
Real estate loans up to $250,000 must be approved by the Loan Committee,
which consists of the President and three non-employee Directors. Loans
exceeding $250,000 must be approved by the entire Board of Directors. The
Savings Bank's loan approval process allows mortgage loans to be approved in
approximately five days and closed in 20 days. Consumer loans may be approved by
any loan officer. Non-mortgage loans exceeding $100,000 must be approved by the
entire Board of Directors.
LOAN ORIGINATIONS, SALES AND PURCHASES. While the Savings Bank originates
both adjustable-rate and fixed-rate loans, its ability to generate each type of
loan is dependent upon relative customer demand for loans in its market. For the
years ended June 30, 1997 and April 30, 1996 and 1995, the Savings Bank
originated $55.6 million, $51.3 million, $35.7 million of loans, respectively.
Of the $55.6 million of loans originated during the year ended June 30, 1997,
64.90% were adjustable-rate loans and 35.10% were fixed-rate loans.
The Savings Bank generally sells all of its fixed-rate single-family
residential mortgage loans to the Freddie Mac or Fannie Mae and a portion of its
residential ARM loans to other financial institutions. Sales are made on a non-
recourse basis with servicing retained. Sales of loans to Freddie Mac and Fannie
Mae are whole loans, whereas the Savings Bank frequently retains a participation
interest in residential ARM loans sold to other financial institutions. The
Savings Bank also sells participation interests to other financial institutions
in the larger multi-family, commercial real estate and construction loans that
it originates. Such sales are also made on a non-recourse basis with servicing
retained. The Savings Bank has obtained commitments from several financial
institutions to purchase loans up to a specified aggregate amount. Sales of
loans and loan participations for the years ended June 30, 1997, and April 30,
1996 and 1995, totalled $22.4 million, $22.6 million and $11.8 million,
respectively. Sales of loans generally are beneficial to the Savings Bank since
these sales increase the size of the Savings Bank's loan servicing portfolio.
See "-- Lending Activities -- Loan Servicing." Loan sales also provide funds for
additional lending and other investments and increase liquidity. In addition,
sales of participation interests in non-residential mortgage loans help to
reduce the risks associated with this type of lending. At June 30, 1997, the
Savings Bank had $4.5 million in loans held for sale.
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The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
Year Ended Year Ended April 30,
June 30, --------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Loans originated:
Mortgage loans:
One- to four-family.......... $29,317 $25,263 $19,150
Multi-family................. 1,048 4,519 545
Commercial................... 4,207 4,415 1,167
Construction................. 11,243 8,365 7,683
Land......................... 2,201 655 108
Consumer and other loans....... 7,625 8,079 7,002
------- -------- ---------
Total loans originated..... 55,641 51,296 35,655
Loans purchased:
Mortgage loans:
One- to four-family.......... -- -- 669
Construction................. -- 484 277
--------- -------- ---------
Total loans purchased...... -- 484 946
Loans sold:
Whole loans.................. 7,766 3,812 1,617
Participations............... 14,587 18,820 10,191
------- ------- -------
Total loans sold............ 22,353 22,632 11,808
Less:
Principal repayments......... 21,661 20,463 16,507
Transfer to real estate owned -- 271 93
Loans held for sale.......... 4,463 2,306 573
-------- --------- ---------
26,124 23,040 17,173
------- -------- --------
Net increase in loans receivable,
net........................... $ 7,164 $ 6,108 $ 7,620
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LOAN COMMITMENTS. The Savings Bank occasionally issues commitments to
originate loans conditioned upon the occurrence of certain events. Such
commitments are made on specified terms and conditions and are honored for up to
45 days from the date of loan approval. The Savings Bank had outstanding net
loan commitments of approximately $12.3 million at June 30, 1997.
LOAN ORIGINATION AND OTHER FEES. The Savings Bank, in some instances,
receives loan origination fees. Loan fees are a fixed dollar amount or a
percentage of the principal amount of the mortgage loan that is charged to the
borrower for funding the loan. The amount of fees charged by the Savings Bank
currently is $300 for loans secured by owner-occupied, single-family homes and
$500 for most larger loans. Current accounting standards require fees received
(net of certain loan origination costs) for originating loans to be deferred and
amortized into interest income over the contractual life of the loan. Net
deferred fees or costs associated with loans that are prepaid are recognized as
income at the time of prepayment.
LOAN SERVICING. The Savings Bank sells loans to Freddie Mac, Fannie Mae
and other financial institutions on a servicing-retained basis and receives fees
in return for performing the traditional services of collecting individual
payments and managing the loans. At June 30, 1997, the Savings Bank was
servicing $90.4 million of loans for others. Loan servicing includes processing
payments, accounting for loan funds and collecting and paying real estate
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taxes, hazard insurance and other loan-related items, such as private mortgage
insurance. When the Savings Bank receives the gross mortgage payment from
individual borrowers, it remits to the investor in the mortgage a predetermined
net amount based on the yield on that mortgage. The difference between the
coupon on the underlying mortgage and the predetermined net amount paid to the
investor is the gross loan servicing fee. For the year ended June 30, 1997, loan
servicing fees totalled $318,000. In addition, the Savings Bank retains certain
amounts in escrow for the benefit of the investor for which the Savings Bank
incurs no interest expense but is able to invest. At June 30, 1997, the Savings
Bank held $654,000 in escrow for its portfolio of loans serviced for others.
NONPERFORMING ASSETS AND DELINQUENCIES. When a mortgage loan borrower
fails to make a required payment when due, the Savings Bank institutes
collection procedures. The first notice is mailed to the borrower approximately
ten days after the payment is due in order to permit the borrower to make the
payment before the imposition of a late fee. A second notice is generated when a
payment becomes 20 days past due. Attempts to contact the borrower by telephone
or letter generally begin when a payment becomes 30 days past due. If a
satisfactory response is not obtained, continuous follow-up contacts are
attempted until the loan has been brought current. Before the 90th day of
delinquency, attempts to interview the borrower, preferably in person, are made
to establish (i) the cause of the delinquency, (ii) whether the cause is
temporary, (iii) the attitude of the borrower toward the debt, and (iv) a
mutually satisfactory arrangement for curing the default.
In most cases, delinquencies are cured promptly; however, if by the 91st
day of delinquency, or sooner if the borrower is chronically delinquent and all
reasonable means of obtaining payment on time have been exhausted, foreclosure,
according to the terms of the security instrument and applicable law, is
initiated. Interest income on loans is reduced by the full amount of accrued and
uncollected interest.
The Savings Bank's Board of Directors is informed on a monthly basis as
to the status of all loans that are delinquent more than 60 days, the status on
all loans in foreclosure, and the status of all foreclosed and repossessed
property owned by the Savings Bank.
-9-
<PAGE>
<PAGE>
The following table sets forth information with respect to the Savings
Bank's nonperforming assets and restructured loans within the meaning of SFAS
No. 15 at the dates indicated. It is the policy of the Savings Bank to cease
accruing interest on loans 90 days or more past due.
At April 30,
June 30, -----------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One- to four-family..................... $ 40 $175 $135
Commercial.............................. 160 69 --
Consumer and other loans................. -- 75 18
---- ---- ----
Total.............................. 200 319 153
Accruing loans which are contractually
past due 90 days or more................. 166 -- --
---- ---- -----
Total of nonaccrual and
90 days past due loans................... 366 319 153
Real estate owned, net.................... 197 197 5
---- ---- -----
Total nonperforming assets........... $563 $516 $158
==== ==== ====
Restructured loans........................ 252 $271 $273
Nonaccrual and 90 days or more past due loans
as a percentage of loans receivable, net. 0.44% 0.43% 0.23%
Nonaccrual and 90 days or more past due loans
as a percentage of total assets.......... 0.36 0.37 0.19
Nonperforming assets as a percentage of
total assets............................. 0.56 0.60 0.20
Interest income that would have been recorded for the year ended June
30, 1997 had nonaccruing loans been current in accordance with their original
terms amounted to approximately $26,000. The amount of interest included in
interest income on such loans for the year ended June 30, 1997 amounted to
approximately $16,000.
REAL ESTATE OWNED AND HELD FOR INVESTMENT. Real estate acquired by the
Savings Bank as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as real estate owned ("REO") until it is sold. When property is
acquired it is recorded at the lower of its cost, which is the unpaid principal
balance of the related loan plus foreclosure costs, or fair market value.
Subsequent to foreclosure, REO is carried at the lower of the foreclosed amount
or fair value, less estimated selling costs. At June 30, 1997, the Savings Bank
had $197,000 of REO, which consisted of one commercial building lot.
ASSET CLASSIFICATION. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify
-10-
<PAGE>
<PAGE>
problem assets and, if appropriate, require them to be classified. There are
three classifications for problem assets: substandard, doubtful and loss.
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified as loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. If an asset or
portion thereof is classified as loss, the insured institution establishes
specific allowances for loan losses for the full amount of the portion of the
asset classified as loss. All or a portion of general loan loss allowances
established to cover possible losses related to assets classified substandard or
doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. Assets that do not currently expose the insured institution
to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are classified as special mention and
monitored by the Savings Bank.
At June 30, 1997, assets classified as substandard or special mention
totalled $1.4 million and included 23 substandard loans, which consisted of 12
one- to four-family mortgage loans totalling $343,000, 3 commercial real estate
loans totalling $361,000 and 8 consumer loans totalling $33,000, and 25 special
mention loans, which consisted of 13 one- to four-family mortgage loans
totalling $548,000, one commercial loan totalling $69,000 and 11 consumer loans
totalling $58,000. The aggregate amounts of the Savings Bank's classified assets
at the dates indicated were as follows:
At At April 30,
June 30, ----------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Loss............................. $ -- $ -- $ --
Doubtful......................... -- -- --
Substandard...................... 737 798 1,135
Special mention.................. 675 708 201
------ ------- -------
Total classified assets........ $1,412 $1,506 $1,336
====== ====== ======
ALLOWANCE FOR LOAN LOSSES. The Savings Bank has established a systematic
methodology for the determination of provisions for loan losses. The methodology
is set forth in a formal policy and takes into consideration the need for an
overall general valuation allowance as well as specific allowances that are tied
to individual loans.
In originating loans, the Savings Bank recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Savings Bank increases its allowance
for loan losses by charging provisions for loan losses against income.
The general valuation allowance is maintained to cover losses inherent
in the portfolio of performing loans. Management's periodic evaluation of the
adequacy of the allowance is based on a number of factors, including
management's evaluation of the collectibility of the loan portfolio, the nature
of the portfolio, credit concentrations, trends in historical loss
experience,specific impaired loans and economic conditions. Specific valuation
allowances are established to absorb losses on loans for which full
collectibility may not be reasonably assured. The amount of the allowance is
based on the estimated value of the collateral securing the loan and other
analyses pertinent to each situation. Generally, a provision for losses is
charged against income on a quarterly basis to maintain the allowances.
-11-
<PAGE>
<PAGE>
At June 30, 1997, the Savings Bank had an allowance for loan losses of
$919,000. The allowance for loan losses is maintained at an amount management
considers adequate to absorb losses inherent in the portfolio. Although
management believes that it uses the best information available to make such
determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations.
While the Savings Bank believes it has established its existing
allowance for loan losses in accordance with GAAP, there can be no assurance
that regulators, in reviewing the Savings Bank's loan portfolio, will not
request the Savings Bank to increase significantly its allowance for loan
losses. In addition, because future events affecting borrowers and collateral
cannot be predicted with certainty, there can be no assurance that the existing
allowance for loan losses is adequate or that substantial increases will not be
necessary should the quality of any loans deteriorate as a result of the factors
discussed above. Any material increase in the allowance for loan losses may
adversely affect the Savings Bank's financial condition and results of
operations.
-12-
<PAGE>
<PAGE>
The following table sets forth an analysis of the Savings Bank's
allowance for loan losses at and for the periods indicated. Where specific loan
loss reserves have been established, any differences between the loss allowances
and the amount of loss realized has been charged or credited to current income.
Two
Months
Year Ended Ended Year Ended April 30,
June 30, June 30, --------------------
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in Thousands)
Allowance at beginning of period... $800 $782 $762 $665
Provision for loan losses ......... 120 25 44 118
Recoveries:
Mortgage loans:
One- to four-family.............. 11 -- 1 --
Multi-family..................... -- -- -- --
Commercial....................... -- -- -- --
Construction..................... -- -- -- --
Land............................. -- -- -- 2
Consumer and other loans.......... 4 2 2 26
----- ----- ----- -----
Total recoveries............... 15 2 3 28
Charge-offs:
Mortgage loans:
One- to four-family.............. -- -- 1 20
Multi-family..................... -- -- -- 2
Commercial....................... -- -- -- --
Construction..................... -- -- -- --
Land............................. -- -- 10 --
Consumer and other loans.......... 16 9 16 27
----- ----- ----- -----
Total charge-offs.............. 16 9 27 49
----- ----- ----- -----
Net charge-offs................ 1 7 24 21
----- ----- ----- -----
Balance at end of period....... $919 $800 $782 $762
==== ==== ==== ====
Allowance for loan losses as a
percentage of total loans
outstanding at end of period..... 1.09% 1.00% 1.02% 1.10%
Net charge-offs as a percentage
of average loans outstanding
during the period................ -- 0.01 0.03 0.03
Allowance for loan losses as a
percentage of nonperforming
loans at end of period.......... 250.68 402.06 245.44 498.05
-13-
<PAGE>
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
At At April 30,
June 30, -----------------------------------
1997 1996 1995
-------- ----------------- ----------------
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Mortgage loans:
One- to four-family... $382 58.37% $322 59.61% $319 65.37%
Multi-family.......... 43 4.67 38 4.90 36 5.07
Commercial............ 162 10.38 78 11.10 118 9.27
Construction.......... 37 12.33 83 9.80 41 7.27
Land.................. 34 3.85 15 1.94 12 1.68
Consumer and other loans.. 101 10.40 104 12.65 78 11.34
Unallocated............. 160 N/A 142 N/A 158 N/A
---- ---- ----
Total allowance for
loan losses........... $919 $782 $762
==== ==== ====
INVESTMENT ACTIVITIES
The Savings Bank is permitted under federal and state law to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various federal agencies and of state and municipal governments, deposits at
the FHLB-Des Moines, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various restrictions,
the Savings Bank may also invest a portion of its assets in commercial paper and
corporate debt securities. Savings institutions like the Savings Bank are also
required to maintain an investment in FHLB stock. The Savings Bank is required
under federal regulations to maintain a minimum amount of liquid assets. See
"REGULATION."
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
Debt and equity securities not classified as either "held to maturity" or
"trading securities" are classified as "available for sale." Such securities are
reported at fair value, and unrealized gains and losses on such
-14-
<PAGE>
<PAGE>
securities are excluded from earnings and reported as a net amount in a separate
component of equity. It is currently the intention of management to classify all
securities in the Savings Bank's investment portfolio as available for sale.
A committee consisting of the Chief Executive Officer, the Chief
Financial Officer and three outside Directors determines appropriate investments
in accordance with the Board of Directors' approved investment policies and
procedures. The Savings Bank's investment policies generally limit investments
to U.S. Government and agency securities, municipal bonds, certificates of
deposits, marketable corporate debt obligations, mortgage-backed securities and
certain types of mutual funds. The Savings Bank's investment policy does not
permit engaging directly in hedging activities or purchasing high risk mortgage
derivative products or corporate bonds rated less than BBB. Investments are made
based on certain considerations, which include the interest rate, yield,
settlement date and maturity of the investment, the Savings Bank's liquidity
position, and anticipated cash needs and sources (which in turn include
outstanding commitments, upcoming maturities, estimated deposits and anticipated
loan amortization and repayments). The effect that the proposed investment would
have on the Savings Bank's credit and interest rate risk, and risk-based capital
is also given consideration during the evaluation.
<PAGE>
<TABLE>
The following table sets forth the composition of the Company's investment and mortgage-backed
securities portfolios at the dates indicated. All of the Company's investment and mortgage-backed securities
are classified as available for sale.
At April 30,
At ----------------------------------------
June 30, 1997 1996 1995
------------------- ------------------- -------------------
Carrying Percent of Carrying Percent of Carrying Percent of
Value Portfolio Value Portfolio Value Portfolio
----- --------- ----- --------- ----- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government and federal
agency obligations..... $1,899 100.00% $3,216 100.00% $4,201 99.98%
Mortgage-backed securities -- -- -- -- 1 .02
-------- ------- --------- -------- -------- -------
Total available for sale $1,899 100.00% $3,216 100.00% $4,202 100.00%
====== ====== ====== ====== ====== ======
-15-
</TABLE>
<PAGE>
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of the
Savings Bank's investment and mortgage-backed securities at June 30, 1997.
At June 30, 1997
-------------------------------------------------------
Amount Due or Repricing within:
Over One to
One Year or Less Five Years Totals
----------------- ------------------ -----------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
U.S. Government and federal
agency obligations $754 6.71% $1,145 6.03% $1,899 6.30%
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits and loan repayments are the major sources of the
Savings Bank's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings through the FHLB-Des Moines are
used to compensate for reductions in the availability of funds from other
sources. Presently, the Savings Bank has no other borrowing arrangements.
DEPOSIT ACCOUNTS. Savings deposits are the primary source of funds for
the Savings Bank's lending and investment activities and for its general
business purposes. Substantially all of the Savings Bank's depositors are
residents of the State of Missouri. Deposits are attracted from within the
Savings Bank's market area through the offering of a broad selection of deposit
instruments, including NOW accounts, money market deposit accounts, regular
savings accounts, certificates of deposit and retirement savings plans. Deposit
account terms vary, according to the minimum balance required, the time periods
the funds must remain on deposit and the interest rate, among other factors. In
determining the terms of its deposit accounts, the Savings Bank considers
current market interest rates, profitability to the Savings Bank, matching
deposit and loan products and its customer preferences and concerns. The Savings
Bank reviews its deposit mix and pricing weekly. The Savings Bank does not
accept brokered deposits, nor has it aggressively sought jumbo certificates of
deposit.
The Savings Bank currently offers certificates of deposit for terms not
exceeding 60 months. As a result, the Savings Bank believes that it is better
able to match the repricing of its liabilities to the repricing of its loan
portfolio.
-16-
<PAGE>
<PAGE>
The following table sets forth information concerning the Savings Bank's
time deposits and other interest-bearing deposits at June 30, 1997.
Weighted
Average Percentage
Interest Minimum of Total
Rate Term Checking and Savings Deposits Amount Balance Deposits
- ---- ---- ----------------------------- ------ ------- --------
(In Thousands)
- --% None Noninterest-bearing $ 200 $1,854 2.75%
2.63 None NOW 400 4,931 7.30
3.44 None Money Market Deposit 1,500 2,767 4.10
3.00 None Passbook none 5,919 8.77
Certificates of Deposit
-----------------------
3.99 91 Day Fixed term, fixed rate 1,000 171 .25
5.38 6 Mo. Fixed term, fixed rate 1,000 6,285 9.31
5.27 9 Mo. Fixed term, fixed rate 1,000 79 .12
5.55 12 Mo. Fixed term, fixed rate 1,000 14,572 21.58
5.49 18 Mo. Fixed term, fixed rate 1,000 397 .59
5.88 24 Mo. Fixed term, fixed rate 1,000 12,149 18.00
6.28 30 Mo. Fixed term, fixed rate 1,000 2,139 3.17
6.12 36 Mo. Fixed term, fixed rate 1,000 6,719 9.95
5.05 42 Mo. Fixed term, fixed rate 1,000 139 .21
6.07 48 Mo. Fixed term, fixed rate 1,000 4,552 6.74
5.86 60 Mo. Fixed term, fixed rate 1,000 4,770 7.06
7.59 96 Mo. Fixed term, fixed rate 1,000 21 .03
6.00 120 Mo. Fixed term, fixed rate 1,000 45 .07
--------- --------
Total $67,509 100.00%
======= ======
The following table indicates the amount of the Savings Bank's jumbo
certificates of deposit by time remaining until maturity as of June 30, 1997.
Jumbo certificates of deposit are certificates in amounts of $100,000 or more.
Maturity Period Amount
--------------- -------
(In Thousands)
Three months or less......... $1,398
Over three through six months 1,051
Over six through 12 months... 1,976
Over 12 months............... 1,498
-------
Total jumbo certificates
of deposit............. $5,923
======
-17-
<PAGE>
<PAGE>
<TABLE>
DEPOSIT FLOW. The following table sets forth the balances (inclusive of interest credited) and changes
in dollar amounts of deposits in the various types of accounts offered by the Savings Bank between the dates
indicated.
At April 30,
At June 30, ---------------------------------------------
1997 1996 1995
--------------------------- --------------------------- ---------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
------ ----- ---------- ------ ----- ---------- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook.................... $ 5,919 8.77% $ 9 $ 5,910 8.41% $ 417 $ 5,493 8.42%
NOW accounts................ 4,931 7.30 672 4,259 6.06 379 3,880 5.95
Money market deposit........ 2,767 4.10 (273) 3,040 4.32 (1,526) 4,566 7.00
Fixed-rate certificates which
mature:
Within 1 year............. 33,265 49.28 (701) 33,966 48.30 5,286 28,680 43.99
After 1 year, but within
2 years.................. 11,230 16.63 (2,092) 13,322 18.95 940 12,382 18.99
After 2 years, but within
4 years.................. 6,679 9.89 (983) 7,662 10.90 (1,017) 8,679 13.31
After 4 years............. 864 1.28 417 447 0.63 (590) 1,037 1.59
Other....................... 1,854 2.75 144 1,710 2.43 1,222 488 0.75
------- ------ ------- -------- ------ ------- -------- ------
Total..................... $67,509 100.00% $(2,807) $70,316 100.00% $ 5,111 $65,205 100.00%
======= ====== ======== ======= ====== ======= ======= ======
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</TABLE>
<PAGE>
<PAGE>
TIME DEPOSITS BY RATES. The following table sets forth the time deposits
in the Savings Bank categorized by rates at the dates indicated.
At At April 30,
June 30, ------------------
1997 1996 1995
---- ---- ----
(In Thousands)
2.00 - 2.99%.............. $ -- $ -- $ 8
3.00 - 3.99%.............. 103 105 451
4.00 - 4.99%.............. 1,669 6,119 12,879
5.00 - 5.99%.............. 33,133 26,144 16,993
6.00 - 6.99%.............. 16,067 20,261 17,539
7.00 - 7.99%.......... 1,048 2,751 2,862
8.00 - 8.99%............. 23 17 45
9.00 - 9.99%.............. -- -- --
10.00 - 10.99%............ -- -- 1
------- ------- -------
Total..................... $52,038 $55,397 $50,778
======= ======= =======
The following table sets forth the amount and maturities of time deposits
at June 30, 1997.
Amount Due
-------------------------------------------------
Less Than 1-2 2-3 3-4 After
One Year Years Years Years 4 Years Total
-------- ----- ----- ----- ------- -----
(In Thousands)
3.00 - 3.99%.............. $ 103 $ -- $ -- $ -- $ -- $ 103
4.00 - 4.99%.............. 1,581 -- -- 88 -- 1,669
5.00 - 5.99%.............. 24,484 6,827 1,596 226 -- 33,133
6.00 - 6.99%.............. 6,894 3,861 3,774 688 850 16,067
7.00 - 7.99%.............. 194 542 307 -- -- 1,043
8.00 - 8.99%.............. 9 -- -- -- 14 23
------- ------ ------ ------ ------ -------
Total................. $33,265 $11,230 $5,677 $1,002 $864 $52,038
======= ======= ====== ====== ==== =======
DEPOSIT ACTIVITY. The following table sets forth the deposit activities
of the Savings Bank for the periods indicated.
At Year Ended April 30,
June 30, ----------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Beginning balance.............. $70,316 $65,205 $64,630
Net deposits (withdrawals)
before interest credited...... (5,095) 2,941 (1,037)
Interest credited.............. 2,288 2,170 1,612
------- -------- --------
Net increase (decrease) in
deposits...................... (2,807) 5,111 575
-------- -------- --------
Ending balance................. $67,509 $70,316 $65,205
======= ======= =======
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<PAGE>
<PAGE>
BORROWINGS. The Savings Bank utilizes advances from the FHLB-Des Moines
to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines functions as a central reserve bank providing
credit for savings associations and certain other member financial institutions.
As a member of the FHLB-Des Moines, the Savings Bank is required to own capital
stock in the FHLB-Des Moines and is authorized to apply for advances on the
security of such stock and certain of its mortgage loans and other assets
(principally securities that are obligations of, or guaranteed by, the U.S.
Government) provided certain creditworthiness standards have been met. Advances
are made pursuant to several different credit programs. Each credit program has
its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based on the financial condition of
the member institution and the adequacy of collateral pledged to secure the
credit.
The following tables sets forth certain information regarding short-term
borrowings by the Savings Bank at the dates and for the periods indicated:
At or For the At or For the
Year Ended Year Ended April 30,
June 30, ---------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Maximum amount of FHLB advances
outstanding at any month end
during the period..................... $8,000 $5,500 $4,500
Approximate average FHLB advances
outstanding during the period........ 6,962 4,555 3,093
Approximate weighted average
rate paid on FHLB advances
during the period..................... 6.22% 6.62% 7.23%
Balance of FHLB advances
outstanding at end of
period................................ $6,500 $5,000 $4,500
Weighted average rate paid
on FHLB advances at end
of period............................. 5.84% 6.75% 6.84%
COMPETITION
The Savings Bank operates in a competitive market for the attraction of
savings deposits (its primary source of lendable funds) and in the origination
of loans. Its most direct competition for savings deposits has historically come
from local commercial banks and other thrifts operating in its market area. As
of June 30, 1997, there were five commercial banks and two other thrifts
operating in Callaway County, Missouri, of which only one commercial bank was
larger in terms of deposits than the Savings Bank. All of the commercial banks
in Callaway County are locally owned. The other thrifts are headquartered
outside of Callaway County. A portion of the Callaway County residents commute
to work in either Columbia or Jefferson City and, thus, there is strong
competition from other financial institutions in these larger metropolitan
areas. Particularly in times of high interest rates, the Savings Bank has faced
additional significant competition for investors' funds from short-term money
market securities and other corporate and government securities. The Savings
Bank's competition for loans also comes from mortgage bankers. Such competition
for deposits and the origination of loans may limit the Savings Bank's growth in
the future.
-20-
<PAGE>
<PAGE>
SUBSIDIARY ACTIVITIES
The Savings Bank has one subsidiary, Multi-Purpose Service Agency, Inc.
("Service Corporation"), whose activities consist primarily of selling credit
life insurance to the Savings Bank's customers. At June 30, 1997, the Savings
Bank's equity investment in its subsidiary was a deficit of $60,000.
Federal savings associations generally may invest up to 3% of their
assets in service corporations, provided that at least one-half of any amount in
excess of 1% is used primarily for community, inner-city and community
development projects. The Savings Bank's investment in its subsidiary did not
exceed these limits at June 30, 1997.
PERSONNEL
As of June 30, 1997, the Savings Bank had 44 employees. The employees are
not represented by a collective bargaining unit and the Savings Bank believes
its relationship with its employees to be good.
REGULATION
GENERAL
The Savings Bank is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by the
Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and
the FDIC to implement these statutes. These laws and regulations delineate the
nature and extent of the activities in which federal savings associations may
engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. In addition, the Savings Bank's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Savings Bank's mortgage documents. The Savings Bank must
file reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to review
the Savings Bank's compliance with various regulatory requirements. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or Congress, could have a
material adverse impact on the Company, the Savings Bank and their operations.
The Company, as a savings and loan holding company, is also required to file
certain reports with, and otherwise comply with the rules and regulations of,
the OTS.
FEDERAL REGULATION OF SAVINGS BANKS
OFFICE OF THRIFT SUPERVISION. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the FHLBB. Among other functions, the OTS
issues and enforces regulations affecting federally insured savings associations
and regularly examines these institutions.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB System, consisting of 12 FHLBs,
is under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner.
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<PAGE>
<PAGE>
The Savings Bank, as a member of the FHLB-Des Moines, is required to
acquire and hold shares of capital stock in the FHLB-Des Moines in an amount
equal to the greater of (i) 1.0% of the aggregate outstanding principal amount
of residential mortgage loans, home purchase contracts and similar obligations
at the beginning of each year, or (ii) 1/20 of its advances (borrowings) from
the FHLB-Des Moines. The Savings Bank is in compliance with this requirement
with an investment in FHLB-Des Moines stock of $637,000 at June 30, 1997. Among
other benefits, the FHLB provides a central credit facility primarily for member
institutions. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB-Des Moines.
FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the Bank Insurance Fund ("BIF") and the SAIF. As insurer of the Savings
Bank's deposits, the FDIC has examination, supervisory and enforcement authority
over the Savings Bank.
The Savings Bank's deposit accounts are insured by the FDIC under the
SAIF to the maximum extent permitted by law. The Savings Bank pays deposit
insurance premiums to the FDIC based on a risk-based assessment system
established by the FDIC for all SAIF-member institutions. Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital ("well capitalized,"
"adequately capitalized" or "undercapitalized"), which are defined in the same
manner as the regulations establishing the prompt corrective action system under
the FDIA as discussed below. The matrix so created results in nine assessment
risk classifications, with rates that until September 30, 1996 ranged from 0.23%
for well capitalized, financially sound institutions with only a few minor
weaknesses to 0.31% for undercapitalized institutions that pose a substantial
risk of loss to the SAIF unless effective corrective action is taken. The
Savings Bank's assessments expensed for the year ended June 30, 1997 equaled
$511,000 (including the FDIC SAIF assessment of $427,000).
Pursuant to the Deposit Insurance Fund ("DIF") Act, which was enacted on
September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio. In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Savings Bank, paying 0%. This
assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF
members are charged an assessment of 0.065% of SAIF-assessable deposits for the
purpose of paying interest on the obligations issued by the Financing
Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits will be charged an assessment to help pay interest on
the FICO bonds at a rate of approximately .013% until the earlier of December
31, 1999 or the date upon which the last savings association ceases to exist,
after which time the assessment will be the same for all insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Savings Bank.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Savings Bank.
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LIQUIDITY REQUIREMENTS. Under OTS regulations, each savings institution
is required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
5.0%) of its net withdrawable accounts plus short-term borrowings. OTS
regulations also require each savings institution to maintain an average daily
balance of short-term liquid assets at a specified percentage (currently 1.0%)
of the total of its net withdrawable accounts plus short-term borrowings.
Monetary penalties may be imposed for failure to meet liquidity requirements.
PROMPT CORRECTIVE ACTION. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that
it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-
based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is
not subject to specified requirements to meet and maintain a specific capital
level for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, has a Tier I risk-based capital ratio
of 4.0% or more, has a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, has a Tier I risk-based capital ratio that is less than 4.0% or has a
leverage ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, has a Tier I risk-based capital ratio that is less than 3.0%
or has a leverage ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to various mandatory and
discretionary restrictions on its operations.
At June 30, 1997, the Savings Bank was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that the Savings Bank
fails to meet any standard prescribed by the Guidelines, the agency may require
the Savings Bank to submit to the agency an acceptable plan to achieve
compliance with the standard. OTS regulations establish deadlines for the
submission and review of such safety and soundness compliance plans.
QUALIFIED THRIFT LENDER TEST. All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either become a national bank or be subject to the following restrictions
on its operations: (i) the association may not make any new investment or engage
in activities that would not be permissible for national
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banks; (ii) the association may not establish any new branch office where a
national bank located in the savings institution's home state would not be able
to establish a branch office; (iii) the association shall be ineligible to
obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to the rules regarding the statutory and regulatory
dividend restrictions applicable to national banks. Also, beginning three years
after the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if it
thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an overall
limit of 20% of the savings institution's portfolio assets: 50% of residential
mortgage loans originated and sold within 90 days of origination; 100% of
consumer loans; and stock issued by FHLMC or FNMA. Portfolio assets consist of
total assets minus the sum of (i) goodwill and other intangible assets, (ii)
property used by the savings institution to conduct its business, and (iii)
liquid assets up to 20% of the institution's total assets. At June 30, 1997, the
Savings Bank was in compliance with the QTL test.
CAPITAL REQUIREMENTS. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements. The Company is not subject to
any minimum capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital is
defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and nonincludable subsidiaries. Institutions that
fail to meet the core capital requirement would be required to file with the OTS
a capital plan that details the steps they will take to reach compliance. In
addition, the OTS's prompt corrective action regulation provides that a savings
institution that has a leverage ratio of less than 4% (3% for institutions
receiving the highest CAMEL examination rating) will be deemed to be
"undercapitalized" and may be subject to certain restrictions. See "-- Federal
Regulation of Savings Banks -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of the Savings Bank's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal to
at least 8% of risk-weighted assets. Total risk-based capital consists of the
sum of core and supplementary capital, provided that supplementary capital
cannot exceed core capital, as previously defined. Supplementary capital
includes (i) permanent capital instruments such as cumulative perpetual
preferred stock, perpetual subordinated debt and mandatory convertible
subordinated
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debt, (ii) maturing capital instruments such as subordinated debt,
intermediate-term preferred stock and mandatory convertible subordinated debt,
subject to an amortization schedule, and (iii) general valuation loan and lease
loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating risk-
weighted assets. The categories range from 0% for cash and securities that are
backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans are
assigned a 100% risk weight, as are nonqualifying residential mortgage loans and
that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totalled to arrive at total risk-weighted assets.
Off-balance sheet items are included in risk- weighted assets by converting them
to an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk- based capital requirement.
Under the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not subject to
the interest rate risk component, unless the OTS determines otherwise. The rule
also provides that the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. Under certain
circumstances, a savings association may request an adjustment to its interest
rate risk component if it believes that the OTS-calculated interest rate risk
component overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the OTS-calculated amount. The OTS has postponed the date that the component
will first be deducted from an institution's total capital.
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The following table presents the Savings Bank's capital levels as of June
30, 1997.
At June 30, 1997
-----------------------
Percent of
Amount Assets
------ ------
(Dollars in thousands)
Tangible capital.................. $16,945 16.85%
Minimum required
tangible capital................. 1,509 1.50
------- -----
Excess............................ $15,436 15.35%
======= =====
Core capital...................... $16,945 16.85%
Minimum required core
capital.......................... 3,017 3.00
------- -----
Excess............................ $13,928 13.85%
======= =====
Risk-based capital................ $17,505 28.86%
Minimum risk-based
capital requirement.............. 4,852 8.00
------- -----
Excess............................ $12,653 20.86%
======= =====
LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Savings Bank to give the OTS
30 days' advance notice of any proposed declaration of dividends, and the OTS
has the authority under its supervisory powers to prohibit the payment of
dividends. The regulation utilizes a three-tiered approach which permits various
levels of distributions based primarily upon a savings association's capital
level.
A Tier 1 savings association has capital in excess of its fully phased-
in capital requirement (both before and after the proposed capital
distribution). Tier 1 savings association may make (without application but upon
prior notice to, and no objection made by, the OTS) capital distributions during
a calendar year up to 100% of its net income to date during the calendar year
plus one-half its surplus capital ratio (i.e., the amount of capital in excess
of its fully phased-in requirement) at the beginning of the calendar year or the
amount authorized for a Tier 2 association. Capital distributions in excess of
such amount require advance notice to the OTS. A Tier 2 savings association has
capital equal to or in excess of its minimum capital requirement but below its
fully phased-in capital requirement (both before and after the proposed capital
distribution). Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the previous
four quarters depending on how close the association is to meeting its fully
phased-in capital requirement. Capital distributions exceeding this amount
require prior OTS approval. Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution). Tier 3 associations may not make any capital
distributions without prior approval from the OTS.
The Savings Bank is currently meeting the criteria to be designated a
Tier 1 association and, consequently, could at its option (after prior notice
to, and no objection made by, the OTS) distribute up to 100% of its net income
during the calendar year plus 50% of its surplus capital ratio at the beginning
of the calendar year less any distributions previously paid during the year.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of the Savings Bank's unimpaired capital and
surplus, plus an additional 10% of unimpaired capital and surplus, if such loan
is secured by readily-marketable collateral, which is defined to include certain
financial instruments and bullion. The OTS by regulation has amended the loans
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to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower in
additional amounts under circumstances limited essentially to loans to develop
or complete residential housing units. At June 30, 1997, the Savings Bank's
limit on loans to one borrower was $2.7 million. At June 30, 1997, the Savings
Bank's largest aggregate amount of loans to one borrower was $2.3 million.
ACTIVITIES OF SAVINGS BANKS AND THEIR SUBSIDIARIES. A savings
association may establish operating subsidiaries to engage in any activity that
the savings association may conduct directly and service corporation
subsidiaries to engage in certain preapproved activities or, with approval of
the OTS, other activities reasonably related to the activities of financial
institutions. When a savings association establishes or acquires a subsidiary or
elects to conduct any new activity through a subsidiary that the association
controls, the savings association must notify the FDIC and the OTS 30 days in
advance and provide the information each agency may, by regulation, require.
Savings associations also must conduct the activities of subsidiaries in
accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
TRANSACTIONS WITH AFFILIATES. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to which
the insured association or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of such institution's
capital and surplus and place an aggregate limit on all such transactions with
affiliates to an amount equal to 20% of such capital and surplus, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans, the
purchase of assets, the issuance of a guarantee and similar types of
transactions.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve Board, as is currently the case with respect to all
FDIC-insured banks. The Savings Bank has not been significantly affected by the
rules regarding transactions with affiliates.
The Savings Bank's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of
repayment. Regulation O also places individual and aggregate limits on the
amount of loans the Savings Bank may make to such persons based, in part, on the
Savings Bank's capital position, and requires certain board approval procedures
to be followed. The OTS regulations, with certain minor variances, apply
Regulation O to savings institutions.
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SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
HOLDING COMPANY ACQUISITIONS. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
HOLDING COMPANY ACTIVITIES. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions. If the
Company acquires control of another savings association as a separate subsidiary
other than in a supervisory acquisition, it would become a multiple savings and
loan holding company. There generally are more restrictions on the activities of
a multiple savings and loan holding company than on those of a unitary savings
and loan holding company. The HOLA provides that, among other things, no
multiple savings and loan holding company or subsidiary thereof which is not an
insured association shall commence or continue for more than two years after
becoming a multiple savings and loan association holding company or subsidiary
thereof, any business activity other than: (i) furnishing or performing
management services for a subsidiary insured institution, (ii) conducting an
insurance agency or escrow business, (iii) holding, managing, or liquidating
assets owned by or acquired from a subsidiary insured institution, (iv) holding
or managing properties used or occupied by a subsidiary insured institution, (v)
acting as trustee under deeds of trust, (vi) those activities previously
directly authorized by regulation as of March 5, 1987 to be engaged in by
multiple holding companies or (vii) those activities authorized by the Federal
Reserve Board as permissible for bank holding companies, unless the OTS by
regulation, prohibits or limits such activities for savings and loan holding
companies. Those activities described in (vii) above also must be approved by
the OTS prior to being engaged in by a multiple holding company.
QUALIFIED THRIFT LENDER TEST. The HOLA requires any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Banks -- Qualified Thrift
Lender Test," must, within one year after the date on which the association
ceases to be a QTL, register as and be deemed a bank holding company subject to
all applicable laws and regulations.
TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Savings Bank report their income on a
fiscal year basis using the accrual method of accounting and will be subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Savings Bank's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Savings Bank or the Company.
TAX BAD DEBT RESERVES. Historically, savings institutions such as the
Savings Bank which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Savings Bank's
deductions with respect to "qualifying real property loans," which are generally
loans secured by certain interest in real property, were computed using an
amount based on the Savings Bank's actual loss experience, or a percentage equal
to 8% of the Savings Bank's taxable income, computed with certain modifications
and reduced by the amount of any permitted additions to the non-qualifying
reserve. Due to the Savings Bank's loss experience, the Savings Bank generally
recognized a bad debt deduction equal to 8% of taxable income.
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In August 1996, the provisions repealing the current thrift bad debt
rules were passed by Congress as part of "The Small Business Job Protection Act
of 1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Savings Bank has
previously recorded a deferred tax liability equal to the bad debt recapture and
as such the new rules will have no effect on the net income or federal income
tax expense. For taxable years beginning after December 31, 1995, the Savings
Bank's bad debt deduction will be determined under the experience method using a
formula based on actual bad debt experience over a period of years or, if the
Savings Bank is a "large" association (assets in excess of $500 million) on the
basis of net charge-offs during the taxable year. The new rules allow an
institution to suspend bad debt reserve recapture for the 1996 and 1997 tax
years if the institution's lending activity for those years is equal to or
greater than the institutions average mortgage lending activity for the six
taxable years preceding 1996 adjusted for inflation. For this purpose, only home
purchase or home improvement loans are included and the institution can elect to
have the tax years with the highest and lowest lending activity removed from the
average calculation. If an institution is permitted to postpone the reserve
recapture, it must begin its six year recapture no later than the 1998 tax year.
The unrecaptured base year reserves will not be subject to recapture as long as
the institution continues to carry on the business of banking. In addition, the
balance of the pre-1988 bad debt reserves continue to be subject to provisions
of present law referred to below that require recapture in the case of certain
excess distributions to shareholders.
DISTRIBUTIONS. To the extent that the Savings Bank makes "nondividend
distributions" to the Company that are considered as made: (i) from the reserve
for losses on qualifying real property loans, to the extent the reserve for
such losses exceeds the amount that would have been allowed under the experience
method; or (ii) from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Savings Bank's taxable income. Nondividend distributions include
distributions in excess of the Savings Bank's current and accumulated earnings
and profits, distributions in redemption of stock, and distributions in partial
or complete liquidation. However, dividends paid out of the Savings Bank's
current or accumulated earnings and profits, as calculated for federal income
tax purposes, will not be considered to result in a distribution from the
Savings Bank's bad debt reserve. Thus, any dividends to the Company that would
reduce amounts appropriated to the Savings Bank's bad debt reserve and deducted
for federal income tax purposes would create a tax liability for the Savings
Bank. The amount of additional taxable income attributable to an Excess
Distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, the Savings Bank
makes a "nondividend distribution," then approximately one and one-half times
the amount so used would be includable in gross income for federal income tax
purposes, assuming a 35% corporate income tax rate (exclusive of state and local
taxes). See "REGULATION" for limits on the payment of dividends by the Savings
Bank. The Savings Bank does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserve.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad debt
reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI. In addition, only 90%
of AMTI can be offset by net operating loss carryovers. AMTI is increased by an
amount equal to 75% of the amount by which the Savings Bank's adjusted current
earnings exceeds its AMTI (determined without regard to this preference and
prior to reduction for net operating losses). For taxable years beginning after
December 31, 1986, and before January 1, 1996, an environmental tax of .12% of
the excess of AMTI (with certain modification) over $2.0 million is imposed on
corporations, including the Savings Bank, whether or not an Alternative Minimum
Tax ("AMT") is paid.
DIVIDENDS-RECEIVED DEDUCTION AND OTHER MATTERS. The Company may exclude
from its income 100% of dividends received from the Savings Bank as a member of
the same affiliated group of corporations. The corporate dividends-received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Company and the Savings Bank will not file a
consolidated tax return, except that if
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PAGE
<PAGE>
the Company or the Savings Bank owns more than 20% of the stock of a corporation
distributing a dividend, then 80% of any dividends received may be deducted.
OTHER FEDERAL TAX MATTERS. Other recent changes in the federal tax
system could also affect the business of the Savings Bank. These changes include
limitations on the deduction of personal interest paid or accrued by individual
taxpayers, limitations on the deductibility of losses attributable to investment
in certain passive activities and limitations on the deductibility of
contributions to individual retirement accounts. The Savings Bank does not
believe these changes will have a material effect on its operations.
STATE TAXATION
DELAWARE. As a Delaware holding company not earning income in Delaware,
the Company is exempted from Delaware corporate income tax, but is required to
file an annual report with and pay an annual franchise tax to the State of
Delaware.
AUDITS. There have not been any Internal Revenue Service audits of the
Savings Bank's Federal income tax returns or audits of the Savings Bank's state
income tax returns during the past five years.
For additional information regarding taxation, see Note G of Notes to
Consolidated Financial Statements contained in the Annual Report.
ITEM 2. DESCRIPTION OF PROPERTY
- --------------------------------
The Company operates two full service facilities, both of which it owns.
At June 30, 1997, the net book value of the property (including land and
building) and the Company's fixtures, furniture and equipment was $1.5 million.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
Periodically, there have been various claims and lawsuits involving the
Savings Bank, such as claims to enforce liens, condemnation proceedings on
properties on which the Savings Bank holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Savings Bank's business. Neither the Company nor the Savings Bank is a party to
any pending legal proceedings that it believes would have a material adverse
effect on the financial condition or operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------
The information contained under the section captioned "Common Stock
Information" on page 2 of the 1997 Annual Report to Stockholders ("Annual
Report") is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS OR PLAN OF OPERATIONS
- -------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 5 of the Annual Report is incorporated herein by reference.
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<PAGE>
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- ------------------------------
(a) Financial Statements
Independent Auditor's Report*
Consolidated Statements of Financial Condition as of June 30,
1997 and 1996 Consolidated Statements of Income for the Year
Ended
June 30, 1997, two months ended June 30, 1996 and years ended
April 30, 1996 and 1995 Consolidated Statements of Stockholders'
Equity for the Year Ended
June 30, 1997, two months ended June 30, 1996 and years ended
April 30, 1996 and 1995 Consolidated Statements of Cash Flows for
the Year Ended
June 30, 1997, two months ended June 30, 1996 and years ended
April 30, 1996 and 1995 Notes to the Consolidated Financial
Statements*
* Included in the Annual Report attached as Exhibit 13 hereto and
incorporated herein by reference. All schedules have been omitted as
the required information is either inapplicable or included in the
Consolidated Financial Statements or related Notes contained in the
Annual Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
-31-
<PAGE>
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- ----------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- -------------------------------------------------
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
executive officers of the Company.
Name Age(1) Position
- ---- ------ ---------
Kermit D. Gohring 62 President and Chief Executive Officer
Richard W. Gohring 42 Vice-President
Bonnie K. Smith 52 Secretary-Treasurer
The following table sets forth certain information regarding the executive
officers of the Savings Bank.
Name Age(1) Position
- ---- ------ --------
Kermit D. Gohring 62 Chief Executive Officer, President
and Chairman of the Board
Richard W. Gohring 42 Executive Vice President
and Director
Clifford E. Hamilton, Jr. 54 Vice Chairman of the Board
Bonnie K. Smith 52 Senior Vice President, Secretary-
Treasurer and Director
- -------------
(1) As of June 30, 1997.
Kermit D. Gohring is the President, Chief Executive Officer and Chairman
of the Board of the Holding Company and the Savings Bank. He has been associated
with the Savings Bank since 1964 and President since 1974.
Richard W. Gohring is Executive Vice President and a Director of the
Savings Bank and Vice-President and a Director of the Holding Company. He has
been associated with the Savings Bank since 1985.
Clifford E. Hamilton, Jr. is a Circuit Judge in Columbia, Missouri and
presently serves as a general jurisdiction judge in the Thirteenth Judicial
Circuit of Missouri, which includes Fulton and Columbia. He currently serves as
the Vice Chairman of the Board.
Bonnie K. Smith is Senior Vice President, Secretary-Treasurer and a
Director of the Savings Bank and Secretary-Treasurer of the Holding Company. She
has been associated with the Savings Bank since 1971.
The information contained under the section captioned "Proposal I -
Election of Directors" contained in the Company's Proxy Statement is
incorporated herein by reference. Reference is made to the cover page of this
report for information regarding compliance with Section 16(a) of the Exchange
Act.
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<PAGE>
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------
The information contained under the sections captioned "Executive
Compensation" and "Directors' Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.
(b) Security Ownership of Management
The information required by this item is incorporated herein by
reference to the sections captioned "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement.
(c) Changes in Control
The Company is not aware of any arrangements, including any
pledge by any person of securities of the Company, the operation
of which may at a subsequent date result in a change in control
of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information set forth under the section captioned "Transactions with
Management" in the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
- -----------------------------------------------
(a) Exhibits
3.1 Certificate of Incorporation of Fulton Bancorp, Inc.
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File No. 333-8461))
3.2 Bylaws of Fulton Bancorp, Inc. (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-1
(File No. 333-8461))
10.1 Employment Agreement with Kermit D. Gohring
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
27 Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended June 30, 1997.
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<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FULTON BANCORP, INC.
Date: September 26, 1997 By: /s/ Kermit D. Gohring
------------------------------
Kermit D. Gohring
President and Chief Executive
Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Kermit D. Gohring President, Chief September 26, 1997
- --------------------- Executive Officer and
Kermit D. Gohring Director (Principal Executive Officer)
/s/ Richard W. Gohring Vice President and Director September 26, 1997
- ---------------------- (Principal Financial Officer)
Richard W. Gohring
/s/ Bonnie K. Smith Secretary-Treasurer and September 26, 1997
- ------------------- Director (Principal Accounting Officer)
Bonnie K. Smith
/s/ Clifford E. Hamilton Director September 26, 1997
- ------------------------
Clifford E. Hamilton
/s/ Billy Conner Director September 26, 1997
- ----------------
Billy Conner
/s/ David West Director September 26, 1997
- --------------
David West
/s/ Dennis Adrian Director September 26, 1997
- -----------------
Dennis Adrian
<PAGE>
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT WITH KERMIT D. GOHRING
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made effective as of November 13, 1996, by and between
FULTON SAVINGS BANK, FSB (the "Savings Bank"), FULTON BANCORP, INC., a Delaware
corporation (the "Company"); and KERMIT D. GOHRING (the "Executive").
WHEREAS, the Savings Bank wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Savings Bank
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve
as President and Chief Executive Officer of the Savings Bank. During said
period, Executive also agrees to serve, if elected, as an officer and director
of the Company or any subsidiary or affiliate of the Company or the Savings
Bank.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as
of the date first above written and shall continue for a period of thirty-six
(36) full calendar months thereafter. Commencing on the first anniversary date,
and continuing at each anniversary date thereafter, the Board of Directors of
the Savings Bank (the "Board") may extend the Agreement for an additional year.
Prior to the extension of the Agreement as provided herein, the Board of
Directors of the Savings Bank will conduct a formal performance evaluation of
Executive for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Savings Bank; provided, however, that, with the
approval of the Board, as evidenced by a resolution of such Board, from time to
time, Executive may serve, or continue to serve, on the boards of directors of,
and hold any other offices or positions in, companies or organizations, which,
in such Board's judgment, will not present any conflict of interest with the
Savings Bank, or materially affect the performance of Executive's duties
pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Sections 1 and 2. The
Savings Bank shall pay Executive as compensation a salary of $96,000 per year
("Base Salary"). Such Base Salary shall be payable in accordance with the
customary payroll practices of the Savings Bank. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by a Committee designated by the
Board, and the Board may increase Executive's Base Salary. In addition to the
Base Salary provided in this Section 3(a), the Savings Bank shall provide
Executive at no cost to Executive with all such other benefits as are provided
uniformly to permanent full-time employees of the Savings Bank.
<PAGE>
<PAGE>
(b) The Savings Bank will provide Executive with employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Savings Bank will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect Executive's rights or
benefits thereunder. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive will be entitled to participate in
or receive benefits under any employee benefit plans including, but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plan, medical coverage or any other
employee benefit plan or arrangement made available by the Savings Bank in the
future to its senior executives and key management employees, subject to, and on
a basis consistent with, the terms, conditions and overall administration of
such plans and arrangements. Executive will be entitled to incentive
compensation and bonuses as provided in any plan, or pursuant to any arrangement
of the Savings Bank, in which Executive is eligible to participate. Nothing
paid to Executive under any such plan or arrangement will be deemed to be in
lieu of other compensation to which Executive is entitled under this Agreement,
except as provided under Section 5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Savings Bank shall pay or reimburse Executive for all
reasonable travel and other obligations under this Agreement and may provide
such additional compensation in such form and such amounts as the Board may from
time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during Executive's term of employment under this Agreement, the
provisions of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Savings Bank of Executive's full-time employment hereunder
for any reason other than a Change in Control, as defined in Section 5(a)
hereof; disability, as defined in Section 6(a) hereof; death; retirement, as
defined in Section 7 hereof; or Termination for Cause, as defined in Section 8
hereof; (ii) Executive's resignation from the Savings Bank's employ, upon (A)
unless consented to by Executive, a material change in Executive's function,
duties, or responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Sections 1 and 2, above (any such material
change shall be deemed a continuing breach of this Agreement), (B) a relocation
of Executive's principal place of employment by more than 35 miles from its
location at the effective date of this Agreement, or a material reduction in the
benefits and perquisites to Executive from those being provided as of the
effective date of this Agreement, (C) the liquidation or dissolution of the
Savings Bank, or (D) any breach of this Agreement by the Savings Bank. Upon the
occurrence of any event described in clauses (A), (B), (C) or (D), above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within a reasonable period of time not to exceed, except in case of a
continuing breach, four (4) calendar months after the event giving rise to said
right to elect.
(b) Upon the occurrence of an Event of Termination, the Savings Bank
shall pay Executive, or, in the event of his subsequent death, his beneficiary
or beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal to the payments due to Executive for
the remaining term of the Agreement, including Base Salary, bonuses, and any
other cash or deferred compensation paid or to be paid (including the value of
employer contributions that would have been made on Executive's behalf over the
remaining term of the agreement to any tax-qualified retirement plan sponsored
by the Savings Bank as of the Date of Termination), to Executive for the term of
the Agreement provided, however, that if the Savings Bank is not in compliance
with its minimum capital requirements or if such payments would cause the
Savings Bank's capital to be reduced below its minimum capital requirements,
such payments shall be deferred until such time as the Savings Bank is in
capital compliance. All payments made pursuant to this Section 4(b) shall be
paid in substantially equal monthly installments over the remaining term of this
Agreement following Executive's termination; provided, however, that if the
remaining term of the Agreement is less than one (1) year (determined as of
Executive's Date
2
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<PAGE>
of Termination), such payments and benefits shall be paid to Executive in a lump
sum within thirty (30) days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the Savings Bank
will cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Savings Bank for
Executive prior to his termination. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall
have occurred a Change in Control of the Company or the Savings Bank. For
purposes of this Agreement, a "Change in Control" of the Company or the Savings
Bank shall be deemed to occur if and when (a) an offeror other than the Company
purchases shares of the common stock of the Company or the Savings Bank pursuant
to a tender or exchange offer for such shares, (b) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is
or becomes the beneficial owner, directly or indirectly, of securities of the
Company or the Savings Bank representing 25% or more of the combined voting
power of the Company's then outstanding securities, (c) the membership of the
board of directors of the Company or the Savings Bank changes as the result of a
contested election, such that individuals who were directors at the beginning of
any twenty-four (24) month period (whether commencing before or after the date
of adoption of this Agreement) do not constitute a majority of the Board at the
end of such period, or (d) shareholders of the Company or the Savings Bank
approve a merger, consolidation, sale or disposition of all or substantially all
of the Company's or the Savings Bank's assets, or a plan of partial or complete
liquidation.
(b) If any of the events described in Section 5(a) hereof
constituting a Change in Control have occurred or the Board of the Savings Bank
or the Company has reasonably determined that a Change in Control has occurred,
Executive shall be entitled to the benefits provided in paragraphs (c), (d) and
(e) of this Section 5 upon his subsequent involuntary termination following the
effective date of a Change in Control (or voluntary termination following the
effective date of a Change in Control following any demotion, loss of title,
office or significant authority, reduction in his annual compensation or
benefits (other than a reduction affecting the Savings Bank's personnel
generally), or relocation of his principal place of employment by more than
thirty-five (35) miles from its location immediately prior to the Change in
Control), unless such termination is because of his death, retirement as
provided in Section 7, termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by
Executive's termination of employment, the Savings Bank shall pay Executive, or
in the event of his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be, as severance pay or liquidated damages, or both, a
sum equal to 2.99 times Executive's "base amount," within the meaning of
Section 280G(b)(3) of the Internal Revenue Code of 1986 ("Code"), as amended.
Such payment shall be made in a lump sum paid within ten (10) days of
Executive's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by
Executive's termination of employment, the Savings Bank will cause to be
continued life, medical, dental and disability coverage substantially identical
to the coverage maintained by the Savings Bank for Executive prior to his
severance. In addition, Executive shall be entitled to receive the value of
employer contributions that would have been made on Executive's behalf over the
remaining term of the agreement to any tax-qualified retirement plan sponsored
by the Savings Bank as of the Date of Termination. Such coverage and payments
shall cease upon the expiration of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, Executive shall be
entitled to receive benefits due him under, or contributed by the Company or the
Savings Bank on his behalf, pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Savings Bank or the Company on Executive's behalf to the
extent that such benefits are not otherwise paid to Executive upon a Change in
Control.
3
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<PAGE>
(f) Notwithstanding the preceding paragraphs of this Section 5, in
the event that the aggregate payments or benefits to be made or afforded to
Executive under this Section would be deemed to include an "excess parachute
payment" under Section 280G of the Code, then, at the election of Executive, (i)
such payments or benefits shall be payable or provided to Executive over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
Executive's "base amount" under Section 280G(b)(3) of the Code or (ii)
Executive shall receive the amount payable under Section 5(c) as the sole
benefit payable under this Section 5.
6. TERMINATION FOR DISABILITY.
(a) If Executive shall become disabled as defined in the Savings
Bank's then current disability plan (or, if no such plan is then in effect, if
Executive is permanently and totally disabled within the meaning of Section
22(e)(3) of the Code as determined by a physician designated by the Board), the
Savings Bank may terminate Executive's employment for "Disability."
(b) Upon Executive's termination of employment for Disability, the
Savings Bank will pay Executive, as disability pay, a bi-weekly payment equal to
three-quarters (3/4) of Executive's bi-weekly rate of Base Salary on the
effective date of such termination. These disability payments shall commence
on the effective date of Executive's termination and will end on the earlier of
(i) the date Executive returns to the full-time employment of the Savings Bank
in the same capacity as he was employed prior to his termination for Disability
and pursuant to an employment agreement between Executive and the Savings Bank;
(ii) Executive's full-time employment by another employer; (iii) Executive
attaining the age of sixty-five (65); or (iv) Executive's death; or (v) the
expiration of the term of this Agreement. The disability pay shall be reduced
by the amount, if any, paid to Executive under any plan of the Savings Bank
providing disability benefits to Executive.
(c) The Savings Bank will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the Savings Bank for Executive prior to his termination for
Disability. This coverage and payments shall cease upon the earlier of (i) the
date Executive returns to the full-time employment of the Savings Bank, in the
same capacity as he was employed prior to his termination for Disability and
pursuant to an employment agreement between Executive and the Savings Bank; (ii)
Executive's full-time employment by another employer; (iii) Executive's
attaining the age of sixty-five (65); (iv) Executive's death; or (v) the
expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE.
Termination by the Savings Bank of Executive based on "Retirement" shall
mean retirement at age sixty-five (65) or in accordance with any retirement
arrangement established with Executive's consent with respect to him. Upon
termination of Executive upon Retirement, Executive shall be entitled to all
benefits under any retirement plan of the Savings Bank or the Company and other
plans to which Executive is a party. Upon the death of Executive during the
term of this Agreement, the Savings Bank shall pay to Executive's estate the
compensation due to Executive through the last day of the calendar month in
which his death occurred.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of Executive's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
For purposes of
4
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<PAGE>
this Section, no act, or the failure to act, on Executive's part shall be
"willful" unless done, or omitted to be done, not in good faith and without
reasonable belief that the action or omission was in the best interest of the
Savings Bank or its affiliates. Notwithstanding the foregoing, Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4) of the members of the
Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying termination for Cause
and specifying the reasons thereof. Executive shall not have the right to
receive compensation or other benefits for any period after termination for
Cause. Any stock options granted to Executive under any stock option plan or
any unvested awards granted under any other stock benefit plan of the Savings
Bank, the Company, or any subsidiary or affiliate thereof, shall become null and
void effective upon Executive's receipt of Notice of Termination for Cause
pursuant to Section 9 hereof, and shall not be exercisable by Executive at any
time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The Savings Bank may terminate Executive's employment at any
time, but any termination by the Savings Bank, other than Termination for Cause,
shall not prejudice Executive's right to compensation or other benefits under
this Agreement. Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in Section
8 herein.
(b) If Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under the
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Savings Bank may, in its discretion, (i) pay Executive all or part of the
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of its obligations that were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)),
all obligations of the Savings Bank under the Agreement shall terminate as of
the effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the Savings Bank is in default (as defined in Section 3(x)(1)
of the FDIA), all obligations under this Agreement shall terminate as of the
date of default, but this paragraph shall not affect any vested rights of the
parties.
(e) All obligations under this Agreement shall be terminated (except
to the extent determined that continuation of the Agreement is necessary for the
continued operation of the Savings Bank): (i) by the Director of the Office of
Thrift Supervision (the "Director") or his designee at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Savings Bank under the
authority contained in Section 13(c) of the FDIA or (ii) by the Director, or his
designee at the time the Director or such designee approves a supervisory merger
to resolve problems related to operation of the Savings Bank or when the Savings
Bank is determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
5
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<PAGE>
10. NOTICE.
(a) Any purported termination by the Savings Bank or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment
is terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence of
a Change in Control and voluntary termination by Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Savings Bank will continue
to pay Executive his full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, Base Salary) and continue
him as a participant in all compensation, benefit and insurance plans in which
he was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
11. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder
pursuant to an Event of Termination as provided in Section 4 hereof, Executive
agrees not to compete with the Savings Bank and/or the Company for a period of
one (1) year following such termination in any city, town or county in which the
Savings Bank and/or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective date
of such termination. Executive agrees that during such period and within said
cities, towns and counties, Executive shall not work for or advise, consult or
otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Savings Bank and/or the Company. The parties hereto, recognizing that
irreparable injury will result to the Savings Bank and/or the Company, its
business and property in the event of Executive's breach of this Subsection
11(a) agree that in the event of any such breach by Executive, the Savings Bank
and/or the Company will be entitled, in addition to any other remedies and
damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employers, employees and all
persons acting for or with Executive. Executive represents and admits that in
the event of the termination of his employment pursuant to Section 8 hereof,
Executive's experience and capabilities are such that Executive can obtain
employment in a business engaged in other lines and/or of a different nature
than the Savings Bank and/or the Company, and that the enforcement of a remedy
by way of injunction will not prevent Executive from earning a livelihood.
Nothing herein will be construed as prohibiting the Savings Bank and/or the
Company from pursuing any other remedies available to the Savings Bank and/or
the Company for such breach or threatened breach, including the recovery of
damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Savings Bank and
affiliates thereof, as it may exist from time to time, is a valuable, special
6
<PAGE>
<PAGE>
and unique asset of the business of the Savings Bank. Executive will not,
during or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Savings Bank or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Savings Bank. In the event of a breach or
threatened breach by Executive of the provisions of this Section, the Savings
Bank will be entitled to an injunction restraining Executive from disclosing, in
whole or in part, the knowledge of the past, present, planned or considered
business activities of the Savings Bank or affiliates thereof, or from rendering
any services to any person, firm, corporation, other entity to whom such
knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Savings Bank
from pursuing any other remedies available to the Savings Bank for such breach
or threatened breach, including the recovery of damages from Executive.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Savings Bank. The Company, however,
guarantees all payments and the provision of all amounts and benefits due
hereunder to Executive and, if such payments are not timely paid or provided by
the Savings Bank, such amounts and benefits shall be paid or provided by the
Company.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Savings Bank or
any predecessor of the Savings Bank and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive, the Savings Bank, the Company and their respective successors and
assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there by any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
7
<PAGE>
<PAGE>
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Missouri,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or state
law or regulation, the provisions of such law or regulation shall prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within one
hundred (100) miles from the location of the Savings Bank, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Savings Bank, if successful pursuant to a legal judgment,
arbitration or settlement.
21. INDEMNIFICATION.
The Savings Bank shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
Savings Bank (whether or not he continues to be a directors or officer at the
time of incurring such expenses or liabilities), such expenses and liabilities
to include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
22. SUCCESSOR TO THE SAVINGS BANK OR THE COMPANY.
The Savings Bank and the Company shall require any successor or
assignee, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of the Savings
Bank or the Company, expressly and unconditionally to assume and agree to
perform the Savings Bank's or the Company's obligations under this Agreement, in
the same manner and to the same extent that the Savings Bank or the Company
would be required to perform if no such succession or assignment had taken
place.
8
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Savings Bank and the Company hereto have caused
this Agreement to be executed and their seal to be affixed hereunto by a duly
authorized officer or director, and Executive has signed this Agreement, all on
the 13th day of November, 1996.
ATTEST: FULTON SAVINGS BANK, FSB
/s/ David West BY: /s/ Clifford E. Hamilton
- ------------------------- ----------------------------------
[SEAL]
ATTEST: FULTON BANCORP, INC.
/s/ David West BY: /s/ Clifford E. Hamilton
- ------------------------- ----------------------------------
[SEAL]
WITNESS:
/s/ David West /s/ Kermit D. Gohring
- ------------------------- ----------------------------------
Kermit D. Gohring
9
<PAGE>
<PAGE>
EXHIBIT 13
1997 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
<PAGE>
1997 Annual Report
Fulton Bancorp, Inc.
<PAGE>
<PAGE>
Fulton Bancorp, Inc.
1997 ANNUAL REPORT
TABLE OF CONTENTS
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . 1
Business of the Corporation. . . . . . . . . . . . . . . . . . . 2
Common Stock Information . . . . . . . . . . . . . . . . . . . . 2
Selected Consolidated Financial Information. . . . . . . . . . . 3
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 5
Independent Auditors' Report . . . . . . . . . . . . . . . . . . 14
Consolidated Financial Statements. . . . . . . . . . . . . . . . 15
Notes to Consolidated Financial Statements . . . . . . . . . . . 20
Directors and Officers . . . . . . . . . . . . . . . . . . . . . 36
Corporate Information. . . . . . . . . . . . . . . . . . . . . . 36
Stockholders' Information. . . . . . . . . . . . . . . . . . . . 37
<PAGE>
<PAGE>
FULTON BANCORP, INC.
410 Market St. P.O. Box 700
Fulton, Missouri 65251-0700
Phone (573) 642-6618
FAX (573) 642-2787
(800) 348-6617
Dear Fellow Shareholders:
I am pleased to present to you the first annual report for Fulton Bancorp, Inc.
On October 17, 1996, Fulton Bancorp, Inc. became the holding company for Fulton
Savings Bank, FSB in connection with Fulton Savings' conversion from mutual to
stock form. At that time, the Company completed its public offering of
1,719,250 shares at $10.00 per share.
With the help of the conversion, the Company surpassed $100 million in total
assets for the first time, increasing 13% to $100.6 million from $88.8 million
at June 30, 1996. The conversion also helped make fiscal 1997 an excellent year
for the Company. Earnings grew 33% to $822,000, compared with $620,000 for
fiscal 1996. Loan demand was very strong, with originations increasing 8.5% to
$55.6 million for fiscal 1997 compared to $51.3 million for fiscal 1996.
Through our mortgage banking activities, we increased the size of our loan
servicing portfolio to $90.4 million.
During the fiscal year, legislation was passed that required all thrifts to pay
a special assessment to recapitalize the Savings Association Insurance Fund
(SAIF). Fulton Savings' share of this industry-wide special assessment was
approximately $427,000, and is included in the Company's noninterest expense for
fiscal 1997. By recapitalizing the SAIF, our deposit insurance premiums dropped
from 23 cents per $100 of insured deposits to 6.5 cents beginning January 1,
1997. While the charge depressed earnings in fiscal 1997, we are benefiting now
from the reduction in deposit insurance premiums.
The past year has seen the continuing consolidation of the banking industry.
Here in Missouri there were several large acquisitions. As a small institution
outside of the state's major metropolitan areas, we have found opportunity when
other "local" banks cease to be local. Folks in our area still want to be able
to sit down with a banker who knows them and their business and who can deliver
personal service. In response to this demand, during the past year, we began
offering commercial checking accounts and expanded our commercial lending
operations. We believe that developing our commercial banking operations can
make us more profitable and can help us grow.
In closing, I want to note the dedication of our staff and the commitment of our
Board of Directors. This has been a busy year full of many changes as we begin
life as a public company. We are proud of the role Fulton Savings plays in its
communities and we look forward to building on our accomplishments in the years
ahead.
/s/ Kermit D. Gohring
Kermit D. Gohring
President and Chief Executive Officer
-1-
<PAGE>
<PAGE>
BUSINESS OF THE CORPORATION
Fulton Bancorp, Inc. (the "Company"), a Delaware corporation, was organized in
May 1996 for the purpose of becoming the holding company for Fulton Savings
Bank, FSB (the "Bank") upon the conversion of the Bank from a federally-
chartered mutual savings bank to a federally-chartered stock savings bank. The
conversion was completed on October 17, 1996. At June 30, 1997, the Company had
total consolidated assets of $100.6 million and consolidated stockholders'
equity of $25.3 million.
The Company is not engaged in any significant business activity other than
holding the stock of the Bank. Accordingly, the information set forth in this
report, including financial statements and related data, applies primarily to
the Bank.
The Bank is a federally-chartered stock savings bank, originally organized in
1912. The Bank is regulated by the Office of Thrift Supervision ("OTS"). Its
deposits are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Bank also is a member of the Federal Home Loan Bank ("FHLB") System. The
Bank operates as a community-oriented financial institution devoted to serving
the needs of its customers in its market area, which consists primarily of
Fulton, Missouri and Callaway County and its contiguous counties. The Bank's
business consists primarily of attracting deposits from the general public and
using those funds to originate residential and commercial mortgage loans. The
Bank generally sells most of the fixed-rate and some of the adjustable-rate
mortgage loans that it originates while retaining the servicing rights on such
loans. The Bank also originates multi-family, construction, land and consumer
and other loans. The Bank frequently sells participation interests in the
non-residential mortgage loans it originates.
COMMON STOCK INFORMATION
The Company's common stock is traded on the Nasdaq National Market under the
symbol "FTNB". As of June 30, 1997, there were 1,719,250 shares of common stock
outstanding (including unreleased Employee Stock Ownership Plan ("ESOP") shares
of 127,167) and 647 stockholders, excluding persons or entities who hold stock
in nominee or "street name". Dividend payments by the Company are dependent
primarily on dividends received by the Company from the Bank. Under federal
regulations, the dollar amount of dividends the Bank may pay is dependent upon
its capital position and recent net income. Generally, if the Bank satisfies
its regulatory capital requirements, it may make dividend payments up to the
limits prescribed in the OTS regulations. However, institutions that have
converted to the stock form of ownership may not declare or pay a dividend on,
or repurchase any of, its common stock if the effect thereof would cause the
regulatory capital of the institution to be reduced below the amount required
for the liquidation account which was established in the conversion in
accordance with the OTS regulations. See note O of the Consolidated Financial
Statements.
The table below shows the price range of common stock for the year ended June
30, 1997, during which the common stock was outstanding. This information was
provided by the Nasdaq Stock Market.
FISCAL 1997 High Low Dividends
- ----------- ---- --- ---------
First Quarter N/A N/A N/A
Second Quarter $16.250 $12.250 N/A
Third Quarter $18.375 $14.625 $0.05
Fourth Quarter $20.375 $17.500 $0.05
-2-
<PAGE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain information concerning the consolidated
financial position and results of operations of the Company at and for the dates
indicated. In November 1996, the Board of Directors approved a change in the
Company's fiscal year end from April 30 to June 30. Accordingly, the following
table include the transition period reports. Since the Company had not
commenced operations prior to the mutual-to-stock conversion of the Bank in
October 1996, the financial information presented for the periods prior to 1997
is that of the Bank only. The consolidated data is derived in part from, and
should be read in conjunction with, the Consolidated Financial Statements of the
Company and its subsidiary presented herein.
At June 30, At April 30,
------------- ------------------------------
1997 1996 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
SELECTED FINANCIAL
CONDITION DATA:
Total assets . . . . $100,557 $ 88,771 $ 85,496 $ 79,351 $ 73,620 $ 73,622
Cash . . . . . . . . 7,095 3,154 2,924 4,189 5,322 8,152
U.S. Government and
federal agency
obligations available
for sale. . . . . . 1,899 3,208 3,216 4,201 --- ---
U.S. Government and
federal agency. . .
obligations held
to maturity . . . . --- --- --- --- 4,260 4,840
Mortgage-backed securities
available for sale. --- --- --- 1 --- ---
Mortgage-backed securities
held to maturity. . --- --- --- --- 1,196 1,689
Loans receivable, net 83,714 76,561 73,893 67,805 60,282 56,323
Loans held for sale. 4,463 2,527 2,306 574 --- ---
Deposits . . . . . . 67,509 71,288 70,316 65,205 64,630 65,235
FHLB advances. . . . 6,500 7,000 5,000 4,500 --- ---
Stockholders' equity 25,257 9,274 9,117 8,484 7,933 7,052
Two
Year Months
Ended Ended Year Ended April 30,
June 30, June 30, -------------------------------
1997 1996 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(Dollars in Thousands, Except Per Share Amount)
SELECTED OPERATING DATA:
Interest income. . . $ 7,340 $ 1,149 $ 6,172 $ 5,355 $ 5,413 $ 5,997
Interest expense . . 3,939 665 3,781 2,944 2,671 3,345
-------- -------- -------- -------- -------- --------
Net interest income 3,401 484 2,391 2,411 2,742 2,652
Provision for loan
losses. . . . . . . 120 25 44 118 48 160
Net interest income -------- -------- -------- -------- -------- --------
after provision for
loan losses . . . . 3,281 459 2,347 2,293 2,694 2,492
Noninterest income . 639 119 485 360 413 426
Noninterest expense. 2,627 316 1,849 1,809 1,741 1,625
Income before income -------- -------- -------- -------- -------- --------
taxes. . . . . . . 1,293 262 983 844 1,366 1,293
Income taxes . . . . 471 98 363 301 485 505
Income before cumula- -------- -------- -------- -------- -------- --------
tive effect of
accounting change . 822 164 620 543 881 788
Cumulative effect of
accounting change (1) --- --- --- --- --- 209
-------- -------- -------- -------- -------- --------
Net income. . . . . $ 822 $ 164 $ 620 $ 543 $ 881 $ 997
======== ======== ======== ======== ======== ========
Net income per share $ 0.52 * * * * *
========
- -----------------
(1) Reflects adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes".
* Operating as a mutual institution
-3-
PAGE
<PAGE>
At or For the
-------------------------------------------
Year
Ended Year Ended April 30,
June 30, -------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
KEY FINANCIAL RATIOS:
Performance Ratios:
Return on assets (1). . . . . . . .83% .75% .72% 1.12% 1.07%
Return on equity (2) . . . . . . . 4.10 7.00 6.55 11.92 12.13
Retained earnings to assets (3) . 20.32 10.70 10.93 10.06 8.82
Interest rate spread (4). . . . . 2.69 2.60 2.96 3.58 3.39
Net interest margin (5) . . . . . 3.61 3.02 3.33 3.90 3.75
Average interest-earning assets
to interest-bearing liabilities. 122.00 108.84 109.15 108.64 107.71
Noninterest expense as a percent
of average total assets. . . . . 2.66 2.23 2.39 2.37 2.21
Asset Quality Ratios:
Nonaccrual and 90 days or more
past due loans as a percent
of loans receivable, net . . . . .44 .43 .23 1.53 .44
Nonperforming assets as a
percent of total assets. . . . . .56 .60 .20 1.53 .72
Allowance for losses as a percent
of gross loans receivable. . . . 1.09 1.02 1.10 1.09 1.26
Allowance for losses as a percent
of nonperforming loans . . . . . 250.68 245.44 498.05 72.18 291.78
Net charge-offs to average
outstanding loans. . . . . . . . --- .03 .03 .17 .14
At June 30, At April 30,
------------ --------------------------
1997 1996 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
OTHER DATA:
Number of:
Real estate loans outstanding 2,807 2,684 2,659 2,519 2,445 2,423
Deposit accounts. . . . . . 9,009 9,781 9,691 9,166 8,683 8,805
Full-service offices. . . . 2 2 2 2 2 2
_______________
(1) Net earnings divided by average total assets.
(2) Net earnings divided by average equity.
(3) Average retained earnings divided by average total assets.
(4) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
-4-
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
- -------
Management's discussion and analysis of the financial condition and results of
operations is intended to assist in understanding the consolidated financial
condition and results of operations of the Company. The information contained
in this section should be read in conjunction with the Consolidated Financial
Statements and accompanying notes thereto.
Operating Strategy
- ------------------
The business of the Bank consists principally of attracting deposits from the
general public and using such deposits to originate residential and commercial
mortgage loans. The Bank generally sells most of the fixed-rate and some of the
adjustable-rate mortgage loans that it originates while retaining the servicing
rights on such loans. The Bank also originates multi-family, construction, land
and consumer and other loans. The Bank frequently sells participation interests
in the non-residential loans it originates. The Bank also invests in
interest-bearing deposits and U.S. Government securities. The Bank plans to
continue to fund its assets primarily with deposits, although FHLB advances are
used as a supplemental source of funds.
Operating results are dependent primarily on net interest income, which is the
difference between the income earned on its interest-earning assets, such as
loans and investments, and the cost of its interest-bearing liabilities,
consisting of deposits and FHLB advances. Operating results are also
significantly affected by general economic and competitive conditions, primarily
changes in market interest rates, governmental legislation and policies
concerning monetary and fiscal affairs and housing, as well as financial
institutions and the attendant actions of the regulatory authorities.
The Bank's strategy is to operate as a conservative, well-capitalized,
profitable, community-oriented financial institution dedicated to financing home
ownership and other consumer needs and to provide quality service to all
customers. The Bank believes that it has successfully implemented its strategy
by (i) maintaining strong capital levels, (ii) maintaining effective control
over operating expenses to attempt to achieve profitability under differing
interest rate scenarios, (iii) limiting interest rate risk, (iv) emphasizing
local loan originations, (v) maintaining a loan servicing operation, and (vi)
emphasizing high-quality customer service with a competitive fee structure.
Interest Rate Risk Management
- -----------------------------
In order to reduce the impact on the Bank's net interest income due to changes
in interest rates, the Bank's management has adopted a strategy that has been
designed to maintain the interest rate sensitivity of its assets and
liabilities. The primary elements of this strategy involve emphasizing the
origination of adjustable-rate mortgage loans and maintaining a short- and
medium-term investment portfolio. At June 30, 1997, 78.14% of the Bank's
mortgage loan portfolio was composed of adjustable-rate loans, and the maturity
of the U.S. Government securities portfolio was less than five years.
Interest Rate Sensitivity of Net Portfolio Value
- ------------------------------------------------
The following table is provided to the Bank by the OTS and illustrates the
percent change in Net Portfolio Value (NPV) over a variety of interest rate
scenarios, and the applicable limits approved by the Bank's Board of Directors,
as of June 30, 1997, based on OTS assumptions. No effect has been given to any
steps that management of the Bank may take to counter the effect of the interest
rate movements presented in the table.
-5-
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<PAGE>
Basis
Point ("bp")
Change
in Rates Board Limit Change in NPV
-------- ----------- -------------
+400 bp (25)% (19)%
+300 bp (20) (13)
+200 bp (15) (7)
+100 bp (10) (3)
0 bp --- ---
-100 bp 10 1
-200 bp 10 1
-300 bp 10 1
-400 bp 10 3
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods of repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as substantially all of the Bank's ARM loans,
have features that restrict changes in interest rates on a short-term basis (1%
to 1.5% per adjustment period) and over the life of the asset (4.55% over the
life). Furthermore, in the event of a change in interest rates, expected rates
of prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table. Therefore,
the data presented in the table should not be relied upon as indicative of
actual results.
Comparison of Financial Condition at June 30, 1997 and 1996
- -----------------------------------------------------------
Total assets increased to $100.6 million at June 30, 1997 from $88.8 million at
June 30, 1996. Cash, including interest-bearing deposits, increased $3.9
million at June 30, 1997 from $3.2 million at June 30, 1996, primarily from the
conversion proceeds. Investment securities decreased to $1.9 million from $3.2
million as these funds were used to originate loans. Loans receivable,
including loans held for sale, increased $9.1 million, from $79.1 million at
June 30, 1996 to $88.2 million at June 30, 1997 as a result of strong loan
demands and the availability of the conversion proceeds. Deposits decreased
$3.8 million from $71.3 million at June 30, 1996 to $67.5 million at June 30,
1997 primarily resulting from the purchase of common stock in the conversion.
Advances from Federal Home Loan Bank (FHLB) of Des Moines decreased $0.5 million
at June 30, 1997 from 1996 resulting from available funds for repayment from the
conversion and net income. Total equity increased to $25.3 million at June 30,
1997 from $9.3 million at June 30, 1996 resulting primarily from the conversion.
Results of Operations
- ---------------------
The earnings of the Bank depend primarily on its level of net interest income,
which is the difference between interest earned on interest-earning assets and
the interest paid on interest-bearing liabilities. Net interest income is a
function of the Bank's interest rate spread, which is the difference between the
yield earned on interest-earning assets and the rate paid on interest-bearing
liabilities, as well as a function of the average balance of interest-earning
assets as compared to the average balance of interest-bearing liabilities.
-6-
<PAGE>
<PAGE>
Comparison of Operating Results for the Years Ended June 30, 1997 and April
- ---------------------------------------------------------------------------
30, 1996
- --------
Net Income. Net income increased by $202,000 to $822,000 for the year ended
June 30, 1997, from $620,000 for the year ended April 30, 1996. This increase
was primarily due to the investing of the conversion proceeds in interest-
earning obligations, and was offset by the one-time SAIF assessment of
approximately $427,000 imposed on the Bank's deposits as a result of the
enactment of the Deposit Insurance Fund Act, and increased expenses operating as
a public Company. Interest income increased $1.2 million, interest expense
increased $158,000, provision for loan losses increased $76,000, noninterest
income increased $154,000, noninterest expense increased $778,000 and income
taxes increased $108,000 to account for the increase in net income. Return on
assets increased from 0.75% for the year ended April 30, 1996 to 0.83% for the
year ended June 30, 1997. Return on equity decreased from 7.00% for the year
ended April 30, 1996 to 4.10% for the year ended June 30, 1997 resulting
primarily from the approximate $16.6 million increase in equity from the
conversion.
Net Interest Income. Net interest income increased $1.0 million for the year
ended June 30, 1997, from $2.4 million for the year ended April 30, 1996, to
$3.4 million for the year ended June 30, 1997. Total interest income increased
$1.1 million to $7.3 million, or 18.9%, for the year ended June 30, 1997, from
$6.2 million for the year ended April 30, 1996, primarily as a result of the
availability of conversion funds for investment for approximately eight and
one-half months and, to a lesser extent, an increase in the average yields of
the loan portfolio from 7.97% to 8.00% and the Company's portfolio of
obligations of the U.S. Government and federal agencies from 6.48% to 6.55%.
Although interest expense increased $158.000, resulting from higher average
balances in NOW, money market and passbook accounts, the average rate paid on
average deposits decreased from 5.09% for the year ended April 30, 1996 to 4.99%
for the year ended June 30, 1997. Interest expense on FHLB advances increased
$116,000 while the rate paid on the average balance decreased from 6.88% to
6.22%. The increase in yield of interest earning assets and decrease in cost of
interest on interest-bearing liabilities resulted in an increase in the interest
rate spread from 2.60% for the year ended April 30, 1996 to 2.69% for the year
ended June 30, 1997.
Provision for Loan Losses. Provisions for loan losses are charges to earnings
to bring the total allowance for loan losses to a level considered by management
to be adequate to provide for estimated loan losses based on management's
evaluation of the collectibility of the loan portfolio, including the nature of
the portfolio, credit concentrations, trends in historical loss experience,
specific impaired loans and economic conditions. The provision for loan losses
was $120,000 for the year ended June 30, 1997, as compared to $44,000 for the
year ended April 30, 1996. The increase in the provision was to adjust the
allowance for loan losses to reflect the increase in loans receivable.
Noninterest Income. Noninterest income increased $154,000, or 31.5%, to
$639,000 for the year ended June 30, 1997 from $485,000 for the year ended April
30, 1996. Loan servicing fees increased $37,000 to $318,000 for the year ended
June 30, 1997 from $281,000 for the year ended April 30, 1996 due to an increase
in loans serviced for others. Gain on sale of loans from the implementation of
FASB No. 125 resulted in an increase of $158,000 for the year ended June 30,
1997 as compared to no gain during the year ended April 30, 1996. Other
noninterest income decreased $61,000 primarily resulting from the patronage
dividend received from the Bank's data processor in the year ended April 30,
1996, in the amount of $57,000 and was not replaced in the year ended June 30,
1997. Gain on sale of other assets increased $10,000 resulting from the sale of
an equity interest in Financial Information Trust, the Bank's cooperative data
processor.
Noninterest Expense. Noninterest expense increased $778,000 to $2.6 million for
the year ended June 30, 1997 from $1.8 million for the year ended April 30,
1996. The increase was primarily due to an increase in Federal deposit
insurance premiums of approximately $427,000 for the one-time SAIF assessment.
The change also included an increase of $209,000 in employee salaries and
benefits, resulting primarily from implementation of the ESOP Plan and a $51,000
increase in occupancy costs from increased depreciation expense of approximately
$34,000 and routine building maintenance of approximately $14,000, and a
$106,000 increase in other noninterest expense primarily related to operating as
a public company.
-7-
<PAGE>
<PAGE>
Income Taxes. The provision for income taxes increased to $471,000 for the year
ended June 30, 1997 from $363,000 for the year ended April 30, 1996, primarily
as a result of the higher income before income taxes.
Comparison of Operating Results for Two Month Period Ended June 30, 1996, to
- ----------------------------------------------------------------------------
June 30, 1995
- -------------
On November 13, 1996, the Board of Directors approved a change in the Company's
fiscal year end from April 30 to June 30. Accordingly, consolidated statements
of income, stockholders' equity and cash flows are included in the transition
period reporting. The two months ended June 30, 1996, statement of income is
compared to unaudited amounts from the two months ended June 30, 1995 in Note R
of the consolidated financial statements. The two month comparison indicates
net income for the two months ended June 30, 1996 of $164,000 compared to
$125,000 for the two months ended June 30, 1995. Interest income and interest
expense increased $163,000 and $103,000, respectively resulting in an increase
in net interest income of $60,000. The increase in net interest income resulted
from higher rates on a larger loan base than the prior year and deposits
remaining stable. The Company had provision for loan losses of $25,000 for the
two months ended June 30, 1996, as compared to no provision in 1995. The 1996
increase in the provision was to adjust the allowance for loan losses to reflect
the increase in loans receivable. Noninterest income for the two months ended
June 30, 1996, increased $39,000 primarily resulting from a $40,000 gain on sale
of equity interest in the computer company providing computer services to the
Company. Other expenses increased $11,000 and income taxes increased from the
increase in income before income taxes.
Comparison of Operating Results for Year Ended April 30, 1996, to April 30,
- ---------------------------------------------------------------------------
1995
- ----
Net Income. Net income increased $77,000, or 14.3%, to $620,000 for the year
ended April 30, 1996 from $543,000 for the year ended April 30, 1995. Income
before taxes increased $139,000, or 16.4%. Net interest income decreased
slightly between the periods as a result of a smaller interest rate margin as
the Bank's yield on interest-earning assets increased less than its cost of
interest-bearing liabilities. A decrease in the provision for loan losses of
$74,000, an increase in other income of $126,000 and an increase in other
expenses of $40,000 accounted for the change in income before taxes. The Bank's
return on equity for the year ended April 30, 1996 was 7.00% compared with 6.55%
for year ended April 30, 1995.
Net Interest Income. Net interest income decreased $21,000 to $2.4 million for
the year ended April 30, 1996. Total interest income increased $816,000, or
15.2%, to $6.2 million for the year ended April 30, 1996 from $5.4 million for
the year ended April 30, 1995. Although total interest income increased from
year fiscal 1995 to fiscal 1996, this increase was offset by a greater increase
in total interest expense as the Bank's interest rate spread decreased to 2.60%
for fiscal 1996 from 2.96% for fiscal 1995. Interest income on loans receivable
increased $776,000 between the periods primarily as a result of an increase in
the average balance of loans to $71.4 million in fiscal 1996 from $64.9 million
in fiscal 1995. An increase in the average yield on loans to 7.97% in fiscal
1996 from 7.57% in fiscal 1995, as interest rates moved up slightly and
adjustable-rate loans adjusted upwards, also contributed to the increase in
interest income on loans. Interest income on investment securities decreased
$36,000 primarily due to the elimination of the Bank's mortgage-backed
securities portfolio. The Bank began liquidating its remaining mortgage-backed
securities portfolio in fiscal 1995 after receiving significant principal
repayments in fiscal 1994 and 1993 so that the funds could be invested in higher
yielding loans. The decrease in interest income from mortgage-backed securities
was partially offset by an increase in interest income on U.S. Government and
federal agency obligations, which resulted from an increase in the average yield
on such securities despite a reduction in the average balance from fiscal 1995
to fiscal 1996. Interest income on interest-bearing deposits increased $76,000
between the periods as a result of an increase in the average balance to $3.1
million in fiscal 1996 from $2.2 million in fiscal 1995, as the Bank increased
its liquidity in connection with increased loan originations and sales, and an
increase in the average yield to 5.90% from 4.89%, which was due to higher
market interest rates. Total interest expense increased $837,000, or 28.4%, to
$3.8 million for the year ended April 30, 1996 from $2.9 million for the year
ended April 30, 1995. Interest paid on deposits increased $717,000 between the
periods, while interest paid on FHLB advances increased
-8-
<PAGE>
<PAGE>
$120,000. Interest paid on deposits increased due to a larger average balance
of deposits in fiscal 1996 and an increase in the average rate paid. Though the
average balance of NOW, money market and passbook accounts decreased to $14.7
million in fiscal 1996 from $17.1 million in fiscal 1995, the average balance of
certificates of deposit increased to $53.3 million from $47.2 million. This
shift from lower paying transaction accounts to higher paying certificate
accounts together with an increase in market interest rates caused the average
rate paid on deposits to increase to 5.09% in fiscal 1996 from 4.27% in fiscal
1995. Interest paid on FHLB advances increased primarily as a result of higher
average balances in fiscal 1996 despite a decrease in the average rate paid on
such advances.
Provision for Loan Losses. The provision for loan losses decreased to $44,000
for the year ended April 30, 1996 from $118,000 for the year ended April 30,
1995. The provision for loan losses was significantly larger in fiscal 1995 as
the allowance was increased that year in response to net charge-offs in fiscal
1994 and the increase in the size of the loan portfolio.
Noninterest Income. Noninterest income increased $126,000, or 35.0%, to
$486,000 for the year ended April 30, 1996 from $360,000 for the year ended
April 30, 1995. Loan servicing fees increased $25,000 to $281,000 as a result
of an increase in the amount of loans serviced for others. Service charges and
fees increased $12,000 as a result of a larger number of accounts. Income from
foreclosed assets decreased $15,000 as a result of the sale of such properties.
In fiscal 1996, the Bank received a patronage dividend of $57,000 from the
Bank's data processor.
Noninterest Expense. Noninterest expense increased $40,000 to $1.8 million for
the year ended April 30, 1996. Employee salaries and benefits were essentially
unchanged between fiscal 1996 and fiscal 1995. Occupancy costs increased
$25,000, or 12.9%, between the periods due in part to the expansion of the
Bank's main office. Advertising costs decreased $47,000, or 59.5%, due to an
effort to reduce expenses. Data processing costs decreased $25,000, or 14.3%,
as a result of entering into a five-year contract. Directors' fees increased
$30,000 as three directors took emeritus status and three new directors were
appointed.
Income Taxes. The provision for income taxes increased to $363,000 in fiscal
1996 from $302,000 in fiscal 1995 as a result of greater taxable income.
Yields Earned and Rates Paid
- ----------------------------
The earnings of the Company depend largely on the spread between the yield on
interest-earning assets and the cost of interest-bearing liabilities, as well as
the relative size of the Company's interest-earning assets and interest-bearing
liability portfolios.
The following table sets forth, for the periods indicated, information regarding
average balances of assets and liabilities as well as the total dollar amounts
of interest income from average interest-earning assets and interest expense on
average interest-bearing liabilities, resultant yields, interest rate spreads,
net interest margin, and ratio of average interest-earning assets to average
interest-bearing liabilities. Average balances are derived from month-end
balances. Management does not believe that the use of month-end balances
instead of daily balances has caused any material differences in information
presented.
-9-
<PAGE>
<PAGE>
<TABLE>
Year Ended June 30, Year Ended April 30,
--------------------- ----------------------------------------------
1997 1996 1995
--------------------- ---------------------- ---------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1) $83,936 $6,717 8.00% $71,380 $5,689 7.97% $64,942 $4,913 7.57%
Mortgage-backed securities
available for sale. . . --- --- --- 1 --- 9.18 370 44 11.92
U.S. Government and federal agency
securities available for sale 2,746 180 6.55 3,895 253 6.48 4,335 240 5.54
FHLB stock . . . . . . . 637 45 7.05 628 45 7.17 616 50 8.07
Interest-bearing deposits 6,943 398 5.73 3,133 185 5.90 2,216 108 4.89
------- ------ ------- ------ ------- ------
Total interest-bearing assets 94,262 7,340 7.79 79,037 6,172 7.81 72,479 5,355 7.39
Non-interest-earning assets 4,392 3,695 3,308
------- ------- -------
Total assets. . . . . $98,654 $82,732 $75,787
Interest-bearing liabilities: ======= ======= =======
NOW, money market and passbook
accounts. . . . . . . . $16,829 441 2.62 $14,728 387 2.62 $17,090 485 2.84
Certificates of deposit. 53,470 3,065 5.73 53,273 3,077 5.78 47,237 2,262 4.79
------- ------ ------- ------ ------- ------
Total average deposits 70,299 3,506 4.99 68,001 3,464 5.09 64,327 2,747 4.27
FHLB advances. . . . . . 6,962 433 6.22 4,616 317 6.88 2,077 197 9.51
Total interest-bearing ------- ------ ------- ------ ------- ------
liabilities 77,261 3,939 5.10 72,617 3,781 5.21 66,404 2,944 4.43
Non-interest-bearing liabilities 1,349 1,261 1,097
------- ------- -------
Total average liabilities 78,610 73,878 67,501
------- ------- -------
Average retained earnings. 20,044 8,854 8,286
Total liabilities and retained ------- ------- -------
earnings . . . . . . $98,654 $82,732 $75,787
======= ------ ======= ------ ======= ------
Net interest income. . . . $3,401 $2,391 $2,411
====== ====== ======
Interest rate spread . . . 2.69% 2.60% 2.96%
Net interest margin. . . . 3.61% 3.02% 3.33%
Ratio of average interest-
earning assets to average
interest-bearing
liabilities 122.00% 108.84% 109.15%
_______________
(1) Average loans receivable include nonaccruing loans. Interest income does not include interest on loans
90 days or more past due.
-10-
</TABLE>
<PAGE>
<PAGE>
The following table sets forth (on a consolidated basis) the weighted average
yields earned on the Company's assets and the weighted average interest rates
paid on the Company's liabilities, together with the net yield on
interest-earning assets.
Year
At At Ended
June 30, April 30, April 30,
1997 1996 1995
---- ---- ----
Weighted average yield earned on:
Loans receivable, net . . . . . . . . . 8.07% 7.76% 7.57%
Mortgage-backed securities available
for sale . . . . . . . . . . . . . . . --- --- 11.92
U.S. Government and federal agency
obligations available for sale . . . . 6.18 6.08 5.54
FHLB stock. . . . . . . . . . . . . . . 6.98 6.71 8.07
Interest-bearing deposits . . . . . . . 5.43 3.42 4.89
All interest-earning assets . . . . . . 7.85 7.61 7.39
Weighted average rate paid on:
NOW, money market and passbook accounts 2.97 2.63 2.84
Certificate accounts. . . . . . . . . . 5.78 5.80 4.79
FHLB advances . . . . . . . . . . . . . 5.84 6.75 9.51
All interest-bearing liabilities. . . . 5.25 5.23 4.43
Interest rate spread (spread between
weighted average yield earned on all
interest-earning assets and weighted
average rate paid on all interest-
bearing liabilities). . . . . . . . . . 2.60 2.38 2.96
-11-
<PAGE>
<PAGE>
The following table sets forth the effects of changing rates and volume on net
interest income of the Company. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) effects
attributable to changes in rate/volume (changes in rate multiplied by changes in
volume).
Year Ended June 30, Year Ended April 30,
1997 Compared to Year 1996 Compared to Year
Ended April 30, 1996 Ended April 30, 1995
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- --------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
(Dollars in Thousands)
Interest income:
Loans receivable, net . $ 23 $1,001 $ 4 $1,028 $ 263 $ 487 $ 26 $ 776
Mortgage-backed
securities . . . . . . --- --- --- --- (10) (44) 10 (44)
U.S. Government and
federal agency
obligations. . . . . . 3 (75) (1) (73) 41 (25) (4) 12
FHLB stock. . . . . . . (1) 1 --- --- (5) 1 --- (4)
Interest-bearing deposits (5) 224 (6) 213 22 45 9 76
Total net change in ----- ------ --- ------ ----- ----- ---- -----
income on interest-
earning assets 20 1,151 (3) 1,168 311 464 41 816
Interest expense:
NOW, money market and
passbook accounts. . . 7 55 1 63 (36) (67) 5 (98)
Certificates of deposit (32) 11 --- (21) 466 289 60 815
FHLB advances . . . . . (30) 161 (15) 116 (54) 241 (67) 120
Total net change in ----- ------ --- ------ ----- ----- ---- -----
expense on interest-
bearing liabilities . (55) 227 (14) 158 376 463 (2) 837
Net change in net ----- ------ --- ------ ----- ----- ---- -----
interest income . . . . $ 75 $ 924 $11 $1,010 $ (65) $ 1 $ 43 $ (21)
===== ====== === ====== ===== ===== ==== =====
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of funds are cash receipts from deposits,
proceeds from principal and interest payments on loans, proceeds from sales of
loans and loan participations, proceeds from maturing securities, FHLB advances
and net earnings. The Bank has an agreement with the FHLB of Des Moines to
provide cash advances of unspecified amounts. The Bank must hold an
unencumbered portfolio of eligible one-to four-family residential mortgages with
a book value of not less than 150% of the indebtedness. For regulatory
purposes, liquidity is measured as a ratio of cash and certain investments to
withdrawable deposits. The minimum level of liquidity required by regulation is
presently 5%. The Company's liquidity ratio at June 30, 1997, was approximately
6.6%. The Company maintains a higher level of liquidity than required by
regulation in order to more closely match interest-sensitive assets with
interest-sensitive liabilities.
Liquidity management is both an ongoing and long-term component of the Company's
asset/liability management strategy. Excess funds generally are invested in
interest-bearing deposits at the FHLB of Des Moines. Should the Company require
funds beyond its ability to generate them internally, additional sources of
funds are available through advances from the FHLB. The primary investing
activity of the Company is the origination of mortgage loans. During the year
ended June 30, 1997, the Company originated mortgage loans in the amount of
$48.0 million. The Company did not purchase any one- to four-family mortgage
loans. Other investing activities include investing in interest-bearing
deposits and the purchase of U.S. Government obligations.
-12-
<PAGE>
<PAGE>
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. During the year ended June 30, 1997, two months ended June 30,
1996 and years ended April 30, 1996 and 1995, the Company (or the Bank) used its
sources of funds primarily to fund loan commitments and to pay deposit
withdrawals. At June 30, 1997, the Company had loan commitments outstanding of
$12.3 million of which $0.3 million is for fixed rate loans ranging from 7.875
to 8.25%.
Like most thrift institutions, deposits, particularly certificates of deposit,
have been the primary source of external funds for the Company. By offering
interest rates that are competitive with or at a slight premium to the average
rate paid by local competitors, the Company has had some success in lengthening
the maturity of its certificate of deposit portfolio, a component of its
asset/liability management strategy. At June 30, 1997, certificates of deposit
amounted to $52.0 million, or 77.0% of total deposits, including $33.2 million
which were scheduled to mature within one year of June 30, 1997. Historically,
the Company has been able to retain a significant amount of its deposits as they
mature. Management of the Company believes it has adequate resources to fund
all loan commitments by deposits and, as necessary, borrowings in the form of
FHLB advances and that it can adjust the offering rates of savings certificates
to retain deposits in changing interest rate environments.
The Company is not subject to any regulatory capital requirements. The Bank is
subject to certain capital requirements imposed by the OTS. The Bank satisfied
each of these requirements at June 30, 1997. See Note I of the Consolidated
Financial Statements.
New Accounting Standards
- ------------------------
See Note A to the Consolidated Financial Statements.
Effect of Inflation and Changing Prices
- ---------------------------------------
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and operating
results in terms of historical dollars, without considering the change in the
relative purchasing power of money over time due to inflation. The primary
impact of inflation on operations of the Company is reflected in increased
operating costs. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
-13-
<PAGE>
<PAGE>
MOORE, HORTON & CARLSON, P.C.
MH&C CERTIFIED PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------------
510 South Muldrow, P.O. Box 775 Mexico, Missouri 65265
Phone (573) 581-6773 FAX (573) 581-3209
INDEPENDENT AUDITORS' REPORT
Board of Directors
Fulton Bancorp, Inc. and Subsidiary
Fulton, Missouri
We have audited the accompanying consolidated statements of financial condition
of Fulton Bancorp, Inc. and subsidiary ("Company") as of June 30, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the year ended June 30, 1997, for the two months ended June 30,
1996 and for the years ended April 30, 1996 and 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
June 30, 1997 and 1996, and the results of their operations and their cash flows
for the year ended June 30, 1997, for the two months ended June 30, 1996 and for
the years ended April 30, 1996 and 1995, in conformity with generally accepted
accounting principles.
As described in Note A, the Company changed its method of accounting for
investment securities on May 1, 1994, for impaired loans on May 1, 1995, and for
mortgage servicing rights on May 1, 1996.
/s/ Moore Horton & Carlson, P.C.
Mexico, Missouri
September 3, 1997
-14-
MEXICO * SEDALIA * MARSHAL * COLUMBIA
<PAGE>
<PAGE>
Fulton Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30
1997 1996
ASSETS
Cash (includes interest-bearing
deposits of $6,318,514 and
$1,306,320, respectively) $ 7,095,493 $ 3,154,143
Investment securities, available-
for-sale--Note B 1,899,023 3,207,529
Stock in Federal Home Loan Bank
(FHLB) of Des Moines 637,200 637,200
Loans held for sale 4,463,220 2,525,420
Loans receivable--Note C 83,713,591 76,563,552
Accrued interest receivable--Note D 728,882 704,619
Premises and equipment--Note E 1,482,623 1,397,734
Foreclosed real estate--Note C 197,525 197,525
Other assets 339,295 382,920
------------ -----------
TOTAL ASSETS $100,556,852 $88,770,642
============ ===========
LIABILITIES AND EQUITY
Liabilities
Deposits--Note F $ 67,509,145 $71,288,169
Advances from Federal Home Loan
Bank of Des Moines--Note H 6,500,000 7,000,000
Advances from borrowers for property
taxes and insurance 756,950 745,842
Accrued interest payable 96,318 99,691
Other liabilities 437,104 363,085
------------ -----------
TOTAL LIABILITIES 75,299,517 79,496,787
Commitments and contingencies--Notes L and M
Stockholders' Equity--Notes I, J and O
Preferred stock, $.01 par value,
1,000,000 shares authorized, none issued --- ---
Common stock, $.01 par value, 6,000,000
shares authorized, 1,719,250 shares
issued and outstanding 17,193 ---
Additional paid-in capital 16,600,967 ---
Retained earnings - substantially
restricted--Note I 9,910,443 9,260,375
Unearned ESOP shares--Note J (1,271,674) ---
Unrealized gain on securities
available-for-sale 406 13,480
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 25,257,335 9,273,855
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $100,556,852 $88,770,642
============ ===========
See accompanying notes to consolidated financial statements.
-15-
<PAGE>
<PAGE>
<TABLE>
Fulton Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year ended June 30, 1997, two months ended June 30, 1996 and
year ended April 30, 1996 and 1995
Unrealized
Gain (Loss)
on
Securities
Available- Total
Common Stock Additional Unearned For-Sale, Stock-
--------------- Paid-In Retained ESOP Net of holders'
Shares Amount Capital Earnings Shares Tax Equity
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994 --- $ --- $ --- $7,933,083 $ --- $ --- $7,933,083
Adoption of accounting
change to record net
unrealized gain on
securities available-
for-sale at May 1, 1994 --- --- --- --- --- (4,490) (4,490)
Net income --- --- --- 542,735 --- --- 542,735
Change in unrealized gain
(loss) on securities
available-for-sale,
net of tax --- --- --- --- --- 12,823 12,823
BALANCE AT
APRIL 30, 1995 --- --- --- 8,475,818 --- 8,333 8,484,151
Net income --- --- --- 620,076 --- --- 620,076
Change in unrealized gain
(loss) on securities
available-for-sale,
net of tax --- --- --- --- --- 12,516 12,516
BALANCE AT
APRIL 30, 1996 --- --- --- 9,095,894 --- 20,849 9,116,743
Net income --- --- --- 164,481 --- --- 164,481
Change in unrealized gain
(loss) on securities
available-for-sale,
net of tax --- --- --- --- --- (7,369) (7,369)
BALANCE AT
JUNE 30, 1996 --- --- --- 9,260,375 --- 13,480 9,273,855
Net income --- --- --- 821,993 --- --- 821,993
Net proceeds from
issuance of common
stock--Note M 1,719,250 17,193 16,531,937 --- --- --- 16,549,130
Common stock issued to
Employee Stock Ownership
Plan (ESOP)--Note J --- --- --- --- (1,375,400) --- (1,375,400)
Release of ESOP shares --- --- 69,030 --- 103,726 --- 172,756
Change in unrealized
gain (loss) on
securities
available-for-sale,
net of tax --- --- --- --- --- (13,074) (13,074)
Dividends paid
($.10 per share) --- --- --- (171,925) --- --- (171,925)
BALANCE AT
JUNE 30,
1997 1,719,250 $ 17,193 $16,600,967 $9,910,443 $(1,271,674) $ 406 $25,257,335
See accompanying notes to consolidated financial statements
-16-
</TABLE>
<PAGE>
<PAGE>
Fulton Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
Two
Year Months
Ended Ended Year Ended April 30
June 30, June 30, ----------------------
1997 1996 1996 1995
---- ---- ---- ----
Interest Income
Mortgage loans $5,872,624 $ 952,973 $4,914,438 $4,264,882
Consumer and other loans 843,975 143,672 774,757 648,032
Investment securities 224,874 43,444 297,716 334,147
Interest-bearing deposits 398,091 8,980 184,777 108,381
---------- ---------- ---------- ----------
Total Interest Income 7,339,564 1,149,069 6,171,688 5,355,442
Interest Expense
Deposits -- Note F 3,505,186 600,412 3,463,533 2,746,790
Advances from FHLB 433,248 64,842 317,497 197,451
---------- ---------- ---------- ----------
Total Interest Expense 3,938,434 665,254 3,781,030 2,944,241
---------- ---------- ---------- ----------
Net Interest Income 3,401,130 483,815 2,390,658 2,411,201
Provision for Loan Losses --
Note C 120,000 25,000 44,242 118,000
Net Interest Income After ---------- ---------- ---------- ----------
Provision for Loan Losses 3,281,130 458,815 2,346,416 2,293,201
Noninterest Income (Loss)
Loan servicing fees 317,735 50,747 280,525 255,386
Service charges and other fees 139,874 24,370 129,588 117,469
Income from foreclosed assets 8,893 1,577 10,282 24,783
Gain on sale of loans 158,436 --- --- ---
Loss on sale of investments --
Note B --- --- --- (55,290)
Gain on sale of other assets 9,780 40,823 --- ---
Other 3,796 1,840 65,113 17,260
---------- ---------- ---------- ----------
Total Noninterest Income 638,514 119,357 485,508 359,608
Noninterest Expense
Employee salaries and
benefits 1,088,227 151,347 878,770 884,224
Occupancy costs 273,511 40,410 222,514 197,101
Advertising 54,492 6,473 31,751 78,403
Data processing 183,759 32,687 152,755 178,193
Federal insurance premiums 511,473 30,782 153,182 148,711
Directors' fees 86,543 14,424 87,223 56,875
Other 428,646 40,068 322,653 265,067
---------- ---------- ---------- ----------
Total Noninterest Expense 2,626,651 316,191 1,848,848 1,808,574
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,292,993 261,981 983,076 844,235
Income Taxes--Note G 471,000 97,500 363,000 301,500
---------- ---------- ---------- ----------
NET INCOME $ 821,993 $ 164,481 $ 620,076 $ 542,735
========== ========== ========== ==========
Net income per share $ .52 $ N/A $ N/A $ N/A
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
-17-
<PAGE>
<PAGE>
Fulton Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Two Months
Ended
Year Ended June 30, Year Ended April 30
June 30, 1997 1996 1996 1995
--------------------------------------------------
- -CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 821,993 $ 164,481 $ 620,076 $ 542,735
Adjustments to reconcile
net income to net cash
provided by operating
activities
Depreciation and
amortization 167,648 21,511 126,863 119,185
Amortization of premiums
and discounts (9,401) (3,090) (1,167) 20,796
Provisions for loan losses 120,000 (25,000) 44,242 118,000
Deferred income taxes 8,500 5,600 5,000 8,000
Proceeds from sales of
loans held for sale 22,352,416 2,465,482 22,632,003 11,808,305
Originations of loans held
for sale (24,288,113) (707,758) (24,364,659) (12,381,739)
Stock and patronage dividends --- 47,326 (44,421) ---
Loss on sale of securities
available-for-sale --- --- --- 55,290
ESOP shares released 172,755 --- --- ---
Change to assets and
liabilities increasing
(decreasing) cash flows
Accrued interest receivable (24,263) (97,047) (114,519) (33,641)
Other assets (377,771) (23,877) (43,591) (38,656)
Accrued interest payable (3,373) (199,822) 27,872 68,186
Other liabilities 73,238 217,562 (91,319) (21,191)
NET CASH PROVIDED BY ----------- ----------- ----------- ----------
(USED IN) OPERATING
ACTIVITIES (986,371) 1,865,368 (1,203,620) 265,270
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of investment
securities, available-
for-sale (1,202,890) --- (193,687) (1,978,521)
Proceeds from maturities
of investment securities
available-for-sale 2,500,004 --- 1,200,899 32,401
Proceeds from sales of
investment securities
available-for-sale --- --- --- 3,136,792
Loans originated, net of
repayments (7,272,142) (4,622,561) (5,837,654) (6,678,253)
Purchase of mortgage loans --- --- (484,200) (946,148)
Purchase of premises and
equipment (239,684) (110,954) (307,182) (85,076)
Carrying value of other
real estate investment
disposal 408,543 --- --- ---
Expenditures on foreclosed
real estate --- --- (3,099) ---
NET CASH USED IN ----------- ----------- ----------- ----------
INVESTING ACTIVITIES (5,806,169) (4,733,515) (5,624,923) (6,518,805)
-18-
<PAGE>
<PAGE>
Fulton Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - Cont'd
Two Months
Ended
Year Ended June 30, Year Ended April 30
June 30, 1997 1996 1996 1995
--------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase (decrease)
in deposits $ (3,779,024) $ 972,248 $ 5,111,241 $ 574,591
Advances from FHLB
Borrowings 11,500,000 2,000,000 1,500,000 6,500,000
Repayments (12,000,000) --- (1,000,000) (2,000,000)
Net increase (decrease)
in advances for
taxes and insurance 11,108 126,303 (47,393) 44,954
Proceeds from sale of
common stock 16,549,131 --- --- ---
Loan to ESOP (1,375,400) --- --- ---
Dividends paid (171,925) --- --- ---
NET CASH PROVIDED BY ------------ ----------- ----------- ----------
FINANCING ACTIVITIES 10,733,890 3,098,551 5,563,848 5,119,545
NET INCREASE (DECREASE) ------------ ----------- ----------- ----------
IN CASH 3,941,350 230,404 (1,264,695) (1,133,990)
Cash, beginning of period 3,154,143 2,923,739 4,188,434 5,322,424
------------ ----------- ----------- ----------
CASH, END OF PERIOD $ 7,095,493 $ 3,154,143 $ 2,923,739 $ 4,188,434
============ =========== =========== ===========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Cash paid for
Interest on deposits $ 3,501,813 $ 400,579 $ 3,753,158 $ 2,876,055
Interest on FHLB ============ =========== =========== ===========
advances $ 433,248 $ 64,842 $ 317,947 $ 197,451
============ =========== =========== ===========
Income tax $ 288,000 $ 81,270 $ 247,100 $ 374,321
============ =========== =========== ===========
Noncash investing and
financing activities
are as follows
Loans to facilitate
sales of real estate $ --- $ --- $ 77,805 $ 70,500
============ =========== =========== ===========
Foreclosed real estate
acquired by foreclosure
or deed in lieu of
foreclosure $ --- $ --- $ 267,861 $ 92,617
============ =========== =========== ===========
Stock and patronage
dividends $ --- $ --- $ 59,826 $ ---
============ =========== =========== ===========
See accompanying notes to consolidated financial statements.
-19-
<PAGE>
<PAGE>
Fulton Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying reporting policies and practices of Fulton Bancorp, Inc. (the
"Company") and subsidiary conform to generally accepted accounting principles
(GAAP) and to prevailing practices within the thrift industry. A summary of the
more significant accounting policies follows:
Nature of Operations: The Company, a Delaware corporation, was incorporated in
May, 1996 for the purpose of becoming the holding company of Fulton Savings
Bank, FSB ("Bank"). On October 17, 1996, the Bank converted from a mutual to a
stock form of ownership and the Company completed its initial public offering
and acquired all of the outstanding capital stock of the Bank.
The Bank provides a variety of financial services to individual and corporate
customers through its headquarters located in Fulton, Missouri and its branch
located in Holts Summit, Missouri. The Bank's primary deposit products are
interest-bearing checking and savings accounts and certificates of deposit. Its
primary lending products are one-to four-family residential loans.
Principles of Consolidation and Change in Fiscal Year: The consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiary, the Bank, and its wholly-owned subsidiary, Multi-Purpose Service
Agency, Inc., whose activities consist principally of selling mortgage
redemption insurance to the Bank's customers. Significant intercompany balances
and transactions have been eliminated in consolidation.
On November 13, 1996, the Board of Directors of the Company approved a change in
the Company's fiscal year end from April 30 to June 30. Accordingly, the
accompanying consolidated statements of income and stockholders' equity and cash
flows include the transition period from May 1, 1996 to June 30, 1996.
Investment Securities: Effective May 1, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", which established three
classifications of investment securities: trading, held-to-maturity and
available-for-sale. Trading securities are acquired principally for the purpose
of near-term sales. Such securities are reported at fair value and unrealized
gains and losses are included in income. Securities which are designated as
held-to-maturity are designated as such because the investor has the ability and
the intent to hold these securities to maturity. Such securities are reported
at amortized cost.
All other securities are designated as available-for-sale, a designation which
provides the investor with certain flexibility in managing its investment
portfolio. Such securities are reported at fair value; net unrealized gains and
losses are excluded from income and reported net of applicable income taxes as a
separate component of equity.
Gains or losses on sales of securities are recognized in operations at the time
of sale and are determined by the difference between the net sales proceeds and
the cost of the securities using the specific identification method, adjusted
for any unamortized premiums or discounts. Premiums or discounts are amortized
or accreted to income using the interest method over the period to maturity.
In adopting SFAS No. 115, the Company modified its accounting policies and
designated its securities in accordance with the three classifications. The
Company's adoption of SFAS No. 115 resulted in the classification of all
securities as available-for-sale. At June 30, 1997 and 1996 the Company had no
securities designated as trading or held-to-maturity.
-20-
<PAGE>
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
Stock in Federal Home Loan Bank of Des Moines: Stock in the FHLB is stated at
cost and the amount of stock held is determined by regulation. No ready market
exists for such stock and it has no quoted market value. Loans Held for Sale:
Mortgage loans originated and held for sale in the secondary market are carried
at the lower of cost or market value determined on an aggregate basis. Gains
and losses, if any, on the sale of these loans are determined using the specific
identification method.
Loans Receivable: Loans receivable are carried at unpaid principal balances,
less the allowance for loan losses. Loan origination and commitment fees and
certain direct loan origination costs are deferred and amortized to interest
income over the contractual life of the loan using the interest method.
The Company's real estate loan portfolio consists primarily of long-term loans
secured by first trust deeds on single-family residences, other residential
property, commercial property and land. The adjustable-rate mortgage is the
Company's primary loan investment.
Loans are placed on nonaccrual status when principal or interest is delinquent
for 90 days or more. Uncollectible interest on loans is charged off or an
allowance established by a charge to income equal to all interest previously
accrued and interest is subsequently recognized only to the extent cash payments
are received until delinquent interest is paid in full and in management's
judgment, the borrower's ability to make periodic interest and principal
payments is back to normal in which case the loan is returned to accrual basis.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level which, in management's judgment, is adequate to absorb credit losses
inherent in the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans and economic conditions. Allowances for
impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. The allowance is increased by a
provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries.
Impaired Loans: The Company 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 Company considers all one- to four-family residential mortgage
loans, construction loans, and all consumer and other loans to be smaller
homogeneous loans.
Management applies its normal loan review procedures in determining when a loan
is impaired. All nonaccrual loans are considered impaired. Impaired loans are
assessed individually and impairment identified when the accrual of interest has
been discontinued, loans have been restructured or management has serious doubts
about the future collectibility of principal and interest, even though the loans
are currently performing. Factors considered in determining impairment include,
but are not limited to, expected future cash flow, the financial condition of
the borrower and current economic conditions. The Company measures each
impaired loan based on the fair value of its collateral and charges off those
loans or portions of loans deemed uncollectible. Management has elected to
continue to use its existing nonaccrual methods for recognizing interest income
on impaired loans.
-21-
<PAGE>
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
Loan Servicing: Effective May 1, 1996, the Company adopted SFAS No. 122,
"Accounting for Mortgage Servicing Rights" (an amendment to SFAS No. 65). SFAS
No. 122 was subsequently superseded by SFAS No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities". SFAS No.
125 was effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996 and is to be
applied prospectively. Both statements generally require entities that sell or
securitize loans and retain mortgage servicing rights to allocate the total cost
of the mortgage loan to the mortgage servicing right and the loan based on their
relative fair value. Costs allocated to mortgage servicing rights should be
recognized as a separate asset and amortized over the period of estimated net
servicing income and evaluated for impairment based on fair value.
Premises and Equipment: Premises and equipment have been stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on a straight-line basis over the estimated useful lives of the
respective assets, which range from five to fifty years.
Foreclosed Real Estate: Real estate acquired in settlement of loans is carried
at the lower of the balance of the related loan at the time of foreclosure or
fair value less the estimated costs to sell the asset. Costs of holding
foreclosed property are charged to expense in the current period, except for
significant property improvements which are capitalized to the extent that
carrying value does not exceed estimated fair market value.
Income Taxes: Deferred tax assets and liabilities are recognized for the future
tax consequences, attributable to differences between the financial statement
carrying amounts of existing assets and labilities and their respective income
tax bases. As changes in tax law or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Statements of Cash Flows: For purposes of the cash flows, cash and amounts due
from depository institutions and interest-bearing deposits in other banks with a
maturity of three months or less at date of purchase are considered cash
equivalents.
Risk and Uncertainties: The Company is a community-oriented financial
institution which provides traditional financial services within the areas it
serves. The Company is engaged primarily in the business of attracting deposits
from the general public using these funds to originate one- to four-family
residential mortgage loans located primarily in Fulton, Missouri, Callaway
County, and its contiguous counties. The Company's principal market area
consists of rural communities and substantially all of the Company's loans are
to residents of or secured by properties located in its principal lending area.
Accordingly, the ultimate collectibility of the Company's loan portfolio is
dependent upon market conditions in that area. This geographic concentration is
considered in management's establishment of the allowance for loan losses.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
statements, management is required to make estimates and assumptions which
affect the reported amounts of assets and liabilities as of the balance sheet
dates and income and expenses for the periods covered. Actual results could
differ significantly from these estimates and assumptions.
In the normal course of its business, the Company encounters two significant
types of risk, economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The Company is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice more or less rapidly, or on a different basis,
than its interest-earning assets. Credit risk is the risk of default on the
Company's loan portfolio that results from the borrower's inability or
unwillingness to make contractually required payments. Market risk results from
changes in the value of assets and liabilities which may impact, favorably or
unfavorably, the realizability of those assets and liabilities held by the
Company.
-22-
<PAGE>
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
The Company is subject to the regulations of various government agencies. These
regulations can and do change significantly from period to period. The Company
also undergoes periodic examinations by the regulatory agencies, which may
subject it to further changes with respect to asset valuations, amounts of
required loss allowances and operating restrictions resulting from the
regulators' judgements based on information available to them at the time of
their examination.
Net Income Per Share: Net income per share of common stock has been computed
on the basis of the weighted-average number of shares of common stock and common
stock equivalents assumed to be outstanding. The calculation assumes the common
stock issued in 1996 has been outstanding for all periods and considers ESOP
shares which have been committed to be released as outstanding.
New Accounting Standards: In February 1997, the Financial Accounting Standards
Board (FASB) issued Statements No. 128, Earnings per Share and No. 129,
Disclosure of Information about Capital Structure. Both statements are
effective for financial statements issued after December 15, 1997. Statement
No. 128 establishes standards for computing and presenting earnings per share
(EPS). It replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Statement No. 129 establishes standards for disclosing information about an
entity's capital structure.
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.
Upon adoption, these statements will not have a significant effect upon the
presentation of the Company's financial statements.
Reclassification: Certain amounts in the April 30, 1996 and 1995 consolidated
financial statements have been reclassified to conform with the June 30, 1997
presentation.
NOTE B--INVESTMENT SECURITIES, AVAILABLE-FOR-SALE
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value
---------------------------------------
U.S. Government obligations
June 30, 1997 $1,898,378 $ 3,744 $3,099 $1,899,023
June 30, 1996 $3,186,090 $24,315 $2,876 $3,207,529
-23-
<PAGE>
<PAGE>
NOTE B--INVESTMENT SECURITIES, AVAILABLE-FOR-SALE - Cont'd
The scheduled maturities of debt securities at June 30, 1997, by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
without call or prepayment penalties.
Amortized Fair
Cost Value
---------------------------
Amounts maturing:
One year or less $ 751,306 $ 754,049
After one through five years 1,147,072 1,144,974
---------- ----------
$1,898,378 $1,899,023
========== ==========
Investment securities were pledged to secure deposits as required or permitted
by law, with a carrying value of $1,228,727 and $1,308,150 and a fair value of
$1,228,267 and $1,316,611 at June 30, 1997 and 1996, respectively.
Investments securities available-for-sale were sold in 1995 for total gross
proceeds of $3,136,792, which resulted in gross realized losses of $55,290 for
the year ended April 30, 1995.
NOTE C--LOANS RECEIVABLE
Loans receivable consist of the following at June 30:
1997 1996
-------------------------
Mortgage loans:
One-to four-family residences $53,461,377 $47,926,984
Multi-family 4,278,995 3,811,267
Commercial 9,506,609 9,839,848
Construction 11,295,154 8,489,673
Land 3,524,482 1,725,507
----------- -----------
82,066,617 71,793,279
Less undisbursed portion of mortgage loans 6,958,581 4,179,347
----------- -----------
75,108,036 67,613,932
Consumer and other loans:
Consumer 6,447,397 6,609,658
Automobile 1,793,229 2,025,522
Savings 196,365 324,568
Commercial 257,226 290,399
Equity line of credit 440,896 341,895
Education 385,397 155,863
Other 4,360 1,576
----------- -----------
9,524,870 9,749,481
----------- -----------
84,632,906 77,363,413
Less allowance for loan losses 919,315 799,861
----------- -----------
$83,713,591 $76,563,552
=========== ===========
-24-
<PAGE>
<PAGE>
NOTE C--LOANS RECEIVABLE - Cont'd
In the normal course of business, the Company has made loans to its directors
and officers. In the opinion of management, related party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than the normal risk of collectibility. The aggregate dollar
amount of loans outstanding to directors and officers total approximately
$454,600 and $517,400 at June 30, 1997 and 1996, respectively.
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balance of
mortgage loans serviced for others was $90,436,230 and $84,572,454 at June 30,
1997 and 1996, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were $654,237 and $574,646 at June 30, 1997 and 1996, respectively.
Mortgage servicing rights of $158,436 were capitalized during the year ended
June 30, 1997. Amortization of mortgage servicing rights totaled $3,567 for the
year ended June 30, 1997. The unamortized balance of $154,869 approximated the
fair value of such rights at June 30, 1997, and is included in other assets in
the accompanying consolidated statement of financial condition.
The Company had loans serviced by others amounting to $2,400,282 and $2,602,273
at June 30, 1997 and 1996, respectively.
Allowance for loan losses is as follows:
Two
Year Months
Ended Ended
June 30, June 30, Year Ended April 30
1997 1996 1996 1995
-----------------------------------------
Balance, beginning of period $799,861 $782,070 $761,897 $665,068
Provision for loan losses 120,000 25,000 44,242 118,000
Charge-offs (16,207) (9,079) (27,391) (49,071)
Recoveries 15,661 1,870 3,322 27,900
-------- -------- -------- --------
BALANCE, END OF PERIOD $919,315 $799,861 $782,070 $761,897
======== ======== ======== ========
At June 30, 1997, the recorded investment in impaired loans, for which there is
no need for a valuation allowance based upon the measure of the loan's fair
value of the underlying collateral, was $160,130. The average recorded
investment in impaired loans during the year ended June 30, 1997, was $176,466,
and the related interest income that would have been recorded had the loans been
current in accordance with their original terms amounted to approximately
$26,000. The amount of interest included in interest income on such loans for
the year ended June 30, 1997, amounted to approximately $16,000. The allowance
for losses on foreclosed real estate is $-0- at June 30, 1997 and 1996, and
$6,051 at May 1, 1995.
-25-
<PAGE>
<PAGE>
NOTE D--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consist of the following at June 30:
1997 1996
------------------------
Loans $707,553 $638,964
Investments securities 21,329 65,655
-------- --------
$728,882 $704,619
======== ========
NOTE E--PREMISES AND EQUIPMENT
Premises and equipment consist of the following at June 30:
1997 1996
------------------------
Land $ 129,705 $ 129,705
Building and improvements 1,203,216 1,061,747
Furniture and equipment 1,278,163 1,182,615
---------- ----------
2,611,084 2,374,067
Less accumulated depreciation
and amortization 1,128,461 976,333
---------- ----------
$1,482,623 $1,397,734
========== ==========
NOTE F--DEPOSITS
Deposit account balances are summarized as follows at June 30:
Weighted
Average
Rate 1997 1996
At June 30, ------------------- -------------------
1997 Amount % Amount %
----------------------------------------------------
Non-interest-bearing ---% $ 1,854,501 2.7% $ 1,897,882 2.7%
NOW 2.63 4,930,834 7.3 4,432,915 6.2
Money Market 3.44 2,767,325 4.1 3,032,766 4.3
Passbook savings 3.03 5,918,794 8.8 5,951,383 8.3
----------- ----- ----------- -----
15,471,454 22.9 15,314,946 21.5
Certificates of deposit:
3.00 to 3.99% 3.65 103,168 .2 83,320 .1
4.00 to 4.99% 4.92 1,669,189 2.5 6,306,033 8.9
5.00 to 5.99% 5.56 33,132,580 49.1 28,898,631 40.5
6.00 to 6.99% 6.24 16,066,691 23.8 17,962,709 25.2
7.00 to 7.99% 7.12 1,043,101 1.5 2,705,423 3.8
8.00 to 8.99% 8.06 22,962 --- 17,107 ---
----------- ----- ----------- -----
5.78 52,037,691 77.1 55,973,223 78.5
----------- ----- ----------- -----
$67,509,145 100.0% $71,288,169 100.0%
=========== ===== =========== =====
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $5,923,000 and $6,075,000 at June 30, 1997 and 1996,
respectively. Deposits over $100,000 are not federally insured.
-26-
<PAGE>
<PAGE>
NOTE F--DEPOSITS - Cont'd
The Company held deposits of approximately $1,133,604 and $1,669,863 for its
directors and officers at June 30, 1997 and 1996, respectively.
At June 30, 1997, contractual maturities of certificates of deposit are as
follows:
Stated Year Ended June 30
Interest Rate 1998 1999 2000 2001 2002 After
- ------------- ---------------------------------------------------------------
3.00 to 3.99% $ 103,168 $ --- $ --- $ --- $ --- $ ---
4.00 to 4.99% 1,580,942 --- --- 88,247 --- ---
5.00 to 5.99% 24,483,831 6,826,712 1,596,103 225,934 --- ---
6.00 to 6.99% 6,893,644 3,861,877 3,774,108 687,542 797,520 52,000
7.00 to 7.99% 194,603 541,638 306,860 --- --- ---
8.00 to 8.99% 8,855 --- --- --- --- 14,107
----------- ----------- ---------- ---------- -------- -------
$33,265,043 $11,230,227 $5,677,071 $1,001,723 $797,520 $66,107
=========== =========== ========== ========== ======== =======
Interest expense on deposits are as follows:
Two
Year Months
Ended Ended
June 30 June 30 Year Ended April 30
1997 1996 1996 1995
----------------------------------------------
NOW, Money Market and
Passbook savings accounts $ 449,175 $ 65,873 $ 386,380 $ 484,797
Certificate accounts 3,056,011 534,539 3,077,153 2,261,993
---------- -------- ---------- ----------
$3,505,186 $600,412 $3,463,533 $2,746,790
========== ======== ========== ==========
NOTE G--INCOME TAXES
Components of income tax expense (benefit) are as follows:
Two
Year Months
Ended Ended
June 30 June 30 Year Ended April 30
1997 1996 1996 1995
----------------------------------------------
Current $479,500 $103,100 $368,000 $309,500
Deferred (benefit) (8,500) (5,600) (5,000) (8,000)
-------- -------- -------- --------
$471,000 $ 97,500 $363,000 $301,500
======== ======== ======== ========
In addition, the Company recorded deferred income tax (benefit) to equity
relating to unrealized gains and losses on investment securities
available-for-sale of $(7,719), $(4,349), $7,388 and $7,571 for the year ended
June 30, 1997, the two months ended June 30, 1996 and years ended April 30, 1996
and 1995, respectively.
The provision for income taxes as shown on the consolidated statements of income
differs from amounts computed by applying the statutory federal income tax rate
of 34% to income before taxes as follows:
-27-
<PAGE>
<PAGE>
NOTE G--INCOME TAXES - Cont'd
Two Months
Year Ended Ended June 30 Year Ended April 30
June 30, 1997 1996 1996 1995
---------------------------------------------------------------
Income tax
expense at
statutory
rates $439,618 34.0% $89,074 34.0% $334,239 34.0% $287,091 34.0%
Increase
(decrease)
resulting
from:
State
income
taxes, net
of federal
benefit 31,020 2.4 8,910 3.4 21,120 2.1 24,090 2.8
Other, net 362 --- (484) (.2) 7,641 0.8 (9,681) (1.1)
-------- ----- ------- ----- -------- ----- -------- ----
$471,000 36.4% $97,500 37.2% $363,000 36.9% $301,500 35.7%
======== ==== ======= ==== ======== ==== ======== ====
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. Temporary differences which give rise to a
significant portion of deferred tax assets and liabilities included in other
liabilities at June 30 are as follows:
1997 1996
Deferred tax assets
Allowance for loan losses $320,400 $249,300
Deferred tax liabilities
Depreciation (125,860) (120,880)
FHLB stock dividend (76,040) (75,920)
Unrealized gain on available-
for-sale securities (240) (7,959)
Gain on sale of loans (57,500) ---
-------- --------
NET DEFERRED TAX ASSET $ 60,760 $ 44,541
======== ========
NOTE H--ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES (FHLB)
Advances from FHLB consist of the following at June 30:
Interest
Stated Rate at
Maturity Interest June 30,
Date Rate 1997 1997 1996
- ---------------------------------------------------------------------------
August 30, 1996 6.50% 6.50% $ --- $2,000,000
March 20, 1997 7.12 7.12 --- 2,500,000
April 11, 1997 Variable 5.90 --- 500,000
August 19, 1996 5.58 5.58 --- 1,000,000
September 19, 1996 5.71 5.71 --- 1,000,000
October 17, 1997 5.83 5.83 1,000,000 ---
November 18, 1997 5.48 5.48 1,000,000 ---
November 28, 1997 5.70 5.70 2,000,000 ---
March 20, 1998 6.11 6.11 2,500,000 ---
---------- ----------
$6,500,000 $7,000,000
========== ==========
-28-
<PAGE>
<PAGE>
NOTE H--ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES (FHLB) - Cont'd
The Company has signed a blanket pledge agreement with the FHLB under which it
can draw advances of unspecified amounts. The Company must hold an unencumbered
portfolio of eligible one- to four-family residential mortgages with a book
value of not less than 150% of the indebtedness.
NOTE I--EQUITY
Pursuant to the Financial Institutions Reform, Recovery and Enforcement Act
("FIRREA") of 1989, as implemented by a rule promulgated by OTS, saving
institutions are required to have a minimum regulatory tangible capital equal to
1.5% of adjusted total assets, a minimum of 3.0% core/leverage capital ratio,
and a minimum 8% total risk-based capital. FIRREA also restricts investment
activities with respect to noninvestment grade corporate debt and certain other
investments and increases the required ratio of housing-related assets in order
to qualify as a savings institution.
The following table presents the Bank's capital position relative to its
regulatory capital requirements under FIRREA at June 30, 1997:
Regulatory Capital
Tangible Core Risk-based
------------------------------
(dollars in thousands)
GAAP capital $17,006 $17,006 $17,006
Adjustments to capital:
Net deferred income tax asset (61) (61) (61)
General valuation allowances as defined --- --- 758
Foreclosed real estate --- --- (198)
------- ------- -------
REGULATORY CAPITAL 16,945 16,945 17,505
Regulatory capital requirement 1,509 3,017 4,852
------- ------- -------
EXCESS REGULATORY CAPITAL $15,436 $13,928 $12,653
======= ======= =======
Regulatory capital ratio 16.85% 16.85% 28.86%
Regulatory capital requirement 1.50 3.00 8.00
------- ------- -------
EXCESS REGULATORY CAPITAL RATIO 15.35% 13.85% 20.86%
======= ======= =======
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
established additional capital requirements which require regulatory action
against depository institutions in one of the undercapitalized categories
defined in implementing regulations. Institutions such as the Bank, which are
defined as "well capitalized", must generally have a leverage capital (core)
ratio of at least 5%, a tier risk-based capital ratio of at least 6% and a total
risk-based capital ratio of at least 10%. In November 1994, the OTS revised its
regulations whereby unrealized gains or losses on available- for-sale securities
accounted for under SFAS No. 115 are not considered in the determination of
regulatory capital. FDICIA also provided for increased supervision by federal
regulatory agencies, increased reporting requirements for insured depository
institutions and other changes in the legal and regulatory environment for
institutions.
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income a provision for bad debts, which differs
from the provisions for such losses charged to income. Accordingly, retained
earnings at June 30, 1997, includes income of approximately $1,900,000 for which
no provision for federal income
-29-
<PAGE>
<PAGE>
NOTE I--EQUITY - Cont'd
taxes has been made. If, in the future, this portion of retained earnings is
used for any purpose other than to absorb loan losses, federal income taxes may
be imposed at the then applicable rates. The Bank's retained earnings at June
30, 1997, were substantially restricted because of the effect of these bad debt
reserves.
NOTE J--EMPLOYEE BENEFITS
The Company has a 401(k) salary reduction plan that covers all employees meeting
specific age and length of service requirements. Under the plan, the Company
matches up to 3 percent of participating employees' salaries. Pension costs
recognized under the plan totalled $19,215, $3,036, $19,330, and $17,913 for the
year ended June 30, 1997, the two months ended June 30, 1996, and the years
ended April 30, 1996 and 1995, respectively.
In connection with the conversion from mutual to stock form, the Company
established an employee stock ownership plan for the benefit of participating
employees. Employees are eligible to participate upon attaining age twenty- one
and completing one year of service.
The ESOP borrowed $1,375,400 from the Company to fund the purchase of 137,540
shares of the Company's common stock. The purchase of shares of the ESOP was
recorded in the consolidated financial statements through a credit to common
stock and additional paid-in capital with a corresponding charge to a contra
equity account for the unreleased shares. The loan is secured solely by the
common stock and is to be repaid in equal quarterly installments of principal
and interest payable through September 2006 at 8.25% interest. The intercompany
ESOP note and related interest were eliminated in consolidation.
The Company makes quarterly contributions to the ESOP which are equal to the
debt service less dividends on unallocated ESOP shares used to repay the loan.
Dividends on allocated shares will be paid to participants of the ESOP. The
ESOP shares are pledged as collateral on the ESOP loan. Shares are released
from collateral and allocated to participating employees, based on the
proportion of loan principal and interest repaid and compensation of the
participants. Forfeitures will be reallocated to participants on the same basis
as other contributions in the plan year. Benefits are payable upon a
participant's retirement, death, disability or separation from service.
Effective with the date of the stock conversion, the Company adopted Statement
of Position ("SOP") 93-6. As shares are committed to be released from
collateral, the Company reports compensation expense equal to the average fair
value of the shares committed to be released. Dividends on allocated shares
will be charged to stockholders' equity. Dividends on unallocated shares are
recorded as a reduction to the ESOP loan. ESOP expense for the year ended June
30, 1997 was $242,004. The fair value of unreleased shares based on market
price of the Company's stock was $2,559,236 at June 30 1997.
The number of ESOP shares at June 30, 1997 are summarized as follows:
Allocated shares 3,458
Shares released for allocation 6,915
Unreleased shares 127,167
-------
137,540
=======
NOTE K--INCENTIVE PLANS
Management Recognition Plan and Trust ("MRP"): The Company intends to seek
approval of the MRP at its annual meeting of stockholders as a method of
providing its officers, employees and directors with a proprietary interest in
the Company in a manner designed to encourage such persons to remain with the
Company. The Company
-30-
<PAGE>
<PAGE>
NOTE K--INCENTIVE PLANS - Cont'd
plans to contribute funds to the MRP to enable the trust to acquire, in the
aggregate, 4% of the shares of common stock in the conversion. Such shares
would be acquired either through open market purchases or from authorized but
unissued shares of common stock. Under the MRP, awards would be granted in the
form of shares of common stock held by the MRP. These shares represent deferred
compensation and would be accounted for as a reduction of stockholders' equity.
Stock Option Plan: The Company also intends to seek stockholder approval of the
1996 Stock Option Plan ("Stock Option Plan") which will reserve a number of
shares equal to 10% of the number of shares issued in the conversion. The Stock
Option Plan provides for the grant of options at an exercise price equal to the
fair market value on the date of grant. The Stock Option Plan is intended to
promote stock ownership by directors and selected officers and employees of the
Company to increase their proprietary interest in the Company as an incentive to
contribute to the success of the Company and to reward officers and key
employees for outstanding performance.
NOTE L--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet customer financing needs. These financial
instruments consist principally of commitments to extend credit. The Company
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments. The Company's exposure to credit
loss in the event of nonperformance by the other party is represented by the
contractual amount of those instruments. The Company does not generally require
collateral or other security on unfunded loan commitments until such time that
loans are funded.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty. Such
collateral consists primarily of residential properties.
The Company had the following outstanding commitments at June 30, 1997:
Undisbursed portion of mortgage loans $ 6,948,901
Undisbursed equity line of credit 901,483
Commitments to originate mortgage loans with
variable or pending interest rates 4,125,050
Commitments to originate mortgage loans with
fixed interest rates ranging from 7.875% to 8.25% 312,600
-----------
TOTAL $12,288,034
===========
At June 30, 1997, the Company had amounts on deposit at banks and federal
agencies in excess of federally insured limits of approximately $6,393,000.
NOTE M--COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company is a
defendant in certain claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the consolidated financial position of the Company.
-31-
<PAGE>
<PAGE>
NOTE N--SAVINGS ASSOCIATION INSURANCE FUND ASSESSMENT
On September 30, 1996, the Deposit Insurance Fund Act authorized the Federal
Deposit Insurance Corporation to impose a special one-time assessment on each
depository institution to recapitalize the Savings Association Insurance Fund to
a level commensurate with the Bank Insurance Fund. The special assessment
amounted to $427,263 and is included in federal insurance premiums in the
consolidated statement of income for June 30, 1997.
NOTE O--CONVERSION TO STOCK OWNERSHIP
On January 9, 1995, the Board of Directors of the Bank adopted a plan of
conversion pursuant to which the Bank converted from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank with the
concurrent formation of the holding company which acquired all of the common
stock of the Bank. On October 17, 1996, the Company sold 1,719,250 shares of
common stock at $10 per share to eligible purchasers, including depositors of
the Bank. Total proceeds from the conversion, after deducting conversion
expenses of $643,370 were $16,549,130 and are reflected as common stock and
additional paid-in capital in the accompanying consolidated statements of
financial condition. The Company utilized $8,274,565 of the net proceeds to
acquire all of the common stock of the Bank. The Company was also authorized to
issue 1,000,000 shares of $.01 par value preferred stock. At June 30, 1997, no
shares of preferred stock had been issued.
As part of the conversion, the Bank established a liquidation account for the
benefit of eligible depositors who continue to maintain their deposit accounts
in the Bank after conversion. In the unlikely event of a complete liquidation
of the Bank, and only in such event, each eligible depositor will be entitled to
receive a liquidation distribution from the liquidation account in the
proportionate amount of the then-current adjusted balance for deposit accounts
held before distribution may be made with respect to the Bank's capital stock.
The Bank may not declare or pay a cash dividend to the Company on, or repurchase
any of, its capital stock if the effect thereof would cause the retained
earnings of the Bank to be reduced below the amount required for the liquidation
account. Except for such restrictions, the existence of the liquidation account
does not restrict the use or application of retained earnings.
The Bank may not declare or pay cash dividends on, or repurchase any of, its
shares of common stock, if the effect would cause stockholder's equity to be
reduced below applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory requirements.
NOTE P--FAIR VALUE OF FINANCIAL INSTRUMENTS
On May 1, 1995, the Company adopted SFAS No. 107, Disclosures about Fair Values
of Financial Instruments, which requires disclosure of fair value information
about financial instruments, whether or not recognized in the statement of
financial condition. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein.
Cash and due from depository institutions: The carrying amounts approximate
fair value.
Investment securities: Fair value is determined by reference to quoted market
prices.
-32-
<PAGE>
<PAGE>
NOTE P--FAIR VALUE OF FINANCIAL INSTRUMENTS - Cont'd
Stock in FHLB: This stock is a restricted asset and its carrying value is a
reasonable estimate of fair value.
Loans held-for-sale: The carrying value is a reasonable estimate of fair value.
Loans receivable: The fair value of fixed rate first mortgage loans is
estimated by using discounted cash flow analyses, using interest rates currently
offered by the Company for loans with similar terms to borrowers of similar
credit quality. The carrying value of variable rate first mortgage loans
approximate fair value. The fair value of consumer loans is calculated by using
the discounted cash flow based upon the current market for like instruments.
Fair values for impaired loans are estimated using discounted cash flow
analyses.
Accrued interest receivable: The carrying value approximates fair value.
Transaction deposits: Transaction deposits, payable on demand or with
maturities of 90 days or less, have a fair value equal to book value.
Certificates of deposit: The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar maturities.
Advances from borrowers for taxes and insurance: The carrying value
approximates fair value.
All other liabilities: The carrying value approximates fair value.
Off-balance sheet instruments: The fair value of a loan commitment and a letter
of credit is determined based on the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreement and
the present creditworthiness of the counterparties. Neither the fees earned
during the year on these instruments nor their value at year-end are significant
to the Company's consolidated financial position.
Limitations: Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument.
The valuation techniques employed above involve uncertainties and are affected
by assumptions used and judgements regarding prepayments, credit risk, discount
rates, cash flows and other factors. Changes in assumptions could significantly
affect the reported fair value.
In addition, the fair value estimates are based on existing on- and off- balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are not
considered financial instruments. For example, the Company has a mortgage
servicing portfolio that contributes net fee income annually. The mortgage
servicing portfolio is not considered a financial instrument and its value has
not been incorporated into the fair value estimates. Also, the fair value
estimates do not include the benefit that results from the low-cost funding
provided by the deposit liabilities compared to the cost of borrowing funds in
the market. The amounts at June 30, 1997 and 1996 (dollars in thousands) are as
follows:
June 30, 1997 June 30, 1996
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
ASSETS ---------------- -----------------
Cash and due from depository
institutions $7,095 $7,095 $3,154 $3,154
Investment securities 1,899 1,899 3,208 3,208
Stock in FHLB 637 637 637 637
Loans held-for-sale, net 4,463 4,463 2,528 2,528
Loans receivable, net 83,714 83,307 76,561 76,589
Accrued interest receivable 729 729 705 705
-33-
<PAGE>
<PAGE>
NOTE P--FAIR VALUE OF FINANCIAL INSTRUMENTS - Cont'd
June 30, 1997 June 30, 1996
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
ASSETS ---------------- -----------------
LIABILITIES
Transaction accounts $15,522 $15,522 $15,315 $15,315
Certificates of deposit 52,038 51,942 55,973 56,043
Advances from Federal Home Loan Bank 6,500 6,500 7,000 7,000
Advances from borrowers for property
taxes and insurance 757 757 746 746
Accrued interest payable 96 96 100 100
NOTE Q--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed balance sheet and condensed statements of income and
cash flows for Fulton Bancorp, Inc. should be read in conjunction with the
consolidated financial statements and the notes thereto.
June 30
1997
CONDENSED BALANCE SHEET ----
ASSETS
Cash and cash equivalents $ 6,913,111
ESOP note receivable 1,301,347
Other assets 41,273
Investment in subsidiary 17,006,135
-----------
TOTAL ASSETS $25,261,866
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities $ 4,531
Stockholders' equity 25,257,335
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,261,866
===========
Period From
October 17, 1996
to June 30,
1997
CONDENSED STATEMENT OF INCOME ----
Interest income $345,894
Expenses 106,334
INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARY 239,560
Equity in undistributed earnings of subsidiary 694,526
--------
INCOME BEFORE INCOME TAXES 934,086
Income taxes 91,000
--------
NET INCOME $843,086
========
-34-
<PAGE>
<PAGE>
NOTE Q--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS - Cont'd
Period From
October 17, 1996
to June 30,
1997
----
CONDENSED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Net income $ 843,086
Adjustments to reconcile net income
to net cash provided by operating activities
Equity in income of the subsidiary (694,526)
Increase in other assets (41,273)
Increase in accrued liabilities 4,531
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 111,818
Cash flows from investing activities
Purchase of common stock of the subsidiary (8,274,565)
-----------
NET CASH USED IN INVESTING ACTIVITIES (8,274,565)
Cash flows from financing activities
Proceeds from sale of common stock 16,549,130
Loan to ESOP (1,375,400)
Principal collected from ESOP 74,053
Dividends paid (171,925)
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,075,858
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,913,111
Cash and cash equivalents at beginning of period ---
-----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,913,111
===========
NOTE R--CONDENSED COMPARATIVE FINANCIAL INFORMATION FOR TRANSITION PERIOD
REPORTING
Two Months ended
June 30
1996 1995
-----------------------
(Unaudited)
Interest income $1,149,069 $985,922
Interest expense 665,254 561,622
---------- --------
Net interest income 483,815 424,300
Provision for loan losses 25,000 ---
Net interest income after ---------- --------
provision for loan losses 458,815 424,300
Noninterest income 119,357 80,467
Noninterest expense 316,191 304,596
---------- --------
Income before income taxes 261,981 200,171
Income taxes 97,500 74,300
---------- --------
NET INCOME $ 164,481 $125,871
========== ========
-35-
<PAGE>
<PAGE>
DIRECTORS AND OFFICERS
OFFICERS:
FULTON BANCORP, INC.
Kermit D. Gohring
President and Chief Executive
Officer
Richard W. Gohring
Vice President
Bonnie K. Smith
Secretary Treasurer
FULTON SAVINGS BANK, FSB
Kermit D. Gohring
President
Richard W. Gohring
Executive Vice President
Bonnie K. Smith
Senior Vice President and
Secretary Treasurer
CORPORATE INFORMATION
MAIN OFFICE
410 Market St.
Fulton, Missouri 65251
Telephone (573) 642-6617
SPECIAL COUNSEL
Breyer & Aguggia
Washington, D.C.
DIRECTORS:
FULTON BANCORP, INC.
AND FULTON SAVINGS BANK, FSB
Kermit D. Gohring
Chairman of the Board
Richard W. Gohring
Bonnie K. Smith
Clifford E. Hamilton, Jr
Vice Chairman of the Board
Dennis J. Adrain
Sole Owner, Vandelict Trucking, Inc.
President and Majority Owner of
MoCon, Inc.
Billy M. Connor
Co-Owner and Operator
BCGC, Inc., Local Family Farming Operation
David W. West
Co-Owner and Operator
Family Farming Operation
INDEPENDENT AUDITORS
Moore, Horton & Carlson, P.C.
510 South Muldrow
Mexico, Missouri 65265
-36-
<PAGE>
<PAGE>
STOCKHOLDERS INFORMATION
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at the office of Fulton Savings
Bank, FSB, 410 Market Street, Fulton Missouri, on October 23, 1997 at 10:00
a.m., Central Time.
SHAREHOLDER AND GENERAL INQUIRIES
Kermit D. Gohring
Fulton Savings Bank, FSB
410 Market Street
Fulton, Missouri 65251-0700
(573) 642-6618
TRANSFER AGENT
First Banker's Trust Co
2321 Koch's Lane
P.O. Box 3566
Quincy, Illinois 62305-3566
(217) 228-8000
ANNUAL AND OTHER REPORTS
A COPY OF THE FORM 10-KSB AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE FOR
VOTING AT THE ANNUAL MEETING OF STOCKHOLDERS UPON WRITTEN REQUEST TO THE
SECRETARY, FULTON BANCORP, INC., P.O. BOX 700, FULTON, MISSOURI 65251-0700.
-37-
<PAGE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<PAGE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
Fulton Savings Bank, FSB 100% United States
Multi-Purpose Service Agency, Inc.(b) 100% Missouri
- --------------------
(a) The operations of the Company's subsidiaries are included in the Company's
consolidated financial statements.
(b) Owned directly by Fulton Savings Bank, FSB.
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 777
<INT-BEARING-DEPOSITS> 6318
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1899
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 83714
<ALLOWANCE> 919
<TOTAL-ASSETS> 100557
<DEPOSITS> 67509
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1291
<LONG-TERM> 6500
0
0
<COMMON> 17
<OTHER-SE> 25240
<TOTAL-LIABILITIES-AND-EQUITY> 100557
<INTEREST-LOAN> 6716
<INTEREST-INVEST> 623
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7339
<INTEREST-DEPOSIT> 3505
<INTEREST-EXPENSE> 3938
<INTEREST-INCOME-NET> 3401
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2627
<INCOME-PRETAX> 1293
<INCOME-PRE-EXTRAORDINARY> 1293
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 822
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
<YIELD-ACTUAL> 3.51
<LOANS-NON> 200
<LOANS-PAST> 45
<LOANS-TROUBLED> 252
<LOANS-PROBLEM> 675
<ALLOWANCE-OPEN> 800
<CHARGE-OFFS> 16
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 919
<ALLOWANCE-DOMESTIC> 759
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 160
</TABLE>
