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, 1998
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.
- ------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 43-1754577
- --------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
410 Market Street, Fulton, Missouri 65251
- --------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 642-6618
----------------
Securities registered pursuant to Section 12(b) of the Act: None
----------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(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
$8,146,867.
As of June 30, 1998, 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 16, 1998 was $24,443,181
(1,416,996 shares at $17.25 per share).
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
June 30, 1998 ("Annual Report") (Parts I and II).
2. Portions of Definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders (Part III).
<PAGE>
<PAGE>
PART I
Item 1. Business
- -----------------
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
-1-
<PAGE>
<PAGE>
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.
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 $88.1 million at June 30, 1998, representing 80.01% 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 June 30,
------------------------------------ At April 30,
1998 1997 1996
----------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Mortgage loans:
One- to four-
family . . . . . . $54,664 56.23% $53,461 58.37% $46,741 59.61%
Multi-family. . . . 6,039 6.21 4,279 4.67 3,845 4.90
Commercial. . . . . 12,011 12.36 9,507 10.38 8,706 11.10
Construction. . . . 11,320 11.64 11,295 12.33 7,686 9.80
Land. . . . . . . . 4,402 4.53 3,524 3.85 1,518 1.94
Total mortgage ------- ------- ------- ------ ------- ------
loans . . . . . . 88,436 90.97 82,066 89.60 68,496 87.35
Consumer and other
loans . . . . . . . 8,775 9.03 9,525 10.40 9,922 12.65
------- ------- ------- ------ ------- ------
Total loans . . . 97,211 100.00% 91,591 100.00% 78,418 100.00%
====== ====== ======
Undisbursed loan
funds. . . . . . . (8,197) (6,959) (3,743)
Net deferred loan
origination fees . 61 46 --
Allowance for loan
losses . . . . . . (971) (919) (782)
Loan receivable, ------- ------- -------
net. . . . . . . $88,104 $83,759 $73,893
======= ======= =======
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, 1998, $54.7 million,
or 56.2% 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, 1998, $72.0 million, or 74.1%
of the Savings Bank's total gross loans, were subject to periodic interest
rate adjustments.
-2-
<PAGE>
<PAGE>
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 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.
-3-
<PAGE>
<PAGE>
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%.
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, 1998, the
Savings Bank's gross loan portfolio included $6.0 million in multi-family real
estate loans and $12.0 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, 1998, the Savings Bank's construction loan portfolio totalled $11.3
million, or 11.6% of total gross loans. At such date, the Savings Bank's
construction loan portfolio consisted of 75 residential construction loans
totalling $9.9 million and three commercial real estate construction loans
totalling $1.4 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
-4-
<PAGE>
<PAGE>
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.
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,
1998, the Savings Bank's land loan portfolio totalled $4.4 million and
consisted of 57 loans. Land loans originated by the Savings Bank are
generally adjustable-rate loans and have maturities of 10 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, 1998, the Savings Bank's
consumer and other loans totalled approximately $8.8 million, or 9.0% 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, 1998, the Savings Bank had no material delinquencies in its consumer
loan portfolio.
-5-
<PAGE>
<PAGE>
Maturity of Loan Portfolio. The following table sets forth contractual
amortization of loans at June 30, 1998. 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, net deferred loan
origination fees, 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(1) . . . $ 3,140 $10,156 $12,665 $28,703 $54,664
Multi-family . . . . . . . . 232 895 1,508 3,404 6,039
Commercial . . . . . . . . . 535 2,610 3,863 5,003 12,011
Construction . . . . . . . . 11,320 -- -- -- 11,320
Land . . . . . . . . . . . . 1,742 1,048 749 863 4,402
Consumer and other loans . . . 4,465 3,583 553 174 8,775
------- ------- ------- ------- -------
Total gross loans. . . . . $21,434 $18,292 $19,338 $38,147 $97,211
======= ======= ======= ======= =======
- ------------
(1) Includes 124 loans totalling $8.4 million construction/permanent loans.
The following table sets forth the dollar amount of all loans due after
June 30, 1999 that have fixed interest rates and have floating or adjustable
interest rates.
Fixed- Floating- or
Rates Adjustable-Rates
----- ----------------
(In Thousands)
Mortgage loans:
One- to four-family. . . . . $ 4,976 $46,548
Multi-family . . . . . . . . 503 5,304
Commercial . . . . . . . . . 4,574 6,902
Construction . . . . . . . . -- --
Land . . . . . . . . . . . . 657 2,003
Consumer and other loans . . . 4,310 --
------- -------
Total gross loans. . . . . $15,020 $60,757
======= =======
-6-
<PAGE>
<PAGE>
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, 1998 and 1997, and April 30, 1996, the
Savings Bank originated $58.2 million, $55.6 million and $51.3 million of
loans, respectively. Of the $58.2 million of loans originated during the year
ended June 30, 1998, 69.18% were adjustable-rate loans and 30.82% 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, 1998 and 1997, and April 30, 1996, totalled $15.6
million, $22.4 million and $22.6 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, 1998, the Savings
Bank had $3.6 million in loans held for sale.
-7-
<PAGE>
<PAGE>
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
Year Ended June 30, Year Ended
------------------- April 30,
1998 1997 1996
---- ---- ----
(In Thousands)
Loans originated:
Mortgage loans:
One- to four-family. . . . . $23,951 $29,317 $25,263
Multi-family . . . . . . . . 2,489 1,048 4,519
Commercial . . . . . . . . . 5,698 4,207 4,415
Construction . . . . . . . . 17,053 11,243 8,365
Land . . . . . . . . . . . . 1,805 2,201 655
Consumer and other loans . . . 7,179 7,625 8,079
------- ------- -------
Total loans originated . . 58,175 55,641 51,296
Loans purchased:
Mortgage loans:
One- to four-family. . . . . -- -- --
Construction . . . 57 -- 484
------- ------- -------
Total loans purchased. . . 57 -- 484
Loans sold:
Whole loans. . . . . . . . . 4,298 7,766 3,812
Participations . . . . . . . 11,306 14,587 18,820
------- ------- -------
Total loans sold. . . . . . 15,604 22,353 22,632
Less:
Principal repayments . . . . 34,139 21,661 20,463
Transfer to real estate owned 438 -- 271
Transfers to repossessed assets 2 -- --
Amounts charged off. . . . . . 19 -- --
Loans held for sale. . . . . . 3,649 4,463 2,306
------- ------- -------
38,247 26,124 23,040
Net increase in loans ------- ------- -------
receivable, net . . . . . . . . $ 4,381 $ 7,164 $ 6,108
======= ======= =======
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 $4.0 million at June 30, 1998.
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.
-8-
<PAGE>
<PAGE>
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, 1998, the Savings
Bank was servicing $104.4 million of loans for others. Loan servicing
includes processing payments, accounting for loan funds and collecting and
paying real estate 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, 1998, loan servicing fees totalled $311,000. 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, 1998, the Savings Bank held $642,000 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
Statement of Financial Accounting Standards ("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 June 30,
------------------- At April 30,
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
Loans accounted for on
a nonaccrual basis:
Mortgage loans:
One- to four-family. . . . . . . $ 71 $ 40 $175
Commercial . . . . . . . . . . . -- 160 69
Consumer and other loans. . . . . -- -- 75
---- ---- ----
Total . . . . . . . . . . . 71 200 319
Accruing loans which are contractually
past due 90 days or more. . . . . 84 166 --
---- ---- ----
Total of nonaccrual and
90 days past due loans. . . . . . 155 366 319
Real estate owned, net . . . . . . 158 197 197
---- ---- ----
Total nonperforming assets. . $313 $563 $516
==== ==== ====
Restructured loans . . . . . . . . $252 $252 $271
Nonaccrual and 90 days or more past
due loans as a percentage of loans
receivable, net. . . . . . . . . . 0.18% 0.44% 0.43%
Nonaccrual and 90 days or more past
due loans as a percentage of total
assets . . . . . . . . . . . . . . 0.14 0.36 0.37
Nonperforming assets as a percentage
of total assets. . . . . . . . . . 0.28 0.56 0.60
Interest income that would have been recorded for the year ended June 30,
1998 had nonaccruing loans been current in accordance with their original
terms amounted to approximately $6,000. The amount of interest included in
interest income on such loans for the year ended June 30, 1998 amounted to
approximately $4,000.
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,
1998, the Savings Bank had $158,000 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 problem
-10-
<PAGE>
<PAGE>
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, 1998, assets classified as doubtful, substandard or special
mention totalled $2.1 million and included three commercial loans totalling
$97,000, 24 substandard loans, which consisted of 13 one- to four-family
mortgage loans totalling $559,000, one commercial real estate loan totalling
$296,000 and 10 consumer loans totalling $158,000, and 35 special mention
loans, which consisted of 19 one- to four-family mortgage loans totalling
$688,000, two commercial loans totalling $141,000 and 14 consumer loans
totalling $179,000. The aggregate amounts of the Savings Bank's classified
assets at the dates indicated were as follows:
At June 30,
-------------------------- At April 30,
1998 1997 1996
---- ---- ----
(In Thousands)
Loss . . . . . . . . . . . $ -- $ -- $ --
Doubtful . . . . . . . . . 97 -- --
Substandard. . . . . . . . 1,013 737 798
Special mention. . . . . . 1,008 675 708
------ ------ ------
Total classified assets. $2,118 $1,412 $1,506
====== ====== ======
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.
At June 30, 1998, the Savings Bank had an allowance for loan losses of
$971,000. The allowance for loan losses is maintained at an amount management
considers adequate to absorb losses inherent in the portfolio.
-11-
<PAGE>
<PAGE>
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 generally accepted accounting principles,
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.
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.
Year Ended
Year Ended June 30, April 30,
------------------- ----------
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
Allowance at beginning of period . . . $919 $800 $762
Provision for loan losses . . . . . . 70 120 44
Recoveries:
Mortgage loans:
One- to four-family. . . . . . . . . -- 11 1
Multi-family . . . . . . . . . . . . -- -- --
Commercial . . . . . . . . . . . . . -- -- --
Construction . . . . . . . . . . . . -- -- --
Land . . . . . . . . . . . . . . . . -- -- --
Consumer and other loans. . . . . . . -- 4 2
---- ---- ----
Total recoveries . . . . . . . . . -- 15 3
Charge-offs:
Mortgage loans:
One- to four-family. . . . . . . . . 14 -- 1
Multi-family . . . . . . . . . . . . -- -- --
Commercial . . . . . . . . . . . . . -- -- --
Construction . . . . . . . . . . . . -- -- --
Land . . . . . . . . . . . . . . . . -- -- 10
Consumer and other loans. . . . . . . 4 16 16
---- ---- ----
Total charge-offs. . . . . . . . . 18 16 27
---- ---- ----
Net charge-offs. . . . . . . . . . 18 1 24
---- ---- ----
Balance at end of period . . . . . $971 $919 $782
==== ==== ====
Allowance for loan losses as a percentage
of total loans outstanding at end of
period. . . . . . . . . . . . . . . . 1.09% 1.09% 1.02%
Net charge-offs as a percentage of average
loans outstanding during the period . 0.02 -- 0.03
Allowance for loan losses as a
percentage of nonperforming loans
at end of period . . .. . . . . . . . 625.07 250.68 245.44
-12-
<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 June 30,
------------------------------- At April 30,
1998 1997 1996
-------------- --------------- ----------------
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to to to
Total Total Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Mortgage loans:
One- to four-family. . $295 56.23% $382 58.37% $322 59.61%
Multi-family . . . . . 46 6.21 43 4.67 38 4.90
Commercial . . . . . . 176 12.36 162 10.38 78 11.10
Construction . . . . . 45 11.64 37 12.33 83 9.80
Land . . . . . . . . . 29 4.53 34 3.85 15 1.94
Consumer and other loans 235 9.03 101 10.40 104 12.65
Unallocated. . . . . . . 145 N/A 160 N/A 142 N/A
---- ---- ----
Total allowance for
loan losses . . . . $971 $919 $782
==== ==== ====
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 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.
-13-
<PAGE>
<PAGE>
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.
The following table sets forth the composition of the Company's
investment securities portfolio at the dates indicated. All of the Company's
investment securities are classified as available for sale.
At June 30,
----------------------------------- April 30,
1998 1997 1996
---------------- ----------------- -----------------
Carry- Percent Carry- Percent Carry- Percent
ing of ing of ing of
Value Portfolio Value Portfolio Value Portfolio
----- --------- ----- --------- ----- ---------
(Dollars in Thousands)
U.S. Government and
federal agency
obligations . . . . $950 100.00% $1,899 100.00% $3,216 100.00%
==== ====== ====== ====== ====== ======
The table below sets forth certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of the
Company's investment securities at June 30, 1998.
At June 30, 1998
---------------------------------------------------------
Amount Due or Repricing within:
Over One to
One Year or Less Five Years Over Five Years
------------------ ------------------ ------------------
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 $950 5.63% $-- $-- $-- --%
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.
-14-
<PAGE>
<PAGE>
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 120 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.
The following table sets forth information concerning the Savings Bank's
time deposits and other interest-bearing deposits at June 30, 1998.
Weighted
Average Percentage
Interest Checking and Savings Minimum of Total
Rate Term Deposits Amount Balance Deposits
- ---- ---- -------------------- ------ ------- --------
(In Thousands)
- --% None Noninterest-bearing $ 200 $ 1,880 2.72%
2.63 None NOW 400 4,964 7.18
3.55 None Money Market Deposit 1,500 2,640 3.82
3.03 None Passbook none 6,288 9.09
Certificates of Deposit
-----------------------
5.10 91 Day Fixed term, fixed rate 1,000 324 .47
5.26 182 Day Fixed term, fixed rate 1,000 3,382 4.89
5.75 660 Day Fixed term, fixed rate 1,000 11 .02
3.00 3 Mo. Fixed term, fixed rate 1,000 7 .01
5.54 6 Mo. Fixed term, fixed rate 1,000 2,187 3.16
5.36 9 Mo. Fixed term, fixed rate 1,000 99 .14
5.64 12 Mo. Fixed term, fixed rate 1,000 15,363 22.21
5.58 18 Mo. Fixed term, fixed rate 1,000 368 .53
5.84 24 Mo. Fixed term, fixed rate 1,000 13,219 19.11
5.81 30 Mo. Fixed term, fixed rate 1,000 1,753 2.53
5.95 36 Mo. Fixed term, fixed rate 1,000 7,250 10.48
5.23 42 Mo. Fixed term, fixed rate 1,000 142 .21
6.21 48 Mo. Fixed term, fixed rate 1,000 4,587 6.63
6.01 60 Mo. Fixed term, fixed rate 1,000 4,634 6.70
7.58 96 Mo. Fixed term, fixed rate 1,000 21 .03
6.00 120 Mo. Fixed term, fixed rate 1,000 45 .07
------- ------
Total $69,164 100.00%
======= ======
-15-
PAGE
<PAGE>
The following table indicates the amount of the Savings Bank's jumbo
certificates of deposit by time remaining until maturity as of June 30, 1998.
Jumbo certificates of deposit are certificates in amounts of $100,000 or more.
Maturity Period Amount
--------------- ------
(In Thousands)
Three months or less . . . . . $1,014
Over three through six months. 743
Over six through 12 months . . 2,197
Over 12 months . . . . . . . . 2,171
Total jumbo certificates ------
of deposit . . . . . . . $6,125
======
-16-
<PAGE>
<PAGE>
<TABLE>
Deposit Flow. The following table sets f orth 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 June 30,
-------------------------------------------------------- At April 30,
1998 1997 1996
---------------------------- --------------------------- -----------------
Percent Percent Percent
of Increase of Increase of
Amount Tota1 (Decrease) Amount Total (Decrease) Amount Total
------ ----- ---------- ------ ----- ---------- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook . . . . . . . . . $ 6,288 9.09% $ 369 $ 5,919 8.77% $ 9 $ 5,910 8.41%
NOW accounts . . . . . . . 4,964 7.18 33 4,931 7.30 672 4,259 6.06
Money market deposit . . . 2,640 3.82 (127) 2,767 4.10 (273) 3,040 4.32
Fixed-rate certificates
which mature:
Within 1 year. . . . . . 32,370 46.80 (895) 33,265 49.28 (701) 33,966 48.30
After 1 year, but within
2 years . . . . . . . . 13,369 19.33 2,139 11,230 16.63 (2,092) 13,322 18.95
After 2 years, but within
4 years . . . . . . . . 5,735 8.29 (944) 6,679 9.89 (983) 7,662 10.90
After 4 years. . . . . . 1,918 2.77 1,054 864 1.28 417 447 0.63
Other. . . . . . . . . . . 1,880 2.72 26 1,854 2.75 144 1,710 2.43
------- ------ ------ ------- ------ ------- ------- ------
Total. . . . . . . . . . $69,164 100.00% $1,655 $67,509 100.00% $(2,807) $70,316 100.00%
======= ====== ====== ======= ====== ======= ======= ======
-17-
</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 June 30,
-------------------- At April 30,
1998 1997 1996
---- ---- ----
(In Thousands)
3.00 - 3.99% . . . . . . $ 7 $ 103 $ 105
4.00 - 4.99% . . . . . . 93 1,669 6,119
5.00 - 5.99% . . . . . . 36,755 33,133 26,144
6.00 - 6.99% . . . . . . 15,623 16,067 20,261
7.00 - 7.99% . . . . . . 900 1,043 2,751
8.00 - 8.99% . . . . . . 14 23 17
------- ------- -------
Total. . . . . . . . . . $53,392 $52,038 $55,397
======= ======= =======
The following table sets forth the amount and maturities of time deposits
at June 30, 1998.
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% . . . . $ 7 $ -- $ -- $ -- $ -- $ 7
4.00 - 4.99% . . . . -- -- 93 -- -- 93
5.00 - 5.99% . . . . 27,055 7,282 1,177 426 815 36,755
6.00 - 6.99% . . . . 4,743 5,762 2,775 1,254 1,089 15,623
7.00 - 7.99% . . . . 565 325 10 -- -- 900
8.00 - 8.99% . . . . -- -- -- -- 14 14
------- ------- ------ ------ ------ -------
Total. . . . . . . . $32,370 $13,369 $4,055 $1,680 $1,918 $53,392
======= ======= ====== ====== ====== =======
Deposit Activity. The following table sets forth the deposit activities
of the Savings Bank for the periods indicated.
At June 30, Year Ended
----------------------- April 30,
1998 1997 1996
---- ---- ----
(In Thousands)
Beginning balance. . . . . . . $67,509 $70,316 $65,205
Net deposits (withdrawals)
before interest credited. . . (1,426) (5,095) 2,941
Interest credited. . . . . . . 3,081 2,288 2,170
Net increase (decrease) in
deposits. . . . . . . . . . . 1,655 (2,807) 5,111
------- ------- -------
Ending balance . . . . . . . . $69,164 $67,509 $70,316
======= ======= =======
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
-18-
<PAGE>
<PAGE>
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:
Year Ended June 30, Year Ended
------------------- April 30,
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
Maximum amount of FHLB advances
outstanding at any month end
during the period . . . . . . . . . . $15,447 $8,000 $5,500
Approximate average FHLB advances
outstanding during the period. . . . 11,208 6,962 4,555
Approximate weighted average
rate paid on FHLB advances
during the period . . . . . . . . . . 6.33% 6.22% 6.62%
Balance of FHLB advances
outstanding at end of
period. . . . . . . . . . . . . . . . $12,810 $6,500 $5,000
Weighted average rate paid
on FHLB advances at end
of period . . . . . . . . . . . . . . 6.16% 5.84% 6.75%
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. 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.
Subsidiary Activities
The Savings Bank has one subsidiary, Multi-Purpose Service Agency, Inc.
whose activities consist primarily of selling credit life insurance to the
Savings Bank's customers. At June 30, 1998, the Savings Bank's equity
investment in its subsidiary was $51,000.
-19-
<PAGE>
<PAGE>
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, 1998.
Personnel
As of June 30, 1998, 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 Savings Bank and its operations.
Federal Regulation of Savings Associations
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 Federal Home Loan Bank Board.
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. 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 (i.e., borrowings) from the FHLB-Des
Moines. The Savings Bank is in compliance with this requirement with an
investment in FHLB-Des Moines stock of $643,000 at June 30, 1998. Among other
benefits, the FHLB-Des Moines 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.
-20-
<PAGE>
<PAGE>
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 accounts are insured by the SAIF to the maximum extent
permitted by law. The Savings Bank pays deposit insurance premiums based on a
risk-based assessment system established by the FDIC. 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," and "undercapitalized" -- which are defined in the
same manner as the regulations establishing the prompt corrective action
system, as discussed below. These three groups are then divided into three
subgroups which reflect varying levels of supervisory concern, from those
which are considered to be healthy to those which are considered to be of
substantial supervisory concern. 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.
Pursuant to the Deposit Insurance Funds Act ("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 .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.
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 4.0%) 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
-21-
<PAGE>
<PAGE>
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, 1998, 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 convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the Savings Bank may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the Savings Bank 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 Savings Bank shall be ineligible
to obtain new advances from any FHLB; and (iv) the payment of dividends by the
Savings Bank 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.
-22-
<PAGE>
<PAGE>
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 Freddie Mac or Fannie Mae.
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, 1998, 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.
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 non-includable 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 Associations -- Prompt Corrective
Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of adjusted total assets. "Tangible capital" is defined, generally, as
core capital minus any "intangible assets" other than purchased mortgage
servicing rights.
Savings associations 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 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
-23-
<PAGE>
<PAGE>
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 totaled 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 Savings Bank'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 Savings Bank'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.
-24-
<PAGE>
<PAGE>
The following table presents the Savings Bank's capital levels as of June
30, 1998.
At June 30, 1998
-------------------------
Percent of
Amount Assets
------ ------
(Dollars in thousands)
Tangible capital . . . . . . . . . $18,635 16.94%
Minimum required
tangible capital. . . . . . . . . 1,650 1.50
------- -----
Excess . . . . . . . . . . . . . . $16,985 15.44%
======= =====
Core capital . . . . . . . . . . . $18,635 16.94%
Minimum required core
capital . . . . . . . . . . . . . 3,300 3.00
------- -----
Excess . . . . . . . . . . . . . . $15,335 13.94%
======= =====
Risk-based capital . . . . . . . . $19,276 30.19%
Minimum risk-based
capital requirement . . . . . . . 5,108 8.00
------- -----
Excess . . . . . . . . . . . . . . $14,168 22.19%
======= =====
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 capital
requirement (both before and after the proposed capital distribution). A 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 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
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 Savings Bank is to meeting its 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 currently meets 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 to one
-25-
<PAGE>
<PAGE>
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, 1998, the Savings Bank's
regulatory limit on loans to one borrower was $2.9 million. At June 30, 1998,
the Savings Bank's largest aggregate amount of loans to one borrower was $2.7
million.
Activities of Associations and Their Subsidiaries. A savings association
may establish operating subsidiaries to engage in any activity that the
savings association may conduct directly and may establish 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 Savings
Bank 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 Savings Bank 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 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. Any loan or extension of credit by the Savings Bank to an
affiliate must be secured by collateral in accordance with Section 23A.
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, as is currently the case with respect
to all FDIC-insured banks.
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.
Community Reinvestment Act. Savings associations are also subject to the
provisions of the Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection with its regular
-26-
<PAGE>
<PAGE>
examination of a savings association, to assess the saving association's
record in meeting the credit needs of the community serviced by the savings
association, including low and moderate income neighborhoods. The regulatory
agency's assessment of the savings association's record is made available to
the public. Further, such assessment is required of any savings association
which has applied, among other things, to establish a new branch office that
will accept deposits, relocate an existing office or merge or consolidate
with, or acquire the assets or assume the liabilities of, a federally
regulated financial institution.
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 under
the HOLA. 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 savings and loan holding company.
Qualified Thrift Lender Test. The HOLA provides that any savings and
loan holding company that controls a savings association that fails the QTL
test, as explained under "-- Federal Regulation of Savings Associations --
Qualified Thrift Lender Test," must, within one year after the date on which
the Savings Bank 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. For additional
information regarding income taxes, see Note G of Notes to Consolidated
Financial Statements.
Bad Debt Reserve. 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
-27-
<PAGE>
<PAGE>
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.
The thrift bad debt rules were revised by Congress in 1996. The new
rules eliminated the percentage 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 required 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). For taxable years
beginning after December 31, 1995, the Savings Bank's bad debt deduction must
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 allowed 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 continues to be
subject to provisions of present law referred to below that require recapture
of the pre-1988 bad debt reserve in the case of certain excess distributions
to shareholders.
Distributions. To the extent that the Savings Bank makes "nondividend
distributions" to the Company, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if the Savings Bank's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions 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. The amount of
additional taxable income created from 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, after the Conversion, the Savings Bank
makes a "nondividend distribution," then approximately one and one-half times
the Excess Distribution would be includable in gross income for federal income
tax purposes, assuming a 34% 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 0.12% 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 is paid.
Dividends-Received Deduction. 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
-28-
<PAGE>
<PAGE>
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 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.
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, 1998, the net book value of the property (including land and
building) and the Company's fixtures, furniture and equipment was $1.4
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, 1998.
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 1998 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 6 of the Annual Report is incorporated herein by reference.
-29-
<PAGE>
<PAGE>
Item 7. Financial Statements
- ------------------------------
(a) Financial Statements
Independent Auditors' Report*
Consolidated Statements of Financial Condition as of June 30, 1998
and 1997
Consolidated Statements of Income for the Years Ended June 30, 1998
and 1997, Two Months Ended June 30, 1996, and Year Ended April 30,
1996
Consolidated Statements of Stockholders' Equity for the Years Ended
June 30, 1998 and 1997, Two Months Ended June 30, 1996, and Year
Ended April 30, 1996
Consolidated Statements of Cash Flows for the Years Ended June 30,
1998 and 1997, Two Months Ended June 30, 1996, and Year Ended
April 30, 1996
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.
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 63 President and Chief Executive Officer
Richard W. Gohring 43 Vice-President
Bonnie K. Smith 53 Secretary-Treasurer
The following table sets forth certain information regarding the
executive officers of the Savings Bank.
Name Age(1) Position
- ---- ------ --------
Kermit D. Gohring 63 Chief Executive Officer, President
and Chairman of the Board
Richard W. Gohring 43 Executive Vice President and Director
Clifford E.
Hamilton, Jr. 55 Vice Chairman of the Board
Bonnie K. Smith 53 Senior Vice President, Secretary-
Treasurer and Director
- ---------------
(1) As of June 30, 1998.
-30-
<PAGE>
<PAGE>
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.
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.
-31-
<PAGE>
<PAGE>
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 (incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1997)
10.2 Fulton Bancorp, Inc. 1997 Management Recognition and Development
Plan (incorporated by reference to Exhibit B to the Company's Proxy
Statement dated September 23, 1997)
10.3 Fulton Bancorp, Inc. 1997 Stock Option Plan (incorporated by
reference to Exhibit A to the Company's Proxy Statement dated
September 23, 1997)
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Moore, Horton & Carlson, P.C.
27 Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended June 30,
1998.
-32-
<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 14, 1998 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 14, 1998
- --------------------------- Executive Officer and
Kermit D. Gohring Director (Principal
Executive Officer)
/s/ Richard W. Gohring Vice President and Director September 14, 1998
- --------------------------- (Principal Financial
Richard W. Gohring Officer)
/s/ Bonnie K. Smith Secretary-Treasurer and September 14, 1998
- --------------------------- Director (Principal
Bonnie K. Smith Accounting Officer)
/s/ Clifford E. Hamilton Director September 24, 1998
- ---------------------------
Clifford E. Hamilton
Director September __, 1998
- ---------------------------
Billy Conner
/s/ David West Director September 15, 1998
- ---------------------------
David West
/s/ Dennis Adrain Director September 16, 1998
- ---------------------------
Dennis Adrian
<PAGE>
<PAGE>
EXHIBIT 13
1998 Annual Report to Stockholders
<PAGE>
<PAGE>
1998 Annual Report
Fulton Bancorp, Inc.
<PAGE>
<PAGE>
Fulton Bancorp, Inc.
1998 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. . . . . . . . . . . . . . . . . . . . . . 6
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 16
Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . 17
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 22
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . 40
Corporate Information. . . . . . . . . . . . . . . . . . . . . . . . . 40
Stockholders' Information. . . . . . . . . . . . . . . . . . . . . . . 41
<PAGE>
<PAGE>
Dear Fellow Shareholders:
On behalf of the employees, officers and directors, I am pleased to
present to you the second annual report of Fulton Bancorp, Inc.
Having completed our first full year as a public company, I am proud to
report that we achieved record income of $1.1 million while assets grew 9.5%
to $110.1 million. The low interest rate environment that prevailed during
the past year contributed to increased loan originations, which allowed Fulton
Savings to increase its loan portfolio. Fulton Savings was also able to
increase the yield on its loan portfolio by increasing its investment in
commercial and multi-family real estate loans.
While the low interest rate environment has been good for loan
originations, it has made maintaining our deposit base more difficult. The
ever increasing variety of investment products and the growing popularity of
the stock market have intensified competition for investment dollars. As a
result, we have been increasing our use of Federal Home Loan Bank advances to
support the growth of Fulton Savings.
Return on assets and return on equity are two popular measures of a
financial institution's profitability. This year, our return on assets
improved to 1.06% from .83%. We are pleased with this result, which is above
average for publicly traded thrifts. Our return on equity improved to 4.44%
from 4.10%. While this is a move in the right direction, we recognize that we
have much room to improve. We are continuing to evaluate and implement
strategies to deploy the capital raised in the conversion of Fulton Savings
with the goals of improving our returns and enhancing shareholder value.
We look forward to 1999 as we work to grow Fulton Savings and improve on
this year's results. Thanks for your support.
Sincerely.
/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. 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, 1998, there were 1,719,250 shares of common
stock outstanding (including unreleased Employee Stock Ownership Plan ("ESOP")
shares of 113,337) and 602 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 and dividends paid for
the years ended June 30, 1998 and 1997. This information was provided by the
Nasdaq Stock Market.
Fiscal 1998 Fiscal 1997
------------------------- --------------------------
High Low Dividends High Low Dividends
------------------------- --------------------------
First Quarter $26.750 $19.750 $0.05 N/A N/A N/A
Second Quarter $24.000 $19.250 $0.05 $16.250 $12.250 N/A
Third Quarter $23.125 $21.500 $0.06 $18.375 $14.625 $0.05
Fourth Quarter $23.500 $16.750 $0.06 $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 includes 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 presented herein.
At June 30 At April 30
------------------------------ -------------
1998 1997 1996 1996 1995 1994
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
SELECTED FINANCIAL
CONDITION DATA:
Total assets. . . . . . $110,110 $100,569 $ 88,771 $ 85,496 $ 79,351 $ 73,620
Cash. . . . . . . . . . 13,778 7,108 3,154 2,924 4,189 5,322
U.S. Government and
federal agency
obligations
available for sale . . 950 1,899 3,208 3,216 4,201 ---
U.S. Government and
federal agency
obligations held
to maturity . . . . . . --- --- --- --- --- 4,260
Mortgage-backed
securities
available for sale. . . --- --- --- --- 1 ---
Mortgage-backed
securities held
to maturity. . . . . . --- --- --- --- --- 1,196
Loans receivable, net. . 88,104 83,759 76,561 73,893 67,805 60,282
Loans held for sale. . . 3,649 4,463 2,527 2,306 574 ---
Deposits . . . . . . . . 69,164 67,197 71,288 70,316 65,205 64,630
FHLB advances. . . . . . 12,810 6,500 7,000 5,000 4,500 ---
Stockholders' equity . . 25,495 25,257 9,274 9,117 8,484 7,933
Year Ended June 30 Two Months Year Ended April 30
------------------ Ended ---------------------
1998 1997 June 30,1996 1996 1995 1994
---- ---- ------------ ---- ---- ----
(Dollars in Thousands, Except Per Share Amount)
SELECTED OPERATING
DATA:
Interest income . $ 8,147 $ 7,340 $ 1,149 $ 6,172 $ 5,355 $ 5,413
Interest expense. 4,183 3,939 665 3,781 2,944 2,671
------- ------- ------- ------- ------- -------
Net interest
income . . . . 3,964 3,401 484 2,391 2,411 2,742
Provision for
loan losses. . . 70 120 25 44 118 48
------- ------- ------- ------- ------- -------
Net interest
income after
provision for
loan losses. . 3,894 3,281 459 2,347 2,293 2,694
Noninterest income 792 637 119 485 360 413
Noninterest
expense 2,890 2,625 316 1,849 1,809 1,741
------- ------- ------- ------- ------- -------
Income before
income taxes 1,796 1,293 262 983 844 1,366
Income taxes. . . 657 471 98 363 301 485
------- ------- ------- ------- ------- -------
Net income. . . $ 1,139 $ 822 $ 164 $ 620 $ 543 $ 881
======= ======= ======= ======= ======= =======
Basic income per
share . . . . . $ 0.72 $ 0.52 * * * *
======= =======
Diluted income
per share . . . $ 0.70 $ 0.52
======= =======
- ---------------
* Operating as a mutual institution
-3-
<PAGE>
<PAGE>
At or For the
---------------------------------------------
Year Ended June 30 Year ended April 30
------------------ --------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
KEY FINANCIAL RATIOS:
Performance Ratios:
Return on assets (1). . . . 1.06% .83% .75% .72% 1.12%
Return on stockholders'
equity(2) 4.44 4.10 7.00 6.55 11.92
Interest rate spread (3). . 2.58 2.69 2.60 2.96 3.58
Net interest margin (4) . . 3.82 3.61 3.02 3.33 3.90
Average interest-
earning assets to
interest-bearing
liabilities. . . . . . . . 130.65 122.00 108.84 109.15 108.64
Noninterest expense as
a percent of average
total assets . . . . . . . 2.69 2.66 2.23 2.39 2.37
Asset Quality Ratios:
Nonaccrual and 90 days
or more past due loans
as a percent of loans
receivable, net. . . . . . .18 .44 .43 .23 1.53
Nonperforming assets
as a percent of total
assets . . . . . . . . . . .28 .56 .60 .20 1.53
Allowance for losses
as a percent of gross
loans receivable . . . . . 1.09 1.09 1.02 1.10 1.09
Allowance for losses
as a percent of
nonperforming loans. . . . 625.07 250.68 245.44 498.05 72.18
Net charge-offs to
average outstanding
loans. . . . . . . . . . . .02 --- .03 .03 .17
At June 30 At April 30
-------------------- --------------------
1998 1997 1996 1996 1995 1994
---- ---- ---- ---- ---- ----
OTHER DATA:
Number of:
Real estate loans
outstanding. . . . . . . . 2,857 2,807 2,684 2,659 2,519 2,445
Deposit accounts. . . . . . 8,981 9,009 9,781 9,691 9,166 8,683
Full-service offices. . . . 2 2 2 2 2 2
- ---------------
(1) Net earnings divided by average total assets.
(2) Net earnings divided by average stockholders' equity.
(3) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
-4-
<PAGE>
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following table provides a summary of operations by quarter for the years
ended June 30, 1998 and 1997. The Company commenced operations in October
1996 with the mutual-to-stock conversion of the Bank.
Fiscal 1998 Quarter Ended
----------------------------------------------------
June 30 March 31 December 31 September 30
----------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
Interest income. . . . $2,086 $2,035 $2,082 $1,944
Interest expense . . . 1,078 1,090 1,046 969
------ ------ ------ ------
Net interest income. . 1,008 945 1,036 975
Provision for loan
losses. . . . . . . . 10 --- 20 40
Net interest income ------ ------ ------ ------
after provision
for loan losses . . . 998 945 1,016 935
Noninterest income . . 176 193 232 191
Noninterest expense. . 781 784 733 592
Income before income ------ ------ ------ ------
taxes . . . . . . . . 393 354 515 534
Income taxes . . . . . 139 131 192 195
------ ------ ------ ------
Net income. . . . . $ 254 $ 223 $ 323 $ 339
====== ====== ====== ======
Basic income per
share. . . . . . . $ 0.16 $ 0.14 $ 0.20 $ 0.19
====== ====== ====== ======
Diluted income per
share. . . . . . . $ 0.14 $ 0.14 $ 0.20 $ 0.19
====== ====== ====== ======
Fiscal 1997 Quarter Ended
--------------------------------------
June 30 March 31 December 31
--------------------------------------
(Dollars in Thousands,
Except Per Share Data)
Interest income. . . . . . . . . . $1,857 $1,865 $1,942
Interest expense . . . . . . . . . 913 963 1,021
------ ------ ------
Net interest income. . . . . . . . 944 902 921
Provision for loan losses. . . . . 60 60 ---
------ ------ ------
Net interest income after provision
for loan losses . . . . . . . . . 884 842 921
Noninterest income . . . . . . . . 261 125 114
Noninterest expense. . . . . . . . 521 607 586
------ ------ ------
Income before income taxes . . . . 624 360 449
Income taxes . . . . . . . . . . . 226 134 164
------ ------ ------
Net income. . . . . . . . . . . $ 398 $ 226 $ 285
====== ====== ======
Basic income per share. . . . . $ 0.25 $ 0.14 $ 0.18
====== ====== ======
Diluted income per share. . . . $ 0.25 $ 0.14 $ 0.18
====== ====== ======
-5-
<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
related servicing rights. Loan originations include single and multifamily
mortgages, construction, land and consumer and other loans. Management
maintains adequate liquidity with interest-bearing deposits and U.S.
Government securities. Funding assets with deposits remains management's
primary strategy, although FHLB advances have allowed management to lock in
relative low long-term rates to improve return on equity over the longer term.
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
regulatory policies.
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 while focusing on superior customer
service. Management believes it has successfully implemented its strategy by
(i) maintaining strong capital levels, (ii) limiting interest rate risk, (iii)
controlling operating expenses, (iv) generating additional noninterest income
through loan sales and servicing operations, and (v) emphasizing personalized
customer service at competitive prices.
Interest Rate Risk Management
- -----------------------------
Management has adopted a strategy to maintain the interest rate sensitivity of
its assets and liabilities in order to reduce the impact of rate changes on
the Bank's net interest income. The strategy includes originating and holding
adjustable rate mortgage loans and maintaining a relatively short-term
investment portfolio. At June 30, 1998, adjustable-rate and short-term
construction loans comprised 78.1% of the loan portfolio. As a part of
managing interest sensitivity and planning for long-term profitability,
management is engaging in a funds matching program where the proceeds from
relatively low-cost, long-term, fixed-rate, FHLB advances are invested in
mortgage loans with similar maturities at favorable interest-rate spreads.
Interest Rate Sensitivity of Net Portfolio Value
- ------------------------------------------------
In order to encourage institutions to reduce their interest rate risk, the OTS
adopted a rule incorporating an interest rate risk component into the
risk-based capital rules. Using data compiled by the OTS, the Bank receives a
report which measures interest rate risk by modeling the change in net
portfolio value ("NPV") over a variety of interest rate scenarios. This
procedure for measuring interest rate risk was developed by the OTS to replace
the "gap" analysis (the difference between interest-earning assets and
interest-bearing liabilities that mature or reprice within a specific time
period). NPV
-6-
<PAGE>
<PAGE>
is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The calculation is intended to illustrate the
change in NPV that will occur in the event of an immediate chance in interest
rates of at least 200 basis profits with no effect given to any steps that
management might take to counter the effect of that interest rate movement.
Under OTS regulations, and institution with a greater than "normal" level of
interest rate risk is subject to a deduction from total capital for proposes
of calculating its risk-based capital. The OTS, however, has delayed the
implementation of this regulation. An institution with a "normal" level of
interest rate risk is defined as one whose "measured interest rate risk" is
less than 2.0%. Institutions with assets of less than $300 million and a
risk-based capital ratio of more than 12.0% are exempt. The Bank is exempt
because of its asset size. Based on the Bank's regulatory capital levels at
June 30, 1998, the Bank believes that, if the proposed regulation was
implemented at that date, the Bank's level of interest rate risk would not
have caused it to be treated as an institution with greater than "normal"
interest rate risk.
The following table is provided by the OTS and sets forth the changes in the
Bank's NPV at June 30, 1998, based on OTS assumptions, that would occur in the
event of an immediate change in interest rates, with no effect given to any
steps that management might take to counteract that change.
Net Portfolio Value
-----------------------------------------------------
Basis Point ("bp")
Change in Rates $ Amount $ Change % Change
-----------------------------------------------------
+400 bp $20,069 $(141) (1)%
+300 bp 20,552 342 2
+200 bp 20,809 599 3
+100 bp 20,727 517 3
0 bp 20,210 --- ---
-100 bp 19,572 (637) (3)
-200 bp 18,819 (1,391) (7)
-300 bp 18,191 (2,019) (10)
-400 bp 17,614 (2,596) (13)
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 which restrict changes in interest rates on a short-term
basis over the life of the asset. Further, in the event of a change in
interest rates, expected rates of prepayments on loans and early withdrawals
from certificates could deviate significantly from those assumed in
calculating the table.
Comparison of Financial Condition at June 30, 1998 and 1997
- -----------------------------------------------------------
Assets increased $9.5 million, or 9.5 percent, to $110.1 million at June 30,
1998. Management took advantage of favorable rates and terms available on
Federal Home Loan Bank advances which funded $6.3 million of the growth.
Deposits grew by $2.0 million, primarily certificates of deposit. Cash and
interest-bearing deposits increased $6.7 million, as proceeds from the most
recent Federal Home Loan Bank advances were not yet invested in loans at year
end. The level of loans held for investment increased $4.3 million or 5.2
percent. Loan sales remained strong. The balance of mortgages sold to and
serviced for others increased by $14.3 million to $104.8 million from $90.5
million at June 30, 1997.
Non performing assets totaled $313,000 or 0.28 percent of total assets at
June 30, 1998. The composition includes one mortgage loan totaling $71,000,
eleven consumer loans totaling $84,000 and foreclosed real estate. The non
performing mortgage loans are considered well secured and in the process of
collection.
-7-
<PAGE>
<PAGE>
Results of Operations
- ---------------------
Fulton Bancorp earned $1.1 million or $0.70 per diluted share for the fiscal
year ended June 30, 1998, a $317,000 increase from the $822,000, or $0.52 per
diluted share, reported for the 1997 fiscal year. Results for 1998 reflect
increases in both net interest income and noninterest income and a reduction
in the provision for loan losses. Return on assets improved to 1.06% from
0.83%, and return on stockholders' equity improved to 4.44% from 4.10%.
Net interest income increased 17 percent or $563,000 for the year ended June
30, 1998, on the strength of an $807,000 rise in interest income. The rise in
interest income was due primarily to a $4.3 million increase in net loans
outstanding. Interest on net loans rose $633,000 over 1997. Higher loan
rates also contributed to the rise. Interest expense rose $244,000, due an
increase in interest paid on FHLB advances.
While net interest income increased in dollar terms, the spread between the
yield on earning assets and the cost of interest-bearing liabilities declined
slightly to 2.58 percent from 2.69 percent. The decline in the spread
reflects the time lag between receiving the proceeds of FHLB advances and
their subsequent investment in higher yielding loans. Income from
interest-earning deposits rose $264,000, due to the temporary investment of
advance proceeds, while the interest paid on FHLB advances rose $277,000.
Contributing to the narrower spread was a decrease in lower-costing savings
accounts. Average deposits were higher in 1997 due to the funds held in late
1996 during the Company's public offering.
Management has adopted a long-term strategy to increase net interest income
and return on shareholders' equity. FHLB advances allow management to lock in
relatively low-cost, long-term, fixed-rate obligations, which can profitably
fund long-term assets. While rate spreads using this strategy are lower,
management expects net interest income and return on shareholders' equity to
improve.
Provisions for Loan Losses. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level management
considers adequate to provide for estimated loan losses according to
management's evaluation of the collectibility of the loan portfolio. The
evaluation considers the composition and risk characteristics of the loan
portfolio, historical loss experience, specific impaired loans, concentrations
by borrower, and general economic conditions. The $70,000 provision for the
year ended June 30, 1998 reflects managements evaluation of the size and
composition of the loan portfolio.
Noninterest Income. Noninterest income for the year ended June 30, 1998, rose
$156,000, or 24 percent, to $792,000. Recognition of gains on loan sales
exceeded decreases in the related servicing income and a provision for loss on
foreclosed real estate. Pursuant to adoption of Statement of Financial
Accounting Standard ("SFAS") No. 125, the bank recognized gains of $392,000 on
the sale of loans, compared to $158,000 recognized in 1997. The increase
primarily reflects a full year of gain recognition, as opposed to six months
for the comparable 1997 period.
Loan servicing income decreased 2 percent to $311,000 for the year ended June
30, 1998, as compared to $318,000 for the prior year. The decrease is a
result of the amortization of the loan servicing assets. A $40,000 provision
for loss on foreclosed real estate reduced the carrying value of the parcel
owned.
Noninterest Expense. Noninterest expense increased $265,000 to $2.9 million.
The absence of a one-time, $427,000 Savings Association Insurance Fund
assessment levied in 1996 mitigated a $634,000 rise in salaries and benefits,
of which $524,000 related to the adoption on the Management Recognition and
Development Plan ("MRDP"). The majority of the five year, $1.5 million stock
award is expensed in the first two years of the program. A $107,000 increase
in other noninterest expense is due primarily to higher expenses related to
being a publicly traded company.
-8-
<PAGE>
<PAGE>
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
$4.1 million from $71.3 million at June 30, 1996 to $67.2 million at June 30,
1997 primarily resulting from the purchase of common stock in the conversion.
Advances from 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.
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 $157,000, provision for loan losses increased $76,000, noninterest
income increased $151,000, noninterest expense increased $776,000 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 $157,000, 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. 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 $151,000, or 31.5%, to
$637,000 for the year ended June 30, 1997 from $486,000 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.
-9-
<PAGE>
<PAGE>
Noninterest Expense. Noninterest expense increased $776,000 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 $203,000 in employee salaries and
benefits, resulting primarily from implementation of the ESOP Plan and a
$52,000 increase in occupancy costs from increased depreciation expense of
approximately $34,000 and routine building maintenance of approximately
$14,000, and a $117,000 increase in other noninterest expense primarily
related to operating as a public company.
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.
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.
-10-
<PAGE>
<PAGE>
<TABLE>
Year Ended June 30 Year Ended April 30
------------------------------------------------- ------------------------
1998 1997 1996
------------------------ ------------------------ ------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ----- ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Interest-earning assets (1):
Loans receivable, net (2) $ 89,428 $7,350 8.22% $83,936 $6,717 8.00% $71,380 $5,689 7.97%
U.S. Government and federal
agency securities
available for sale. . . . . 1,466 88 5.99 2,746 180 6.55 3,896 253 6.48
FHLB stock . . . . . . . . . 677 47 6.95 637 45 7.05 628 45 7.17
Interest-bearing deposits. . 12,312 662 5.38 6,943 398 5.73 3,133 185 5.90
-------- ----- ------- ----- ------- ------
Total interest-bearing
assets . . . . . . . . . 103,883 8,147 7.84 94,262 7,340 7.79 79,037 6,172 7.81
Non-interest-earning assets . 3,538 4,392 3,695
-------- ------- ------
Total assets. . . . . . . $107,421 $98,654 $82,732
======== ======= =======
Interest-bearing liabilities:
NOW, money market and
passbook accounts . . . . . $ 15,470 394 2.55 $16,829 441 2.62 $14,728 387 2.62
Certificates of deposit. . . 52,833 3,079 5.83 53,470 3,065 5.73 53,273 3,077 5.78
-------- ----- ------- ----- ------- ------
Total average deposits. . 68,303 3,473 5.08 70,299 3,506 4.99 68,001 3,464 5.09
FHLB advances. . . . . . . . 11,208 710 6.33 6,962 433 6.22 4,616 317 6.88
-------- ----- ------- ----- ------- ------
Total interest-bearing
liabilities. . . . . . . 79,511 4,183 5.26 77,261 3,939 5.10 72,617 3,781 5.21
Non-interest-bearing
liabilities. . . . . . . . . 2,261 1,349 1,261
-------- ------- ------
Total average liabilities 81,772 78,610 73,878
Average stockholders' equity. 25,649 20,044 8,854
-------- ------- ------
Total liabilities and
stockholders' equity. . $107,421 $98,654 $82,732
======== ------ ======= ------ ======= ------
Net interest income . . . . . $3,964 $3,401 $2,391
====== ====== ======
Interest rate spread (3). . . 2.58% 2.69% 2.60%
Net interest margin (4) . . . 3.82% 3.61% 3.02%
Ratio of average interest-
earning assets to
average interest-bearing
liabilities. . . . . . . . . 130.65% 122.00% 108.84%
- ---------------
(1) Includes related assets available for sale and unamortized discounts and premiums.
(2) Amount is net of deferred loan fees and includes loans held for sale and non-performing loans.
(3) Net interest rate spread represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average interest-earning assets.
-11-
</TABLE>
<PAGE>
<PAGE>
The following table presents (on a consolidated basis) the weighted average
yields earned on loans, investments and other interest-earning assets, and the
weighted average interest rates paid on deposits and borrowings and the
resultant interest rate spreads at the dates indicated.
At June 30 At
----------------- April 30,
1998 1997 1996
---- ---- ---------
Weighted average yield
earned on Loans receivable,
net . . . . . . . . . . . . . . . . . 8.01% 8.07% 7.76%
U.S. Government and federal
agency obligations
available for sale . . . . . . . . . 5.63 6.18 6.08
FHLB stock. . . . . . . . . . . . . . 7.18 6.98 6.71
Interest-bearing deposits . . . . . . 6.05 5.43 3.42
All interest-earning assets . . . . . 7.74 7.85 7.61
Weighted average rate paid on:
NOW, money market and passbook
accounts . . . . . . . 2.99 2.97 2.63
Certificate accounts. . . . . . . . . 5.82 5.78 5.80
FHLB advances . . . . . . . . . . . . 6.16 5.84 6.75
All interest-bearing
liabilities. . . . . . . . . . . . . 5.38 5.25 5.23
Interest rate spread
(spread between weighted
average yield earned on
all interest-earning assets
and weighted average rate paid
on all interest-bearing
liabilities). . . . . . . . . . . . . 2.36 2.60 2.38
-12-
<PAGE>
<PAGE>
<TABLE>
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 June 30,
1998 Compared to Year 1997 Compared to Year
Ended June 30, 1997 Ended April 30, 1996
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------- --------------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ --- ---- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Interest income:
Loans
receivable,
net . . . . $ 182 $ 439 $ 12 $ 633 $ 23 $1,001 $ 4 $1,028
U.S.
Government
and federal
agency
obligations. (15) (84) 7 (92) 3 (75) (1) (73)
FHLB stock . (1) 3 --- 2 (1) 1 --- ---
Interest-
bearing
deposits . . (25) 308 (19) 264 (5) 224 (6) 213
Total net ----- ------ ----- ------ ------ ------ ------- ------
change in
income on
interest-
earning
assets . 141 666 --- 807 20 1,151 (3) 1,168
Interest expense:
NOW, money market
and passbook
accounts . . (21) (36) 2 (55) 7 55 1 63
Certificates
of deposit . 60 (36) (1) 23 (32) 11 --- (21)
FHLB advances 8 263 5 276 (30) 161 (15) 116
----- ------ ----- ------ ------ ------ ------- ------
--- --- --- --- ---- --- ---- ----
Total net
change in
expense on
interest-
bearing
liabilities 47 191 6 244 (55) 227 (14) 158
----- ------ ----- ------ ------ ------ ------- ------
Net change
in net
interest
income . $ 94 $ 475 $ (6) $ 563 $ 75 $ 924 $ 11 $1,010
===== ====== ===== ====== ====== ====== ======= ======
</TABLE>
<PAGE>
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 4%. The Company's liquidity ratio at June 30, 1998, was
approximately 16.2%. 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, 1998, the Company originated mortgage
loans in the amount of $52.0 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.
-13-
<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 years ended June 30, 1998 and 1997, two
months ended June 30, 1996 and year ended April 30, 1996, the Company (or the
Bank) used its sources of funds primarily to fund loan commitments and to pay
deposit withdrawals. At June 30, 1998, the Company had loan commitments
outstanding of $4.0 million of which $2.6 million is for fixed rate loans
ranging from 7.50 to 8.75%.
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, 1998, certificates of
deposit amounted to $53.4 million, or 77.2% of total deposits, including $32.4
million which were scheduled to mature within one year of June 30, 1998.
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, 1998. See Note I of the
Consolidated Financial Statements.
Year 2000 Compliance
- ---------------------
The Company utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include those developed and maintained by the Company's primary data
processing provider (FISERV) and purchased software which is run on in-house
computer networks. The Company initiated a review and assessment of all
hardware and software to confirm that it will function properly in the year
2000. The Company plans to make changes in its local hardware and software
necessary to meet year 2000 requirements by the end of calendar year 1998.
The Company's data processing provider and those vendors which have been
contacted have indicated that their hardware and/or software will be year 2000
compliant by the end of 1998. Additionally, alarms, heating and cooling
systems, and other computer-controlled mechanical devices on which the Company
relies are being evaluated. Those found not to be in compliance will be
modified or replaced with a compliant product. The company has initiated a
compliance testing program to ensure that all changes are adequately tested.
Management will be participating in the testing of systems during calendar
1998 and management is also developing appropriate contingency plans to deal
with problems as they may arise.
The Company does not expect that the cost of its year 2000 compliance program
will be material to its financial condition or results of operations and
believes that it will be able to satisfy such compliance program by the end of
calendar 1998 without any material disruption in its operations. Although the
Company has requested status information from its major suppliers and software
vendors, in the event that any significant vendor does not timely achieve year
2000 compliance, the Company's business or operations could be adversely
affected.
New Accounting Standards
- ------------------------
See Note A to the Consolidated Financial Statements.
-14-
<PAGE>
<PAGE>
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.
-15-
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Fulton Bancorp, Inc.
Fulton, Missouri
We have audited the accompanying consolidated statements of financial
condition of Fulton Bancorp, Inc. ("Company") as of June 30, 1998 and 1997,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the years ended June 30, 1998 and 1997, for the two months
ended June 30, 1996 and for the year ended April 30, 1996. 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, 1998 and 1997, and the results of their operations and
their cash flows for the years ended June 30, 1998 and 1997, for the two
months ended June 30, 1996 and for the year ended April 30, 1996, in
conformity with generally accepted accounting principles.
As described in Note A, the Company changed its method of accounting for
impaired loans on May 1, 1995, and for mortgage servicing rights on May 1,
1996.
/s/ Moore, Horton & Carlson, P.C.
Mexico, Missouri
August 28, 1998
-16-
<PAGE>
<PAGE>
Fulton Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30
1998 1997
--------------------------------
ASSETS
Cash (includes interest-bearing
deposits of $13,146,912 and
$6,330,942, respectively) $ 13,777,625 $ 7,107,921
Investment securities, available
-for-sale--Note B 950,276 1,899,023
Stock in Federal Home
Loan Bank ("FHLB") of Des Moines 643,300 637,200
Loans held for sale 3,649,482 4,463,220
Loans receivable--Note C 88,104,227 83,759,306
Accrued interest receivable
--Note D 678,310 728,882
Premises and equipment
--Note E 1,419,413 1,482,623
Foreclosed real estate--Note C 157,525 197,525
Other assets 730,268 293,340
------------ ------------
TOTAL ASSETS $110,110,426 $100,569,040
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits--Note F $ 69,163,842 $ 67,197,455
Advances from Federal
Home Loan Bank of Des
Moines--Note H 12,810,007 6,500,000
Advances from borrowers
for property taxes and
insurance 984,986 1,018,316
Accrued interest
payable 84,034 96,318
Other liabilities 1,572,190 499,616
------------ ------------
TOTAL LIABILITIES 84,615,059 75,311,705
Commitments and contingencies
--Notes L and M
Stockholders' Equity--Notes G, 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 17,193
Additional paid-in capital 16,943,018 16,600,967
Retained earnings -
substantially restricted 10,673,592 9,910,443
Unearned ESOP shares (1,133,372) (1,271,674)
Deferred management
recognition and development
plan ("MRDP") (1,006,062) ---
Unrealized gain on securities
available-for-sale 998 406
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 25,495,367 25,257,335
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $110,110,426 $100,569,040
============ ============
See accompanying notes to consolidated financial statements.
-17-
<PAGE>
<PAGE>
<TABLE>
Fulton Bancorp, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 1998 and 1997, two months ended
June 30, 1996 and year ended April 30, 1996
Unrealized Total
Additional Unearned Gain (Loss) Stock-
Common Paid-In Retained ESOP on Deferred Treasury holders'
Stock Capital Earnings Shares Securities MRDP Stock Equity
------- ---------- -------- -------- ---------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 securi-
ties avail-
able-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 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 ($.10
per share) --- --- (171,925) --- --- --- --- (171,925)
------- ----------- ----------- ---------- -------- ---------- ------ ----------
BALANCE AT
JUNE 30,
1997 17,193 16,600,967 9,910,443 (1,271,674) 406 --- --- 25,257,335
Net income --- --- 1,139,182 --- --- --- --- 1,139,182
Release of
ESOP
shares --- 157,520 --- 138,302 --- --- --- 295,822
Change in
unrealized
gain (loss) on
securities
available-
for-sale,
net of tax --- --- --- --- 592 --- --- 592
Purchase of
Treasury
Stock --- --- --- --- --- --- (497,222) (497,222)
Establish MRDP --- 5,622 --- --- --- (1,530,132) 497,222 (1,027,288)
Market value
adjustment of
MRDP --- 178,909 --- --- --- --- --- 178,909
Compensation
expense
MRDP --- --- --- --- --- 524,070 --- 524,070
Dividends paid
($.22 per
share) --- --- (376,033) --- --- --- --- (376,033)
------- ----------- ----------- ----------- -------- ----------- ------ -----------
BALANCE AT
JUNE 30,
1998 $17,193 $16,943,018 $10,673,592 $(1,133,372) $ 998 $(1,006,062) $ --- $25,495,367
======= =========== =========== =========== ======== =========== ====== ===========
See accompanying notes to consolidated financial statements.
-18-
</TABLE>
<PAGE>
<PAGE>
Fulton Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME
Two Months Year Ended
Year Ended June 30 Ended April 30
1998 1997 June 30, 1996 1996
--------------------------------------------------
Interest Income
Mortgage loans $6,497,768 $5,872,624 $ 952,973 $4,914,438
Consumer and other loans 852,265 843,975 143,672 774,757
Investment securities 134,928 224,874 43,444 297,716
Interest-bearing deposits 661,906 398,091 8,980 184,777
---------- ---------- ---------- ----------
Total Interest Income 8,146,867 7,339,564 1,149,069 6,171,688
Interest Expense
Deposits -- Note F 3,472,938 3,505,186 600,412 3,463,533
Advances from FHLB 709,750 433,248 64,842 317,497
---------- ----------- ---------- ----------
Total Interest Expense 4,182,688 3,938,434 665,254 3,781,030
---------- ----------- ---------- ----------
Net Interest Income 3,964,179 3,401,130 483,815 2,390,658
Provision for Loan
Losses -- Note C 70,000 120,000 25,000 44,242
---------- ----------- ---------- ----------
Net Interest Income
After Provision
for Loan Losses 3,894,179 3,281,130 458,815 2,346,416
Noninterest Income (Loss)
Loan servicing fees 310,638 317,735 50,747 280,525
Service charges and
other fees 132,032 139,874 24,370 129,588
Income (Loss) from
foreclosed assets, net (48,918) 7,018 1,577 10,282
Gain on sale of loans 392,198 158,436 --- ---
Gain on sale of other
assets --- 9,780 40,823 ---
Other 6,248 3,796 1,840 65,113
---------- ----------- ---------- ----------
Total Noninterest
Income 792,198 636,639 119,357 485,508
Noninterest Expense
Employee salaries and
benefits 1,715,872 1,081,983 151,347 878,770
Occupancy costs 272,233 274,151 40,410 222,514
Advertising 51,565 54,492 6,473 31,751
Data processing 166,065 176,412 32,687 152,755
Federal insurance premiums 47,703 511,473 30,782 153,182
Directors' fees 89,843 86,543 14,424 87,223
Other 546,914 439,722 40,068 322,653
---------- ----------- ---------- ----------
Total Noninterest
Expense 2,890,195 2,624,776 316,191 1,848,848
---------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,796,182 1,292,993 261,981 983,076
Income Taxes--Note G 657,000 471,000 97,500 363,000
---------- ----------- ---------- ----------
NET INCOME $1,139,182 $ 821,993 $ 164,481 $ 620,076
========== =========== ========== ==========
Basic income per share $ .72 $ .52 $ N/A $ N/A
========== =========== ========== ==========
Diluted income per share $ .70 $ .52 $ N/A $ N/A
========== =========== ========== ==========
See accompanying notes to consolidated financial statements.
-19-
<PAGE>
<PAGE>
Fulton Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Two Months Year Ended
Year Ended June 30 Ended April 30
1998 1997 June 30, 1996 1996
--------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 1,139,182 $ 821,993 $ 164,481 $ 620,076
Adjustments to reconcile
net income to net cash
provided by operating
Activities
Provision for loss
on other real estate 40,000 --- --- ---
Depreciation and
amortization 147,010 67,648 21,511 126,863
Amortization of
premiums and discounts (315) (9,401) (3,090) (1,167)
Provisions for loan
losses 70,000 120,000 (25,000) 44,242
Deferred income taxes (83,400) 8,500 5,600 5,000
Proceeds from sales
of loans held for
sale 15,604,233 22,352,416 2,465,482 22,632,003
Originations of loans
held for sale (14,790,495)(24,288,113) (707,758) (24,364,659)
Stock and patronage
dividends --- --- 47,326 (44,421)
Gain on sale of loans
held for sale (392,198) (158,436) --- ---
Amortization
of servicing asset 45,314 3,567 --- ---
Loss on disposal of
foreclosed real
estate 8,245 --- --- ---
ESOP shares released 295,822 172,755 --- ---
MRDP compensation
expense 524,070 --- --- ---
Change to assets and
liabilities increasing
(decreasing) cash flows
Accrued interest
receivable 50,572 (24,263) (97,047) (114,519)
Other assets 30,818 (226,117) (23,877) (43,591)
Accrued interest
payable (12,284) (3,373) (199,822) 27,872
Other liabilities 224,200 156,558 217,562 (91,319)
----------- --------- ----------- -----------
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES 2,900,774 (906,266) 1,865,368 (1,203,620)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of investment
securities, available-
for-sale --- (1,202,890) --- (193,687)
Proceeds from maturities
of investment securities
available-for-sale 950,004 2,500,004 --- 1,200,899
Loans originated,
net of repayments (4,460,978) (7,289,495) (4,622,561) (5,837,654)
Purchase of
mortgage loans --- --- --- (484,200)
Purchase FHLB stock (6,100) --- --- ---
Purchase of premises
and equipment (83,800) (239,684) (110,954) (307,182)
Carrying value of
other real estate
investment disposal --- 408,543 --- ---
Expenditures on
foreclosed real estate --- --- --- (3,099)
----------- --------- ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (3,600,874) (5,823,522) (4,733,515) (5,624,923)
-20-
<PAGE>
<PAGE>
Fulton Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Cont'd
Two Months Year Ended
Year Ended June 30 Ended April 30
1998 1997 June 30, 1996 1996
------------------------------------------------------
CASH FLOWS FROM
FINANCING
ACTIVITIES
Net increase
(decrease) in
deposits $ 1,966,387 $(3,879,523) $ 974,238 $ 5,111,241
Advances from FHLB
Borrowings 13,000,000 11,500,000 2,000,000 1,500,000
Repayments (6,689,993) (12,000,000) --- (1,000,000)
Net increase
(decrease)
in advances for
taxes and insurance (33,330) 59,293 126,303 (47,393)
Proceeds from sale of
common stock --- 16,549,131 --- ---
Purchase treasury
shares for MRDP (497,227) --- --- ---
Loan to ESOP --- (1,375,400) --- ---
Dividends paid (376,033) (171,925) --- ---
----------- ----------- ---------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 7,369,804 10,681,576 3,100,541 5,563,848
----------- ----------- ---------- -----------
NET INCREASE
(DECREASE) IN CASH 6,669,704 3,951,788 232,394 (1,264,695)
Cash, beginning of period 7,107,921 3,156,133 2,923,739 4,188,434
----------- ----------- ---------- -----------
CASH, END OF PERIOD $13,777,625 $ 7,107,921 $3,156,133 $ 2,923,739
=========== =========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for
Interest on deposits $ 3,488,294 $ 3,501,813 $ 400,579 $ 3,753,158
=========== =========== ========== ===========
Interest on
FHLB advances $ 709,750 $ 433,248 $ 64,842 $ 317,947
=========== =========== ========== ===========
Income tax $ 862,376 $ 288,000 $ 81,270 $ 247,100
=========== =========== ========== ===========
Noncash investing
and financing
activities are
as follows
Loans to
facilitate
sales of
real estate $ 30,000 $ --- $ --- $ 77,805
=========== =========== ========== ===========
Foreclosed
real estate
acquired by
foreclosure
or deed in
lieu of
foreclosure $ 40,140 $ --- $ --- $ 267,861
=========== =========== ========== ===========
Stock and
patronage
dividends $ --- $ --- $ --- $ 59,826
=========== =========== ========== ===========
Allocation of MRDP
shares of common
stock $ 1,530,132 $ --- $ --- $ ---
=========== =========== ========== ===========
See accompanying notes to consolidated financial statements.
-21-
<PAGE>
<PAGE>
Fulton Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying reporting policies and practices of Fulton Bancorp, Inc.
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: All 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.
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.
- 22-
<PAGE>
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
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. 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 Statement of Financial Accounting
Standard ("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.
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.
-23-
<PAGE>
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
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.
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: Basic income per share is based upon the weighted
average number of common shares outstanding during the periods presented.
Diluted income per share include the effects of all dilutive potential common
shares outstanding during each period. Income per share for all periods
presented conform to SFAS No. 128.
-24-
<PAGE>
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
New Accounting Standards: In June 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 130, Reporting of Comprehensive Income and SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS 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.
SFAS 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.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, to revise present disclosure
requirements applicable to those benefits. Although the standard does not
change the measurement or recognition requirements for postretirement benefit
plans, it standardizes the disclosure requirements; requires additional
information on changes in benefit obligations and fair values of plan assets;
and eliminates certain present disclosure requirements.
SFAS Nos. 130, 131 and 132 are effective for fiscal years beginning after
December 15, 1997 and, accordingly, will be adopted by the Company in the year
ending June 30, 1999. Management does not expect that these standards will
significantly affect the Company's financial reporting.
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 standardizes the accounting
for Derivative instruments, including certain derivative instruments embedded
in other contracts, Under SFAS No. 133, entities are required to carry all
derivative instruments in the statement of financial position at fair value.
The accounting for changes in the fair value (i.e. gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies
as part of a hedging relationship and, if so, on the reason for holding it.
If certain conditions are met, entities may elect to designate a derivative
instrument as a hedge of exposures to changes in fair values, cash flows or
foreign currencies.
If the hedged exposure is a fair value exposure, the gain or loss on the
derivative instrument is recognized in earnings in the period of change
together with the offsetting loss or gain on the hedged item attributable to
the risk being hedged. If the hedged exposure is a cash flow exposure, the
effective portion of the gain or loss on the derivative instrument is reported
initially as a component of the other comprehensive income (outside earnings)
and subsequently reclassified into earnings when the forecasted transaction
affects earnings. Any amounts excluded from the assessment of hedge
effectiveness as well as the ineffective portion of the gain or loss is
reported in earnings immediately. Accounting for foreign currency hedges is
similar to the accounting for fair value and cash flow hedges. If the
derivative instrument is not designated as a hedge, the gain or loss is
recognized in earnings in the period of change.
SFAS No. 133 is effective for the financial statements issued for periods
beginning after June 15, 1999. The Company is currently evaluating the
effects of SFAS No. 133.
Reclassification: Certain amounts in the prior periods consolidated financial
statements have been reclassified to conform with the current year
presentation.
-25-
<PAGE>
<PAGE>
NOTE B--INVESTMENT SECURITIES, AVAILABLE-FOR-SALE
Gross Unrealized
Amortized ----------------- Fair
Cost Gains Losses Value
-----------------------------------------------
U.S. Government obligations
June 30, 1998 $ 948,689 $ 1,587 $ --- $ 950,276
========== ======= ======== ==========
June 30, 1997 $1,898,378 $ 3,744 $ 3,099 $1,899,023
========== ======= ======== ==========
The scheduled contractual maturities of debt securities at June 30, 1998, are
all within one year. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
without call or prepayment penalties.
Investment securities were pledged to secure deposits as required or permitted
by law, with a carrying value of $582,000 and $1,228,727 and a fair value of
$582,486 and $1,228,267 at June 30, 1998 and 1997, respectively.
NOTE C--LOANS RECEIVABLE
Loans receivable consist of the following at June 30:
1998 1997
---------------------------
Mortgage loans:
One- to four-family residences $54,664,341 $53,461,377
Multi-family 6,038,504 4,278,995
Commercial 12,011,013 9,506,609
Construction 11,319,713 11,295,154
Land 4,402,215 3,524,482
----------- -----------
88,435,786 82,066,617
Less undisbursed portion of mortgage loans 8,196,732 6,958,581
----------- -----------
80,239,054 75,108,036
Consumer and other loans:
Consumer 5,180,374 6,447,397
Automobile 1,746,597 1,793,229
Savings 343,471 196,365
Commercial 427,152 257,226
Equity line of credit 422,706 440,896
Education 650,490 385,397
Other 3,730 4,360
----------- -----------
8,774,520 9,524,870
----------- -----------
89,013,574 84,632,906
Net deferred loan-origination fees 61,237 45,715
Allowance for loan losses (970,584) (919,315)
----------- -----------
Loans receivable, net $88,104,227 $83,759,306
=========== ===========
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 $241,800 and $137,300 at June 30, 1998 and 1997, respectively.
-26-
<PAGE>
<PAGE>
NOTE C--LOANS RECEIVABLE - Cont'd
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 $104,078,886 and $90,436,230 at June
30, 1998 and 1997, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were $642,061 and $654,237 at June 30, 1998 and 1997, respectively.
Mortgage servicing rights of $475,730 and $158,436 were capitalized during the
years ended June 30, 1998 and 1997, respectively. Amortization of mortgage
servicing rights totaled $45,314 and $3,567 for the years ended June 30, 1998
and 1997, respectively. The unamortized balance of $472,094 and $154,869
approximated the fair value of such rights at June 30, 1998 and 1997,
respectively, and is included in other assets in the accompanying consolidated
statement of financial condition.
The Company had loans serviced by others amounting to $2,103,342 and
$2,400,282 at June 30, 1998 and 1997, respectively.
Allowance for loan losses is as follows:
Two
Months Year
Ended Ended
Year Ended June 30 June 30, April 30
1998 1997 1996 1996
-----------------------------------------
Balance, beginning of period $919,315 $799,861 $782,070 $761,897
Provision for loan losses 70,000 120,000 25,000 44,242
Charge-offs (18,840) (16,207) (9,079) (27,391)
Recoveries 109 15,661 1,870 3,322
-------- -------- -------- --------
BALANCE, END OF PERIOD $970,584 $919,315 $799,861 $782,070
======== ======== ======== ========
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 at June 30, 1998 and 1997, was $-0- and $160,130,
respectively. The average recorded investment in impaired loans during the
year ended June 30, 1998 and 1997, was $91,732 and $176,466, respectively.
The related interest income that would have been recorded had the loans been
current in accordance with their original terms amounted to approximately
$6,000 and $26,000 at June 30, 1998 and 1997, respectively. The amount of
interest included in interest income on such loans for the year ended June 30,
1998 and 1997, amounted to approximately $4,000 and $16,000, respectively.
The allowance for losses on foreclosed real estate was $40,000 and $-0- at
June 30, 1998 and 1997, respectively.
D--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consist of the following at June 30:
1998 1997
------------------
Loans $662,982 $707,553
Investments securities 15,328 21,329
-------- --------
$678,310 $728,882
======== ========
-27-
<PAGE>
<PAGE>
NOTE E--PREMISES AND EQUIPMENT
Premises and equipment consist of the following at June 30:
1998 1997
----------------------
Land $ 129,705 $ 129,705
Building and improvements 1,217,224 1,203,216
Furniture and equipment 1,320,642 1,278,163
---------- ----------
2,667,571 2,611,084
Less accumulated depreciation and amortization 1,248,158 1,128,461
---------- ----------
$1,419,413 $1,482,623
========== ==========
NOTE F--DEPOSITS
Deposit account balances are summarized as follows at June 30:
Weighted
Average Rate 1998 1997
At June 30, ----------------------------------------
1998 Amount % Amount %
------------ ----------------------------------------
Non-interest-bearing --- % $ 1,880,089 2.7% $ 1,542,811 2.3%
NOW 2.63 4,963,807 7.2 4,930,834 7.4
Money Market 3.55 2,640,176 3.8 2,767,325 4.1
Passbook savings 3.03 6,287,701 9.1 5,918,794 8.8
---------- ---- ----------- ----
15,771,773 22.8 15,159,764 22.6
Certificates of deposit:
3.00 to 3.99% 3.00 7,036 --- 103,168 .2
4.00 to 4.99% 4.75 92,616 .1 1,669,189 2.5
5.00 to 5.99% 5.66 36,754,829 53.2 33,132,580 49.3
6.00 to 6.99% 6.12 15,623,561 22.6 16,066,691 23.9
7.00 to 7.99% 7.04 899,920 1.3 1,043,101 1.5
8.00 to 8.99% 8.00 14,107 --- 22,962 ---
----------- ---- ----------- ----
5.82 53,392,069 77.2 52,037,691 77.4
----------- ---- ----------- ----
$69,163,842 100.0% $67,197,455 100.0%
=========== ===== =========== =====
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $6,124,806 and $5,923,000 at June 30, 1998 and
1997, respectively. Deposits over $100,000 are not federally insured.
The Company held deposits of approximately $1,628,738 and $1,133,604 for its
directors and officers at June 30, 1998 and 1997, respectively.
-28-
<PAGE>
<PAGE>
NOTE F--DEPOSITS - Cont'd
At June 30, 1998, contractual maturities of certificates of deposit are as
follows:
Stated
Interest Year Ended June 30
Rate 1999 2000 2001 2002 2003 After
- -------- ----------------------------------------------------------------
3.00 to
3.99% $ 7,036 $ --- $ --- $ --- $ --- $ ---
4.00 to
4.99% --- --- 92,616 --- --- ---
5.00 to
5.99% 27,055,187 7,281,962 1,176,411 426,290 814,979 ---
6.00 to
6.99% 4,743,586 5,761,928 2,775,507 1,254,006 1,043,535 45,000
7.00 to
7.99% 564,267 325,369 10,283 --- --- ---
8.00 to
8.99% --- --- --- --- 14,107 ---
----------- ----------- ---------- ---------- ---------- -------
$32,370,076 $13,369,259 $4,054,817 $1,680,296 $1,872,621 $45,000
=========== =========== ========== ========== ========== =======
Interest expense on deposits are as follows:
Two
Months Year
Year Ended June 30 Ended Ended
1998 1997 June 30, April 30
1996 1996
----------------------------------------------
NOW, Money Market and
Passbook savings accounts $ 403,971 $ 449,175 $ 65,873 $ 386,380
Certificate accounts 3,068,967 3,056,011 534,539 3,077,153
---------- ---------- -------- ----------
$3,472,938 $3,505,186 $600,412 $3,463,533
========== ========== ======== ==========
NOTE G--INCOME TAXES
Components of income tax expense (benefit) are as follows:
Two Months
Ended Year Ended
Year Ended June 30 June 30, April 30
1998 1997 1996 1996
-------------------------------------------
Current $740,400 $479,500 $103,100 $368,000
Deferred (benefit) (83,400) (8,500) (5,600) (5,000)
-------- -------- -------- --------
$657,000 $471,000 $ 97,500 $363,000
======== ======== ======== ========
In addition, the Company recorded deferred income tax (benefit) to equity
relating to unrealized gains and losses on investment securities
available-for-sale of $(350), $(7,719), $(4,349) and $7,388 for the years
ended June 30, 1998 and 1997, the two months ended June 30, 1996 and year
ended April 30, 1996, 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:
-29-
<PAGE>
<PAGE>
NOTE G--INCOME TAXES - Cont'd
Two Months
Year Ended June 30 Ended June 30 Year Ended
1998 1997 1996 April 30, 1996
--------------------------------------------------------------
Income tax
expense at
statutory
rates $610,702 34.0% $439,618 34.0% $89,074 34.0% $334,239 34.0%
Increase (decrease)
resulting from:
State income
taxes, net
of federal
benefit 51,874 2.9 31,020 2.4 8,910 3.4 21,120 2.1
Other, net (5,576) (.3) 362 --- (484) (.2) 7,641 0.8
-------- ---- -------- ---- ------- ---- -------- ----
$657,000 36.6% $471,000 36.4% $97,500 37.2% $363,000 36.9%
======== ==== ======== ==== ======= ==== ======== ====
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
assets at June 30 are as follows:
1998 1997
--------------------
Deferred tax assets
Allowance for loan losses $315,430 $320,400
Accrued compensation and benefits 211,720 ---
Deferred tax liabilities Depreciation (131,450) (125,860)
FHLB stock dividend (76,040) (76,040)
Unrealized gain on available-for-sale securities (590) (240)
Gain on sale of loans (175,260) (57,500)
-------- --------
NET DEFERRED TAX ASSET $143,810 $ 60,760
======== ========
During 1996, the Small Business Job Protection Act (the "Act") was signed into
law. The Act eliminated the percentage of taxable income bad debt deductions
for thrift institutions for tax years beginning after December 31, 1995. The
Act provides that bad debt reserves accumulated prior to 1988 be exempt from
recapture. Bad debt reserves accumulated after 1987 are subject to recapture.
The Bank has provided for deferred income taxes for the reserve recapture
after 1987; therefore the impact of this legislation will not have a material
effect on the Bank's financial statements.
Prior to the enactment of the Act, the Bank at June 30, 1998, accumulated
approximately $1,900,000 of retained earnings for which no deferred income tax
liability has been recognized. This amount represents an allocation of income
to bad debt deductions for income tax purposes only. If any of this amount is
used other than to absorb loan losses(which is not anticipated), the amount
will be subject to income tax at the current corporate rates.
-30-
<PAGE>
<PAGE>
NOTE H--ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES
Advances from FHLB, with weighted average interest rates, consist of the
following at June 30:
1998 1997
--------------------------
5.83% due on or before October 17, 1997 $ --- $1,000,000
5.48% due on or before November 18, 1997 --- 1,000,000
5.70% due on or before November 28, 1997 --- 2,000,000
6.11% due on or before March 20, 1998 --- 2,500,000
6.79% due on or before August 15, 2012 967,040 ---
6.61% due on or before September 19, 2012 969,975 ---
6.35% due on or before October 3, 2012 972,803 ---
5.96% due on or before October 16, 1998 1,000,000 ---
6.10% due on or before November 19, 2002 1,000,000 ---
6.31% due on or before November 19, 2012 1,952,373 ---
6.00% due on or before November 17, 2000 1,000,000 ---
5.95% due on or before November 19, 1999 1,000,000 ---
5.81% due on or before November 19, 1998 1,000,000 ---
5.98% due on or before January 8, 2013 2,947,816 ---
----------- ----------
$12,810,007 $6,500,000
=========== ==========
Scheduled maturities of FHLB advances are as follows:
Year ending
June 30 Amount
------------------------------------------
1999 $ 2,344,001
2000 366,258
2001 2,389,959
2002 1,415,175
2003 449,240
Thereafter 5,845,374
-----------
$12,810,007
===========
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--REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank capital amounts and classification
are also subject to qualitative judgement by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to insure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth below) of
total and Tier I capital to risk-weighted assets, and Tier I capital to
average assets (all as defined in the regulations). Management believes, as
of June 30, 1998, that the Bank meets all capital adequacy requirements to
which it is subject.
-31-
<PAGE>
<PAGE>
NOTE I--REGULATORY CAPITAL REQUIREMENTS - Cont'd
Based on its regulatory capital ratios at June 30, 1998, the Bank is
categorized as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized" the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. The Bank's actual capital amounts and
ratios also presented in the table.
<PAGE>
<TABLE>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- ------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998
Total
Risk-
Based
Capital
(to Risk
Weighted
Assets) $19,275 679 30.19% Greater $5,108,161 Greater 8.0% Greater $6,385,201 Greater 10.0%
or equal or equal or equal or equal
to to to to
Tier 1
Capital
(to Risk
Weighted
Assets) 18,635,054 16.94% Greater 4,399,918 Greater 4.0% Greater 6,599,877 Greater 6.0%
or equal or equal or equal or equal
to to to to
Tier 1
Capital
(to
Adjusted
Assets) 18,635,054 16.94% Greater 3,299,938 Greater 3.0% Greater 5,499,897 Greater 5.0%
or equal or equal or equal or equal
to to to to
Tangible
Capital
(to
Adjusted
Assets) 18,635,054 16.94% Greater 1,649,969 Greater 1.5% Greater N/A Greater N/A
or equal or equal or equal or equal
to to to to
As of June 30, 1997
Total
Risk-
Based
Capital
(to Risk
Weighted
Assets) $17,505 389 28.86% Greater $4,852,392 Greater 8.0% Greater $6,065,490 Greater 10.0%
or equal or equal or equal or equal
to to to to
Tier 1
Capital
(to
Risk
Weighted
Assets) 16,944,728 16.85% Greater 4,022,584 Greater 4.0% Greater 6,033,877 Greater 6.0%
or equal or equal or equal or equal
to to to to
Tier 1
Capital
(to
Adjusted
Assets) 16,944,728 16.85% Greater 3,016,938 Greater 3.0% Greater 5,028,231 Greater 5.0%
or equal or equal or equal or equal
to to to to
Tangible
Capital
(to
Adjusted
Assets) 16,944,728 16.85% Greater 1,508,469 Greater 1.5% Greater N/A Greater N/A
or equal or equal or equal or equal
to to to to
</TABLE>
<PAGE>
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 $20,982, $19,215, $3,036, and $19,330
for the years ended June 30, 1998 and 1997, the two months ended June 30,
1996, and the year ended April 30, 1996, 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.
-32-
<PAGE>
<PAGE>
NOTE J--EMPLOYEE BENEFITS - Cont'd
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 years ended
June 30, 1998 and 1997 was $318,084 and $242,004 respectively. The fair value
of unreleased shares based on market price of the Company's stock was
$2,082,567, and $2,559,236 at June 30, 1998 and 1997, respectively.
The number of ESOP shares at June 30, 1998 are summarized as follows:
Allocated shares 17,288
Shares released for allocation 6,915
Unreleased shares 113,337
-------
137,540
=======
The Board of Directors has approved the adoption of a MRDP. Under the MRDP,
Common stock aggregating 68,770 shares may be awarded to certain officers and
directors of Company and the Bank. The awards will not require any payment by
the recipients and will vest over five years beginning one year after
shareholder approval of the MRDP (October 23, 1997). The Company purchased
22,600 shares of treasury stock and will issue 46,170 additional shares from
authorized shares in August, 1998 to fully fund the plan. At June 30, 1998,
the Company had awarded all 68,770 shares.
Deferred compensation, representing the shares market value at the date of
award has been recorded as a reduction of stockholders' equity and is being
amortized over a five year vesting period using an accelerated method. The
amortized balance was $1,006,062 at June 30, 1998. The Company recognized
$524,070 as salaries and benefits expense relating to this plan for the year
ended June 30, 1998.
The Company has authorized and the shareholders have approved (October 23,
1997) the adoption of a stock option plan. Under the stock option plan,
options to acquire 171,925 shares of the Company's stock may be granted to
certain officers, directors and employees of the Company and the Bank. The
options will enable the recipient to purchase stock at an exercise price equal
to the fair market value of the stock at the date of grant. On October 23,
1997 the Company granted options for 171,925 shares for $19.75 per share. The
options will vest over the five years following the date of grant and are
exercisable for up to 10 years.
The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize, as expense over the vesting period, the
fair value of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 allows entities to disclose pro forma net income and income per
share as if the fair value-based method defined in SFAS No. 123 has been
applied, while continuing to apply the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, under
which compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise price.
The Company has elected to apply the recognition provisions of APB Opinion No.
25 and provide the pro forma disclosure provisions of SFAS No. 123. Had
Compensation expense for the Company's incentive and nonstatutory stock
options been determined based upon the fair value of the grant date consistent
with the methodology prescribed under SFAS No. 123, the Company's net earnings
and diluted earnings per share would have been reduced by approximately
$119,000 or $0.07 per share, for the year ended June 30, 1998.
-33-
<PAGE>
<PAGE>
NOTE J--EMPLOYEE BENEFITS - Cont'd
Following is a summary of the fair values of options granted using the
Black-Scholes option-pricing model:
Fair value at grant date $8.09
Assumptions:
Dividend yield 0.52%
Volatility 30.98%
Risk-free interest rate 5.37%
Expected life 10 years
Pro forma net earnings reflect only options granted and vested in fiscal 1998.
Therefore, the full impact of calculating compensation expense for stock
options under SFAS is not reflected in the pro forma net earnings amount
presented above because compensation expense is reflected over the options'
vesting period.
NOTE K--INCOME PER SHARE
The shares used in calculation of basic and diluted income per share are as
follows:
Year ended June 30
1998 1997
----------------------
Weighted average common shares outstanding 1,591,224 1,584,902
Stock options 28,065 ---
--------- ---------
1,619,289 1,584,902
========= =========
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, 1998:
Undisbursed portion of mortgage loans $ 8,196,732
Undisbursed equity line of credit 1,506,920
Commitments to originate mortgage loans with
variable or pending interest rates 1,374,700
Commitments to originate mortgage loans with fixed
interest rates ranging
from 7.50% to 8.75% 2,637,175
-----------
TOTAL $13,715,527
===========
At June 30, 1997, the Company had amounts on deposit at banks and federal
agencies in excess of federally insured limits of approximately $14,802,000.
-34-
<PAGE>
<PAGE>
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.
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,
1998, 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
SFAS No, 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of estimated fair value for financial instruments held by the
Company. Fair value estimates of the Company's financial instruments as of
June 30, 1998 and 1997, including methods and assumptions utilized, are set
forth below.
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.
-35-
<PAGE>
<PAGE>
NOTE P--FAIR VALUE OF FINANCIAL INSTRUMENTS - Cont'd
Investment securities: Fair value is determined by reference to quoted market
prices.
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, 1998 and 1997 (dollars in
thousands) are as follows:
1998 1997
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- -------
ASSETS
Cash and due from depository
institutions $13,778 $13,778 $ 7,108 $ 7,108
Investment securities 950 950 1,899 1,899
Stock in FHLB 643 643 637 637
Loans held-for-sale, net 3,649 3,649 4,463 4,463
Loans receivable, net 88,104 88,392 83,759 83,352
Accrued interest receivable 678 678 729 729
-36-
<PAGE>
<PAGE>
NOTE P--FAIR VALUE OF FINANCIAL INSTRUMENTS - Cont'd
1998 1997
---------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
LIABILITIES
Transaction accounts $15,772 $15,772 $15,159 $15,159
Certificates of deposit 53,392 53,509 52,038 51,942
Advances from Federal Home Loan Bank 12,810 12,810 6,500 6,500
Advances from borrowers for property
taxes and insurance 985 985 1,018 1,018
Accrued interest payable 84 84 96 96
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
1998 1997
-----------------------------
CONDENSED BALANCE SHEET
ASSETS
Cash and cash equivalents $ 6,224,861 $ 6,913,111
ESOP note receivable 1,202,372 1,301,347
Other assets 359,217 41,273
Investment in subsidiary 18,584,145 17,006,135
----------- -----------
TOTAL ASSETS $26,370,595 $25,261,866
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities $ 26,854 $ 4,531
Accrued MRDP 848,374 ---
Stockholders' equity $25,495,367 25,257,335
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $26,370,595 $25,261,866
=========== ===========
Inception
Oct. 17, 1996
Year ended to June 30,
June 30, 1998 1997
------------- -------------
CONDENSED STATEMENT OF INCOME
Interest income $ 465,280 $345,894
Expenses 694,694 106,334
INCOME (LOSS) BEFORE EQUITY IN ---------- --------
UNDISTRIBUTED EARNINGS OF SUBSIDIARY (229,414) 239,560
Equity in undistributed earnings of
subsidiary 1,281,596 694,526
---------- --------
INCOME BEFORE INCOME TAXES 1,052,182 934,086
---------- --------
Income taxes (benefit) (87,000) 91,000
---------- --------
NET INCOME $1,139,182 $843,086
========== ========
-37-
<PAGE>
<PAGE>
NOTE Q--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS - Cont'd
Inception
Oct. 17, 1996
Year ended to June 30,
June 30, 1998 1997
---------------------------
CONDENSED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Net income $1,139,182 $ 843,086
Adjustments to reconcile net income
to net cash provided by operating activities
Equity in income of the subsidiary (1,281,596) (694,526)
Amortization of deferred MRDP 524,070 ---
Increase in other assets (317,944) (41,273)
Increase in accrued liabilities 22,323 4,531
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 86,035 111,818
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 98,975 74,053
Dividends paid (376,033) (171,925)
Purchase of treasury stock (497,227) ---
---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (774,285) 15,075,858
---------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS (688,250) 6,913,111
Cash and cash equivalents at beginning of period 6,913,111 ---
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,224,861 $ 6,913,111
========== ===========
Non-cash investing and financing activities
Allocation of MRDP shares of common stock $1,530,132 $ ---
========== ===========
-38-
<PAGE>
<PAGE>
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
========== ========
-39-
<PAGE>
<PAGE>
DIRECTORS AND OFFICERS
OFFICERS: DIRECTORS:
FULTON BANCORP, INC. FULTON BANCORP, INC.
AND FULTON SAVINGS BANK, FSB
Kermit D. Gohring Kermit D. Gohring
President and Chief Executive Officer Chairman of the Board
Richard W. Gohring Richard W. Gohring
Vice President
Bonnie K. Smith
Bonnie K. Smith
Secretary-Treasurer Clifford E. Hamilton, Jr
Vice Chairman of the Board
FULTON SAVINGS BANK, FSB Dennis J. Adrain
Sole Owner, Vandelict
Trucking, Inc.
Kermit D. Gohring President and Majority Owner of
President MoCon, Inc.
Richard W. Gohring Billy M. Conner
Executive Vice President Co-Owner and Operator
BCGC, Inc., Local Family
Farming Operation
Bonnie K. Smith
Senior Vice President and David W. West
Secretary-Treasurer Co-Owner and Operator
Family Farming Operation
CORPORATE INFORMATION
MAIN OFFICE INDEPENDENT AUDITORS
410 Market St. Moore, Horton & Carlson, P.C.
Fulton, Missouri 65251 510 South Muldrow
Telephone (573) 642-6617 Mexico, Missouri 65265
SPECIAL COUNSEL
Breyer & Aguggia LLP
Washington, D.C.
-40-
<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 20, 1998 at
10:00 a.m., Central Time.
SHAREHOLDER AND GENERAL INQUIRIES TRANSFER AGENT
Kermit D. Gohring First Banker's Trust Co
Fulton Savings Bank, FSB 2321 Koch's Lane
410 Market Street P.O. Box 3566
Fulton, Missouri 65251-0700 Quincy, Illinois 62305-3566
(573) 642-6618 (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.
-41-
<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>
EXHIBIT 23
Consent of Moore, Horton & Carlson, P.C.
<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
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Fulton Bancorp, Inc.
Fulton, Missouri
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of Fulton Bancorp, Inc. (File No. 333-39343) of our
report dated August 28, 1998,appearing on page 16 of the 1998 Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-KSB.
/s/ Moore, Horton & Carlson, P.C.
Mexico, Missouri
September 25, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 631
<INT-BEARING-DEPOSITS> 13147
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 950
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 88104
<ALLOWANCE> 971
<TOTAL-ASSETS> 110110
<DEPOSITS> 69164
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2641
<LONG-TERM> 12810
0
0
<COMMON> 17
<OTHER-SE> 25478
<TOTAL-LIABILITIES-AND-EQUITY> 110110
<INTEREST-LOAN> 7350
<INTEREST-INVEST> 797
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8147
<INTEREST-DEPOSIT> 3473
<INTEREST-EXPENSE> 4183
<INTEREST-INCOME-NET> 3964
<LOAN-LOSSES> 70
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2890
<INCOME-PRETAX> 1796
<INCOME-PRE-EXTRAORDINARY> 1796
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1139
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.70
<YIELD-ACTUAL> 3.72
<LOANS-NON> 71
<LOANS-PAST> 84
<LOANS-TROUBLED> 252
<LOANS-PROBLEM> 1008
<ALLOWANCE-OPEN> 919
<CHARGE-OFFS> 18
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 971
<ALLOWANCE-DOMESTIC> 826
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 145
</TABLE>
