UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending September 30, 1998
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-21273
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Fulton Bancorp, Inc.
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(Exact name of small business
issuer as specified in its charter)
Delaware 43-1754577
- ---------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 Market Street, Fulton, MO 65251
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(Address of principal executive offices) (Zip Code)
573-642-6617
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(Registrant's telephone number)
None
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports). and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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As of November 9, 1998 there were 1,702,049 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
Transitional Small Business Disclosure Format
Yes No X
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FULTON BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
September 30, 1998
INDEX PAGE
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PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 1
CONSOLIDATED STATEMENTS OF INCOME 2
CONSOLIDATED STATEMENTS OF CASH FLOWS 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4-7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-10
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 - LEGAL PROCEEDINGS 11
ITEM 2 - CHANGES IN SECURITIES 11
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 11
ITEM 5 - OTHER INFORMATION 11
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
FINANCIAL DATA SCHEDULE 13
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FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
September 30, June 30,
1998 1998
---------------------------
(Unaudited)
ASSETS
Cash, including interest-bearing accounts
of $13,932 and $13,147 respectively $ 14,589 $ 13,778
Investment securities, available-for-sale 1,053 950
Stock in Federal Home Loan Bank of Des Moines 889 643
Loans held for sale 4,249 3,649
Loans receivable 93,730 88,104
Accrued interest receivable 748 678
Premises and equipment 1,389 1,420
Foreclosed real estate 158 158
Other assets 779 730
-------- --------
TOTAL ASSETS $117,584 $110,110
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 70,574 $ 69,164
Advances from Federal Home Loan Bank of
Des Moines 17,708 12,810
Advances from borrowers for property
taxes and insurance 1,386 985
Accrued interest payable 98 84
Other liabilities 1,364 1,572
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TOTAL LIABILITIES 91,130 84,615
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value per share,
1,000,000 authorized, none issued --- ---
Common stock, $.01 par value per share,
6,000,000 shares authorized, 1,765,411 and
1,719,250 issued and outstanding, respectively 18 17
Additional Paid-in capital 17,818 16,943
Treasury stock (256) ---
Retained earnings - substantially restricted 10,937 10,674
Unearned ESOP shares (1,098) (1,134)
Deferred management recognition and
development plan (968) (1,006)
Unrealized gain (loss) on securities
available-for-sale 3 1
-------- --------
TOTAL STOCKHOLDERS' EQUITY 26,454 25,495
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $117,584 $110,110
======== ========
See accompanying notes to Consolidated Financial Statements
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FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
September 30, June 30,
1998 1998
---------------------------
(Unaudited)
INTEREST INCOME
Mortgage loans $ 1,742 $ 1,592
Consumer and other loans 214 226
Investment securities 30 40
Interest-earning deposits 186 97
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TOTAL INTEREST INCOME 2,172 1,955
INTEREST EXPENSE
Deposits 884 861
Advances from Federal Home Loan Bank
of Des Moines 231 108
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1,115 969
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NET INTEREST INCOME 1,057 986
PROVISION FOR LOAN LOSSES 30 40
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,027 946
NON-INTEREST INCOME
Loan servicing fees 69 81
Income from sale of loans 78 91
Service charges and other fees 25 22
Loss from foreclosed assets --- (19)
Other --- 5
-------- --------
TOTAL NON-INTEREST INCOME 172 180
NON-INTEREST EXPENSE
Employee salaries and benefits 319 279
Occupancy costs 64 67
Advertising 11 15
Data processing 42 42
Federal insurance premiums 12 12
Directors' fees 23 22
Other 100 155
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TOTAL NON-INTEREST EXPENSE 571 592
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INCOME BEFORE INCOME TAXES 628 534
INCOME TAXES 232 195
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NET INCOME $ 396 $ 339
======== ========
BASIC EARNINGS PER SHARE $ 0.25 $ 0.21
======== ========
DILUTED EARNINGS PER SHARE $ 0.24 $ 0.21
======== ========
See accompanying notes to Consolidated Financial Statements
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FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended
September 30,
1998 1997
---------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 396 $ 339
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 36 40
Provisions for loan losses 30 40
Provision for loss on foreclosed real estate --- 20
Proceeds from sales of loans held for sale 6,722 7,612
Origination of loans held for sale (7,321) (6,166)
Gain on sale of loans held for sale (77) ---
Amortization of servicing asset 32 ---
ESOP shares released 34 74
MRDP compensation expense 38 ---
Change to assets and liabilities increasing
(decreasing) cash flows
Accrued interest receivable (25) (6)
Other assets (49) (60)
Accrued interest payable 14 46
Other liabilities 666 14
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 496 1,953
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities
available-for-sale (598) ---
Proceeds from maturities of investment
securities
Available-for-sale 500 ---
Loans originated, net of repayments (5,656) (2,754)
Purchase of Federal Home Loan Bank stock (246) ---
Purchase of premises and equipment (6) (4)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (6,006) (2,758)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 1,410 231
Advances from Federal Home Bank of Des Moines:
Borrowings 5,000 2,000
Repayments (102) (3)
Net increase (decrease) in advance payments
by borrowers for taxes and insurance 401 541
Purchase of treasury shares for MRDP (256) ---
Dividends paid (132) (86)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,321 2,683
-------- --------
NET INCREASE IN CASH 811 1,878
Cash, beginning of period 13,778 7,095
-------- --------
CASH, END OF PERIOD $ 14,589 $ 8,973
======== ========
See accompanying notes to Consolidated Financial Statements
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FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--Basis of Presentation
- -----------------------------
The consolidated interim financial statements as of September 30, 1998,
included in this report have been prepared by Fulton Bancorp, Inc. ("Company")
without audit. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation are reflected
in the September 30, 1998, interim financial statements. The results of
operations for the period ended September 30, 1998, are not necessarily
indicative of the operating results for the full year.
NOTE B--Earnings Per Share
- --------------------------
During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS No. 128").
The Statement requires restatement of all prior-period earnings per share
("EPS") data presented. It replaces the presentation of primary EPS with basic
EPS and requires dual presentation of basic and diluted EPS on the face of the
statement of income. Basic EPS is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
Three Months Ended
September 30,
1998 1997
---------------------
(In thousands, except
earnings per share)
Basic earnings per share:
Income available to common shareholders $ 396 $ 339
======== ========
Average common shares outstanding 1,582 1,593
======== ========
Basic earnings per share 0.25 0.21
======== ========
Diluted earnings per share:
Income available to common shareholders 396 339
======== ========
Average common shares outstanding 1,582 1,593
Dilutive potential common shares outstanding
due to common stock options and grants 41 ---
-------- --------
Average number of common shares and dilutive
potential common shares outstanding 1,623 1,593
======== ========
Diluted earnings per share $ 0.24 $ 0.21
======== ========
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FULTON BANCORP, INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(Continued)
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NOTE C--Employee Stock Ownership Plan
- -------------------------------------
In connection with the conversion to stock form, Fulton Savings Bank, F.S.B.,
("Bank") established an ESOP for the exclusive benefit of participating
employees (all salaried employees who have completed at least 1,000 hours of
service in a twelve-month period and have attained the age of 21). The ESOP
borrowed funds from the Company in an amount sufficient to purchase 137,450
shares (8% of the Common Stock issued in the stock offering). The loan is
secured by the shares purchased and will be repaid by the ESOP with funds from
contributions made by the Bank, dividends received by the ESOP and any other
earnings on ESOP assets. The Bank presently expects to contribute
approximately $203,300 including interest, annually to the ESOP. Contributions
will be applied to repay interest on the loan first, then the remainder will
be applied to principal. The loan is expected to be repaid in approximately 10
years. Shares purchased with the loan proceeds are held in a suspense account
for allocation among participants as the loan is repaid. Contributions to the
ESOP and shares released from the suspense account are allocated among
participants in proportion to their compensation relative to total
compensation of all active participants. Benefits generally become 20% vested
after three years of credited service and then 20% per year thereafter until
100% vested. Vesting is accelerated upon retirement, death or disability of
the participant. Forfeitures are returned to the Company or reallocated to
other participants to reduce future funding costs. Benefits may be payable
upon retirement, death, disability or separation from service. Since the
Bank's annual contributions are discretionary, benefits payable under the ESOP
cannot be estimated.
The Company accounts for its ESOP in accordance with Statement of Position
93-6, Employers' Accounting for Employee Stock Ownership Plans. Accordingly,
the debt of the ESOP is eliminated in consolidation and the shares pledged as
collateral are reported as unearned ESOP shares in the consolidated balance
sheets.
Contributions to the ESOP shall be sufficient to pay principal and interest
currently due under the loan agreement. As shares are committed to be released
from collateral, the Company reports compensation expense equal to the average
market price of the shares for the respective period, and the shares become
outstanding for earnings per share computations. Dividends on allocated ESOP
shares are recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are recorded as a reduction of debt and accrued
interest. ESOP compensation expense was $34,575 for the three months ended
September, 1998.
A summary of ESOP shares at September 30, 1998, is as follows:
Shares allocated 17,288
Shares available for allocation 10,373
Unreleased shares 109,879
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TOTAL 137,540
==========
Fair value of unreleased shares $1,895,413
==========
NOTE D--Stock Based Compensation Plans
- --------------------------------------
The Board of Directors adopted and the shareholders subsequently approved a
Management Recognition and Development Plan ("MRDP") and a Stock Option Plan
("SOP") on October 23, 1997. These plans were established to assist the
Company and its subsidiary in attracting, retaining and motivating key
management and employees by aligning their financial interest with those of
the shareholders of the Company.
The MRDP is a fixed award of 68,770 shares of restricted stock which vest over
a five year period. The Company selected an amortization method which
recognizes a higher percentage of compensation cost in the earlier years than
in the later years of the service period. Compensation cost will approximate
34% of the cost of the MRDP awards in the first year, 31% the second year, 18%
the third, and 17% in the remaining two years.
-5-
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FULTON BANCORP, INC. AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
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NOTE D--Stock Based Compensation Plans (Continued)
- --------------------------------------------------
Under the SOP, options to acquire shares of the Company's common stock may be
granted to certain officers, directors and employees of the Bank. The options
will enable the recipient to purchase stock at an exercise price equal to the
fair market value of the stock at the date of the grant. On November 12, 1997,
the Company granted options for 171,925 shares at $19.75 per share. The
options will vest over a five year period following the date of grant and are
exercisable for up to ten years.
As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company has elected to apply the recognition provisions of Accounting
Principles Board Opinion No. 25, 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. Accordingly, adoption of SFAS No. 123 will have no
impact on the Company's consolidated financial position or results of
operations.
NOTE E--Year 2000 Issue
- -----------------------
The year 2000 issue concerns computer software programs which use only two
digits to identify the calendar year in date fields. Software applications
utilizing two digit date fields could produce erroneous results at the turn of
the century. The Federal Financial Institutions Examination council requires
all insured financial institutions to complete an inventory of core computer
functions and set priorities for meeting Year 2000 conversion goals. The
Company's material software applications are provided by a third party data
processing service. The Company has inventoried and assessed core computer
functions. All material systems were judged compliant by September 30, 1998.
Testing is planned during the fourth quarter of 1998 and the first quarter of
1999. Estimated cost to the Company is not expected to be material since all
critical applications are supported by the third party data processing
service.
NOTE F--Reclassifications
- -------------------------
Certain amounts in the prior period's consolidated financial statements have
been reclassified to conform with the current year presentation.
NOTE G--Comprehensive Income
- ----------------------------
On July 1, 1998 the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", which
established standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. For the three-month periods ended
September 30, 1998 and 1997, unrealized holding gains and losses on
investments in debt and equity securities available-for-sale were the
Company's only other comprehensive income component. Comprehensive income for
the three-month periods ended September 30, 1998 and 1997 is summarized as
follows:
-6-
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FULTON BANCORP, INC. AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
-----------
Three Months Ended
September 30,
1998 1997
------------------
(Dollars in thousands)
Net income 396 339
Other comprehensive income:
Net unrealized holding gains (losses)
on investments in debt and equity
securities available-for-sale 2 2
Adjustment for net securities (gains)
losses realized in net income, net
of applicable income taxes 0 0
--- ---
Total other comprehensive income 2 2
--- ---
Comprehensive income 398 341
=== ===
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FULTON BANCORP, INC. AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
-----------
GENERAL
- -------
Fulton Bancorp, Inc. ("Company") is a Delaware corporation that was organized
for the purpose of becoming the holding company for Fulton Savings Bank, FSB
("Bank") upon the Bank's conversion from a federal mutual savings bank to a
federal capital stock savings bank. The Bank's conversion was completed on
October 17, 1996. The Bank is a community oriented financial institution that
engages primarily in the business of attracting deposits from the general
public and using those funds to originate residential and commercial mortgage
loans within its market area. The Bank's deposits are insured up to applicable
limits by the Savings Association Insurance Fund.
The Company's operating results depend primarily on its net interest income,
which is the difference between the income it receives on its loan and
investments portfolio, and its cost of funds, which consists of interest paid
on deposits and borrowings. The Company's operating results are also affected
by its level of non-interest income and expenses. Non-interest income consists
primarily of loan servicing fees, gain on sale of loans and service charges
and other fees. Non-interest expenses include employee salaries and benefits,
occupancy costs, deposit insurance premiums, data processing expenses and
other operating costs.
The discussion and analysis included herein covers certain changes in results
of operations during the three month periods ended September 30, 1998 and
1997, as well as those material changes in liquidity and capital resources
that have occurred since June 30, 1998.
The following should be read in conjunction with the Company's 1998 Annual
Report to Shareholders which contains the latest audited financial statements
and notes thereto, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained therein. Therefore,
only material changes in financial condition and results of operation are
discussed herein.
FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND JUNE 30, 1998
- -----------------------------------------------------------
Total assets increased $7.5 million or 6.8% to $117.6 million at September 30,
1998 primarily due to growth in loans receivable, which increased $5.6 million
or 6.4%. Management took advantage of favorable rates and terms available on
Federal Home Loan Bank advances which funded $4.9 million of the growth in
total assets. Deposits increased by $1.4 million or 2.0% due primarily to
growth in certificates of deposit. Total stockholders' equity increased
$959,000 due primarily to the issuance of 46,161 shares of common stock to the
Management Recognition and Development Plan. Net income contributed $396,000
to stockholders' equity. Dividends paid totaled $132,000, and $256,000 of
treasury stock was acquired during the period.
Nonperforming assets, which are defined as loans 90 days or more past due and
loans on nonaccrual status, totaled $298,000 or 0.25% of total assets at
September 30, 1998 compared to $313,000 or 0.28% of total assets as June 30,
1998.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
- ----------------------------------------------------------------------------
Net income for the three months ended September 30, 1998 increased $57,000 or
16.8% compared to the three months ended September 30, 1997, and diluted
earnings per share increased 3 cents or 14.3% to 24 cents per share for the
current quarter. Net interest income increased $71,000; non-interest expense
decreased $21,000, and the provision for loan losses decreased $10,000. Those
favorable variances were partially offset by an $8,000 decrease in non-
interest income and a $37,000 increase in income tax expense.
The $71,000 or 7.2% increase in net interest income reflected an $11.0 million
or 11.1% increase in average total earning assets, primarily mortgage loans.
Net interest margin was $3.82% of average earning assets for the current
quarter compared to 3.95% for the same period last year.
The $21,000 or 3.6% decrease in non-interest expense primarily reflected a
$55,000 decrease in other non-interest expense resulting from a timing
difference in the recognition of audit expenses. Employee salaries and
benefits, the largest component of non-interest expense increased $40,000 or
14.3% due primarily to $38,000 of MRDP expense in the current quarter. No MRDP
expense was incurred in the same quarter last year.
-8-
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FULTON BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The $10,000 decrease in the provision for loan losses reflected management's
judgment of the provision necessary to maintain an adequate loan reserve
balance based upon loan growth and the quality of the loan portfolio.
The $8,000 or 4.4% decrease in non-interest income primarily reflected
decreases in loan servicing fees and income from sales of loans, which were
partially offset by a decrease in loss from foreclosed assets. The decline in
loan servicing fees was due to the amortization of servicing assets pursuant
to SFAS No. 125 adopted January 1, 1997.
The $37,000 increase in income tax expense primarily reflected increased
pre-tax income. The Company's effective income tax rate for the three months
ended September 30, 1998 was 36.9% compared to 36.5% for the same period last
year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Bank's primary sources of funds are deposits, proceeds from principal and
interest payments on loans, mortgage-backed securities, investment securities
and net operating income. While maturities and scheduled amortization of loans
and mortgage-backed securities are a somewhat predictable source of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Bank utilizes
advances from the Federal Home Loan Bank to supplement its supply of lendable
funds. At September 30, 1998, FHLB advances totaled $17,708,000.
The Bank must maintain an adequate level of liquidity to ensure availability
of sufficient funds to support loan growth and deposit withdrawals, satisfy
financial commitments and to take advantage of investment opportunities. At
September 30, 1998, the Bank had approved loan commitments totaling $6.5
million and had undisbursed loans in process of $7.1 million.
Liquid funds necessary for normal daily operations are maintained in a working
checking account and a daily time account with the Federal Home Loan Bank of
Des Moines. It is the Bank's current policy to maintain adequate collected
balances in those deposit accounts to meet daily operating expenses, customer
withdrawals, and fund loan demand. Funds received from daily operating
activities are deposited on a daily basis in the checking account and
transferred, when appropriate, to the daily time account to enhance income.
At September 30, 1998, certificates of deposit amounted to $54.9 million or
77.8% of total deposits, including $34.3 million of fixed rate certificates
scheduled to mature within twelve months. Historically, the Bank has been able
to retain a significant amount of its deposits as they mature. Management
believes it has adequate resources to fund all loan commitments from savings
deposits, loan payments, maturities of investment securities and ability to
obtain advances from the Federal Home Loan Bank of Des Moines.
The Office of Thrift Supervision requires a thrift institution to maintain an
average daily balance of liquid assets (cash and eligible investments) equal
to at least 4% of the average daily balance of its net withdrawable deposits
and short-term borrowing. The Bank's liquidity ratio was 14.03% at September
30,1998. The Bank consistently maintains liquidity levels in excess of
regulatory requirements, and believes this is an appropriate strategy for
proper asset and liability management.
The Office of Thrift Supervision requires institutions such as the Bank to
meet certain tangible, core, and risk-based capital requirements. Tangible
capital generally consists of stockholders' equity minus certain intangible
assets. Core capital generally consists of stockholders' equity. The
risk-based capital requirements presently address risk related to both
recorded assets and off-balance sheet commitments and obligations. The
following table summarizes the Bank's capital ratios and the ratios required
by regulation (dollars in thousands) at September 30, 1998.
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FULTON BANCORP, INC. AND SUBSIDIARY
-----------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
-----------
Liquidity and Capital Resources (Continued)
- -------------------------------------------
Percent of Adjusted
Amount Total Assets
---------------------------------
(Unaudited)
Tangible capital $19,011 16.2%
Tangible capital requirement 2,350 2.0
------- ----
EXCESS $16,661 14.2%
======= ====
Core capital $19,011 16.2%
Core capital requirement 4,699 4.0
------- ----
EXCESS $14,312 12.2%
======= ====
Risk-based capital $19,862 29.2%
Risk-based capital requirement 5,436 8.0
------- ----
EXCESS $14,426 21.2%
======= ====
YEAR 2000 ISSUE
- ---------------
The year 2000 issue concerns computer software programs which use only two
digits to identify the calendar year in date fields. Software applications
utilizing two digit date fields could produce erroneous results at the turn of
the century. The year 2000 issue presents several potential risks to the
Company.
The banking transactions of the Company's customers are processed by one or
more computer systems provided by a third-party data processing service.
Failure of one or more of those systems to function as a result of the year
2000 date change could result in the Company's inability to properly process
customer transactions. If that were to occur, the Company could lose customers
to other financial institutions, resulting in a loss of revenue.
A number of the Company's borrowers utilize computers and computer software to
varying degrees in conjunction with the operation of their businesses. The
customers and suppliers of the businesses may utilize computers as well.
Should the Company's borrowers, or the businesses on which they depend,
experience year 2000 related computer problems, such borrowers' cash flow
could be disrupted, adversely effecting their ability to repay their loans
with the Company.
Concern on the part of certain depositors that the year 2000 related problems
could impair access to their deposit account balances following the year 2000
date change could result in the Company experiencing a deposit outflow prior
to December 31, 1999. Should the year 2000 related problems occur which cause
any of the Bank's systems, or the systems of the third-party service bureau
upon which the Company depends, to become inoperative, increased personnel
costs could be incurred if additional staff is required to perform functions
that the inoperative systems would have other wise performed.
Management believes it is not possible to estimate the potential lost revenue
due to the year 2000 issue, as the extent and longevity of such potential
problems cannot be predicted.
The Federal Financial Institutions Examination council requires all insured
financial institutions to complete an inventory of core computer functions and
set priorities for meeting Year 2000 conversion goals. As discussed above, the
Company's material software applications are provided by a third-party data
processing service. The Company has inventoried and assessed core computer
functions. All material systems were judged compliant by September 30, 1998.
Testing is planned during the fourth quarter of 1998 and the first quarter of
1999. Estimated testing cost to the Company is not expected to be material
since all critical applications are supported by the third-party data
processing service.
-10-
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FULTON BANCORP, INC AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any material legal proceedings
at this time. From time to time the Bank is involved in various claims and
legal actions arising in the ordinary course of business.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
27 -- Financial Data Schedule
-11-
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FULTON BANCORP, INC
Date November 13, 1998 By: /s/ Kermit D. Gohring
-------------------------------
Kermit D. Gohring
President
Date November 13, 1998 By: /s/ Bonnie K. Smith
-------------------------------
Bonnie K. Smith
Secretary - Treasurer
(Principal Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 9
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