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 March 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
------------ ------------
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 May 8, 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
--- ---
<PAGE>
STEELTON BANCORP, INC. AND SUBSIDIARY
STEELTON, PENNSYLVANIA
Contents
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<TABLE>
<CAPTION>
Page
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PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements....................................................................................3
Consolidated Statements of Financial Condition - as of
March 31, 2000 (unaudited) and December 31, 1999 (audited)..............................................3
Consolidated Statements of Income - for the three months ended
March 31, 2000 and March 31, 1999 (unaudited)...........................................................4
Consolidated Statements of Comprehensive Income - for the three months
ended March 31, 2000 and March 31, 1999 (unaudited).....................................................5
Consolidated Statements of Changes in Stockholders' Equity - for the
three months ended March 31, 2000 (unaudited) and the year ended
December 31, 1999 (audited).............................................................................6
Consolidated Statements of Cash Flows - for the three months ended
March 31, 2000 and March 31, 1999 (unaudited)...........................................................7
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......................................................................................17
Item 2. Changes in Securities and Use of Proceeds..............................................................17
Item 3. Defaults Upon Senior Securities........................................................................17
Item 4. Submission of Matters to a Vote of Security Holders....................................................17
Item 5. Other Information......................................................................................17
Item 6. Exhibits and Reports on Form 8-K.......................................................................18
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
STEELTON BANCORP, INC., AND SUBISIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
Item 1. Financial Statements
<TABLE>
<CAPTION>
At March 31, At December
2000 31, 1999
------------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and amounts due from depository
institutions $ 272,452 $1,617,768
Interest bearing deposits in other banks 2,091,959 1,670,023
Investment securities
Securities available-for-sale 10,738,001 10,252,585
Securities held-to-maturity 5,655,741 5,756,786
Loans receivable, net 34,801,730 32,027,255
Accrued interest receivable 312,913 322,219
Federal Home Loan Bank stock, at cost 786,300 691,800
Office properties and equipment, net 1,019,058 1,033,679
Property held for expansion 248,542 179,248
Deferred income taxes 264,337 302,800
Other assets 21,897 41,208
------------------------ -----------------
Total assets $ 56,212,930 $53,895,371
======================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 33,576,731 $33,266,127
Advances from Federal Home Loan Bank 15,224,898 13,334,745
Advances from borrowers for insurance and taxes 362,548 232,508
Accrued interest payable 430,852 140,473
Dividends payable - 30,800
Other liabilities 69,290 118,640
------------------------ -----------------
Total liabilities 49,664,319 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 March 31, 2000;385,000 shares
issued and oustanding at December 31,1999 38,500 38,500
Additional paid-in capital 3,457,015 3,457,015
Retained earnings 3,953,039 3,863,701
Restricted stock plan 4,718 -
Unearned compensation ESOP (308,000) (308,000)
Accumulated other comprehensive income (loss) (209,121) (279,138)
Treasury stock (387,540) -
------------------------ -----------------
Total stockholders' equity 6,548,611 6,772,078
------------------------ -----------------
Total liabilities and stockholders' equity $ 56,212,930 $53,895,371
======================== =================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
STEELTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------------- -----------------
<S> <C> <C>
Interest income
Loans $ 675,281 $ 565,112
Investment securities 258,140 174,403
Other interest earning assets 18,177 -
----------------- -----------------
Total interest income 951,598 739,515
----------------- -----------------
Interest expense
Deposits 365,293 327,983
Advances from Federal Home Loan Bank 200,904 123,796
----------------- -----------------
Total interest expense 566,197 451,779
----------------- -----------------
Net interest income 385,461 287,736
Provision for loan losses - 5,000
----------------- -----------------
Net interest income after provision for loan losses 385,461 282,736
----------------- -----------------
Other income
Fees and service charges 37,558 33,668
Dividends on FHLB stock 19,552 9,049
Gain on sale of investment 286 -
Other 10,743 13,133
----------------- -----------------
Total other income 68,139 55,850
----------------- -----------------
Other expense
Salaries and employee benefits 164,124 147,505
Occupancy expense of premises 25,710 24,070
Equipment 39,618 47,507
Advertising 12,700 12,065
Other 89,850 62,249
----------------- -----------------
Total other expense 332,002 293,396
----------------- -----------------
Income before income taxes 121,598 45,190
Income taxes 32,260 18,628
----------------- -----------------
Net income $89,338 $26,562
================= =================
Basic earnings per share $ 0.26 N/A
================= =================
Diluted earnings per share $ 0.25 N/A
================= =================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE>
STEELTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------------- ------------------
<S> <C> <C>
Net income $ 89,338 $ 26,562
Other comprehensive income (loss)
Unrealized gains(losses) on securities
available for sale 115,427 (62,849)
Income tax benefit (expense) (45,410) 21,369
------------------- ------------------
Comprehensive income (loss) $ 159,355 $ (14,918)
=================== ==================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
5
<PAGE>
STEELTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
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
--------- ----------- ----------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 - - - 4,718 - - - 4,718
Treasury stock purchased - - - - - - (387,540) (387,540)
Net income - - 89,338 - - - - 89,338
Net change in unrealized
losses on securities
available for sale, net of
deferred income tax benefit - - - - - 70,017 - 70,017
--------- ----------- ----------- -------- --------- --------- --------- ----------
Balance - March 31, 2000 $ 38,500 $ 3,457,015 $ 3,953,039 $ 4,718 $(308,000) $(209,121) $(387,540) $6,548,611
========= =========== =========== ======== ========= ========= ========= ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
6
<PAGE>
STEELTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 89,338 $ 26,562
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 16,000 24,512
Amortization of deferred loan fees (9,082) (16,980)
Amortization of premiums on loans purchased 1,682 1,821
Accretion of investment security discounts
net of premium amortization 511 6,381
Provision for loan losses - 5,000
Deferred income taxes 6,947 -
(Increase) decrease in
Accrued interest receivable 9,306 9,680
Other assets 19,311 (129,698)
Increase (decrease) in
Accrued interest payable 290,379 175,045
Other liabilities (49,350) (6,030)
----------------- ----------------
Net cash provided by operating activities 375,042 96,293
----------------- ----------------
Cash flows from investing activities
Investment securities available-for-sale:
Proceeds from sales and maturities of
mortgaged-backed securities 135,409 583,281
Proceeds from sales and maturities of
other securities 250,000 -
Purchase of mortgage-backed securities (262,383) (1,809,871)
Purchase of other securities (500,000) (1,324,570)
Investment securities held-to-maturity:
Proceeds from maturities and repayments of
mortgage-backed securities 98,342 55,438
Purchase of other securities - (250,679)
Net (increase) decrease in loans (2,767,075) 1,271,514
Purchase of office properties and equipment (1,378) (13,616)
Improvements to property held for expansion (69,294) -
Purchase of Federal Home Loan Bank stock (94,500) -
----------------- ----------------
Net cash used in investing activities (3,210,879) (1,488,503)
----------------- ----------------
</TABLE>
(Continued)
7
<PAGE>
STEELTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from financing activities
Net increase (decrease) in
Deposits 310,604 1,629,107
Advances from borrowers for insurance and taxes 130,040 (28,590)
Advances from Federal Home Loan Bank 4,500,000 1,500,000
Repayment of Federal Home Loan Bank advances (2,609,847) (2,103,109)
Purchase of treasury stock (387,540) --
Payment of dividends (30,800) --
----------- -----------
Net cash provided by financing activities 1,912,457 997,408
----------- -----------
Net decrease in cash
and cash equivalents (923,380) (394,802)
Cash and cash equivalents - beginning 3,287,791 2,387,592
----------- -----------
Cash and cash equivalents - ending $ 2,364,411 $ 1,992,790
=========== ===========
Supplemental disclosures
Cash paid during the period for interest $ 275,122 $ 482,982
=========== ===========
Cash paid during the period for income taxes $ 45,648 $ --
=========== ===========
Deferred income tax benefit (expense) on
unrealized losses on securities available-for-sale $ (45,410) $ 21,369
=========== ===========
Total (increase) decrease in unrealized loss
on securities available-for-sale $ 115,427 $ (62,849)
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE>
STEELTON BANCORP, INC. AND SUBSIDIARY
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 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 March 31, 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 three month period
ended March 31, 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
<PAGE>
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 ended March 31, 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 March 31, 2000 were as follows:
Common shares - basic 347,216
Effect of dilutive securities:
Restricted Stock Plan 9,646
Stock options 4,149
-------
Common shares - diluted 361,101
=======
10
<PAGE>
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 March 31, 2000 and December 31, 1999
Assets.
Total assets increased $2.3 million, or 4.3%, to $56.2 million at March 31, 2000
from $53.9 million at December 31, 1999. The increase in total assets resulted
primarily from a $2.8 million increase in net loans outstanding and a $384,000
increase in investment securities, partially offset by a $923,000 decrease in
cash and cash equivalents.
Loans receivable increased by $2.8 million due to strong first quarter loan
originations. The increase in loan originations was the primary factor in the
$923,000 decrease in cash and cash equivalents. Investment securities increased
by $384,000 during the first quarter of 2000 as the Company invested excess
liquidity.
11
<PAGE>
Liabilities.
Total liabilities increased by 5.5%, or $2.6 million, between December 31, 1999
and March 31, 2000. The increase in total liabilities is primarily due to a $1.9
million increase in advances from the Federal Home Loan Bank (the "FHLB") and a
$311,000 increase in deposits.
Stockholders' Equity.
Total stockholders' equity decreased by 3.3%, or $223,000, to $6.5 million at
March 31, 2000 from $6.8 million at December 31, 1999. The decrease was
primarily due to the net cost of treasury shares purchased which totaled
$388,000, partially offset by net income for the period of $89,000 and
unrealized gains on investments available for sale, net of tax, of $70,000.
During February 2000, the Company announced its intention to repurchase up to
34,650 shares of common stock in the open market pursuant to two repurchase
plans authorizing the repurchase of 5% and 4% of the Company's outstanding
common stock. The Company has completed the repurchase of all the shares
available for repurchase under both plans.
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 provided by operations for
the three months ended March 31, 2000 was $375,000 compared to $96,000 for the
same period in 1999. The primary factors for the increase in cash provided by
operations in 2000 were an increase in accrued interest payable of $115,000, a
$149,000 decrease in other assets and a net increase in net income of $63,000
partially offset by a decrease in other liabilities of $43,000. Other assets at
March 31, 1999 included $101,000 in conversion costs paid in advance.
Net cash used in the Company's investing activities totaled $3.2 million for the
three months ended March 31, 2000 compared to $1.5 million during the same
period in 1999. The net cash used in investing activities for the three months
ended March 31, 2000 included $2.8 million in cash used to fund the increase in
the loan portfolio and $278,000 in net cash used
12
<PAGE>
to purchase investments and mortgage-backed securities. The net cash used in
investing activities for the three months ended March 31, 1999 included $2.7
million in net cash used to purchase investments and mortgage-backed securities
partially reduced by a net decrease in the loan portfolio of $1.3 million.
Net cash provided by financing activities totaled $1.9 million for the three
months ended March 31, 2000 primarily due to a $1.9 million net increase in FHLB
advances and increases in deposits of $311,000, 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 $997,000 for the three months ended
March 31, 1999 primarily due to a $1.6 million increase in deposits, partially
offset by a net decrease in FHLB advances of $600,000.
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 March 31, 2000, with tangible, core and
risk based capital ratios of 10.0%, 10.0% and 21.80%, 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 March 31, 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.
13
<PAGE>
Net Income.
The Company's net income increased by $62,000 for the three months ended March
31, 2000, as compared to the same period in 1999 primarily due to an increase in
net interest income of $103,000 partially offset by an increase in total other
expenses of $42,000.
Interest Income.
Total interest income increased by $212,000 for the three months ended March 31,
2000, when compared to the same period in 1999. Interest income from the loan
portfolio increased by $110,000 for the three months ended March 31, 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 $84,000 for the three months ended March 31, 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 $114,000 for the three months ended March
31, 2000, as compared to the same period in 1999. Interest expense on deposits
increased by $37,000 in 2000 compared to 1999 primarily due to an increase in
the average balance of deposits. Interest expense on FHLB advances increased by
$77,000 in 2000 compared to 1999 as a result of increased advances used
primarily to meet liquidity needs due to increased loan originations.
Net Interest Income.
Net interest income increased by $98,000 for the three months ended March 31,
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 $0 for
the three months ended March 31, 2000 compared to $5,000 for the same period in
1999. The current allowance represents .48% of total loans outstanding at March
31, 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
<PAGE>
Other Income.
Other income, primarily fees, service charges and dividends on FHLB stock
increased by $16,000 for the three months ended March 31, 2000 as compared to
the same period in 1999. The increase was primarily due to a $11,000 increase in
dividends on FHLB stock as a result of an increased average investment.
Other Expense.
Other expense increased by $42,000 for the three months ended March 31, 2000
compared to the same period in 1999. Salaries and employee benefits increased by
$17,000 in 2000 compared to 1999 primarily due to increased staffing and salary
increases. Professional fees increased by $20,000 in 2000 compared to 1999 due
to increased costs associated with being a public company.
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.
The Company expects increased expenses in the future as a result of the
establishment of the employee stock ownership plan, potential stock benefit
plans, and the adoption of the directors and executive retirement plans, as well
as increased costs associated with being a public company such as periodic
reporting, annual meeting materials, transfer agent, and professional fees.
Provision for Income Taxes.
Income tax expense increased by $14,000 for the three months ended March 31,
2000 when compared to the same period in 1999. The increase resulted primarily
from an increase in income before income taxes of $76,000 in 2000 as compared to
the same period in 1999.
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
15
<PAGE>
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.
16
<PAGE>
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 March
31, 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
---------------------------------------------------
The annual meeting of stockholders of the Company was held on April
19, 2000, and the following matters were voted on by stockholders:
Proposal I: Election of Directors:
FOR WITHHELD
--- --------
James F. Stone 270,324 6,525
Victor J. Segina 270,624 6,225
Proposal II: Ratification of Appointment of Auditors:
FOR 276,749
AGAINST 0
ABSTAIN 100
Item 5. Other Information
-----------------
None
17
<PAGE>
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
During the quarter ended March 31, 2000, the Company filed a Current
Report on Form 8-K dated February 17, 2000 (Items 5 and 7) to report the
Company's intention to repurchase in the open market up to 9% or 34,650 shares
of its outstanding common stock pursuant to two repurchase plans authorizing the
repurchase of 5% and 4%, respectively. There are no more shares available for
repurchase under these plans.
18
<PAGE>
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: May 11, 2000 By: /s/ Harold E. Stremmel
-------------------------------------
Harold E. Stremmel
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 11, 2000 By: /s/Shannon Aylesworth
-------------------------------------
Shannon Aylesworth
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
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