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 September 30, 2001
( ) 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 000-26499
STEELTON BANCORP, INC.
----------------------
(Exact name of Registrant as specified in its Charter)
Pennsylvania 25-1830745
- ------------------------------ ------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
51 South Front Street, Steelton, Pennsylvania 17113
- --------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 939-1966
--------------
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 November 8, 2001 there were 301,265 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.
STEELTON, PENNSYLVANIA
C O N T E N T S
---------------
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements................................................................................1
Consolidated Balance Sheets - as of
September 30, 2001 (unaudited) and December 31, 2000 (audited)......................................1
Consolidated Statements of Income - for the three months and
nine months ended September 30, 2001 and September 30, 2000 (unaudited).............................2
Consolidated Statements of Stockholders' Equity - for the nine
months ended September 30, 2001 and September 30, 2000 (unaudited)..................................3
Consolidated Statements of Cash Flows - for the nine months ended
September 30, 2001 and September 30, 2000 (unaudited)...............................................4
Notes to Consolidated Financial Statements..........................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................13
Item 2. Changes in Securities and Use of Proceeds..........................................................13
Item 3. Defaults Upon Senior Securities....................................................................13
Item 4. Submission of Matters to a Vote of Security Holders................................................13
Item 5. Other Information..................................................................................13
Item 6. Exhibits and Reports on Form 8-K...................................................................13
PART I, ITEM 1, FINANCIAL STATEMENTS
STEELTON BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
September 30, 2001 and December 31, 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Cash and due from banks $ 507,721 $ 278,524
Interest bearing deposits in other banks 2,699,544 1,140,038
------------------------------------------
Cash and cash equivalents 3,207,265 1,418,562
Investment securities available for sale 10,642,957 10,007,980
Investment securities held to maturity (fair values 2001 $ 2,739,469;
2000 $ 5,341,664) 2,482,785 5,380,735
Loans receivable, net of allowance for loan losses 2001 $ 143,777;
2000 $ 149,603 38,542,715 39,769,076
Federal Home Loan Bank stock, at cost 989,200 1,030,700
Bank premises and equipment, net 1,559,854 1,449,585
Accrued interest receivable and other assets 1,675,474 1,688,395
------------------------------------------
Total assets $ 59,100,250 $ 60,745,033
==========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 34,386,503 $ 34,133,250
Advances from Federal Home Loan Bank 18,368,655 19,398,854
Advances from borrowers for insurance and taxes 106,166 305,662
Accrued interest payable and other liabilities 552,016 262,479
------------------------------------------
Total liabilities 53,413,340 54,100,245
------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 2,000,000 shares authorized;
none issued and outstanding -
Common stock, $ .10 par value; 8,000,000 shares authorized;
issued 2001- 416,590 shares; 2000 - 404,250 shares 41,659 40,425
Surplus 3,942,710 3,665,547
Retained earnings 3,738,923 3,889,722
Unearned stock compensation (369,091) (422,598)
Treasury stock, at cost, 2001 115,325 shares; 2000 39,427 shares (1,777,154) (478,826)
Accumulated other comprehensive income (loss) 109,863 (49,482)
------------------------------------------
Total stockholders' equity 5,686,910 6,644,788
------------------------------------------
Total liabilities and stockholders' equity $ 59,100,250 $ 60,745,033
==========================================
See Notes to Consolidated Financial Statements.
1
STEELTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------------------------------
For the Three and Nine Months Ended September 30, Three Months Ended Nine Months Ended
2001 and 2000 (Unaudited) September 30, September 30,
2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Interest and dividend income:
Loans $ 757,609 $ 803,645 $ 2,307,458 $ 2,209,995
Securities:
Taxable 193,263 231,079 638,817 702,269
Tax exempt 21,945 24,618 65,823 68,522
Dividends on FHLB stock 16,830 18,783 51,097 69,050
Other 17,180 15,761 58,642 42,750
--------------------------------------------------------------------------
Total interest and dividend income 1,006,827 1,093,886 3,121,837 3,092,586
--------------------------------------------------------------------------
Interest expense:
Deposits 356,642 404,728 1,141,548 1,141,251
Advances from Federal Home Loan Bank 281,865 299,213 893,514 766,346
--------------------------------------------------------------------------
Total interest expense 638,507 703,941 2,035,062 1,907,597
--------------------------------------------------------------------------
Net interest income 368,320 389,945 1,086,775 1,184,989
Provision for loan losses 6,500 3,000 13,500 4,000
--------------------------------------------------------------------------
Net interest income after provision
for loan losses 361,820 386,945 1,073,275 1,180,989
--------------------------------------------------------------------------
Noninterest income:
Fees and service charges 41,395 36,333 124,595 120,898
Income from bank-owned life insurance 14,177 12,309 41,037 20,515
Other 17,191 17,762 50,534 45,018
Gain/(loss) on sale of investments (1,235) - 4,607 286
--------------------------------------------------------------------------
Total noninterest income 71,528 66,404 220,773 186,717
--------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 189,922 203,257 569,808 572,171
Occupancy 28,443 25,529 84,912 76,025
Equipment 58,699 40,749 180,785 122,255
Professional fees 18,497 24,822 82,489 76,996
Advertising 5,753 15,424 25,367 43,067
Other 60,010 72,111 178,327 187,799
--------------------------------------------------------------------------
Total noninterest expense 361,324 381,892 1,121,688 1,078,313
--------------------------------------------------------------------------
Income before income taxes 72,024 71,457 172,360 289,393
Income taxes 13,513 20,878 27,297 83,961
--------------------------------------------------------------------------
Net income $ 58,511 $ 50,579 $ 145,063 $ 205,432
==========================================================================
Per share data:
Net income, basic $ 0.19 $ 0.14 $ 0.45 $ 0.55
==========================================================================
Net income, diluted $ 0.18 $ 0.14 $ 0.42 $ 0.54
==========================================================================
See Notes to Consolidated Financial Statements.
2
STEELTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2001 and 2000 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other Total
Common Retained Unearned Treasury Comprehensive Stockholders'
Stock Surplus Earnings Compensation Stock Income (Loss) Equity
-------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 38,500 $ 3,457,015 $ 3,863,701 $ (308,000) $ - $ (279,138) $ 6,772,078
--------------
Comprehensive income:
Net income 205,432 205,432
Net change in unrealized
losses on available
for sale securities 52,382 52,382
------------
Total comprehensive income 7,034,892
------------
Stock purchased for treasury
and benefit plans 2,695 (140,545) (314,167) (452,017)
Earned compensation 18,870 18,870
Cash dividends declared
($.08 per share) (25,810) (25,810)
-------------------------------------------------------------------------------------------------
Balance, September 30, 2000 $ 38,500 $ 3,459,710 $ 4,043,323 $ (429,675) $ (314,167) $ (226,756) $ 6,570,935
=================================================================================================
Balance, December 31, 2000 $ 40,425 $ 3,665,547 $ 3,889,722 $ (422,598) $ (478,826) $ (49,482) $ 6,644,788
--------------
Comprehensive income:
Net income 145,063 145,063
Net change in unrealized
losses on available
for sale securities 159,345 159,345
--------------
Total comprehensive income 304,408
--------------
Stock purchased for treasury
benefit plans (1,298,328) (1,298,328)
Earned compensation 12,996 53,507 66,503
Cash dividends declared
($ .09 per share) (30,461) (30,461)
Stock dividend declared 1,234 264,167 (265,401) -
-------------------------------------------------------------------------------------------------
Balance, September 30, 2001 $ 41,659 $ 3,942,710 $ 3,738,923 $ (369,091) $(1,777,154) $ 109,863 $ 5,686,910
=================================================================================================
See Notes to Consolidated Financial Statements.
3
STEELTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2001 and 2000 (Unaudited) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 145,063 $ 205,432
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 13,500 4,000
Depreciation 56,593 56,308
Deferred benefit plan expense 85,055 67,082
Earnings on bank-owned life insurance (41,037) (20,515)
Deferred income taxes (37,953) (64,255)
Decrease (increase) in accrued interest receivable 71,656 (121,803)
Increase in accrued interest payable 223,158 224,710
Other 54,982 96,547
-----------------------------------------
Net cash provided by operating activities 571,017 447,506
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Sales 4,922,329 527,507
Maturities 4,454,874 515,383
Purchases (6,925,132) (780,624)
Held to maturity securities:
Maturities 521,236 252,590
Purchases (508,750) -
Net (increase) decrease in loans 1,212,861 (7,609,101)
Purchase of bank-owned life insurance - (1,000,000)
Purchase of bank premises and equipment (166,862) (126,128)
Redemption (purchase) of Federal Home Loan Bank stock 41,500 (338,900)
-----------------------------------------
Net cash provided by (used in) investing activities 3,552,056 (8,559,273)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 253,253 1,007,593
Net increase (decrease) in advances from borrowers for insurance and taxes (199,496) (103,503)
Advances from Federal Home Loan Bank 10,181,200 16,000,000
Repayment of Federal Home Loan Bank advances (11,211,399) (10,265,577)
Stock purchased for treasury and benefit plans (1,298,328) (485,512)
Payment of dividends (59,600) (56,610)
-----------------------------------------
Net cash provided by (used in) financing activities (2,334,370) 6,096,391
-----------------------------------------
Increase (decrease) in cash and cash equivalents 1,788,703 (2,015,376)
Cash and cash equivalents:
Beginning 1,418,562 3,287,791
-----------------------------------------
Ending $ 3,207,265 $ 1,272,415
=========================================
4
STEELTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2001 and 2000 (Unaudited) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 1,811,904 $ 1,634,382
=========================================
Income taxes $ 65,250 $ 148,216
=========================================
See Notes to Consolidated Financial Statements.
5
STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 September 30, 2001 are not necessarily indicative of
the results that may be expected for the fiscal year ending December
31, 2001 or any other period. The condensed financial statements
include the accounts of Steelton Bancorp, Inc. (the "Corporation"), its
wholly-owned subsidiary, Mechanics Savings Bank (the "Bank"), and the
Bank's wholly-owned subsidiary, Baldwin Investment Corporation. The
Corporation'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.
2
- --------------------------------------------------------------------------------
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 (as amended by Statement Nos. 137 and 138), "Accounting for
Derivative Instruments and Hedging Activities." This statement and its
amendments establish accounting and reporting standards for derivative
instruments and hedging activities, including certain derivative
instruments embedded in other contracts, and require that an entity
recognize all derivatives as assets or liabilities in the balance sheet
and measure them at fair value. The statement requires that changes in
the fair value of derivatives be recorded each period in current
earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. The Corporation adopted the statement on
January 1, 2001 and transferred securities having a carrying value of $
2,880,464 and fair value of $ 2,849,864 from held to maturity to
available for sale.
6
STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
- --------------------------------------------------------------------------------
NEW ACCOUNTING STANDARDS (CONTINUED)
In September 2000, the Financial Accounting Standards Board issued
Statement No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." This statement replaces
SFAS No. 125 of the same name. It revises the standards of
securitizations and other transfers of financial assets and collateral
and requires certain disclosures, but carries over most of the
provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The
statement was effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions
and collateral for fiscal years ending after March 15, 2000. This
statement is to be applied prospectively with certain exceptions. Other
than these exceptions, earlier or retroactive application of its
accounting provision is not permitted. The adoption of the statement
did not have a significant impact on the Corporation.
In June of 2001, the Financial Accounting Standards Board issued
Statement 143, "Accounting for Asset Retirement Obligations," which
addresses the financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement requires that the
fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived
asset. This Statement will become effective for the Bank on January 1,
2003 but is not expected to have a significant impact on the financial
condition or results of operations.
In July of 2001, the Financial Accounting Standards Board issued
Statement No. 141, "Business Combinations," and Statement No. 142,
"Goodwill and Other Intangible Assets." Statement No. 141 requires all
business combinations to be accounted for using the purchase method of
accounting as use of the pooling-of-interests method is prohibited. In
addition, this Statement requires that negative goodwill that exists
after the basis of certain acquired assets is reduced to zero should be
recognized as an extraordinary gain. The provisions of this Statement
apply to all business combinations initiated after June 30, 2001.
Statement No. 142 prescribes that goodwill associated with a business
combination and intangible assets with an indefinite useful life should
not be amortized but should be tested for impairment at least annually.
The Statement requires intangibles that are separable from goodwill and
that have a determinable useful life to be amortized over the
determinable useful life. The provisions of this Statement will become
effective for the Bank in January of 2002. Upon adoption of this
statement, goodwill and other intangible assets arising from
acquisitions completed before July 1, 2001 should be accounted for in
accordance with the provisions of this statement. This transition
provision could require a reclassification of a previously separately
recognized intangible to goodwill and vice versa if the intangibles in
question do not meet the new criteria for classification as a
separately recognizable intangible.
7
STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
- --------------------------------------------------------------------------------
NEW ACCOUNTING STANDARDS (CONTINUED)
In August of 2001, the Financial Accounting Standards Board issued
Statement 144, "Accounting for the Impairment of or Disposal of
Long-Lived Assets." This Statement supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", and the accounting and reporting provisions
of APB Opinion No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions for the disposal of a segment of a business." This
Statement also amends ARB No. 51, "Consolidated Financial Statements."
The provisions of this Statement will be effective for the Bank on
January 1, 2002 but are not expected to have a significant impact on
the financial condition or results of operations.
Adoption of these statements is not expected to have a material impact
on the Corporation's financial condition or results of operations.
3
- --------------------------------------------------------------------------------
EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for the period
ended September 30, 2001 and 2000. Shares were adjusted for the impact
of stock dividends declared in 2000 and 2001.
Three Months Ended Nine Months Ended
September 30 September 30
2001 2000 2001 2000
-----------------------------------------------------------------------
Numerator, net income $ 58,511 $ 50,579 $ 145,063 $ 205,432
=======================================================================
Denominators:
Average basic shares outstanding 302,943 352,914 324,308 370,417
Average dilutive option effect 18,334 9,479 17,456 7,222
Average restricted stock effect 3,799 4,574 3,376 4,575
-----------------------------------------------------------------------
Average dilutive shares
outstanding 325,076 366,967 345,140 382,214
=======================================================================
Earnings per share:
Basic $ 0.19 $ 0.14 $ 0.45 $ 0.55
=======================================================================
Diluted $ 0.18 $ 0.14 $ 0.42 $ 0.54
=======================================================================
8
STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
- --------------------------------------------------------------------------------
RECLASSIFICATIONS
Certain amounts in the 2000 financial statements have been reclassified
to conform with the 2001 presentation. Such reclassifications had no
impact on reported net income.
9
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The Corporation may from time-to-time make written or oral forward-looking
statements, including statements contained in the Corporation'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 Corporation'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 and changes in governmental regulations relating to the
banking industry. The Corporation cautions that such factors are not exclusive.
The Corporation does not undertake to update any forward-looking statements that
may be made from time-to-time by, or on behalf of, the Corporation.
Income Statement Performance
For the quarter and nine months ended September 30, 2001, Steelton Bancorp
reported net income of $58,511 and $145,063, respectively, compared with $50,579
and $205,432 for the same periods in 2000. The decline in year to date income is
primarily attributable to an 8.3% decline in net interest income related to
higher average levels of high rate FHLB borrowings, for the 2001 period.
The primary source of revenue for the corporation is net interest income, which
represents the difference between interest income recognized on interest-earning
assets such as loans and investments, and interest expense paid on
interest-bearing liabilities such as deposits and FHLB borrowings. Levels of net
interest income are heavily dependent on the volume of interest-earning assets
and interest-bearing liabilities as well as the interest rate environment and
competitive conditions.
For the nine months ended September 30, 2001, interest income increased by less
than 1% with total interest income being approximately $3.1 million for both
nine month ending periods. The marginal increase was primarily the result of an
increase in interest income on loans of approximately $97,400, offset by a
combined decrease in interest on securities and FHLB stock of approximately
$84,100. The increase in interest on loans was the result of loan growth
occurring in 2000. The decline in interest income on securities and FHLB stock
holdings was due to lower rates and reduced investment balances as maturing
investments have been used to pay down FHLB borrowings.
For the quarter ended September 30, 2001, interest income declined by
approximately $87,000, or 7.9% compared to the same quarter ended September 30,
2000. This decline was the result of a decrease in interest on loans and
securities of approximately $46,000 and $40,400, respectively, due to declining
interest rates and lower levels of earning assets. In addition to lower
investment balances noted above, loans have declined during 2001 as new growth
has been minimal.
10
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Income Statement Performance (Continued)
Interest expense for the nine months ended September 30, 2001 increased
approximately $127,000 or 6.7% compared to the same period in 2000. This
increase in interest expense was related to significant FHLB advances during the
latter part of 2000 to fund loan growth and leveraged investment purchases.
Conversely, interest expense for the quarter ended September 30, 2001 was
$65,000, or 9.3%, less than the same quarter in 2000. This decrease from quarter
to quarter was attributable to a decline in interest expense on deposits and
FHLB advances of $48,000 and $17,300, respectively. The decrease in interest
expense on deposits is a result of the bank lowering its rates paid on passbook
and statement savings accounts, reflective of the current rate environment. The
decline in FHLB interest expense is attributable to declines in overall
borrowings resulting from repayments during 2001.
As a result of the factors mentioned above, net interest income declined
approximately $21,600 and $98,200 or 5.5% and 8.3% for the quarter and nine
months ended September 30, 2001, respectively, in comparison to the same periods
in 2000.
The provision for loan losses was $6,500 for the third quarter and $13,500 for
the first nine months of 2001, compared to $3,000 and $4,000 for the
corresponding periods in 2000. The increase is attributable to an overall
increase in delinquent consumer and residential loans and higher charge-offs.
Noninterest income excluding securities gains or losses increased approximately
$29,700 or 16% for the first nine months of 2001 and $6,359 or 9.6% for the
quarter ended September 30, 2001 in contrast to the same period in 2000. The
increase was primarily attributable to income earned from bank-owned life
insurance purchased in the second quarter of 2000.
Noninterest expense increased approximately $43,300 or 4% for the first nine
months of 2001 in comparison to the same period in 2000. The most substantial
increases occurred in occupancy and equipment expense due to the addition of a
new ATM, a newly expanded drive-through facility at the Steelton location and
other branch improvements. Advertising expense decreased due to fewer
promotions.
Noninterest expense for the quarter ended September 30, 2001 compared to the
same quarter in 2000 decreased by approximately $20,500, or 5.4%. The quarter to
quarter reduction is the net effect of the increase in equipment costs noted
above, offset by reductions in advertising, professional fees, salaries and
benefits, and other noninterest costs. All these noted reductions were part of
the corporation's ongoing effort to reduce noninterest expense.
Income tax expense for the first nine months of 2001 was $27,297 resulting in an
effective tax rate of 15.8% compared with 29% for 2000. Similarly, income tax
expense for the third quarter of 2001 of $13,513 resulted in an effective tax
rate of 18.7%, compared to 29.2% for the same quarter of 2000. Due to declining
levels of earnings, tax-exempt income on securities and bank-owned life
insurance became a larger portion of income before taxes, resulting in the
reduced effective tax rates for 2001.
11
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Balance Sheet Analysis
Total assets decreased by approximately $1.6 million or 2.7% from December 31,
2000 to September 30, 2001. The reduction in assets is primarily attributable to
a $1.2 million decrease in the loan portfolio due to normal run-off that has not
been replaced with new growth. The Corporation is currently not emphasizing loan
growth due to a desire to use available funds to reduce high cost borrowings.
Consistent with this policy, the Corporation utilized funds from called and sold
securities to pay-down FHLB advances. Accordingly, FHLB borrowings decreased by
approximately $1.0 million, or 5.3%.
The Bank has the ability to borrow funds from the Federal Home Loan Bank of
Pittsburgh, if necessary, to enhance its liquidity position. At September 30,
2001, the Bank could borrow an additional $21.9 million from the FHLB based on
qualifying collateral. Management believes that liquidity is adequate to meet
the borrowing and deposit needs of its customers.
Stockholder's equity decreased approximately $1.0 million, or 14.4%, from
December 31, 2000 until September 30, 2001. Net income, the recognition of
expense associated with restricted stock and increases in the market values of
available for sale securities all increased equity. Conversely, the Bank
repurchased approximately 76,000 shares of its outstanding common stock in 2001,
which reduced equity by the cost of approximately $1.3 million.
Most of the shares were repurchased in the third quarter through an offer
communicated to shareholders, with the purchase price determined through a
procedure commonly called a "Modified Dutch Auction." The offer expired August
16, 2001. The Board of Directors has authorized an additional repurchase of
15,000 shares based on market conditions and funds availability.
Regulatory capital ratios for the bank were as follows at September 30, 2001
compared with December 31, 2000 and the minimum requirements:
09/30/01 12/31/00 Minimum Requirements
-------- -------- --------------------
Total Risk-based Capital 17.89% 19.03% 8.00%
Tier 1 Capital 17.38% 18.54% N/A
Leverage Ratio 8.44% 9.27% 4.00%
Asset Quality
The allowance for loan losses decreased marginally to $143,700 at September 30,
2001 from approximately $150,000 at December 31, 2000. The decrease was directly
related to the charge-off of several small consumer loan balances. The level of
loans 90 days or more past due and nonaccrual loans increased to approximately
1.79% of loans at September 30, 2001, from .53% at December 31, 2000; most of
the delinquent and nonaccrual loans are secured by residential real estate.
Management believes that the allowance for loan losses was adequate at September
30, 2001 to absorb losses within the loan portfolio.
12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Corporation and its subsidiary may be a party to
various legal proceedings incident to its or their business. At September 30,
2001, there were no legal proceedings to which the Corporation 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.
None.
(b) Reports on Form 8-K
On September 20, 2001, the Registrant filed a Current Report on Form
8-K to announce a plan to repurchase approximately 5%, or up to 15,000 shares,
of the Registrant's outstanding common stock in the open market, subject to the
availability of stock.
13
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: November 13, 2001 By:/s/ Harold E. Stremmel
--------------------------------------
Harold E. Stremmel
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2001 By:/s/ Shannon Aylesworth
--------------------------------------
Shannon Aylesworth
Chief Finanical Officer
(Principal Accounting Officer)
14