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, 2002
( ) 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 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
--------------
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 July 31, 2002 there were 300,290 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
C O N T E N T S
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.....................................................3
Consolidated Balance Sheets - as of
June 30, 2002 (unaudited) and December 31, 2001 (audited)................3
Consolidated Statements of Income - for the three months and
six months ended June 30, 2002 and June 30, 2001 (unaudited).............4
Consolidated Statements of Stockholders' Equity - for the six
months ended June 30, 2002 and June 30, 2001 (unaudited).................5
Consolidated Statements of Cash Flows - for the six months
ended June 30, 2002 and June 30, 2001 (unaudited)........................6
Notes to Consolidated Financial Statements...............................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................................
Item 2. Changes in Securities and Use of Proceeds.................................
Item 3. Defaults Upon Senior Securities...........................................
Item 4. Submission of Matters to a Vote of Security Holders.......................
Item 5. Other Information.........................................................
Item 6. Exhibits and Reports on Form 8-K..........................................
PART I, ITEM 1, FINANCIAL STATEMENTS
STEELTON BANCORP, INC.
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2002 2001
--------------- ---------------
(Unaudited)
ASSETS
Cash and due from banks $ 1,145,097 $ 580,181
Interest bearing deposits with other banks 1,080,311 2,617,767
--------------- ---------------
Cash and Cash Equivalents 2,225,408 3,197,948
Investment securities available for sale 15,072,774 10,359,100
Investment securities held to maturity (fair values 2002
$1,975,567; 2001 $2,387,828) 1,970,313 2,362,443
Loans receivable, net of allowance for loan losses
2002 $160,156; 2001 $147,697 34,401,074 36,615,998
Federal Home Loan Bank stock, at cost 1,065,500 989,200
Bank premises and equipment, net 1,601,092 1,539,967
Accrued interest receivable and other assets 2,067,898 1,959,938
--------------- ---------------
Total Assets $ 58,404,059 $ 57,024,594
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 33,501,674 $ 33,555,174
Advances from Federal Home Loan Bank 18,308,297 17,185,303
Advances from borrowers for insurance and taxes 377,778 277,084
Accrued interest payable and other liabilities 428,232 335,871
--------------- ---------------
Total Liabilities 52,615,981 51,353,432
--------------- ---------------
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 416,515 shares 41,652 41,652
Surplus 3,968,551 3,942,710
Retained earnings 3,729,360 3,759,801
Unearned compensation (311,946) (362,015)
Treasury stock, at cost, 2002 116,225; 2001 115,325 shares (1,794,254) (1,777,154)
Accumulated other comprehensive income 154,715 66,168
--------------- ---------------
Total Stockholders' Equity 5,788,078 5,671,162
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 58,404,059 $ 57,024,594
=============== ===============
See notes to consolidated financial statements
- --------------------------------------------------------------------------------
3
STEELTON BANCORP, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(Unaudited)
INTEREST AND DIVIDEND INCOME
Loans $ 677,382 $ 759,522 $ 1,372,040 $ 1,549,849
Securities:
Taxable 169,495 208,657 305,073 445,554
Tax exempt 27,207 21,914 50,889 43,878
Dividends on FHLB stock 7,925 16,647 17,719 34,267
Other 18,580 19,375 35,489 41,462
---------------- ---------------- ---------------- ----------------
Total Interest Income and Dividend Income 900,589 1,026,115 1,781,210 2,115,010
---------------- ---------------- ---------------- ----------------
INTEREST EXPENSE
Deposits 276,773 384,539 563,310 784,906
Advances from Federal Home Loan Bank 261,234 294,122 503,768 611,649
---------------- ---------------- ---------------- ----------------
Total Interest Expense 538,007 678,661 1,067,078 1,396,555
---------------- ---------------- ---------------- ----------------
Net Interest Income 362,582 347,454 714,132 718,455
PROVISION FOR LOAN LOSSES 10,500 4,500 21,000 7,000
---------------- ---------------- ---------------- ----------------
Net Interest Income after Provision for 352,082 342,954 693,132 711,455
Loan Losses
---------------- ---------------- ---------------- ----------------
NONINTEREST INCOME
Fees and service charges 45,314 45,580 85,385 83,200
Income from bank-owned life insurance 13,647 13,430 28,167 26,860
Other 11,240 15,261 28,680 33,343
Gain on sale of investments - 11,619 - 5,842
---------------- ---------------- ---------------- ----------------
Total Noninterest Income 70,201 85,890 142,232 149,245
---------------- ---------------- ---------------- ----------------
NONINTEREST EXPENSE
Salaries and employee benefits 203,412 187,710 403,335 379,886
System conversion 81,714 - 81,714 -
Occupancy 32,971 28,026 62,507 56,469
Equipment 32,259 25,158 53,112 44,262
Professional fees 37,756 29,068 76,656 80,727
Data processing 35,045 36,501 71,635 77,824
Advertising 6,339 12,921 11,865 19,614
Other 58,293 58,074 113,605 101,582
---------------- ---------------- ---------------- ----------------
Total Noninterest Expenses 487,789 377,458 874,429 760,364
---------------- ---------------- ---------------- ----------------
Income (Loss) before Income Taxes (65,506) 51,386 (39,065) 100,336
INCOME TAXES (BENEFIT) (33,263) 6,723 (35,651) 13,784
---------------- ---------------- ---------------- ----------------
Net Income (Loss) $ (32,243) $ 44,663 $ (3,414) $ 86,552
================ ================ ================ ================
PER SHARE DATA
Net income (loss), basic $ (0.12) $ 0.13 $ (0.01) $ 0.26
================ ================ ================ ================
Net income (loss), diluted $ (0.12) $ 0.13 $ (0.01) $ 0.24
================ ================ ================ ================
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
5
STEELTON BANCORP, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2002 and 2001
For the Six Months Ended June 30, 2001
---------------------------------------------------------------------------------------------------
Accumulated
Other
Comprehensive Total
Common Retained Unearned Treasury Income Stockholders
Stock Surplus Earnings Compensation Stock (Loss) Equity
----------- ------------ ------------ -------------- ----------- ------------ -------------
BALANCE - DECEMBER 31, 2000 $ 40,224 $ 3,665,748 $ 3,889,722 $ (422,598) $ (478,826) $ (49,482) $ 6,644,788
------------
Comprehensive income:
Net income - - 86,552 - - - 86,552
Net change in unrealized
losses on securities
available for sale - - - - - 13,140 13,140
------------
Total Comprehensive Income 99,692
------------
Stock purchased for
treasury and benefit plans - - - - (20,183) - (20,183)
Earned compensation - 12,996 - 46,430 - - 59,426
Cash dividends declared
($.09 per share) - - (33,954) - - - (33,954)
----------- ------------- ------------- ------------ ------------- ----------- ------------
BALANCE - JUNE 30, 2001 $ 40,525 $ 3,678,543 $ 3,942,230 $ (376,168) $ (499,009) $ (36,342) $ 6,749,769
=========== ============= ============= ============ ============= =========== ============
For the Six Months Ended June 30, 2002
-------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2001 $ 41,652 $ 3,942,710 $ 3,759,801 $ (362,015) $(1,777,154) $ 66,168 $ 5,671,162
-------------
Comprehensive income:
Net loss - - (3,414) - - - (3,414)
Net change in unrealized
gains on securities
available for sale - - - - - 88,547 88,547
-------------
Total Comprehensive Income 85,133
-------------
Stock purchased for
treasury and benefit plans - - - - (17,100) - (17,100)
Earned compensation - 25,841 - 50,069 - - 75,910
Cash dividends declared
($.09 per share) - - (27,027) - - - (27,027)
---------- ------------ ------------ ------------ ------------ ----------- -------------
BALANCE - JUNE 30, 2002 $ 41,652 $ 3,968,551 $ 3,729,360 $ (311,946) $(1,794,254) $ 154,715 $ 5,788,078
========== ============ ============ ============ ============ =========== =============
See notes to consolidated financial statements.
- -------------------------------------------------------------------------------
5
STEELTON BANCORP, INC.
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
---------------------------------
2002 2001
-------------- --------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (3,414) $ 86,552
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 21,000 7,000
Depreciation 45,535 36,264
Deferred benefit plan expense 64,227 55,411
Earnings on bank-owned life insurance (28,167) (26,860)
Deferred income taxes (benefit) 9,964 (40,216)
Decrease (increase) in accrued interest receivable (13,788) 74,778
Increase in accrued interest payable 10,973 19,264
Other, net 16,863 19,044
------------- ---------------
Net Cash Provided by Operating Activities 123,193 231,237
------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Sales - 3,389,482
Maturities 1,976,925 3,266,747
Purchases (6,600,450) (6,213,278)
Held to maturity securities:
Maturities 390,853 289,853
Purchases - (508,750)
Net decrease in loans 2,193,924 678,686
Purchase of bank premises and equipment (106,660) (166,526)
Net (purchase) redemption of Federal Home Loan Bank stock (76,300) 41,500
------------- ---------------
Net Cash Provided by (Used in) Investing Activities (2,221,708) 777,714
------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (53,500) 1,345,265
Net increase in advances from borrowers for insurance and taxes 100,694 72,170
Advances from Federal Home Loan Bank 6,500,000 9,681,200
Repayment of Federal Home Loan Bank advances (5,377,006) (10,031,397)
Stock purchased for treasury and benefit plans (17,100) (20,183)
Payment of dividends (27,113) (28,240)
------------- ---------------
Net Cash Provided by Financing Activities 1,125,975 1,018,815
------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (972,540) 2,027,766
CASH AND CASH EQUIVALENTS - BEGINNING 3,197,948 1,418,562
------------- ---------------
CASH AND CASH EQUIVALENTS - ENDING $ 2,225,408 $ 3,446,328
============= ===============
SUPPLEMENTARY CASH FLOWS INFORMATION
Interest paid $ 1,056,105 $ 1,377,291
============= ===============
Income taxes paid $ 10,000 $ 54,000
============= ===============
See notes to consolidated financial statements.
- -------------------------------------------------------------------------------
6
STEELTON BANCORP, INC.
- --------------------------------------------------------------------------------
NOTES TO 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 accounting principles generally
accepted in the United States of America. 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, 2002 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2002 or any other period. The condensed financial statements as of
and for the three and six month periods ended June 30, 2002 and 2001 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.
NOTE 2 - NEW ACCOUNTING STANDARDS
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 Corporation on January 1, 2003, but is
not expected to have any impact on the Corporation's financial condition or
results of operations.
- --------------------------------------------------------------------------------
7
STEELTON BANCORP, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - EARNINGS (LOSS) 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 June 30,
2002 and 2001. Shares for 2001 were adjusted for the impact of a 5% stock
dividend distributed in December of 2001.
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- -----------------------------------
2002 2001 2002 2001
----------------- ---------------- ---------------- ----------------
Numerator, net income (loss) $(32,243) $44,663 $(3,414) $86,552
================ ================ ================ ================
Denominators:
Average basic shares
outstanding 263,385 335,447 262,866 335,216
Average dilutive option effect - 14,898 - 15,248
Average restricted stock effect - 2,538 - 2,868
---------------- ---------------- ---------------- ----------------
Average Dilutive Shares
Outstanding 263,385 352,883 262,866 352,332
================ ================ ================ ================
Earnings (loss) per share:
Basic $(0.12) $0.13 $(0.01) $0.26
================ ================ ================ ================
Diluted $(0.12) $0.13 $(0.01) $0.24
================ ================ ================ ================
NOTE 4 - RECLASSIFICATIONS
Certain amounts in the 2001 financial statements have been reclassified to
conform with the 2002 presentation. Such reclassifications had no impact on
reported net income.
- --------------------------------------------------------------------------------
8
STEELTON BANCORP, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMPREHENSIVE INCOME
Comprehensive income for the Corporation consists of net income and unrealized
gains or losses on available for sale securities and is presented in the
consolidated statement of stockholders' equity. Unrealized securities gains or
losses and the related tax impact included in comprehensive income are as
follows:
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------- -----------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Unrealized holding gains (losses)
on available for sale
securities occurring during
the period $174,983 $(57,575) $134,162 $25,751
Reclassification adjustment for
gains included in net income - (11,619) - (5,842)
---------------- ---------------- ---------------- ----------------
Net Unrealized Gains (Losses) 174,983 (69,194) 134,162 19,909
Tax effect 59,494 (23,526) 45,615 6,769
---------------- ---------------- ---------------- ----------------
Net of Tax Other
Comprehensive Income (Loss) $115,489 $(45,668) $ 88,547 $13,140
================ ================ ================ ================
- --------------------------------------------------------------------------------
9
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Corporation and the bank, and should be read in conjunction
with the accompanying Consolidated Financial Statements.
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 the
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.
CRITICAL ACCOUNTING POLICIES
Disclosure of the Corporation's significant accounting policies is included in
Note 1 to the consolidated financial statements of the 2001 Annual Report to
Stockholders Form 10-KSB for the period ended December 31, 2001. Some of these
policies are particularly sensitive requiring significant judgements, estimates
and assumptions to be made by management. Additional information is contained in
Management's Discussion and Analysis for the most sensitive of these issues,
including the provision and allowance for loan losses, which are located on page
11 and 13 of this report.
Significant estimates are made by management in determining the allowance for
loan losses. Consideration is given to a variety of factors in establishing this
estimate. In estimating the allowance for loan losses, management considers
current economic conditions, diversification of the loan portfolio, delinquency
statistics, results of internal loan reviews, financial and managerial strengths
of borrowers, adequacy of collateral, if collateral dependent, or present value
of future cash flows and other relevant factors.
INCOME STATEMENT PERFORMANCE
For the quarter and six months ended June 30, 2002, Steelton Bancorp reported a
net loss of $32,243 and $3,414, respectively, compared with net income of
$44,663 and $86,552 for the same periods in 2001. The loss for the current
period is primarily attributable to expenses related to the conversion of the
Corporation's data processing system to a new provider during 2002.
- --------------------------------------------------------------------------------
10
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INCOME STATEMENT PERFORMANCE (CONTINUED)
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 Federal Home Loan Bank
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 quarter and six months ended June 30, 2002, interest and dividend income
decreased 12.2% and 15.8% to $900,589 and $1,781,210 from $1,026,115 and
$2,115,010 for the same periods of 2001, respectively. The decrease was a
function of a declining loan portfolio and a continued lower interest rate
environment throughout 2002 as compared to the same periods of the previous
year. Specifically, interest income on loans for the quarter and six months
ended June 30, 2002 decreased 10.8% and 11.5% to $677,382 and $1,372,040 from
$759,522 and $1,549,849 for the second quarter and first six months of 2001,
respectively. The lower interest rate environment further impacted income on
securities as higher yielding investments have been called or matured to be
replaced with lower yielding investment instruments. Accordingly, total interest
income from securities for the second quarter and first six months of 2002
decreased 14.7% and 27.3% to $196,702 and $355,962 compared to $230,571 and
$489,432 for the same periods in 2001.
Increased income on tax-exempt securities offset a decline in income on taxable
securities as the Corporation expanded its portfolio of state and municipal
bonds during 2002. Dividends on FHLB stock declined in 2002 due to redemptions
that reduced the average balance and lower rates.
On a more positive note, interest expense decreased $140,654 or 20.7% in the
second quarter and $329,477 or 23.6% in the first six months of 2002 compared to
the same periods of 2001. The reduction was twofold. First, as a result of rates
on deposits being lowered mid-year in 2001 to better match the overall rate
environment, interest expense on deposits for the quarter ended June 30, 2002
decreased 28.0% to $276,773 from $384,539 for the same quarter of 2001 and 28.2%
to $563,310 from $784,906 compared to the first six months of 2001. Second, new
borrowings from FHLB, at lower interest rates, resulted in lower related
interest expense. Specifically, interest expense on FHLB advances decreased
11.2% and 17.6% for the second quarter and first six months of 2002 to $261,234
and $503,768 compared to $294,122 and $611,649 for the same periods of the
previous year, respectively.
Overall, net interest income increased $15,128 or 4.4% from the second quarter
of 2001 and declined $4,323 or 0.6% compared to the first six months of 2001.
The provision for loan losses was $10,500 for the second quarter of 2002,
compared to $4,500 for the same quarter of 2001 and $21,000 for the first six
months of 2002, compared to $7,000 for the same period in the previous year.
The increased provision in 2002 is responsive to higher charge-offs and
non-performing loans more fully discussed in the asset quality section.
Noninterest income, excluding securities gains or losses, remained relatively
flat when comparing the second quarter and six months ended June 30, 2002 and
2001, respectively.
- --------------------------------------------------------------------------------
11
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INCOME STATEMENT PERFORMANCE (CONTINUED)
There was no sales activity for the second quarter and first six months of 2002
with respect to investment securities. Net gains on securities for the second
quarter and first six months of 2001 were $11,619 and $5,842, respectively.
Noninterest expense, exclusive of the conversion costs previously discussed,
experienced modest increases of $28,617 and $32,351 or 7.6% and 4.3% for the
second quarter and first six months of 2002 compared to the same periods of
2001, respectively. Salaries and benefits increased due to pay raises and higher
benefit costs. Equipment expense was impacted by recent improvements at the
Steelton location.
The income tax benefit recorded in 2002 and attributable to the net loss
resulted in an effective tax rate of 51% for the quarter and 91% for the year to
date period. Income tax expense recorded on 2001 income resulted in an effective
tax rate of 13% for the quarter and 14% year to date.
The effective tax rate fluctuated in conjunction with the proportion of tax-free
income from investments and bank-owned life insurance to the pre-tax income or
loss for each period.
BALANCE SHEET ANALYSIS
Total assets increased by $1.4 million or 2.4% from December 31, 2001 to June
30, 2002. The increase was primarily attributable to the net effect of the $2.2
million or 6.0% decrease in net loans receivable and the $4.3 million or 34.0%
increase in investment securities. The decline in loans was due primarily to
normal run-off that was not replaced with new loan growth. The Corporation is
not emphasizing loan growth due to pricing competition. The increase in
securities is primarily due to investment in GNMA mortgage-backed securities and
state and municipal bonds funded by advances from the FHLB. There were no
significant changes in the status of the Corporation's overall liquidity from
December 31, 2001 until June 30, 2002.
Regulatory capital ratios for the bank were as follows at June 30, 2002 compared
with December 31, 2001 and the minimum requirements:
June 30, December 31, Minimum
2002 2001 Requirements
------- ----------- ------------
Total risk-based capital 19.61% 18.98% 8.00%
Tier 1 risk-based capital 19.01% 18.44% N/A
Tier 1 capital 8.69% 8.84% 4.00%
- --------------------------------------------------------------------------------
12
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ASSET QUALITY
Net charge-offs for the six months ended June 30, 2002 totaled $8.541 compared
to $2,174 for the same period of 2001. Personal loans and home equity lines of
credit comprised the total of 2002 charge-offs as of June 30, 2002.
Nonperforming loans were up $239,951 to $875,948 at June 30, 2002 from $635,997
at December 31, 2001. Included in nonperforming loans at June 30, 2002 were
nonaccrual loans totaling $734,974 and loans past due 90 days or more totaling
$140,974 compared to $635,997 and $-0-, respectively, at December 31, 2001. The
Corporation held other real estate (ORE) totaling $30,631 at June 30, 2002 and
December 31, 2001. Nonperforming assets represented 1.6% of total assets at June
30, 2002 compared to 1.2% at December 31, 2001.
The allowance for loan losses totaled $160,156 at June 30, 2002, compared to
$147,697 at December 31, 2001. The allowance represents .46% and .40% of total
loans at June 30, 2002 and December 31, 2001, respectively. The allowance
provided coverage for nonperforming loans at a rate of 0.18 times at June 30,
2002 compared with 0.23 times at December 31, 2001.
The increase was the net result of the monthly provision offset by any
charge-off activity. Management periodically reviews the adequacy of the
allowance for loan losses and believes the allowance is adequate at June 30,
2002.
- --------------------------------------------------------------------------------
13
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 June 30, 2002,
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.
99.1 Certification pursuant to 18 U.S.C.ss.1350, as adopted pursuant
toss.906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None.
14
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 12, 2002 By:/s/ Harold E. Stremmel
-----------------------------------------
Harold E. Stremmel
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 2002 By:/s/ Shannon Aylesworth
---------------------------------
Shannon Aylesworth
Chief Financial Officer
(Principal Accounting Officer)