<PAGE> 1
Securities and Exchange Commission
WASHINGTON, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended: December 31, 1998
or
[ ] 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: 0-23101
LAUREL CAPITAL GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1717451
- ------------------------------- -------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2724 Harts Run Road
Allison Park, Pennsylvania 15101
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (412) 487-7404
---------------
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. YES X NO
----- -----
The number of shares outstanding for each of the issuer's classes of common
stock, as of the latest practicable date is:
Class: Common stock, par value $.01 per share
Outstanding at February 1, 1999: 2,187,885 shares
<PAGE> 2
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Index
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 1998 (Unaudited) and June 30, 1998 1
Consolidated Statements of Operations for the Three and
Six Months Ended December 31, 1998 and 1997 (Unaudited) 2
Consolidated Statements of Stockholders' Equity for the
Six Months Ended December 31, 1998 (Unaudited) 3
Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 1998 and 1997 (Unaudited) 4
Notes to (Unaudited) Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Part II - Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of 18-19
Security Holders
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
<PAGE> 3
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 1,041 $ 753
Money market investments 3,626 3,532
Interest-earning deposits with other institutions 8,313 7,092
Investment securities available for sale 31,926 25,539
Investment securities held to maturity (market value of $11,529 and $14,097) 11,478 14,003
Mortgage-backed securities available for sale 9,532 11,554
Mortgage-backed securities held to maturity (market value of $1,888 and $1,068) 1,879 1,051
Loans receivable, held for sale 1,504 1,633
Loans receivable, net of unearned discounts of $4 and $7 154,031 152,976
Allowance for loan losses (1,862) (1,852)
- ------------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 152,169 151,124
Federal Home Loan Bank Stock 1,277 1,277
Real estate owned 43 143
Accrued interest receivable:
Loans 840 854
Interest-earning deposits and investments 383 406
Mortgage-backed securities 64 73
Office properties and equipment, net of accumulated depreciation 1,272 1,322
Prepaid expenses and sundry assets 570 630
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $225,917 $220,986
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits $177,414 $175,390
FHLB Advances 20,031 17,033
Advance deposits by borrowers for taxes and insurance 2,178 3,143
Accrued interest payable on savings deposits 634 523
Accrued income taxes 167 169
Other accrued expenses and sundry liabilities 818 1,222
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 201,242 197,480
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock, $.01 par value; 5,000,000
shares authorized; 2,320,855 and 2,305,055 shares
issued, respectively 23 23
Additional paid-in capital 5,170 4,823
Treasury stock, at cost (131,970 and 113,670 shares) (1,943) (1,626)
Retained earnings 21,171 20,200
Accumulated other comprehensive income, net of tax 473 290
Stock held in deferred compensation trust (219) (204)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 24,675 23,506
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $225,917 $220,986
====================================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
-1-
<PAGE> 4
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
For the Three and Six Months Ended December 31, 1998 and 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest Income:
Loans $2,960 $2,919 $5,962 $5,869
Mortgage-backed securities 200 249 410 504
Investments 613 669 1,273 1,308
Interest-earning deposits 111 67 212 140
------ ------ ------ ------
Total interest income 3,884 3,904 7,857 7,821
Interest expense:
Savings deposits 1,784 1,877 3,592 3,778
Borrowings 238 157 472 277
------ ------ ------ ------
Total interest expense 2,022 2,034 4,064 4,055
------ ------ ------ ------
Net interest income before provision
for loan losses 1,862 1,870 3,793 3,766
Provision for loan losses 5 2 9 9
------ ------ ------ ------
Net interest income after provision
for loan losses 1,857 1,868 3,784 3,757
------ ------ ------ ------
Other income:
Service charges 150 163 303 305
Net gain on sale of investments and
mortgage-backed securities available for sale 159 16 225 46
Gain on the sale of loans held for sale 6 6 14 17
Other operating income 38 39 80 81
------ ------ ------ ------
Total other income 353 224 622 449
------ ------ ------ ------
Operating expenses:
Compensation, payroll taxes and
fringe benefits 433 444 902 890
Premises and occupancy costs 114 120 238 241
Federal insurance premiums 26 28 52 55
Net loss on real estate owned 12 14 16 14
Data processing expense 59 65 109 127
Professional fees 49 143 133 185
Other operating expenses 251 219 448 404
------ ------ ------ ------
Total operating expenses 944 1,033 1,898 1,916
------ ------ ------ ------
Income before income taxes 1,266 1,059 2,508 2,290
------ ------ ------ ------
Provision for income taxes:
Federal 355 314 707 683
State 86 73 171 158
------ ------ ------ ------
Total income taxes 441 387 878 841
------ ------ ------ ------
Net income $ 825 $ 672 $1,630 $1,449
====== ====== ====== ======
Earnings per share
Basic $ 0.38 $ 0.31 $ 0.74 $ 0.67
====== ====== ====== ======
Diluted $ 0.36 $ 0.29 $ 0.71 $ 0.63
====== ====== ====== ======
Dividends per share $ 0.15 $ 0.09 $ 0.30 $ 0.18
====== ====== ====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
-2-
<PAGE> 5
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
(Unaudited)
For the Six Months Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Other Stock Held in
Additional Comprehensive Deferred Total
Common Paid-in Treasury Retained Income Compensation Stockholders'
Stock Capital Stock Earnings Net of Tax Trust Equity
------ ---------- -------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 $23 $4,823 ($1,626) $20,200 $290 ($204) $23,506
Comprehensive income:
Net income -- -- -- 1,630 -- -- 1,630
Unrealized gains on
securities available
for sale, net of tax -- -- -- -- 183 -- 183
------ ------ ------- ------- ---- ----- -------
Total comprehensive income -- -- -- 1,630 183 -- 1,813
Stock options exercised
(15,800 shares) -- 128 -- -- -- -- 128
Dividends on common stock
at $0.30 per share -- -- -- (659) -- -- (659)
Treasury stock purchased -- -- (317) -- -- -- (317)
Deferred compensation
payable in common stock -- 219 -- -- -- -- 219
Net purchase of stock in
deferred compensation trust -- -- -- -- -- (15) (15)
--- ------ ------- ------- ---- ----- -------
Balance, December 31, 1998 $23 $5,170 ($1,943) $21,171 $473 ($219) $24,675
====== ====== ======= ======= ==== ===== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
-3-
<PAGE> 6
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(Unaudited)
For the Six Months Ended December 31, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income: $ 1,630 $ 1,449
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 68 74
Provision for loan losses 9 9
Net loss on sale of real estate owned 15 12
Net gain on sale of investment securities available for sale (225) (46)
Gain on the sale of loans held for sale (14) (17)
Amortization of deferred loan fees (79) (85)
Origination of loans held for sale (550) (634)
Proceeds from sale of loans held for sale 693 872
Decrease in accrued interest receivable 46 93
Increase in accrued interest payable 111 44
Other - net (255) (12)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,449 1,759
- ------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of investment securities held to maturity (5,451) (13,644)
Purchase of investment securities available for sale (8,386) (1,550)
Purchase of mortgage-backed securities held to maturity (1,011) --
Proceeds from maturities of investment securities held to maturity 8,000 8,700
Proceeds from maturities of investment securities available for sale -- 1,500
Proceeds from maturities of mortgage-backed securities available for sale 28 --
Proceeds from sale of investment securities available for sale 2,567 739
Principal repayments of investment and
mortgage-backed securities available for sale 1,923 606
Principal repayments of investment and
mortgage-backed securities held to maturity 183 47
Increase in loans (975) (1,336)
Proceeds from sale of real estate owned 85 67
Net additions to office properties and equipment (18) (124)
- ------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (3,055) (4,995)
- ------------------------------------------------------------------------------------------------------------------
Financing activities:
Net decrease in demand and club accounts (208) (968)
Net increase (decrease) in time deposit accounts 2,232 (82)
Net increase in FHLB advances 2,998 1,992
Decrease in advance deposits by borrowers
for taxes and insurance (965) (944)
Stock options exercised 128 44
Acquisition of treasury stock (317) --
Dividends paid (659) (376)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 3,209 (334)
- ------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 1,603 (3,570)
Cash and cash equivalents at beginning of period 11,377 15,335
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $12,980 $11,765
==================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ------------------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Interest on savings deposits $ 3,481 $ 3,734
Interest on FHLB advances 469 300
Income taxes 880 1,044
Transfer of loans to real estate owned -- 163
Cash paid during the period for interest includes interest credited on deposits of $3,025 and $3,247 for the
six months ended December 31, 1998 and 1997, respectively.
==================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
-4-
<PAGE> 7
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
December 31, 1998 and June 30, 1998
(1) Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q and, therefore, do not include
all the information or footnotes necessary for a complete presentation of
financial condition, results of operation and cash flows in conformity with
generally accepted accounting principles. However, all adjustments, consisting
only of normal recurring adjustments which, in the opinion of management, are
necessary for a fair presentation, have been included. Significant accounting
policies have not changed since June 30, 1998 except for the adoption of the
Financial Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standard No. 130, ("SFAS 130") "Reporting Comprehensive Income",
discussed below. The results of operations for the three and six months ended
December 31, 1998 are not necessarily indicative of the results which may be
expected for the entire fiscal year. The financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in Laurel Capital Group, Inc.'s (the "Company") 1998 Annual
Report to Stockholders for the year ended June 30, 1998. All amounts presented
in the Notes to Unaudited Consolidated Financial Statements are presented in
thousands except share and per share data.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income $825 $672 $1,630 $1,449
Weighted average shares outstanding 2,193,210 2,171,343 2,196,410 2,169,641
Earnings per share $0.38 $0.31 $0.74 $0.67
Diluted earnings per share:
Net income $825 $672 $1,630 $1,449
Weighted average shares outstanding 2,193,210 2,171,343 2,196,410 2,169,641
Dilutive effect of employee
Stock options 110,787 135,653 114,727 124,267
--------- --------- --------- ---------
Diluted weighted shares outstanding 2,303,997 2,306,996 2,311,137 2,293,908
Earnings per share $0.36 $0.29 $0.71 $0.63
</TABLE>
-5-
<PAGE> 8
Securities
- ----------
The Company accounts for investments in debt and equity securities in accordance
with Financial Accounting Standards Board ("FASB") Statement No. 115 ("FAS
115"). FAS 115 requires that investments be classified as either: (1) Securities
Held to Maturity- reported at amortized cost, (2) Trading Securities- reported
at fair value, or (3) Securities Available for Sale- reported at fair value.
Unrealized gains and losses for trading securities are reported in earnings
while unrealized gains and losses for securities available for sale are reported
as other comprehensive income in stockholders' equity.
Comprehensive Income
- --------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. For the six
months ended December 31, 1998 and 1997, the Company's total comprehensive
income was $1,813 and $1,621 respectively. Total comprehensive income is
comprised of net income of $1,630 and $1,449 and other comprehensive income of
$183 and $172, net of tax, respectively. Other comprehensive income consists of
unrealized gains and losses on investment securities and mortgage-backed
securities available for sale.
Loans Receivable
- ----------------
Loans receivable are stated at unpaid principal balances net of the allowance
for possible loan losses, net deferred loan fees and discounts. The Company
adopted FAS 114, "Accounting by Creditors for Impairment of a Loan" and FAS 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures", an amendment of FAS 114, effective July 1, 1995. These statements
address the accounting by creditors for impairment of certain loans. They apply
to all creditors and to all loans, uncollateralized as well as collateralized,
except for large groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment. The Bank considers all one-to-four family
residential mortgage loans and all consumer loans (as presented in Note 4) to be
smaller-balance homogeneous loans. Loans within the scope of these statements
are considered impaired when, based on current information and events, it is
probable that all principal and interest will not be collected in accordance
with the contractual terms of the loans. Management determines the impairment of
loans based on knowledge of the borrower's ability to repay the loan according
to
-6-
<PAGE> 9
the contractual agreement, the borrower's repayment history and the fair value
of collateral for certain collateral dependent loans. Pursuant to FAS 114
paragraph 8, management does not consider an insignificant delay or
insignificant shortfall to impair a loan. Management has determined that a delay
less than 90 days will be considered an insignificant delay and that an amount
less than $5,000 will be considered an insignificant shortfall. The Bank does
not apply FAS 114 using major risk characteristics for groups of loans, but on a
loan by loan basis. All loans are charged off when management determines that
principal and interest are not collectible.
The accrual of interest on all loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due or when
the loan becomes 90 days past due, whichever occurs first. When interest accrual
is discontinued, all unpaid accrued interest is reserved. Such interest
ultimately collected is credited to income in the period of recovery or applied
to reduce principal if there is sufficient doubt about the collectability of
principal. Consumer loans more than 120 days or 180 days delinquent (depending
on the nature of the loan) are generally required to be written off.
Any excess of the Bank's recorded investment in the loans over the measured
value of the loans in accordance with FAS 114 is provided for in the allowance
for loan losses. The Bank reviews its loans for impairment on a quarterly basis.
Loans receivable classified as held for sale are recorded in the financial
statements in the aggregate at the lower of cost or market.
(2) Contingent Liabilities
----------------------
The Company is subject to a number of asserted and unasserted potential claims
encountered in the normal course of business. In the opinion of management and
legal counsel, the resolution of these claims is not expected to have a material
adverse effect on the Company's financial position, liquidity or results of
operations.
-7-
<PAGE> 10
(3) INVESTMENT AND MORTGAGE-BACKED SECURITIES
-----------------------------------------
Investment securities available for sale are comprised of the following:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1998:
Municipal obligations $14,722 $316 $-- $15,038
Corporate notes 885 13 -- 898
FNMA preferred stock 250 10 -- 260
FHLMC preferred stock 250 16 -- 266
FNMA common stock 249 121 -- 370
FHLMC common stock 199 123 -- 322
Shay Financial Services
ARMs Fund 14,849 -- 77 14,772
-----------------------------------------------------------
31,404 599 77 31,926
Mortgage-backed securities 9,337 196 1 9,532
-----------------------------------------------------------
Total $40,741 $795 $78 $41,458
===========================================================
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1998, the contractual maturities of the debt securities Amortized Fair
available for sale are: Cost Value
---------------------------
<S> <C> <C>
Due after five years through ten years $ 885 $ 898
Due after ten years 14,722 15,038
---------------------------
Total $15,607 $15,936
===========================
</TABLE>
Mortgage-backed securities have various contractual maturity dates. Actual
repayments may be different due to prepayments on the loans underlying the
securities. The FNMA stock, FHLMC stock and Shay Financial Services ARMs
Fund have no stated maturity.
Note: There were gross realized gains of $225 and $46 recorded during the six
months ended December 31, 1998 and 1997, respectively, on the sale of
investment securities available for sale. Proceeds from the sale of
investment securities available for sale during the six months ended
December 31, 1998 and 1997 were $2,567 and $739, respectively.
Investment securities held to maturity are comprised of the following:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1998:
Corporate notes and commercial paper $11,478 $59 $ 8 $11,529
Mortgage-backed securities 1,879 9 -- 1,888
-----------------------------------------------------------
Total $13,357 $68 $ 8 $13,417
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1998, the contractual maturities of the debt securities Amortized Fair
held to maturity are: Cost Value
---------------------------
<S> <C> <C>
Due in less than one year $ 4,476 $ 4,478
Due after one year through five years 500 511
Due after five years through ten years 1,500 1,509
Due after ten years 5,002 5,031
---------------------------
Total $11,478 $11,529
===========================
</TABLE>
Mortgage-backed securities have various contractual maturity dates. Actual
repayments may be different due to prepayments on the loans underlying the
securities.
-8-
<PAGE> 11
(4) Loans Receivable
----------------
Loans receivable are comprised of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage loans:
1 to 4 family dwellings $114,225 $114,905
Multi-family dwellings 2,036 2,474
Commercial 5,217 6,391
Guaranteed or insured 63 67
Construction and development loans 2,475 4,341
- -----------------------------------------------------------------------------------------------------------------------------------
124,016 128,178
Consumer loans:
Home improvement loans (net of unearned
discounts of $4 and $7) 46 92
Loans secured by savings accounts 312 335
Commercial loans 714 650
Installment loans 30,477 26,289
- -----------------------------------------------------------------------------------------------------------------------------------
31,549 27,366
- -----------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net of unearned discounts 155,565 155,544
Less: Allowance for loan losses (1,862) (1,852)
Loans in process (1,028) (1,953)
Deferred loan fees (506) (615)
- -----------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net $152,169 $151,124
===================================================================================================================================
</TABLE>
Changes in the allowance for loan losses for the six months ended December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of the fiscal year $1,852 $1,943
Provision for losses 9 9
Charge-offs (29) (144)
Recoveries 30 13
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, $1,862 $1,821
===================================================================================================================================
</TABLE>
At December 31, 1998, the recorded investment in loans that are considered to be
impaired under SFAS 114 was $303. Included in this amount is $102 of impaired
loans for which the related allowance for loan losses is $4, and $201 of
impaired loans that as a result of write-downs do not have an allowance for loan
losses. The average recorded investment in impaired loans during the six months
ended December 31, 1998 was approximately $299. For the six months ended
December 31, 1998, the Company recognized interest income on those impaired
loans of $4 which was recognized using the cash basis method of income
recognition.
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------
<S> <C> <C>
Non-accrual loans $596 $809
Non-accrual loans as a percent of total loans 0.39% 0.55%
- ---------------------------------------------
</TABLE>
-9-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
BALANCE SHEET DATA At December 31,
1998 1997
-------- --------
(In thousands except per share data)
------------------------------------
(Unaudited)
<S> <C> <C>
Total assets $225,917 $213,379
Money market investments 3,626 7,310
Interest-earning deposits with other institutions 8,313 3,273
Investment securities available for sale 31,926 15,008
Investment securities held to maturity 11,478 20,441
Mortgage-backed securities available for sale 9,532 12,760
Mortgage-backed securities held to maturity 1,879 1,173
Loans receivable held for sale 1,504 1,606
Loans receivable, net 152,169 145,919
Savings deposits 177,414 173,969
FHLB advances 20,031 13,036
Retained earnings 21,171 19,168
Stockholders' equity 24,675 22,551
Stockholders' equity per share (1) $ 11.17 $ 10.37
</TABLE>
<TABLE>
<CAPTION>
STATISTICAL PROFILE Three months ended Six months ended
December 31, December 31,
-------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average yield earned on all interest-earning assets 7.13% 7.57% 7.22% 7.62%
Average rate paid on all interest-bearing liabilities 4.34 4.56 4.36 4.54
Average interest rate spread 2.79 3.01 2.86 3.08
Net yield on average interest-earning assets 3.42 3.62 3.49 3.67
Average interest-earning assets as a percentage of
average interest-bearing liabilities 117.84 116.45 117.64 116.03
Return on average assets (2) 1.48 1.27 1.47 1.37
Return on average equity (2) 13.55 12.07 13.52 13.22
Average equity to average assets 10.93 10.54 10.85 10.39
</TABLE>
- -----------------------
(1) Amounts reflect the effects of the three-for-two stock split paid on
January 16, 1998.
(2) Amounts are annualized .
-10-
<PAGE> 13
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31,1998 AND 1997
GENERAL. Laurel Capital Group, Inc.'s (the "Company") only significant asset is
the stock it owns of its wholly-owned subsidiary, Laurel Savings Bank (the
"Bank"). The Company's net income for the three months ended December 31, 1998
was $825,000 compared to $672,000 for the same period in the prior year. The
increase of $153,000 or 22.8% was primarily the result of a $129,000 or 57.6%
increase in other income, a $89,000 or 8.6% decrease in other operating expenses
partially offset by an $8,000 or .4% decrease in net interest income and a
$54,000 or 13.6% increase in income tax expense. These and other significant
fluctuations are discussed below.
NET INTEREST INCOME. The Company's operating results depend substantially on the
Bank's net interest income, which is determined by the average interest rate
spread between the Bank's interest-earning assets and interest-bearing
liabilities and the relative amounts of such assets and liabilities. Net
interest income decreased by $8,000 or .4% during the three months ended
December 31, 1998 as compared to the same period of the prior year. The decrease
was primarily due to a decrease in the average interest rate spread from 3.01%
for the quarter ended December 31, 1997 to 2.79% for the quarter ended December
31, 1998. This decrease was partially offset by a $3.9 million or 13.2% increase
in average net earning assets for the quarter ended December 31,1998 as compared
to the quarter ended December 31, 1997. The decrease in the average interest
rate spread was primarily due to a decrease in the average interest rate earned
on interest-earning assets from 7.57% for the quarter ended December 31,1997 to
7.13% for the quarter ended December 31, 1998. This decrease was partially
offset by a decease in the average rate paid on the Bank's interest-bearing
liabilities from 4.56% for the quarter ended December 31, 1997 to 4.34% for the
quarter ended December 31, 1998.
Interest income on loans receivable and loans held for sale increased by $41,000
or 1.4% during the three months ended December 31, 1998 as compared to the same
period in the prior year. This was primarily due to a $6.7 million or 4.6%
increase in the average outstanding balance of loans receivable for the quarter
ended December 31, 1998 as compared to the same period in the prior year. This
increase was partially offset by a decrease in the average yield on loans
receivable from 7.98% for the quarter ended December 31, 1997 to 7.74% for the
quarter ended December 31, 1998. The increase in the average outstanding balance
of loans receivable was due to a $5.7 million or 22.8% increase in the average
outstanding balance of consumer loans and a $1.0 million or .8% increase in the
average outstanding balance of mortgage loans. The decrease in the average yield
was primarily due to lower market interest rates. The Bank continues to
emphasize the origination of consumer loan products as part of its
Asset/Liability management due to their generally shorter terms.
Interest on mortgage-backed securities held to maturity and mortgage-backed
securities available for sale decreased by $49,000 or 19.7% during the quarter
ended December 31, 1998 as compared to the December 31, 1997 quarter. This
decrease was primarily due to a $2.0 million or 14.6% decrease in the average
outstanding balance of mortgage-backed securities during the quarter ended
December 31, 1998 as compared to the December 31, 1997 quarter. In addition, the
average yield on mortgage-backed securities decreased from 7.18% for the quarter
ended December 31, 1997 to 6.75% for the quarter ended December 31, 1998. At
December 31, 1998, the Bank's portfolio of mortgage-backed securities available
for sale had net unrealized gains of $195,000.
-11-
<PAGE> 14
This portfolio consists of fixed and adjustable rate securities with an average
yield of 7.03% at December 31, 1998. Rising interest rates would reduce the
unrealized gains in this portfolio if the fixed rate securities were not sold.
The mortgage-backed securities held to maturity portfolio consists of two
adjustable-rate and one fixed-rate collateralized mortgage obligations (CMO's)
with an average yield of 6.19% at December 31, 1998. At December 31, 1998, the
Bank's portfolio of mortgage-backed securities held to maturity had net
unrealized gains of $9,000. In periods of rising interest rates, unrealized
losses could occur due to the timing difference of when the securities reprice.
The Bank uses these securities as part of its Asset/Liability strategy. See Note
3 of "Notes to Unaudited Consolidated Financial Statements."
Interest income on investments held to maturity and investments available for
sale decreased during the three months ended December 31, 1998 by $56,000 or
8.4% from the comparable period in 1997, primarily due to a decrease in the
average yield on investment securities from 6.43% for the quarter ended December
31, 1997 to 5.54% for the quarter ended December 31, 1998. This decrease was
partially offset by a $2.6 million or 6.3% increase in the average outstanding
balance of such securities for the quarter ended December 31,1998 as compared to
the quarter ended December 31, 1997. The increase in the average outstanding
balance was primarily due to the investment of increased savings deposits and
funds borrowed from the Federal Home Loan Bank ("FHLB") of Pittsburgh. At
December 31, 1998, the Bank's portfolio of investment securities available for
sale and investment securities held to maturity had net unrealized gains of
$522,000 and $51,000, respectively. See Note 3 of "Notes to Unaudited
Consolidated Financial Statements."
Interest income on interest-earning deposits increased during the three months
ended December 31,1998 by $44,000 or 65.7% from the comparable period in 1997.
This increase was primarily due to an increase of $4.2 million or 87.2% in the
average outstanding balance of interest-earning deposits for the quarter ended
December 31, 1998 as compared to the December 31, 1997 quarter. The average
yield on interest-earning deposits decreased from 5.38% for the quarter ended
December 31, 1997 to 4.84% for the quarter ended December 31, 1998.
Interest expense on interest-bearing deposits decreased by $93,000 or 4.6% for
the quarter ended December 31,1998, compared to the same period in 1997. The
decrease was primarily due to a decrease in the average interest rate paid on
savings deposits from 4.48% for the three months ended December 31, 1997 to
4.22% for the three months ended December 31, 1998. This decrease was partially
offset by a $1.4 million or .9% increase in the average outstanding balance of
such deposits during the three months ended December 31, 1998 as compared to the
same period of the prior year.
Interest expense on borrowings increased $81,000 or 51.6% for the quarter ended
December 31, 1998 compared to the quarter ended December 31, 1997 due to a $6.3
million or 57.8% increase in the average outstanding balance of FHLB advances.
The average rate paid on borrowings decreased from 5.74% for the quarter ended
December 31, 1997 to 5.54% for the quarter ended December 31, 1998.
-12-
<PAGE> 15
PROVISION FOR LOAN LOSSES. The Bank provided $5,000 and $2,000 to its allowance
for loan losses for the quarters ended December 31, 1998 and 1997, respectively.
Such provisions were the result of an analysis of the allowance for loan losses
in connection with a review of the Bank's loan portfolio.
At both December 31, 1998 and 1997, the Bank's allowance for loan losses
amounted to $1.9 million or 1.2% and 1.3%, respectively, of the total loan
portfolio.
A review of the loan portfolio is conducted at least quarterly by management to
determine that the allowance for loan losses is adequate to absorb estimated
loan losses. In determining the appropriate level of the allowance for loan
losses, consideration is given to general economic conditions, diversification
of loan portfolios, historic loss experience, identified credit problems,
delinquency levels and adequacy of collateral. In consideration of the above,
management has assessed the risks in the loan portfolio and has determined that
no significant changes have occurred during the three and six months ended
December 31, 1998. Thus, the level of the allowance for loan losses is
substantially unchanged from June 30, 1998. Although management believes that
the current allowance for loan losses is adequate, future additions to the
reserve may be necessary due to changes in economic conditions and other
factors. In addition, as an integral part of their periodic examination, certain
regulatory agencies review the adequacy of the Bank's allowance for loan losses
and may direct the Bank to make additions to the allowance based on their
judgement. No such additions were required to be made during the Company's most
recent examination.
OTHER INCOME. Total other income increased by $129,000 or 57.6% to $353,000 for
the quarter ended December 31, 1998 as compared to the same period in 1997. This
was primarily due to a $143,000 increase in net gains on the sale of investments
available for sale partially offset by a $13,000 decrease in fees and service
charges.
OPERATING EXPENSES. Total operating expenses decreased by $89,000 or 8.6% during
the quarter ended December 31, 1998 as compared to the comparable quarter in
1997. This decrease was primarily due to a $94,000 decrease in professional
fees, an $11,000 decrease in compensation and benefits and $6,000 decreases in
both premises and occupancy and data processing expenses. These decreases were
partially offset by an increase of $32,000 in other operating expense. The
decrease in professional fees was primarily due to a decrease in legal fees
incurred in litigation brought by the Bank against another financial
institution.
INCOME TAX EXPENSE. Income tax expense increased by $54,000 for the quarter
ended December 31, 1998 as compared to the quarter ended December 31, 1997
primarily as a result of higher pre-tax income. This increase was partially
offset by a decrease in the effective tax rate from 36.5% for the 1997 quarter
to 34.8% for the 1998 quarter. This decrease was primarily due to increased
purchases of non-taxable municipal obligations by the Company during the past
year.
-13-
<PAGE> 16
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31,1998 AND 1997
GENERAL. The Company's net income for the six months ended December 31, 1998 was
$1.6 million compared to $1.4 million for the same period in the prior year. The
increase of $181,000 or 12.5% was primarily the result of a $173,000 or 38.5%
increase in other income, a $27,000 or .7% increase in net interest income and
an $18,000 or .9% decrease in other operating expenses partially offset by a
$37,000 or 4.4% increase in income tax expense. These and other significant
fluctuations are discussed below.
NET INTEREST INCOME. Net interest income increased by $27,000 or .7% during the
six months ended December 31, 1998 as compared to the same period of the prior
year. The increase was primarily due to a $4.2 million or 14.9% increase in
average net earning assets for the six months ended December 31, 1998 as
compared to the six months ended December 31, 1997. This increase was partially
offset by a decrease in the average interest rate spread from 3.08% for the six
months ended December 31, 1997 to 2.86% for the six months ended December 31,
1998. The decrease in the average interest rate spread was primarily due to a
decrease in the average interest rate earned on interest-earning assets from
7.62% for the six months ended December 31,1997 to 7.22% for the six months
ended December 31, 1998. This decrease was partially offset by a decease in the
average rate paid on the Bank's interest-bearing liabilities from 4.54% for the
six months ended December 31, 1997 to 4.36% for the six months ended December
31, 1998.
Interest income on loans receivable and loans held for sale increased by $93,000
or 1.6% during the six months ended December 31, 1998 as compared to the same
period in the prior year. This was primarily due to a $7.6 million or 5.2%
increase in the average outstanding balance of loans receivable for the six
months ended December 31, 1998 as compared to the same period in the prior year.
This increase was partially offset by a decrease in the average yield on loans
receivable from 8.06% for the six months ended December 31, 1997 to 7.78% for
the six months ended December 31, 1998. The increase in the average outstanding
balance of loans receivable was due to a $5.2 million or 20.9% increase in the
average outstanding balance of consumer loans and a $2.4 million or 2.0%
increase in the average outstanding balance of mortgage loans. The decrease in
the average yield was primarily due to lower market interest rates. The Bank
continues to emphasize the origination of consumer loan products as part of its
Asset/Liability management due to their generally shorter terms.
Interest on mortgage-backed securities held to maturity and mortgage-backed
securities available for sale decreased by $94,000 or 18.7% during the six
months ended December 31, 1998 as compared to the six months ended December 31,
1997. This decrease was primarily due to a $2.1 million or 15.2% decrease in the
average outstanding balance of mortgage-backed securities during the six months
ended December 31, 1998 as compared to the six months ended December 31, 1997.
In addition, the average yield on mortgage-backed securities decreased from
7.19% for the six months ended December 31, 1997 to 6.89% for the six months
ended December 31, 1998. See "Comparison of the Three Months Ended December 31,
1998 and 1997 - Net Interest Income."
-14-
<PAGE> 17
Interest income on investments held to maturity and investments available for
sale decreased during the six months ended December 31, 1998 by $35,000 or 2.7%
from the comparable period in 1997, primarily due to a decrease in the average
yield on investment securities from 6.40% for the six months ended December 31,
1997 to 5.72% for the six months ended December 31, 1998. This decrease was
partially offset by a $3.6 million or 8.8% increase in the average outstanding
balance of such securities for the six months ended December 31,1998 as compared
to the six months ended December 31, 1997. The increase in the average
outstanding balance was primarily due to the investment of increased savings
deposits and funds borrowed from the FHLB of Pittsburgh. See "Comparison of the
Three Months Ended December 31, 1998 and 1997 - Net Interest Income."
Interest income on interest-earning deposits increased during the six months
ended December 31,1998 by $72,000 or 51.4% from the comparable period in 1997.
This increase was primarily due to an increase of $3.1 million or 61.2% in the
average outstanding balance of interest-earning deposits for the six months
ended December 31, 1998 as compared to the same period in the prior year. The
average yield on interest-earning deposits decreased from 5.45% for the six
months ended December 31, 1997 to 5.12% for the six months ended December 31,
1998.
Interest expense on interest-bearing deposits decreased by $186,000 or 4.9% for
the six months ended December 31,1998, compared to the same period in 1997. The
decrease was primarily due to a decrease in the average interest rate paid on
savings deposits from 4.48% for the six months ended December 31, 1997 to 4.24%
for the six months ended December 31, 1998. This decrease was partially offset
by a $555,000 or .3% increase in the average outstanding balance of such
deposits during the six months ended December 31, 1998 as compared to the same
period of the prior year.
Interest expense on borrowings increased $195,000 or 70.4% for the six months
ended December 31, 1998 compared to the six months ended December 31, 1997 due
to a $7.4 million or 76.4% increase in the average outstanding balance of FHLB
advances. The average rate paid on borrowings decreased from 5.67% for the six
months ended December 31, 1997 to 5.48% for the six months ended December 31,
1998.
PROVISION FOR LOAN LOSSES. The Bank provided $9,000 to its allowance for loan
losses for both the six months ended December 31, 1998 and 1997. Such provisions
were the result of an analysis of the allowance for loan losses in connection
with a review of the Bank's loan portfolio. See "Comparison of the Three Months
Ended December 31, 1998 and 1997 - Provision For Loan Losses."
OTHER INCOME. Total other income increased by $173,000 or 38.5% to $622,000 for
the six months ended December 31, 1998 as compared to the same period in 1997.
This was primarily due to a $179,000 increase in net gains on the sale of
investments available for sale.
OPERATING EXPENSES. Total operating expenses decreased by $18,000 or .9% during
the six months ended December 31, 1998 as compared to the comparable period in
1997. This decrease was primarily due to a $52,000 decrease in professional fees
and an $18,000 decrease in data processing fees partially offset by a $44,00
increase in other operating expense and a $12,000 increase in compensation and
benefits. The decrease in professional fees was primarily due to a decrease in
legal fees incurred in litigation brought by the Bank against another financial
institution.
-15-
<PAGE> 18
INCOME TAX EXPENSE. Income tax expense increased by $37,000 for the six months
ended December 31, 1998 as compared to the six months ended December 31, 1997
primarily as a result of higher pre-tax income. This increase was partially
offset by a decrease in the effective tax rate from 36.5% for the 1997 quarter
to 34.8% for the 1998 quarter. This decrease was primarily due to increased
purchases of non-taxable municipal obligations by the Company during the past
year.
YEAR 2000
The Company outsources its primary data processing functions. A challenging
problem exists as the millennium ("year 2000") approaches as many computer
systems worldwide do not have the capability of recognizing the year 2000 or
years thereafter.
The Company has established a management committee to identify all of its
functions potentially affected by the year 2000, and to ensure that
re-programming or replacement of all critical systems will be completed by June
30, 1999. The Company has begun testing the identified functions and anticipates
concluding its testing of all affected functions during the quarter ended June
30, 1999. The Company has also contacted its largest borrowers to determine if
they will be materially affected by potential year 2000 problems. To date, the
Company has received confirmations from its primary vendors that corrections
have been made and testing completed to address and correct the issues
associated with the year 2000 problem. The Company continues to formulate
contingency plans for its major functions in the event systems fail and expects
to complete tests on its ability to implement such plans by September 30, 1999.
The Company does not anticipate that the year 2000 issue will pose any
significant operational problems or will have any material impact on its results
of operations. The Company has contracted to replace various hardware and
software during fiscal 1999 at a cost of approximately $300,000 that will be
depreciated over future periods. However, if the modifications and conversions
are not completed timely, the year 2000 problem may have a material impact on
the operations of the Company.
FINANCIAL CONDITION AND CAPITAL RESOURCES
Total assets increased by $4.9 million or 2.2% from June 30, 1998 to December
31, 1998. The largest increases were a $6.4 million increase in investment
securities available for sale, a $1.2 million increase in interest-bearing
deposits with other institutions and a $1.0 million increase in loans
receivable, net. These increases were partially offset by a $2.5 million
decrease in investment securities held to maturity. The largest components of
change in liabilities were a $3.0 million increase in FHLB advances and a $2.0
million increase in deposits partially offset by a $965,000 decrease in advance
deposits by borrowers for taxes and insurance.
Under regulations adopted by the FDIC, the Bank is required to maintain Tier I
(Core) capital equal to at least 4% of the Bank's adjusted total assets, and
Tier II (Supplementary) risk-based capital equal to at least 8% of the
risk-weighted assets. At December 31, 1998, the Bank exceeded all of these
requirements, with Tier I and Tier II ratios of 10.52% and 20.49%, respectively.
-16-
<PAGE> 19
The following table sets forth certain information concerning the Bank's
regulatory capital at December 31, 1998.
<TABLE>
<CAPTION>
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
------- ---------- ----------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Equity Capital (1) $23,940 $23,940 $23,940
Less unrealized securities gains (473) (473) (473)
Plus general valuation allowances (2) - - 1,529
------- ------- -------
Total regulatory capital 23,467 23,467 24,996
Minimum required capital 8,921 4,893 9,786
------- ------- -------
Excess regulatory capital $14,546 $18,574 $15,210
======= ======= =======
Minimum required capital to be well
capitalized under Prompt Corrective
Action Provisions $11,151 $ 7,320 $9,760
======= ======= =======
Regulatory capital as a percentage (3) 10.52% 19.24% 20.49%
Minimum required capital percentage 4.00 4.00 8.00
----- ----- -----
Excess regulatory capital percentage 6.52% 15.24% 12.49%
===== ===== =====
Minimum required capital percentage
to be well capitalized under Prompt
Corrective Action Provisions 5.00% 6.00% 10.00%
===== ===== =====
</TABLE>
(1) Represents equity capital of the Bank as reported to the FDIC and the
Pennsylvania Department of Banking on Form 033 for the three months ended
December 31, 1998.
(2) Limited to 1.25% of risk adjusted assets.
(3) Tier I capital is calculated as a percentage of adjusted total assets of
$223,019. Tier I and Tier II risk-based capital are calculated as a
percentage of adjusted risk-weighted assets of $121,994.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented 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 changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, substantially all
of the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services as measured by the consumer price
index.
-17-
<PAGE> 20
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's asset and liability management policies as
well as the potential impact of interest rate changes upon the market value of
the Bank's portfolio equity, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the 1998 Annual Report to
Stockholders. There has been no material change in the Company's asset and
liability position or market value of portfolio equity since June 30, 1998.
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
PART II
Item 1. Legal Proceedings
-----------------
The Company is not engaged in any legal proceedings at the present time
other than those generally associated with the normal course of
business. In the opinion of management and legal counsel, the
resolution of these claims are not expected to have a material adverse
effect on the Company's financial position, liquidity or results of
operations.
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
---------------------------------------------------
A. The Annual Meeting of Stockholders was held on November 12, 1998.
B. The following items were submitted to the stockholders of the
Company for approval:
1. To elect two directors for a term of three years or until their
successors have been elected and qualified
Nominees for a three-year term:
Arthur G. Borland
For: 1,957,158
Withheld: 102,399
Richard J. Cessar
For: 1,999,504
Withheld: 60,053
-18-
<PAGE> 21
2. To ratify the appointment of KPMG LLP, as the Company's
independent auditors for the fiscal year ending June 30, 1999.
For: 1,957,912
Against: 101,540
Abstain: 105
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
-19-
<PAGE> 22
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
LAUREL CAPITAL GROUP, INC.
/s/ Edwin R. Maus
- ------------------------------------------
Edwin R. Maus
President and Chief Executive Officer
/s/ John A. Howard, Jr.
- ------------------------------------------
John A. Howard, Jr.
Senior Vice President and
Chief Financial Officer
Date: February 16, 1999
-20-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000892158
<NAME> LAURAL CAPITAL GROUP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,041
<INT-BEARING-DEPOSITS> 8,313
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,458
<INVESTMENTS-CARRYING> 13,357
<INVESTMENTS-MARKET> 13,417
<LOANS> 154,031
<ALLOWANCE> 1,862
<TOTAL-ASSETS> 225,917
<DEPOSITS> 177,414
<SHORT-TERM> 2,900
<LIABILITIES-OTHER> 3,797
<LONG-TERM> 17,131
0
0
<COMMON> 23
<OTHER-SE> 24,652
<TOTAL-LIABILITIES-AND-EQUITY> 225,917
<INTEREST-LOAN> 5,962
<INTEREST-INVEST> 1,273
<INTEREST-OTHER> 622
<INTEREST-TOTAL> 7,857
<INTEREST-DEPOSIT> 3,592
<INTEREST-EXPENSE> 4,064
<INTEREST-INCOME-NET> 3,793
<LOAN-LOSSES> 9
<SECURITIES-GAINS> 225
<EXPENSE-OTHER> 1,898
<INCOME-PRETAX> 2,508
<INCOME-PRE-EXTRAORDINARY> 2,508
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,630
<EPS-PRIMARY> .74
<EPS-DILUTED> .71
<YIELD-ACTUAL> 3.49
<LOANS-NON> 596
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,852
<CHARGE-OFFS> 29
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 1,862
<ALLOWANCE-DOMESTIC> 1,862
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
