<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB/A
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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
------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number 0-21273
---------------------------------------
Fulton Bancorp, Inc.
--------------------
(Exact name of small business
issuer as specified in its charter)
Delaware 43-1754577
- -------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 Market Street, Fulton, MO 65251
- --------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
573-642-6617
- ------------------------------------
(Registrant's telephone number)
None
------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports). and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of 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
----- -----
<PAGE> 2
FULTON BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
September 30, 1998
INDEX PAGE
- ---- ----
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 1
CONSOLIDATED STATEMENTS OF INCOME 2
CONSOLIDATED STATEMENTS OF CASH FLOWS 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4-7
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
<PAGE> 3
<TABLE>
<CAPTION>
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
September 30, June 30,
1998 1998
--------------------------
(Unaudited)
<S> <C> <C>
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 1,313 1,572
--------- ---------
TOTAL LIABILITIES 91,079 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
(256) ---
Retained earnings - substantially restricted 10,851 10,674
Unearned ESOP shares (1,098) (1,134)
Deferred management recognition and development plan (831) (1,006)
Unrealized gain (loss) on securities available-for-sale 3 1
----------- ---------
TOTAL STOCKHOLDERS' EQUITY 26,505 25,495
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $117,584 $110,110
=========== =========
See accompanying notes to Consolidated Financial Statements
</TABLE>
-1-
<PAGE> 4
<TABLE>
<CAPTION>
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended
September 30,
1998 1997
---------------------
(Unaudited)
<S> <C> <C>
Interest Income
Mortgage loans $1,742 $1,592
Consumer and other loans 214 226
Investment securities 30 40
Interest-earning deposits 186 97
------- --------
TOTAL INTEREST INCOME 2,172 1,955
Interest Expense
Deposits 884 861
Advances from Federal Home Loan Bank of Des Moines 231 108
------- -------
1,115 969
------- -------
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 1 5
-------- --------
TOTAL NON-INTEREST INCOME 173 180
Non-interest Expense
Employee salaries and benefits 456 279
Occupancy costs 64 67
Advertising 11 15
Data processing 42 42
Federal insurance premiums 12 12
Directors' fees 23 22
Other 100 155
------- --------
TOTAL NON-INTEREST EXPENSE 708 592
------- --------
INCOME BEFORE INCOME TAXES 492 182
Income Taxes 182 195
------- --------
NET INCOME $ 310 $ 339
====== =======
Basic Earnings Per Share $ 0.20 $ 0.21
====== =======
Diluted Earnings Per Share $ 0.19 $ 0.21
====== =======
See accompanying notes to Consolidated Financial Statements
</TABLE>
-2-
<PAGE> 5
<TABLE>
<CAPTION>
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended
September 30,
1998 1997
------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 310 $ 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 62 74
MRDP compensation expense 175 ---
Change to assets and liabilities increasing (decreasing) cash flows
Accrued interest receivable (70) (6)
Other assets (4) (60)
Accrued interest payable 14 46
Other liabilities 587 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
</TABLE>
-3-
<PAGE> 6
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.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---------------------
(In thousands, except
earnings per share)
Basic earnings per share:
<S> <C> <C>
Income available to common shareholders $ 310 $ 339
======== ========
Average common shares outstanding 1,582 1,593
======== ========
Basic earnings per share 0.20 0.21
========= =========
Diluted earnings per share:
Income available to common shareholders 310 339
========= =========
Average common shares outstanding 1,582 1,593
Dilutive potential common shares outstanding due to
common stock options and grants 23 ---
--------- -----------
Average number of common shares and dilutive
potential common shares outstanding 1,605 1,593
======== =========
Diluted earnings per share $ 0.19 $ 0.21
======== =========
</TABLE>
-4-
<PAGE> 7
FULTON BANCORP, INC. AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
----------
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 $52,793 for the three months ended
September, 1998.
<TABLE>
<CAPTION>
A summary of ESOP shares at September 30, 1998, is as follows:
<S> <C>
Shares distributed to terminated participants 208
Shares allocated 17,080
Shares available for allocation 10,373
Unreleased shares 109,879
----------
TOTAL 137,540
==========
Fair value of unreleased shares $1,895,413
==========
</TABLE>
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 68,761 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-
<PAGE> 8
FULTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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-
<PAGE> 9
<TABLE>
<CAPTION>
FULTON BANCORP, INC. AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
-----------
Three Months Ended
September 30,
1998 1997
---------------------
(Dollars in thousands)
<S> <C> <C>
Net income 310 339
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 312 341
=== ===
</TABLE>
-7-
<PAGE> 10
FULTON BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- -------
Fulton Bancorp, Inc. ("Company") is a Delaware corporation that was organized
for the purpose of becoming the holding company for Fulton Savings Bank, FSB
("Bank") upon the Bank's conversion from a federal mutual savings bank to a
federal capital stock savings bank. The Bank's conversion was completed on
October 17, 1996. The Bank is a community oriented financial institution that
engages primarily in the business of attracting deposits from the general public
and using those funds to originate residential and commercial mortgage loans
within its market area. The Bank's deposits are insured up to applicable limits
by the Savings Association Insurance Fund.
The Company's operating results depend primarily on its net interest income,
which is the difference between the income it receives on its loan and
investments portfolio, and its cost of funds, which consists of interest paid on
deposits and borrowings. The Company's operating results are also affected by
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 $1,010,000 due
primarily to the issuance of 46,161 shares of common stock to the Management
Recognition and Development Plan. Net income contributed $310,000 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 decreased $29,000 or
8.6% compared to the three months ended September 30, 1997. Diluted earnings per
share decreased 2 cents or 9.5% to 19 cents per share for the current quarter.
Net interest income increased $71,000; the provision for loan losses decreased
$10,000; and income tax expense decreased $13,000. However, those favorable
variances were more than offset by a $116,000 increase in non-interest expense
and a $7,000 decrease in non-interest income.
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 $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.
-8-
<PAGE> 11
FULTON BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The $13,000 decrease in income tax expense primarily reflected decreased pre-tax
income. The Company's effective income tax rate for the three months ended
September 30, 1998 was 37.0% compared to 36.5% for the same period last year.
The $116,000 or 19.6% increase in non-interest expense primarily reflected a
$177,000 or 63.4% in employee salaries and benefits, which was offset in part by
a $55,000 decrease in other non-interest expense resulting from a timing
difference in the recognition of audit expenses. The increase in employee
salaries and benefits was due primarily to $175,000 of Management Recognition
and Development Plan (MRDP) expense in the current quarter. No MRDP expense was
incurred in the same quarter last year.
The $7,000 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.
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.
-9-
<PAGE> 12
FULTON BANCORP, INC. AND SUBSIDIARY
-----------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
-----------
<TABLE>
<CAPTION>
Liquidity and Capital Resources (Continued)
- -------------------------------------------
Percent of Adjusted
Amount Total Assets
------------------------------
(Unaudited)
<S> <C> <C>
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%
======= ====
</TABLE>
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-
<PAGE> 13
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-
<PAGE> 14
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 2-9-99 By: /s/ Kermit D. Gohring
------------------ ---------------------
Kermit D. Gohring
President
Date 2-9-99 By: /s/ Bonnie K. Smith
------------------ ----------------------
Bonnie K. Smith
Secretary - Treasurer
(Principal Accounting Officer)
-12-
<PAGE> 15
<TABLE>
<CAPTION>
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATING STATEMENT OF FINANCIAL CONDITION
September 30, 1998
(Dollars in thousands)
Fulton Fulton
Bancorp, Savings
Consolidated Eliminations Inc. Bank
---------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 14,589 $ (5,929) $ 5,942 $ 14,576
Investment securities, available-for-sale 1,053 --- --- 1,053
Stock in Federal Home Loan Bank of Des Moines 889 --- --- 889
Loans held for sale 4,249 --- --- 4,249
Loans receivable 93,730 (1,177) 1,177 93,730
Accrued interest receivable 748 --- --- 748
Premises and equipment 1,389 --- --- 1,389
Foreclosed real estate 158 --- --- 158
Other assets 779 (19,062) 19,208 633
--------- -------- -------- ---------
TOTAL ASSETS $117,584 $(26,168) $ 26,327 $117,425
========= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 70,574 $ (5,955) $ --- $ 76,529
Advances from Federal Home Loan Bank of Des Moines 17,708 --- --- 17,708
Other borrowed money --- (1,177) --- 1,177
Advances from borrowers for property taxes and insurance 1,386 --- --- 1,386
Accrued interest payable 98 (27) --- 125
Other liabilities 1,313 --- (178) 1,491
--------- --------- --------- --------
TOTAL LIABILITIES 91,079 (7,159) (178) 98,416
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 issued and outstanding 18 (1) 18 1
Paid-in capital 17,818 (8,527) 17,818 8,527
Treasury stock (256) --- (256)
Retained earnings - substantially restricted 10,851 (11,577) 10,851 11,577
Unrealized gain(loss) on securities available for sale, net of taxes 3 (3) 3 3
Unearned MRDP shares (831) 0 (831) 0
Unearned ESOP shares (1,098) 1,099 (1,098) (1,099)
--------- -------- --------- --------
TOTAL STOCKHOLDERS' EQUITY 26,505 (19,009) 26,505 19,009
--------- -------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $117,584 $(26,168) $ 26,327 $117,425
======== ======== ======== ========
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
FULTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATING STATEMENT OF INCOME
Three months ended September 30, 1998
(Dollars in thousands)
Fulton Fulton
Bancorp, Savings
Consolidated Eliminations Inc. Bank
----------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Mortgage loans $1,742 $ --- $ --- $1,742
Consumer and other loans 214 (25) 25 214
Investment securities 30 --- --- 30
Interest-earning deposits 186 (84) 84 186
------- ------- ------ -------
TOTAL INTEREST INCOME 2,172 (109) 109 2,172
Interest Expense
Deposits 884 (84) --- 968
Advances from Federal Home Loan Bank of Des Moines 231 --- --- 231
Other borrowed money --- (25) --- 25
------- ------- ------- -------
TOTAL INTEREST EXPENSE 1,115 (109) --- 1,224
------- ------- ------- ------
NET INTEREST INCOME 1,057 --- 109 948
Provision for loan losses 30 --- --- 30
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,027 --- 109 918
Non-interest Income
Loan servicing fees 69 --- --- 69
Income from sale of loans 78 --- --- 78
Service charges and other fees 25 --- --- 25
Other 1 (361) 362 ---
------- ------- ------ -------
TOTAL NON-INTEREST INCOME 173 (361) 362 172
Non-interest Expense
Employee salaries and benefits 456 --- 175 281
Occupancy costs 64 --- --- 64
Advertising 11 --- --- 11
Data processing 42 --- --- 42
Federal insurance premiums 12 --- --- 12
Directors' fees 23 --- --- 23
Other 100 --- 18 82
------- ------- ------ --------
TOTAL NON-INTEREST EXPENSE 708 --- 193 515
------- ------- ------ -------
INCOME BEFORE TAXES 492 (361) 278 575
Income Taxes 182 --- (32) 214
------ -------- ------ -------
NET INCOME $ 310 $ (361) $ 310 $ 361
====== ======== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF FULTON BANCSHARES, INC. FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001017952
<NAME> Fulton Bancshares, Inc.
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUN-30-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 657
<INT-BEARING-DEPOSITS> 13,932
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,053
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 98,973
<ALLOWANCE> 994
<TOTAL-ASSETS> 117,584
<DEPOSITS> 71,960
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,411
<LONG-TERM> 17,708
0
0
<COMMON> 18
<OTHER-SE> 26,487
<TOTAL-LIABILITIES-AND-EQUITY> 117,584
<INTEREST-LOAN> 1,956
<INTEREST-INVEST> 30
<INTEREST-OTHER> 186
<INTEREST-TOTAL> 2,172
<INTEREST-DEPOSIT> 884
<INTEREST-EXPENSE> 1,115
<INTEREST-INCOME-NET> 1,057
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 708
<INCOME-PRETAX> 492
<INCOME-PRE-EXTRAORDINARY> 310
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
<YIELD-ACTUAL> 3.82
<LOANS-NON> 22
<LOANS-PAST> 276
<LOANS-TROUBLED> 294
<LOANS-PROBLEM> 748
<ALLOWANCE-OPEN> 971
<CHARGE-OFFS> 11
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 994
<ALLOWANCE-DOMESTIC> 921
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 73
</TABLE>
