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1
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission file Number:0-21720
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SLIPPERY ROCK FINANCIAL CORPORATION
(Exact Name of small business issuer as specified in its charter)
PENNSYLVANIA 25 - 1674381
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 South Main Street
Slippery Rock, Pennsylvania 16057 - 1245
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (724) 794-2210
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90 days. YES X NO
--- ---
As of June 30, 1998, there were 1,380,624 shares outstanding of the issuer's
class of common stock.
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2
Slippery Rock Financial Corporation
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
Part I Financial Information Page
----
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet, June 30, 1998 3
Consolidated Statements of Income
Three months ended June 30, 1998 and 1997
and Six months ended June 30, 1998 and 1997 4
Consolidated Statement of Changes in
Stockholders' Equity
Six months ended June 30, 1998 5
Consolidated Statement of Cash Flows
Six months ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II Other Information 12
Signatures 13
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3
Slippery Rock Financial Corporation and Subsidiary
CONSOLIDATED BALANCE SHEET
(Unaudited - $ in 000)
June 30,
1998
--------
ASSETS
Cash and due from banks $ 12,829
Interest-bearing deposits in other banks 30
Federal funds sold 6,600
Mortgage loans held for sale 981
Investment securities:
Available for sale 17,045
Held to maturity (market value $5,968) 5,895
Loans (net of unearned income of $1) 157,676
Less allowance for loan losses 1,376
---------
Net loans 156,300
Premises and equipment 3,970
Accrued interest and other assets 4,583
---------
Total assets $ 208,233
=========
LIABILITIES
Deposits:
Noninterest-bearing demand $ 30,183
Interest-bearing demand 23,539
Savings 21,469
Money market 22,045
Time 86,173
---------
Total deposits 183,409
Long-term debt 548
Accrued interest and other liabilities 898
---------
Total liabilities 184,855
---------
STOCKHOLDERS' EQUITY
Common stock (par value $0.25; authorized
12,000,000 shares, 1,380,624 issued) 345
Surplus 10,748
Retained earnings 12,237
Net unrealized gain on securities 48
---------
Total stockholders' equity 23,378
---------
Total liabilities and $ 208,233
stockholders' equity =========
See accompanying notes to the consolidated financial statements.
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4
<TABLE>
Slippery Rock Financial Corporation and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(Unaudited - $ in 000 except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 3,548 $ 3,276 $ 7,086 $ 6,465
Interest-bearing deposits in other banks - 2 - 5
Federal funds sold 127 44 320 65
Interest on investment securities:
Taxable 199 176 354 354
Exempt from federal income tax 116 170 239 459
Dividends 16 15 30 27
---------- ---------- ---------- ----------
Total interest income 4,006 3,683 8,029 7,375
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 1,709 1,540 3,471 3,095
Borrowed funds 10 12 21 53
---------- ---------- ---------- ----------
Total interest expense 1,719 1,552 3,492 3,148
---------- ---------- ---------- ----------
NET INTEREST INCOME 2,287 2,131 4,537 4,227
Provision for loan losses 68 50 137 100
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,219 2,081 4,400 4,127
---------- ---------- ---------- ----------
OTHER INCOME
Service charges on deposit accounts 140 127 287 247
Trust department income 30 21 44 32
Net gain (loss) on sales of loans 43 (27) 94 (13)
Net gain (loss) on sales of investments - 13 - (15)
Other income 286 90 405 168
---------- ---------- ---------- ----------
Total other income 499 224 830 419
---------- ---------- ---------- ---------
OTHER EXPENSE
Salaries and employee benefits 699 617 1,423 1,264
Occupancy expense, net 5 87 85 187
Furniture and equipment expense 196 158 361 317
Data processing expense 87 41 140 79
Stationery, printing and supplies 36 45 68 74
Pennsylvania shares tax 51 45 102 91
Other 410 348 736 630
---------- ---------- ---------- ---------
Total other expense 1,484 1,341 2,915 2,642
---------- ---------- ---------- ---------
Income before income taxes 1,234 964 2,315 1,904
Income tax expense 383 267 703 493
---------- ---------- ---------- ---------
NET INCOME $ 851 $ 697 $ 1,612 $ 1,411
========== ========== ========== =========
PER SHARE DATA
Average shares for the period 1,379,592 1,378,124 1,379,592 1,378,124
Earnings per share $ 0.62 $ 0.51 $ 1.17 $ 1.02
Dividends paid $ 0.16 $ 0.15 $ 0.31 $ 0.30
</TABLE>
See accompanying notes to the consolidated financial statements.
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5
<TABLE>
Slippery Rock Financial Corporation and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited - $ in 000)
Net Unrealized
Gain/(Loss)
Common Capital Retained on Available for Comprehensive
Stock Surplus Earnings Sale Securities Total Income
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 345 $ 10,711 $ 11,052 $ 67 $ 22,175 $ 0
Net Income 1,612 1,612 1,612
Other comprehensive income:
Net unrealized loss
on securities (19) (19) (19)
Stock options exercised 37 37
Cash dividends
($0.31 per share) (427) (427)
--------------------------------------------------------------------------------------
Balance, June 30, 1998 $ 345 $ 10,748 $ 12,237 $ 48 $ 23,378 $ 1,593
======================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
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6
Slippery Rock Financial Corporation and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - $ in 000)
Six Months Ended
June 30,
1998 1997
---------- ----------
OPERATING ACTIVITIES
Net income $ 1,612 $ 1,411
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses 137 100
Depreciation and amortization 380 388
Deferred taxes 2 76
Origination of loans held for sale (8,866) (3,913)
Proceeds from sales of loans held
for sale 8,877 4,652
Loss (gain) on sale of loans (94) 13
Loss on sale of investment securities - 15
Decrease in accrued interest
receivable 12 74
(Decrease) increase in accrued
interest payable (113) 48
Other, net (194) (57)
---------- ----------
Net cash provided by operating
activities 1,753 2,807
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales - 11,522
Repayments 2,940 499
Purchases (6,945) (651)
Investment securities held to maturity:
Repayments 1,055 516
Purchases - (224)
Increase in loans, net (373) (6,950)
Purchase of premises and equipment (578) (88)
Other investing activities - 41
---------- ----------
Net cash provided by (used for)
investing activities (3,901) 4,665
---------- ----------
FINANCING ACTIVITIES
Increase in deposits, net 2,184 5,304
Payments on short term borrowings (2,000) (9,000)
Payments on borrowed funds (4) (4)
Proceeds from stock options exercised 38 -
Cash dividends paid (428) (414)
---------- ----------
Net cash provided by (used for)
financing activities (210) (4,114)
---------- ----------
Increase (decrease) in cash and
cash equivalents (2,358) 3,358
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 21,817 8,670
----------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 19,459 $ 12,028
=========== ==========
Cash payment for interest $ 3,605 $ 3,099
Cash payments for income taxes $ 750 $ 356
See accompanying notes to the consolidated financial statements.
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7
Slippery Rock Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, therefore, do
not necessarily include all information which would be included in audited
financial statements. The information furnished reflects all normal
recurring adjustments which are, in the opinion of management, necessary for
fair statement of the results of the period. The results of operations for
the interim periods are not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - EARNINGS PER SHARE
There are no convertible securities which would affect the net income
required to be used in calculating basic and diluted earnings per share, as
such, net income as presented on the consolidated statement of income is
used for computation purposes.
The average shares outstanding for both basic and diluted earnings per share
are 1,379,592 at June 30, 1998 and 1,378,124 at June 30, 1997.
NOTE 3 - COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". In adopting Statement
No. 130, the Company is required to present comprehensive income and its
components in a full set of general purpose financial statements. The
Company has elected to report the effects of Statement No. 130 as part of
the statement of stockholders' equity.
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8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Comparison of the Three Months Ended June 30, 1998 and 1997
- -----------------------------------------------------------
Total interest income of $4,006,000 for the three month period ended
June 30, 1998 compares to $3,683,000 for the same three month period in
1997, an increase of $323,000 or 8.77%. The overall increase in total
interest income is attributed to an increase in interest and fees on loans
of $272,000 and to an increase in interest income on federal funds sold of
$83,000. The increase in interest and fees on loans is due primarily to
increased volume in the loan portfolio. Total net loans at June 30, 1998
were $156,300,000, an increase of $9.5 million or 6.45% from $146,836,000
at June 30, 1997. In general, the growth within the loan portfolio is
spread out among all loan products. The most significant increase, however,
occurred in the 1-4 family, first lien, real estate area which grew
$5.9 million or 11.3% from their level of $52.4 million at June 30, 1997.
The increase in interest on federal funds sold was due to volume increases.
Federal Funds Sold increased $6.6 million during the period. These items
were funded by deposit growth, which also included approximately $3.7
million in deposits that were acquired during the third quarter of 1997 as a
result of the First Western Bank, F.S.B. Slippery Rock office acquisition.
Total interest expense of $1,719,000 for the three month period ended
June 30, 1998 represents an increase of $167,000 from the $1,552,000
reported for the same three month period in 1997. The increase in interest
expense is due to increases in deposit volumes due to normal growth within
existing deposit products. Overall, average total deposits increased
$15.1 million or 8.9% from a level of $169,727,000 at June 30, 1997 to
$184,798,000 at, June 30, 1998. The branch acquisition, referred to above,
represents approximately $3.7 million of the overall growth. Average time
certificates had the largest increase with growth of $9.3 million or 11.7%.
The Bank's cost of funds at June 30, 1998 was 4.48%, up from a level of 4.35%
at June 30, 1997.
Net interest income of $2,287,000 for the three months ended June 30, 1998
compares to $2,131,000 for the same three month period in 1997, an increase
of $156,000.
Total other income for the three month period ended June 30, 1998 of $499,000
compared to $224,000 for the three month period ended June 30, 1997, an
increase of $275,000. A gain recorded from the sale of the existing Plaza
office of $145,000 is the primary reason for the increase. The Bank has
entered into an agreement to sell the land and current facility and
relocate across the street from its present location. In addition, gains
recorded on the sale of loans held for sale increased $70,000. Sales of
$4.6 million of fixed rate, 1-4 family residential mortgages, during the
three month period ended June 30, 1998 resulted in gains of $43,000. Loan
sales for the three month period ended June 30, 1997 were $3.3 million with
a net loss of $27,000.
Total other expense of $1,484,000 for the three months ended June 30, 1998
compares to $1,341,000 for the same three month period in 1997. This
represents an increase of $143,000 or 10.7%. Net increases in salaries and
employee benefits expense of $82,000 and miscellaneous expense of $61,000
were the major contributors to the overall increase. The increase in salary
and employee benefits is attributed to normal annual salary increases and to
staff additions in the loan processing and trust areas as a result of growth
within those departments. The net increase in miscellaneous expense is
derived principally from a charge to operations of $55,000 pertaining to
foreclosure proceedings on a single parcel. With the exception of these
items, all increases in other expense were brought about by those items that
are generally thought to be normal and recurring in nature.
Net income for the three month period ended June 30, 1998 was $851,000, an
increase of $154,000 from the $697,000 reported at June 30, 1997. Earnings
per share for the three month period ended June 30, 1998 were $0.62, an
increase of $0.11 from $0.51 per share earned during the same three month
period in 1997.
Comparison of the Six Months Ended June 30, 1998 and 1997
- ---------------------------------------------------------
Total interest income of $8,029,000 for the six month period ended June 30,
1998 compared to $7,375,000 for the same six month period in 1997, an
increase of $654,000 or 8.9%. As in the three month comparison, the overall
increase in total interest income is attributed to an increase in interest
and fees on loans of $621,000 and to an increase in interest on federal funds
sold of$255,000. These increases were offset by a reduction in income from
tax-exempt securities of $220,000 which resulted from volume reductions
within the portfolio.
Total interest expense of $3,492,000 for the six month period ended June 30,
1998 represents an increase of $344,000 from the $3,148,000 reported for the
same six month period in 1997. The increase in interest expense is attributed
to the volume increases discussed earlier in the three month comparison.
Net interest income of $4,537,000 at June 30, 1998 compared to $4,227,000 at
June 30, 1997, an increase of $310,000. The
<PAGE>
9
increase is due to volume increases during the period. Average earning
assets increased $15.1 million or 8.4% from $179,000 on June 30, 1997 to
$194,000 in 1998, principally due to an increase in average loans of $14.6
million or 10.1%.
Interest expense increased $344,000 or 10.9% due to volume increases.
Average deposits increased $15.1 million or 8.9% during the period primarily
due to increases in time certificates of $9.3 million or 11.7%.
Total other income of $830,000 for the six months ended June 30, 1998
compares to $419,000 for the same six month period in 1997, an increase of
$411,000. The increase is due to an increase in gains recorded on loan sales
of $107,000 and an increase in miscellaneous income of $237,000. Sales of
$8.8 million of fixed rate, 1-4 family residential mortgages, during the six
month period ended June 30, 1998 resulted in gains of $94,000. Loan sales
for the six month period ended June 30, 1997 were $4.7 million with a net
loss of $13,000. The increase in miscellaneous income is due to the $145,000
gain recognition discussed in the three month comparison and to an increase
in ATM surcharge income of $28,000 and fee income generated from the Bank's
debit card program of $30,000. In August of 1997, the Bank instituted a
surcharge to non-Bank customers using the Bank's ATMs in an effort to offset
expenses incurred in offering the service. In December 1997, the Bank began
offering a debit card product to its customers. The product offers greater
acceptance and convienence to Bank customers while also providing transaction
fee income to the Bank.
Total other expense of $2,915,000 at June 30,1998 compares to $2,642,000 at
June 30, 1997, an increase of $273,000 or 10.3%. Salary and wage expense of
$1,423,000 at June 30, 1998 compared to $1,264,000 at June 30, 1997 an
increase of $159,000 or 12.6%. The increase is due to those discussed in the
three month comparison. Miscellaneous expense of $724,000 at June 30, 1998
compared to $620,000 at June 30, 1997 an increase of $104,000 or 16.8%. The
increase is due principally to the increase in operational cost associated
with the foreclosure discussed earlier.
Net income for the six month period ended June 30, 1998 of $1,612,000 or
$1.17 per share compared to $1,411,000 or $1.02 per share for the same six
month period ended June 30, 1997. This represents an increase of $201,000
or $0.15 per share.
Dividends paid during the six month period ended June 30, 1998 were $0.31 per
share, an increase of $0.01 per share from the $0.30 per share paid during
the same six month period in 1997.
Financial Condition
- -------------------
Total assets increased $1,085,000 or 0.52% from $207,148 million at
December 31, 1997 to $208,233 million at June 30, 1998. An increase in net
available for sale securities of $3.9 million, which resulted from net
purchases of U.S. Government Agency securities, was offset by a reduction in
federal funds sold of $2.2 million and a $1.0 million decrease in held to
maturity securities.
Total deposits of $183,409,000 at June 30, 1998 represented an increase of
$2.2 million or 1.2% from $181,225,000 at December 31, 1997. All deposit
products had net increases during the period except time deposits. Time
deposits at June 30, 1998 were $86.2 million, a decrease of $4.1 million from
$90.3 million at December 31, 1997. The reduction is due primarily to a net
reduction in time certificates greater than $100,000 which declined during the
period.
At June 30, 1998, the Bank serviced approximately $33 million in sold fixed
rate mortgages. Sales of fixed rate mortgages to "Freddie Mac" totaled $4.6
million during the quarter with a net gain of $43,000. Although the Bank
does anticipate the sale of an additional $980,000 during the third quarter
of 1998, it had no unfunded commitments to sell at June 30, 1998. Management
does anticipate future sales of fixed rate mortgages; however, the extent to
which the Bank participates in the secondary market will be dependent upon
demand for fixed rate mortgages in the market place, liquidity needs of the
Bank and interest rate risk exposure. Management will continue to obtain the
necessary documentation to allow loans to be sold in the secondary market, so
that if liquidity or market conditions dictate, management will be able to
respond to these conditions.
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10
At June 30, 1998, management has calculated and monitored risk-based and
leverage capital ratios in order to assess compliance with regulatory
guidelines. The following schedule presents certain regulatory capital ratio
requirements along with the Company's position at June 30, 1998:
Actual
-------------- Minimum Well
Amount Ratio Ratio Capitalized
------ ----- ----- -----------
Tier 1 risk - based capital $ 21,297 14.64% 4.00% 6.00%
Total risk - based capital 22,673 15.59 8.00 10.00
Leverage capital 21,297 10.35 3.00 5.00
As the above table illustrates, the Company exceeds both the minimum and
"well capitalized" regulatory capital requirements at June 30, 1998.
Management does not anticipate any future activity that would have a negative
impact on any of these ratios. Also, management is not aware of any current
recommendations by the regulatory agencies that will have a material effect
on future earnings, liquidity or capital of the Company.
LIQUIDITY
The principal functions of the Bank's asset/liability management program are
to provide adequate liquidity and to monitor interest rate sensitivity.
Liquidity represents the ability to meet the cash flow requirements of both
depositors and customers requesting bank credit. Asset liquidity is provided
by repayments and the management of maturity distributions for loans and
securities. An important aspect of asset liquidity lies in maintaining
adequate levels of adjustable rate, short term, or relatively risk free
interest earning assets. One measure that the Bank uses to monitor liquidity
is the liquidity ratio which assesses the relationship between certain
earning assets, customer deposits and short-term interest bearing liabilities.
This ratio was 9.3% of total assets as of June 30, 1998 compared to 7.3% at
December 31, 1997. The increase is due to higher balance levels in cash and
balances held with correspondent banks which increased $6.7 million.
Management views this ratio to be at an adequate level.
Management also monitors its liquidity by the net loans to deposits ratio.
The net loans (including loans held for sale) to deposits ratio was at 85.7%
at June 30, 1998 as compared to 86.7% at December 31, 1997 and 86.6% at
June 30, 1997. The decrease from June 1997 was brought about by deposit
growth exceeding loan growth by $3.8 million. The Bank's liquidity plan
allows for the use of long-term advances or short- term lines of credit with
the Federal Home Loan Bank ("FHLB") as a source of funds. Borrowing from
the FHLB not only provides a source of liquidity for the Company, but also
serves as a tool to reduce interest rate risk as well. The Company may
structure borrowings from FHLB to match those of customer credit requests,
and therefore, lock in interest rate spreads over the lives of the loans. At
June 30, 1998, the Company continued to have one such matched funding loan
outstanding totaling $527,000.
The Company continues to also have short-term borrowing availability through
FHLB which are of two types, "RepoPlus" advances and "Flexline". "RepoPlus"
advances are short-term borrowings maturing within one year, bear a fixed
rate of interest and are subject to prepayment penalty. "Flexline" advances
also mature within one year and bear a variable rate of interest that
reprices daily. There are no repayment penalties for these borrowings.
There were no advances outstanding for either of these products at June 30,
1998.
In addition to borrowing from the FHLB as a source for liquidity, as
mentioned earlier, the Company also continued activity in the secondary
mortgage market. Specifically, the Company continues to sell fixed rate
residential real estate mortgages to Freddie Mac. The sales to Freddie Mac
not only provided an opportunity for the Bank to remain competitive in the
market place, by allowing it to offer a fixed rate mortgage product, but also
provides an additional source of liquidity. Loan sales on the secondary
market also provides management an additional tool to use in managing
interest rate risk exposure within the balance sheet. The Bank continues to
service all loans sold to Freddie Mac.
The Statement of Cash Flows, for the six month period ended June 30, 1998,
indicates a decrease in cash and cash equivalents of $2.4 million. Cash was
provided during the period from the net increase in deposits of $2.2 million,
the sale of fixed rate mortgages of $8.9 million and repayments of investment
securities of $4.0 million. Cash was used during the period for the
origination of loans held for sale of $8.9 million and for the purchase of
securities available for sale of $6.9 million. In addition, cash was also
used to repay $2.0 million "RepoPlus" advances. Dividends paid during the
six month period ended June 30, 1998 totalled $428,000. Cash and cash
equivalents totaled $19.5 million at June 30, 1998, a decrease from $21.8
million at December 31, 1997.
Management is not aware of any conditions, including any regulatory
recommendations or requirements, which would adversely affect its liquidity
or ability to meet its funding needs in the normal course of business.
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11
<TABLE>
RISK ELEMENTS
The following schedule presents the non-performing assets for the last five
quarters:
Jun Mar Dec Sept Jun
1998 1998 1997 1997 1997
------ ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-performing and restructured loans
Loans past due 90 days or more $ 268 $ 31 $ 18 $ 104 $ 184
Non-accrual loans 1,266 1,182 1,335 1,192 1,101
Restructured loans 0 0 0 0 104
------ ------ ------ ------ ------
Total non-performing
and restructured loans 1,534 1,213 1,353 1,296 1,389
------ ------ ------ ------ ------
Other non-performing assets
Other real estate owned 138 48 1 20 169
Repossessed assets 22 26 24 31 5
------ ------ ------ ------ ------
Total other non-performing assets 160 74 25 51 174
------ ------ ------ ------ ------
Total non-performing asset $ 1,694 $ 1,287 $ 1,378 $ 1,347 $ 1,563
====== ====== ====== ====== ======
Non-performing and restructured loans
as a percentage of total loans(1) 0.97 % 0.76 % 0.86 % 0.85 % 0.94 %
Non-performing assets and
restructured loans as a
percentage of total loans
and other non-performing
assets and restructured loans(1) 1.07 % 0.81 % 0.87 % 0.88 % 1.05 %
(1) Excludes loans held for sale.
</TABLE>
The allowance for loan losses at June 30, 1998, totaled $1,376,000 or 0.86%
of total loans (including loans held for sale) as compared to $1,299,000 or
0.82% at December 31, 1997. Provisions for loan losses were $137,000 for the
six months ended June 30, 1998 and $100,000 for the period ended June 30,
1997.
Management performs a quarterly evaluation of the allowance for loan losses.
The evaluation incorporates internal loan review, actual historical losses,
as well as any negative economic trends in the local market. The evaluation
is presented to and approved by the Board of Directors of the Bank.
Management, through the use of the quarterly evaluation, believes that the
allowance is maintained at an adequate level.
At June 30, 1998, the Company had impaired loans of $593,000, all of which
were restructured. At June 30, 1997, the impaired loans totaled $639,000 all
of which were restructured. The average investment in impaired loans during
the period ended June 30, 1998 was $593,000. Impaired loans had a general
loan loss reserve allocation of $90,000 at June 30, 1998. A loan is considered
impaired when, based upon current information and events, it is probable that
the Company will be unable to collect all principal and interest amounts due
according to the contractual terms of the loan agreement. With the exception
of one loan, which has subsequently gone through foreclosure proceedings and
is classified in the other real estate owned section of the balance sheet,
impaired loans at June 30, 1998 continue to be comprised of the impaired and
restructured loans that were reported at December 31, 1997.
Non-performing loans or assets totaled $1.5 million at June 30, 1998, an
increase of $200,000 from their level of $1.3 million at March 31, 1998. The
increase is due to an increase in loans past due 90 days or more of $237,000
during the period. Non-performing loans as a percent of total loans were
0.97% at June 30, 1998 as compared to 0.86% at December 31, 1997 and 0.94% at
June 30, 1997.
Other real estate owned at June 30, 1998 was $138,000, which is the result of
foreclosure activity during the quarter on a single commercial property.
Management believes none of the non-performing assets, including other real
estate owned, at June 30, 1998, pose any significant risk to the operations,
liquidity or capital position of the Company.
<PAGE>
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
(none)
Item 2. Changes in Securities
(none)
Item 3. Defaults Upon Senior Securities
(none)
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of Slippery Rock Financial Corporation
took place on April 21, 1998. The following two (2) matters were voted upon:
1) Election of the four (4) persons listed in CLASS III of the Proxy
Statement dated March 31, 1998 whose terms expire 2001.
CLASS III Directors:
Mr. Grady W. Cooper
Mr. Robert E. Gregg
Mr. S. P. Snyder
Mr. Kenneth D. Wimer
2) Such other business as may properly come before the meeting or
any adjournment thereof.
Continuing CLASS I directors whose terms expire in 1999 are:
Mr. John W. Conway
Mr. William D. Kingery
Mr. Charles C. Stoops, Jr.
Continuing CLASS II directors whose terms expire in 2000 are:
Mr. Robert M. Greenberger
Mr. Paul M. Montgomery
Mr. William C. Sonntag
Mr. Norman P. Sundell
The following table presents the results of the vote tabulation:
Votes Votes
Description For Against
----------- --------- -----------
1 Election of CLASS III Directors
Mr. Grady W. Cooper 1,070,173 -
Mr. Robert E. Gregg 1,069,741 432
Mr. S. P. Snyder 1,068,961 1,212
Mr. Kenneth D. Wimer 1,070,173 -
2 No other issues were brought before the meeting.
Item 5. Other Information
(none)
Item 6. Exhibits and Reports on Form 8-K
(none)
<PAGE>
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Slippery Rock Financial Corporation
(Registrant)
Date: August 10, 1998 By: /s/ William C. Sonntag
----------------------------- ------------------------
William C. Sonntag,
President and CEO
Date: August 10, 1998 By: /s/ Mark A. Volponi
----------------------------- ------------------------
Mark A. Volponi,
Treasurer
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