U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
( ) 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 000-26499
STEELTON BANCORP, INC.
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(Exact name of Registrant as specified in its Charter)
Pennsylvania 25-1830745
- ------------------------------- -------------------------------------
(State or other jurisdiction of I.R.S. Employer Identification Number
incorporation or organization)
51 South Front Street, Steelton, Pennsylvania 17113
- --------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 939-1966
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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 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.
X Yes No
--- ---
As of August 10, 2000, there were 350,350 shares of the Registrant's common
stock, par value $0.10 per share, outstanding. The Registrant has no other
classes of common equity outstanding.
Transitional small business disclosure format:
Yes X No
--- ---
STEELTON BANCORP, INC. AND SUBSIDIARY
STEELTON, PENNSYLVANIA
Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements....................................................................................3
Consolidated Statements of Financial Condition - as of
June 30, 2000 (unaudited) and December 31, 1999 (audited)...............................................3
Consolidated Statements of Income - for the three months and six months ended
June 30, 2000 and June 30, 1999 (unaudited).............................................................4
Consolidated Statements of Comprehensive Income - for the three months
and six months ended June 30, 2000 and June 30, 1999 (unaudited)........................................6
Consolidated Statements of Changes in Stockholders' Equity - for the
six months ended June 30, 2000 (unaudited) and the year ended
December 31, 1999 (audited).............................................................................7
Consolidated Statements of Cash Flows - for the six months ended
June 30, 2000 and June 30, 1999 (unaudited).............................................................8
Notes to Consolidated Financial Statements..............................................................9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................................11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................18
Item 2. Changes in Securities and Use of Proceeds..............................................................18
Item 3. Defaults Upon Senior Securities........................................................................18
Item 4. Submission of Matters to a Vote of Security Holders....................................................18
Item 5. Other Information......................................................................................18
Item 6. Exhibits and Reports on Form 8-K.......................................................................18
PART 1. FINANCIAL INFORMATION
STEELTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Item 1. Financial Statements
At June 30, At December
2000 31, 1999
-------------- -------------
(UNAUDITED) (AUDITED)
ASSETS
Cash and cash equivalents
Cash and amounts due from depository
institutions $ 428,601 $ 1,617,768
Interest bearing deposits in other banks 900,646 1,670,023
Investment securities
Securities available-for-sale 10,508,947 10,252,585
Securities held-to-maturity 5,590,730 5,756,786
Loans receivable, net 38,276,357 32,027,255
Accrued interest receivable 378,774 322,219
Federal Home Loan Bank stock, at cost 1,030,700 691,800
Office properties and equipment, net 1,057,518 1,033,679
Property held for expansion 239,591 179,248
Deferred income taxes 289,767 302,800
Other assets 1,060,154 41,208
------------ ------------
Total assets $59,761,785 $53,895,371
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $33,491,046 $33,266,127
Advances from Federal Home Loan Bank 19,085,850 13,334,745
Advances from borrowers for insurance and taxes 372,014 232,508
Accrued interest payable 195,956 140,473
Dividends payable 25,810 30,800
Other liabilities 41,692 118,640
------------ ------------
Total liabilities 53,212,368 47,123,293
------------ ------------
Stockholders' equity
Preferred stock, no par value; 2,000,000
shares authorized; none issued and
outstanding at December 31, 1999 and 1998 - -
Common stock, $.10 par value; 8,000,000
shares authorized; 385,000 shares
issued and 350,350 outstanding
at June 30, 2000;385,000 shares
issued and outstanding at December 31,1999 38,500 38,500
Additional paid-in capital 3,459,710 3,457,015
Retained earnings 3,992,746 3,863,701
Stock awards distributable 11,794 -
Unearned compensation ESOP (277,200) (308,000)
Accumulated other comprehensive income (loss) (288,593) (279,138)
Treasury stock (387,540) -
------------ ------------
Total stockholders' equity 6,549,417 6,772,078
------------ ------------
Total liabilities and stockholders' equity $59,761,785 $53,895,371
============ ============
See accompanying notes to unaudited consolidated financial statements.
3
STEELTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Interest income
Loans $ 731,069 $ 543,418 $1,406,350 $1,108,530
Investment securities 256,954 143,331 515,094 317,734
Other interest earning assets 16,053 66,831 34,228 66,831
---------- ---------- ---------- ----------
Total interest income 1,004,076 753,580 1,955,672 1,493,095
---------- ---------- ---------- ----------
Interest expense
Deposits 371,290 326,595 736,523 654,578
Advances from Federal Home Loan Bank 266,229 131,522 467,133 255,318
---------- ---------- ---------- ----------
Total interest expense 637,519 458,117 1,203,656 909,896
---------- ---------- ---------- ----------
Net interest income 366,557 295,463 752,016 583,199
Provision for loan losses 1,000 (3,000) 1,000 2,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 365,557 298,463 751,016 581,199
---------- ---------- ---------- ----------
Other income
Fees and service charges 47,007 39,462 84,565 73,130
Dividends on FHLB stock 23,476 9,150 43,028 18,199
Gain on sale of investment - - 286 -
Other 24,719 1,610 35,462 14,743
---------- ---------- ---------- ----------
Total other income 95,202 50,222 163,341 106,072
---------- ---------- ---------- ----------
Other expense
Salaries and employee benefits 204,790 146,313 368,914 293,818
Occupancy expense of premises 24,786 23,111 50,496 47,181
Equipment 41,888 51,936 81,506 99,443
Advertising 14,943 12,704 27,643 24,769
Other 78,012 61,812 167,862 124,061
---------- ---------- ---------- ----------
Total other expense 364,419 295,876 696,421 589,272
---------- ---------- ---------- ----------
Income before income taxes 96,340 52,809 217,936 97,999
Income taxes 30,823 13,692 63,083 32,320
---------- ---------- ---------- ----------
Net income $ 65,517 $ 39,117 $ 154,853 $ 65,679
========== ========== ========== ==========
Basic earnings per share $ 0.20 N/A $ 0.46 N/A
========== ========== ========== ==========
Diluted earnings per share $ 0.19 N/A $ 0.44 N/A
========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
4
STEELTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Net income $ 65,517 $ 39,117 $ 154,853 $ 65,679
Other comprehensive income (loss)
Unrealized gains(losses) on
securities available for sale (119,694) (50,389) (4,267) (113,238)
Income tax benefit (expense) 40,222 17,132 (5,188) 38,501
--------- --------- --------- ---------
Comprehensive income (loss) $ (13,955) $ 5,860 $ 145,398 $ (9,058)
========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements.
5
STEELTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 1999
Accumulated
Other
Compre- Total
Additional Restricted Unearned hensive Stock-
Common Paid-in Retained Stock ESOP Income Treasury holders'
Stock Capital Earnings Plan Shares (Loss) Stock Equity
---------- ----------------------------------- --------------------------------- -----------
Balance-December 31, 1998 $ - $ - $3,712,571 $ - $ - $ (14,082) $ - $3,698,489
Issuance of Steelton Bancorp,
Inc. common stock 38,500 3,457,015 - - (308,000) - - 3,187,515
Net income for the year
ended December 31, 1999 - - 181,930 - - - - 181,930
Dividends declared - - (30,800) - - - - (30,800)
Net change in unrealized
losses on securities
available for sale, net of
deferred income tax benefit - - - - - (265,056) - (265,056)
---------- ----------- ----------- ---------- ---------- ----------- ---------- -----------
Balance - December 31, 1999 38,500 3,457,015 3,863,701 - (308,000) (279,138) - 6,772,078
Earned portion of restricted
stock plan - - - 11,794 - - - 4,718
Treasury stock purchased - - - - - - (387,540) (387,540)
Net income - - 154,853 - - - - 154,853
Dividends declared - - (25,810) - - - - (25,810)
ESOP shares committed for
release - 2,695 - - 30,800 - - 33,495
Net change in unrealized
losses on securities
available for sale, net of
deferred income tax benefit - - - - - (9,455) - (9,455)
---------- ----------- ----------- ---------- ---------- ----------- ---------- -----------
Balance - June 30, 2000 $38,500 $3,459,710 $3,992,744 $11,794 $(277,200) $(288,593) $(387,540) $6,542,339
========== =========== =========== ========== ========== =========== ========== ===========
See accompanying notes to unaudited consolidated financial statements.
6
STEELTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
2000 1999
----------- -----------
Cash flows from operating activities
Net income $ 154,855 $ 65,679
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 37,335 38,704
Amortization of deferred loan fees (21,282) (35,759)
Amortization of premiums on loans purchased 3,367 3,883
Accretion of investment security discounts
net of premium amortization 4,943 14,671
Provision for loan losses 1,000 2,000
ESOP expense 33,495 -
Deferred income taxes (11,324) -
(Increase) decrease in
Accrued interest receivable (56,555) (24,326)
Other assets (1,098,526) 22,949
Increase (decrease) in
Accrued interest payable 55,483 31,194
Other liabilities 14,428 (22,560)
----------- -----------
Net cash provided by (used in) operating activities (882,781) 96,435
----------- -----------
Cash flows from investing activities
Investment securities available-for-sale:
Proceeds from sales and maturities of
mortgaged-backed securities 271,725 1,098,657
Proceeds from sales and maturities of
other securities 250,000 -
Purchase of mortgage-backed securities (262,384) (2,208,118)
Purchase of other securities (500,000) (2,320,633)
Investment securities held-to-maturity:
Proceeds from maturities and repayments of
mortgage-backed securities 160,313 287,463
Purchase of mortgage-backed securities - (1,257,150)
Purchase of other securities - (221,425)
Net (increase) decrease in loans (6,232,187) 2,079,410
Purchase of office properties and equipment (61,175) (124,991)
Improvements to property held for expansion (60,343) -
Purchase of Federal Home Loan Bank stock (338,900) -
Prepaid costs of conversion - (203,909)
Stock subscription deposits - 3,171,519
----------- -----------
Net cash provided by (used in) investing activities (6,772,951) 300,823
----------- -----------
(continued)
7
STEELTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
(UNAUDITED)
Six Months Ended
June 30,
2000 1999
------------ ------------
Cash flows from financing activities
Net increase (decrease) in
Deposits 224,918 2,120,657
Advances from borrowers for insurance and taxes 139,506 84,604
Advances from Federal Home Loan Bank 15,000,000 7,000,000
Repayment of Federal Home Loan Bank advances (9,248,896) (6,208,038)
Purchase of treasury stock (387,540) -
Payment of dividends (30,800) -
------------ ------------
Net cash provided by financing activities 5,697,188 2,997,223
------------ ------------
Net increase (decrease) in cash
and cash equivalents (1,958,544) 3,394,481
Cash and cash equivalents - beginning 3,287,791 2,387,592
------------ ------------
Cash and cash equivalents - ending $ 1,329,247 $ 5,782,073
============ ============
Supplemental disclosures
Cash paid during the period for interest $ 1,111,121 $ 878,702
============ ============
Cash paid during the period for income taxes $ 86,407 $ -
============ ============
Deferred income tax benefit (expense) on
unrealized losses on securities available-for-sale $ (5,188) $ 38,501
============ ============
Total (increase) decrease in unrealized loss
on securities available-for-sale $ (4,267) $ (113,238)
============ ============
See accompanying notes to unaudited consolidated financial statements.
8
STEELTON BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Note 1 - BASIS OF PRESENTATION
The accompanying condensed financial statements were prepared in accordance with
instructions for Form 10-QSB and, therefore, do not include all information
necessary for a complete presentation of financial condition, results of
operations, and cash flows in conformity with generally accepted accounting
principles. However, all adjustments, consisting of normal recurring accruals
that, in the opinion of management, are necessary for a fair presentation of the
financial statements have been included. The results of operations for the
period ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2000 or any other
period. The condensed financial statements as of and for the six month period
ended June 30, 2000 and 1999 include the accounts of Mechanics Savings Bank (the
"Bank") which, as discussed in Note 2, became the wholly owned subsidiary of
Steelton Bancorp, Inc. (the "Company") on July 8, 1999. The Company's business
is conducted principally through the Bank. Through its main office located in
Steelton and its branch office located in Lower Swatara Township, Pennsylvania,
the Bank provides retail banking services, with an emphasis on
one-to-four-family residential mortgages.
Note 2 - MUTUAL TO STOCK CONVERSION
On July 8, 1999, the Bank completed its mutual to stock conversion (the
"Conversion"). In connection with the Conversion, Steelton Bancorp, Inc., a
Pennsylvania chartered corporation, sold 385,000 shares of its common stock in a
subscription offering at $10.00 per share. Upon completion of these
transactions, the Bank became the wholly owned subsidiary of Steelton Bancorp,
Inc. and changed its name from Mechanics Savings and Loan, FSA to Mechanics
Savings Bank.
The common stock of the Company began trading on the Electronic Bulletin Board
under the symbol "SELO" on July 9, 1999.
Note 3 - RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Derivative Instruments and Hedging Activities. In June 1998, the
FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. Initial application of this Statement should be as of
the beginning of an entity's
9
fiscal quarter. On that date, hedging relationships must be designated anew and
documented pursuant to the provisions of SFAS No. 133. Earlier application of
all of the provisions of SFAS No. 133 is encouraged, but it is permitted only as
of the beginning of any fiscal quarter that begins after issuance of this
Statement. This Statement should not be applied retroactively to financial
statements of prior periods. SFAS No. 133 is not expected to have a material
impact on the Company's financial statement presentations.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 established that SFAS No. 133 be effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000.
Note 4 - EARNINGS PER COMMON SHARE
Basic net income per common share for the three months and six months ended June
30, 2000 is calculated by dividing net income by the weighted average number of
shares of common stock outstanding for the period adjusted for the unallocated
portion of shares held by the ESOP. Diluted net income per share is calculated
by adjusting the number of shares of common stock outstanding to include the
effect of stock options, stock-based compensation grants and other securities,
if dilutive, generally, using the treasury stock method.
The number of shares utilized in the earnings per share calculations for the
three months ended June 30, 2000 were as follows:
Common shares - basic 321,090
Effect of dilutive securities:
Restricted Stock Plan 15,400
Stock options 4,149
-------
Common shares - diluted 340,639
=======
The number of shares utilized in the earnings per share calculations for the six
months ended June 30, 2000 were as follows:
Common shares - basic 334,153
Effect of dilutive securities:
Restricted Stock Plan 12,523
Stock options 4,149
-------
Common shares - diluted 350,825
=======
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Forward-Looking Statements
The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission (the "Commission") and its reports to
stockholders. Statements made in such documents, other than those concerning
historical information, should be considered forward-looking and subject to
various risks and uncertainties. Such forward-looking statements are made based
upon management's beliefs as well as assumptions made by, and information
currently available to, management pursuant to "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. The Company's actual results
may differ materially from the results anticipated in forward-looking statements
due to a variety of factors, including governmental monetary and fiscal
policies, deposit levels, loan demand, loan collateral values, securities
portfolio values, and interest rate risk management; the effects of competition
in the banking business from other commercial banks, savings and loan
associations, mortgage banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market mutual funds and
other financial institutions operating in the Company's market area and
elsewhere, including institutions operating through the Internet; changes in
governmental regulations relating to the banking industry, including regulations
relating to branching and acquisitions; failure of assumptions underlying the
establishment of reserves for losses, including the value of collateral
underlying delinquent loans, and other factors. The Company cautions that such
factors are not exclusive. The Company does not undertake to update any
forward-looking statements that may be made from time to time by, or on behalf
of, the Company.
Comparison of Financial Condition at June 30, 2000 and December 31, 1999
Assets.
Total assets increased $5.9 million, or 10.9% to $59.8 million at June 30, 2000
from $53.9 million at December 31, 1999. The increase in total assets resulted
primarily from a $6.2 million increase in net loans outstanding and a $1.0
million increase in other assets partially offset by a decrease in cash and cash
equivalents of $2.0 million.
Loans receivable increased by $6.2 million due to strong loan originations
during the six months ended June 30, 2000. Other assets increased by $1.0
million primarily due to the purchase of directors and officers life insurance
in the second quarter with a cash value of $1.0 million as of June 30, 2000. The
increase in loan originations and the purchase of the directors and officers
life insurance were the primary factors in the decrease in cash and cash
equivalents of $2.0 million.
11
Liabilities
Total liabilities increased by 13.0%, or $6.1 million, between December 31, 1999
and June 30, 2000. The increase in total liabilities is primarily due to a $5.8
million increase in advances from the Federal Home Loan Bank (the "FHLB") and a
$225,000 increase in deposits.
Stockholders' Equity.
Total stockholders' equity decreased by 3.4%, or $223,000, to $6.5 million at
June 30, 2000 from $6.8 million at December 31, 1999. The decrease was primarily
due to the net cost of treasury shares purchased totaling $388,000, partially
offset by net income for the period of $155,000.
Liquidity and Capital Resources
The liquidity of a savings institution reflects its ability to provide funds to
meet loan requests, to accommodate possible outflows in deposits, and to take
advantage of interest rate market opportunities. Funding of loan requests,
providing for liability outflows, and management of interest rate fluctuations
require continuous analysis in order to match the maturities of specific
categories of short-term loans and investments with specific types of deposits
and borrowings. Savings institution liquidity is normally considered in terms of
the nature and mix of the savings institution's sources and uses of funds.
Asset liquidity is provided through loan repayments and the management of
maturity distributions for loans and securities. An important aspect of
liquidity lies in maintaining sufficient levels of loans and mortgage-backed
securities that generate monthly cash flows. Net cash used by operations for the
six months ended June 30, 2000 was $883,000 compared to $96,000 in cash provided
by operations for the same period in 1999. The primary factors for the decrease
in cash provided by operations in 2000 were the increase in other assets of $1.0
million partially offset by a increase in net income of $89,000.
Net cash used in the Company's investing activities totaled $6.8 million for the
six months ended June 30, 2000 compared to net cash provided by investing
activities of $301,000 during the same period in 1999. The net cash used in
investing activities for the six months ended June 30, 2000 included $6.2
million in cash used to fund the increase in the loan portfolio and $339,000 in
net cash used to purchase FHLB stock. The net cash provided by investing
activities for the six months ended June 30, 1999 included $3.2 million in stock
subscription deposits and a $2.1 million decrease in loans receivable partially
offset by $4.6 million in net cash used to purchase investments and
mortgage-backed securities and $200,000 in prepaid costs of conversion.
12
Net cash provided by financing activities totaled $5.7 million for the six
months ended June 30, 2000 primarily due to a $5.8 million net increase in FHLB
advances and increases in deposits of $225,000, partially offset by $388,000
paid for the repurchase of 34,650 shares of the Company's common stock. Net cash
provided by financing activities totaled $3.0 million for the six months ended
June 30, 1999 primarily due to a $2.1 million increase in deposits and a net
increase in FHLB advances of $792,000.
Office of Thrift Supervision ("OTS") capital regulations applicable to the Bank
require savings institutions to meet three capital standards: (1) tangible
capital equal to 1.5% of total adjusted assets, (2) a leverage ratio (core
capital) equal to at least 4% of total adjusted assets, and (3) a risk-based
capital requirement equal to 8.0% of total risk-weighted assets. In addition,
the OTS prompt corrective action regulation provides that a savings institution
that has a leverage capital ratio of less than 4% will be deemed to be
"undercapitalized" and may be subject to certain restrictions. The Bank was in
compliance with these requirements at June 30, 2000, with tangible, core and
risk based capital ratios of 9.46%, 9.46% and 19.70%, respectively. Management
believes that under current regulations, the Bank will continue to meet its
minimum capital requirements in the foreseeable future. Events beyond the
control of the Bank, such as increased interest rates or a downturn in the
economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
Comparison of Operating Results for Three Months Ended June 30, 2000 and 1999
General. The largest component of the Company's total income and total expenses
are interest items. As a result, its earnings are greatly influenced by its net
interest income, which is determined by the difference between the interest
earned on its interest-earning assets and the rates paid on its interest-bearing
liabilities (interest rate spread) as well as by the relative amounts of its
interest-earning assets and interest-bearing liabilities.
Like most savings banks, the Bank's interest income and cost of funds are
substantially affected by general economic conditions. Because a significant
portion of the Bank's assets consist of fixed rate loans, increases in interest
costs will result in a decline in its net interest income.
Net Income.
The Company's net income increased by $26,000 for the three months ended June
30, 2000, as compared to the same period in 1999 primarily due to increases in
interest income and noninterest income of $250,000 and $45,000 partially offset
by increases in interest expense of $179,000, other expenses of $69,000, and
income taxes of $17,000.
13
Interest Income.
Total interest income increased by $250,000 for the three months ended June 30,
2000, when compared to the same period in 1999. Interest income from the loan
portfolio increased by $188,000 for the three months ended June 30, 2000
compared to the same period in 1999 due primarily to an increase in the average
balance of loans receivable. Interest income from investment securities
increased $113,000 for the three months ended June 30, 2000 when compared to the
same period in 1999 due primarily to an increase in the average balance of
investment securities. Interest on other interest earning assets decreased by
$51,000 for the three months ended June 30, 2000 compared to the same period in
1999 due to temporary investment of excess funds on hand in the second quarter
of 1999 as a result of the stock conversion.
Interest Expense.
Total interest expense increased by $179,000 for the three months ended June 30,
2000, as compared to the same period in 1999. Interest expense on deposits
increased by $44,000 for the three months ended June 30, 2000 compared to the
same period in 1999 primarily due to an increase in the average balance of
deposits. Interest expense on FHLB advances increased by $135,000 for the three
months ended June 30, 2000 compared to the same period in 1999 as a result of
increased average balances of advances used to meet liquidity needs.
Net Interest Income.
Net interest income increased by $71,000 for the three months ended June 30,
2000, when compared to the same period in 1999 due to the changes in interest
income and interest expense described above.
Provision for Loan Losses.
An allowance for loan losses is maintained through a provision for loan losses
based on management's periodic evaluation of the general level of loan
delinquency, the level of risk by type of loan, and general economic conditions.
The provision reflects an amount that, in management's opinion, is adequate to
absorb losses in the current portfolio. The provision for loan losses was $1,000
for the three months ended June 30, 2000 compared to ($3,000) for the same
period in 1999. The current allowance represents .38% of total loans outstanding
at June 30, 2000. Management monitors the loan portfolio on a continuing basis
and intends to continue to provide for loan losses based on its ongoing review
of the loan portfolio and general market conditions.
14
Other Income.
Other income, primarily fees, service charges and dividends on FHLB stock
increased by $45,000 for the three months ended June 30, 2000 as compared to the
same period in 1999. The increase was primarily due to an increase in dividends
on FHLB stock of $14,000 and other income of $23,000.
Other Expense.
Other expense increased by $69,000 for the three months ended June 30, 2000
compared to the same period in 1999. Salaries and employee benefits increased by
$58,000 for the three months ended June 30, 2000 as compared with the same
period in 1999 primarily due to increased staffing, salary increases and an ESOP
contribution of $33,000 authorized in the 2nd quarter of 2000 for the fiscal
year ended June 30, 2000 compared to zero in 1999.
Provision for Income Taxes.
Income tax expense increased by $17,000 for the three months ended June 30, 2000
when compared to the same period in 1999. The increase resulted primarily from
an increase in income before income taxes of $43,000 in 2000 as compared to the
same period in 1999.
Comparison of Operating Results for Six Months Ended June 30, 2000 and 1999
General. The largest component of the Company's total income and total expenses
are interest items. As a result, its earnings are greatly influenced by its net
interest income, which is determined by the difference between the interest
earned on its interest-earning assets and the rates paid on its interest-bearing
liabilities (interest rate spread) as well as by the relative amounts of its
interest-earning assets and interest-bearing liabilities.
Like most savings banks, the Bank's interest income and cost of funds are
substantially affected by general economic conditions. Because a significant
portion of the Bank's assets consist of fixed rate loans, increases in interest
costs will result in a decline in its net interest income.
Net Income.
The Company's net income increased by $89,000 for the six months ended June 30,
2000, as compared to the same period in 1999 primarily due to increases in net
interest income and noninterest income of $169,000 and $50,000 partially offset
by increases in other expenses of $100,000 and income taxes of $31,000.
15
Interest Income.
Total interest income increased by $463,000 for the six months ended June 30,
2000, when compared to the same period in 1999. Interest income from the loan
portfolio increased by $298,000 for the six months ended June 30, 2000 compared
to the same period in 1999 due primarily to an increase in the average balance
of loans receivable. Interest income from investment securities increased
$197,000 for the six months ended June 30, 2000 when compared to the same period
in 1999 due primarily to an increase in the average balance of investment
securities.
Interest Expense.
Total interest expense increased by $294,000 for the six months ended June 30,
2000, as compared to the same period in 1999. Interest expense on deposits
increased by $82,000 in 2000 compared to the same period in 1999 primarily due
to an increase in the average balance of deposits. Interest expense on FHLB
advances increased by $212,000 for the six months ended June 30, 2000 compared
to the same period in 1999 as a result of an increased average balance of
advances used to meet liquidity needs.
Net Interest Income.
Net interest income increased by $169,000 for the six months ended June 30,
2000, when compared to the same period in 1999 due to the changes in interest
income and interest expense described above.
Provision for Loan Losses.
The provision for loan losses was $1,000 for the six months ended June 30, 2000
compared to $2,000 for the same period in 1999.
Other Income.
Other income, primarily fees, service charges and dividends on FHLB stock
increased by $50,000 for the six months ended June 30, 2000 as compared to the
same period in 1999. The increase was primarily due to increases in fees and
service charges of $11,000, dividends on FHLB stock of $25,000 and other income
of $14,000.
Other Expense.
Other expense increased by $100,000 for the six months ended June 30, 2000
compared to the same period in 1999. Salaries and employee benefits increased by
$75,000 for the six months ended June 30, 2000 as compared with the same period
in 1999 primarily due to
16
increased staffing, salary increases and an ESOP contribution of $33,000
compared to zero in 1999.
Provision for Income Taxes.
Income tax expense increased by $31,000 for the six months ended June 30, 2000
when compared to the same period in 1999. The increase resulted primarily from
an increase in income before income taxes of $120,000 in 2000 as compared to the
same period in 1999.
Statements concerning future performance, developments, or events, concerning
expectations for growth and market forecasts, and any other guidance on future
periods, constitute forward-looking statements which are subject to a number of
risks and uncertainties, including interest rate fluctuations and government and
regulatory actions which might cause actual results to differ materially from
stated expectations or estimates.
Impact of Inflation
The condensed financial statements of the Bank and notes thereto, presented
elsewhere 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 impact
of inflation is reflected in the increased cost of the Bank's operations. Unlike
most industrial companies, nearly all the assets and liabilities of the Bank are
financial. As a result, interest rates have a greater impact on the Bank's
performance than do the effects of 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.
17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company and its subsidiary may be a party to
various legal proceedings incident to its or their business. At June
30, 2000, there were no legal proceedings to which the Company or its
subsidiary was a party, or to which of any of their property was
subject, which were expected by management to result in a material
loss.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
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
--------------------------------
(a) Exhibits
3(i) Articles of Incorporation of Steelton Bancorp, Inc.*
3(ii) Bylaws of Steelton Bancorp, Inc.*
4 Specimen Stock Certificate*
10.1 Employment Agreement between the Bank and Harold E. Stremmel*
27 Financial Data Schedule (electronic filing only)
- ---------------------
* Incorporated by reference to an identically numbered exhibit to the
registration statement on Form SB-2 (File No. 333-74279) initially filed with
the SEC on March 11, 1999.
(b) Reports on Form 8-K
The Company did not file and reports on Form 8-K during the quarter ended June
30, 2000.
18
SIGNATURES
Pursuant to the requirements 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.
STEELTON BANCORP, INC.
Date: August 14, 2000 By:/s/ Harold E. Stremmel
--------------------------------------------
Harold E. Stremmel
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2000 By:/s/ Shannon Aylesworth
--------------------------------------------
Shannon Aylesworth
Chief Financial Officer
(Principal Accounting Officer)