<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: September 30, 2000
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 November 1, 2000: 1,957,292 shares
<PAGE> 2
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of ..... 1
September 30, 2000 and June 30, 2000
Consolidated Statements of Operations for the Three ..... 2
Months Ended September 30, 2000 and 1999
Consolidated Statement of Stockholders' Equity for the ..... 3
Three Months Ended September 30, 2000
Consolidated Statements of Cash Flows for the Three ..... 4
Months Ended September 30, 2000 and 1999
Notes to Unaudited Consolidated Financial Statements ..... 5-9
Item 2. Management's Discussion and Analysis of Financial ..... 10-15
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..... 15
Part II - Other Information
Item 1. Legal Proceedings ..... 16
Item 2. Changes in Securities and Use of Proceeds ..... 16
Item 3. Defaults Upon Senior Securities ..... 16
Item 4. Submission of Matters to a Vote of
Security Holders ..... 16
Item 5. Other Information ..... 16
Item 6. Exhibits and Reports on Form 8-K ..... 16
Signatures ..... 17
</TABLE>
<PAGE> 3
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
---------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 893 $ 822
Interest-earning deposits with other institutions 3,517 4,096
Investment securities available for sale 39,244 38,665
Investment securities held to maturity
(market value of $21,350 and $21,144 21,932 21,931
Mortgage-backed securities available for sale 10,867 10,947
Mortgage-backed securities held to maturity
(market value of $332 and $396) 332 397
Loans receivable, held for sale 1,621 1,514
Loans receivable 174,144 171,319
Allowance for loan losses (1,764) (1,798)
---------------------------------------------------------------------------------------------------------------------
Loans receivable, net 172,380 169,521
Federal Home Loan Bank stock 2,046 1,671
Real estate owned 142 --
Accrued interest receivable:
Loans 921 874
Interest-earning deposits and investments 576 790
Mortgage-backed securities 67 67
Office properties and equipment, net of accumulated depreciation 1,366 1,413
Prepaid expenses and sundry assets 1,200 1,365
---------------------------------------------------------------------------------------------------------------------
Total Assets $ 257,104 $ 254,073
---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits $ 188,166 $ 192,663
FHLB advances 40,923 33,424
Advance deposits by borrowers for taxes and insurance 1,084 3,092
Accrued interest payable 1,620 404
Accrued income taxes 563 239
Other accrued expenses and sundry liabilities 1,021 1,005
---------------------------------------------------------------------------------------------------------------------
Total Liabilities 233,377 230,827
---------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock, $.01 par value;
5,000,000 shares authorized; 2,332,251 and 2,329,272 shares
issued, respectively 23 23
Additional paid-in capital 5,237 5,224
Treasury stock, at cost (369,370 and 328,670 shares) (5,257) (4,711)
Retained earnings 24,627 24,120
Accumulated other comprehensive loss, net of tax (500) (1,007)
Stock held in deferred compensation trust (403) (403)
---------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 23,727 23,246
---------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 257,104 $ 254,073
---------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE> 4
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended September 30, 2000 and 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
September 30,
---------------------------
2000 1999
------ ------
<S> <C> <C>
Interest income:
Loans $3,348 $2,908
Mortgage-backed securities 204 217
Investments 1,014 869
Interest-earning deposits 24 25
------ ------
Total interest income 4,590 4,019
Interest expense:
Savings deposits 1,989 1,767
Borrowings 564 272
------ ------
Total interest expense 2,553 2,039
------ ------
Net interest income before provision
for loan losses 2,037 1,980
Provision for loan losses 5 5
------ ------
Net interest income after provision
for loan losses 2,032 1,975
------ ------
Other income:
Service charges 180 181
Net gain on sale of investments and
mortgage-backed securities available for sale 5 --
Gain on the sale of loans held for sale 5 7
Other operating income 16 15
------ ------
Total other income 206 203
------ ------
Operating expenses:
Compensation, payroll taxes and
fringe benefits 500 464
Premises and occupancy costs 135 151
Federal insurance premiums 10 26
Net loss on real estate owned 1 40
Data processing expense 55 52
Professional fees 49 40
Other operating expenses 273 227
------ ------
Total operating expenses 1,023 1,000
------ ------
Income before income taxes 1,215 1,178
------ ------
Provision for income taxes:
Federal 314 304
State 58 59
------ ------
Total income taxes 372 363
------ ------
Net income $ 843 $ 815
====== ======
Earnings per share
Basic $ 0.43 $ 0.38
====== ======
Diluted $ 0.41 $ 0.36
====== ======
Dividends per share $ 0.17 $ 0.16
====== ======
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE> 5
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
(Unaudited)
For the Three Months Ended September 30, 2000
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Treasury Retained
Stock Capital Stock Earnings
----- ------- ----- --------
<S> <C> <C> <C> <C>
Balance, June 30, 2000 $ 23 $ 5,224 ($ 4,711) $ 24,120
Comprehensive income:
Net income -- -- -- 843
Other comprehensive income,
net of tax $235 -- -- -- --
Reclassification adjustment
net of tax $25
-------- -------- -------- --------
Total comprehensive income -- -- -- 843
Stock options exercised
(2,979 shares) -- 13 -- --
Dividends on common stock
at $0.17 per share -- -- -- (336)
Treasury stock purchased -- -- (546) --
Net purchase of stock in
deferred compensation trust -- -- -- --
-------- -------- -------- --------
Balance, September 30, 2000 $ 23 $ 5,237 ($ 5,257) $ 24,627
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Stock Held in
Comprehensive Deferred Total
Income Compensation Stockholders'
Net of Tax Trust Equity
---------- ----- ------
<S> <C> <C> <C>
Balance, June 30, 2000 ($ 1,007) ($ 403) $ 23,246
Comprehensive income:
Net income -- -- 843
Other comprehensive income,
net of tax $235 460 -- 460
Reclassification adjustment
net of tax $25 47
-------- -------- --------
Total comprehensive income 507 -- 1,350
Stock options exercised
(2,979 shares) -- -- 13
Dividends on common stock
at $0.17 per share -- -- (336)
Treasury stock purchased -- -- (546)
Net purchase of stock in
deferred compensation trust -- -- 0
-------- -------- --------
Balance, September 30, 2000 ($ 500) ($ 403) $ 23,727
======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE> 6
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended September 30, 2000 and 1999
(In thousands)
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income: $ 843 $ 815
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 49 47
Provision for loan losses 5 5
Net loss on sale of real estate owned -- 29
Net gain on sale of investment securities available for sale (5) --
Gain on the sale of loans held for sale (5) (7)
Amortization of deferred loan fees (20) (35)
Origination of loans held for sale (357) (297)
Proceeds from sale of loans held for sale 255 433
(Decrease) increase in accrued interest receivable 167 (33)
Increase in accrued interest payable 1,216 935
Other - net 267 194
---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,415 2,086
---------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of investment securities held to maturity -- (8,494)
Purchase of investment securities available for sale (268) (1,793)
Purchase of mortgage-backed securities held to maturity -- --
Purchase of mortgage-backed securities available for sale -- (1,000)
Purchase of FHLB stock (375) --
Proceeds from sale of investment securities available for sale 333 --
Principal repayments of investment and
mortgage-backed securities available for sale 185 807
Principal repayments of investment and
mortgage-backed securities held to maturity 65 355
Increase in loans (2,986) (955)
Proceeds from sale of real estate owned -- 13
Net additions to office properties and equipment (2) (65)
---------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (3,048) (11,132)
---------------------------------------------------------------------------------------------------------------
Financing activities:
Net decrease in demand and club accounts (2,397) (468)
Net (decrease) increase in time deposit accounts (2,100) 154
Net increase in FHLB advances 7,499 3,099
Decrease in advance deposits by borrowers
for taxes and insurance (2,008) (2,007)
Stock options exercised 13 2
Acquisition of treasury stock (546) (476)
Dividends paid (336) (347)
---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 125 (43)
---------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (508) (9,089)
Cash and cash equivalents at beginning of period 4,918 12,111
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,410 $ 3,022
---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
---------------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Interest on savings deposits $ 773 $ 832
Interest on FHLB advances 507 286
Income taxes 110 76
Transfer of loans to real estate owned 142 --
Cash paid during the period for interest includes interest credited on deposits of $552 and $627
for the three months ended September 30, 2000 and 1999, respectively.
---------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE> 7
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND JUNE 30, 2000
(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, 2000. The results of operations for the
three months ended September 30, 2000 are not necessarily indicative of the
results which may be expected for the entire fiscal year. The unaudited
consolidated 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") 2000 Annual Report to Stockholders for the
year ended June 30, 2000. 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
September 30,
2000 1999
-------------------------------
<S> <C> <C>
Basic earnings per share:
Net income $843 $815
Weighted average shares outstanding 1,978,530 2,158,628
Earnings per share $0.43 $0.38
Diluted earnings per share:
Net income $843 $815
Weighted average shares outstanding 1,978,530 2,158,628
Dilutive effect of employee
stock options 67,771 88,691
---------- ----------
Diluted weighted shares outstanding 2,046,301 2,247,319
Earnings per share $0.41 $0.36
</TABLE>
Options to purchase 72,596 shares of common stock at prices ranging from $14.69
to $19.00 per share were outstanding during the three months ended September 30,
2000 but were not included in the computation of diluted earnings per share
because the option exercise price was greater than the average market price of
the common shares, and therefore, the effect would be antidilutive.
-5-
<PAGE> 8
For the three months ending September 30, 1999, options to purchase 69,360
shares of common stock at prices ranging from $15.75 to $19.50 per share were
not included in the computation of diluted earnings per share due to their
antidilutive effect.
SECURITIES
The Company accounts for investments in debt and equity securities in accordance
with the Financial Accounting Standards Board's ("FASB") Statement No. 115
("SFAS 115"). SFAS 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
The Company reports Comprehensive Income in accordance with SFAS No. 130 which
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
three months ended September 30, 2000 and 1999, the Company's total
comprehensive income was $1,350 and $338, respectively. Total comprehensive
income is comprised of net income of $843 and $815, respectively, and other
comprehensive income (loss) of $507 and $(477), net of tax, respectively. Other
comprehensive income consists of unrealized gains and losses on investment
securities and mortgage-backed securities available for sale, net of tax.
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
accounts for impaired loans in accordance with SFAS 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures", an amendment of SFAS
114. 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
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<PAGE> 9
impairment of loans based on knowledge of the borrower's ability to repay the
loan according to the contractual agreement, the borrower's repayment history
and the fair value of collateral for certain collateral dependent loans.
Pursuant to SFAS 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 SFAS 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 and mortgage-backed 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 SEPTEMBER 30, 2000:
Municipal obligations $21,520 $130 $900 $20,750
FNMA preferred stock 250 -- 3 247
FHLMC preferred stock 250 -- 12 238
FNMA common stock 390 146 -- 536
FHLMC common stock 590 97 12 675
SLMA Student Loan Trust 567 18 -- 585
Standard Insurance Company stock 4 3 -- 7
Shay Financial Services
ARMs Fund 16,405 -- 199 16,206
-----------------------------------------------------------
39,976 394 1,126 39,244
Mortgage-backed securities available for sale 10,893 70 96 10,867
-----------------------------------------------------------
Total $50,869 $464 $1,222 $50,111
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
At September 30, 2000, 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 $752 $774
Due after ten years 21,335 20,561
---------------------------
Total $22,087 $21,335
===========================
</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, Standard
Insurance Company stock and the Shay Financial Services ARMs Fund
have no stated maturity.
Note: Gross realized gains of $5 were recorded during the three months
ended September 30, 2000 on the sale of investment securities
available for sale. There were no sales of such securities
during the three months ended September 30, 1999. Proceeds from
the sale of investments available for sale during the three
months ended September 30, 2000 were $333.
Investment and mortgage-backed 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 SEPTEMBER 30, 2000
Corporate notes and commercial paper $21,932 $6 $588 $21,350
Mortgage-backed securities 332 2 2 332
------------------------------------------------------
Total $22,264 $8 $590 $21,682
------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
At September 30, 2000, the contractual maturities of the debt securities Amortized Fair
held to maturity are: Cost Value
---------------------------
<S> <C> <C>
Due after one year through five years $2,499 $2,444
Due after five years through ten years 7,498 7,380
Due after ten years 11,935 11,526
---------------------------
Total $21,932 $21,350
===========================
</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>
September 30, June 30,
2000 2000
------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage loans:
1 to 4 family dwellings $ 125,711 $ 125,242
Multi-family dwellings 2,595 2,476
Commercial 4,740 5,391
Guaranteed or insured 33 34
Construction and development loans 11,185 10,167
------------------------------------------------------------------------------------
144,264 143,310
Commercial loans 1,163 919
Consumer loans:
Loans secured by savings accounts 211 211
Installment loans 35,196 34,899
------------------------------------------------------------------------------------
36,570 36,029
------------------------------------------------------------------------------------
Loans receivable, net of unearned discounts 180,834 179,339
Less: Allowance for loan losses (1,764) (1,798)
Loans in process (6,485) (7,796)
Deferred loan fees (205) (224)
------------------------------------------------------------------------------------
Loans receivable, net $ 172,380 $ 169,521
------------------------------------------------------------------------------------
</TABLE>
Changes in the allowance for loan losses for the three months ended
September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal
2001 2000
-----------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of the fiscal year $1,798 $1,866
Provision for losses 5 5
Charge-offs (42) (13)
Recoveries 3 2
-----------------------------------------------------------------------------
Balance at September 30, 2000 and 1999 $1,764 $1,860
-----------------------------------------------------------------------------
</TABLE>
At September 30, 2000, the recorded investment in loans that are
considered to be impaired under SFAS 114 was $325. Included in this
amount is $49 of impaired loans for which the related allowance for loan
losses is $12, and $276 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 three months ended September 30, 2000 was
approximately $329. For the three months ended September 30, 2000, the
Company recognized interest income on those impaired loans of $0.2 which
was recognized using the cash basis method of income recognition.
<TABLE>
<CAPTION>
September 30,
2000 1999
--------------------------
<S> <C> <C>
Non-accrual loans $354 $566
Non-accrual loans as a percent of total loans, net 0.21 % 0.37 %
</TABLE>
--------------------------------
All loans 90 days or more past due are reported as non-accrual.
-9-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BALANCE SHEET DATA
<TABLE>
<CAPTION>
At September 30,
2000 1999
----- ----
(In thousands except per share data)
------------------------------------
(Unaudited)
<S> <C> <C>
Total assets $257,104 $232,873
Money market investments -- --
Interest-earning deposits with other institutions 3,517 1,752
Investment securities available for sale 39,244 36,615
Investment securities held to maturity 21,932 20,937
Mortgage-backed securities available for sale 10,867 12,023
Mortgage-backed securities held to maturity 332 717
Loans receivable held for sale 1,621 1,433
Loans receivable, net 172,380 152,375
Savings deposits 188,166 181,804
FHLB advances 40,923 23,128
Retained earnings 24,627 22,538
Stockholders' equity 23,727 24,025
Stockholders' equity per share $12.09 $11.22
</TABLE>
STATISTICAL PROFILE
<TABLE>
<CAPTION>
Three months ended
September 30,
---------------------------------
2000 1999
----- ----
<S> <C> <C>
Average yield earned on all interest-earning assets 7.40 % 7.11 %
Average rate paid on all interest-bearing liabilities 4.68 4.16
Average interest rate spread 2.72 2.95
Net yield on average interest-earning assets 3.28 3.50
Average interest-earning assets as a percentage of
average interest-bearing liabilities 114.71 116.19
Return on average assets (1) 1.32 1.41
Return on average equity (1) 14.38 13.41
Average equity to average assets 9.19 10.48
</TABLE>
-------------------------------------------------
(1) Amounts are annualized .
-10-
<PAGE> 13
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
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 September 30, 2000
was $843,000 compared to $815,000 for the same period in the prior year. The
increase of $28,000 or 3.4% was primarily the result of a $57,000 or 2.9%
increase in net interest income and a $3,000 or 1.5% increase in other income
partially offset by a $23,000 or 2.3% increase in other operating expenses and a
$9,000 or 2.5% 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 increased by $57,000 or 2.9% during the three months ended
September 30, 2000 as compared to the same period of the prior year. The
increase was primarily due to a $22.2 million or 9.8% increase in average net
earning assets for the quarter ended September 30, 2000 as compared to the
quarter ended September 30, 1999. This increase was partially offset by a
decrease in the average interest rate spread from 2.95% for the quarter ended
September 30, 1999 to 2.72% for the quarter ended September 30, 2000.
Interest income on loans receivable and loans held for sale increased by
$440,000 or 15.1% during the three months ended September 30, 2000 as compared
to the same period in the prior year. This increase was primarily due to a $19.5
million or 12.8% increase in the average outstanding balance of loans receivable
for the quarter ended September 30, 2000 as compared to the same period in the
prior year. In addition, the average yield on loans receivable increased from
7.66% for the quarter ended September 30, 1999 to 7.81% for the quarter ended
September 30, 2000. The increase in the average outstanding balance of loans
receivable was due to a $16.7 million or 14.1% increase in the average
outstanding balance of mortgage loans and a $2.8 million or 8.1% increase in the
average outstanding balance of consumer and other loans. The increase in the
average yield was primarily due to generally higher 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 $13,000 or 6.0% during the quarter
ended September 30, 2000 as compared to the September 30, 1999 quarter. This
decrease was primarily due to a $1.8 million or 13.4% decrease in the average
outstanding balance of mortgage-backed securities during the quarter ended
September 30, 2000 as compared to the September 30, 1999 quarter. This decrease
was partially offset by an increase in the average yield on mortgage-backed
securities from 6.61% for the quarter ended September 30, 1999 to 7.18% for the
quarter ended September 30, 2000. At September 30, 2000, the Bank's portfolio of
mortgage-backed securities available for sale had net unrealized losses of
$26,000. This portfolio consists of fixed and adjustable rate securities with an
average yield of 7.26% at September 30, 2000. Rising interest rates would
increase the unrealized losses in this portfolio if the fixed rate securities
are not sold. The mortgage-backed securities held to maturity portfolio consists
of two adjustable-rate and one fixed-rate collateralized mortgage
-11-
<PAGE> 14
obligations (CMO's) with an average yield of 6.49% at September 30, 2000. At
September 30, 2000, the Bank's portfolio of mortgage-backed securities held to
maturity had an amortized cost and fair market value of $332,000. In periods of
rising interest rates, unrealized losses could occur due to the timing
difference of when the securities reprice. See Note 3 of "Notes to Unaudited
Consolidated Financial Statements."
Interest income on investments held to maturity and investments available for
sale increased during the three months ended September 30, 2000 by $145,000 or
16.7% from the comparable period in 1999, primarily due to a $5.0 million or
8.7% increase in the average outstanding balance of such securities for the
quarter ended September 30, 2000 as compared to the quarter ended September 30,
1999. In addition, the average yield on investment securities increased from
5.94% for the quarter ended September 30, 1999 to 6.38% for the quarter ended
September 30, 2000. 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 September 30, 2000,
the Bank's portfolio of investment securities available for sale and investment
securities held to maturity had net unrealized losses of $733,000 and $582,000,
respectively. See Note 3 of "Notes to Unaudited Consolidated Financial
Statements."
Interest income on interest-earning deposits decreased during the three months
ended September 30, 2000 by $1,000 or 4.0% from the comparable period in 1999.
This decrease was primarily due to a decrease of $547,000 or 26.9% in the
average outstanding balance of interest-earning deposits for the quarter ended
September 30, 2000 as compared to the September 30, 1999 quarter. This decrease
was partially offset by an increase in the average yield on interest-earning
deposits increased from 4.88% for the quarter ended September 30, 1999 to 6.40%
for the quarter ended September 30, 2000.
Interest expense on interest-bearing deposits increased by $222,000 or 12.6% for
the quarter ended September 30, 2000, compared to the same period in 1999. The
increase was primarily due to an increase in the average interest rate paid on
savings deposits from 4.02% for the three months ended September 30, 1999 to
4.36% for the three months ended September 30, 2000. Also contributing to the
increase was a $6.6 million or 3.8% increase in the average outstanding balance
of such deposits during the three months ended September 30, 2000 as compared to
the same period of the prior year.
Interest expense on borrowings increased $292,000 or 107.4% for the quarter
ended September 30, 2000 compared to the quarter ended September 30, 1999 due to
a $15.3 million or 76.0% increase in the average outstanding balance of FHLB
advances. The average rate paid on borrowings increased from 5.35% for the
quarter ended September 30, 1999 to 6.31% for the quarter ended September 30,
2000.
PROVISION FOR LOAN LOSSES. The Bank provided $5,000 to its allowance for loan
losses for both the quarters ended September 30, 2000 and 1999. 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 September 30, 2000 and 1999, the Bank's allowance for loan losses amounted to
$1.8 million and $1.9 million or 1.0% and 1.2%, respectively, of the total loan
portfolio.
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<PAGE> 15
A review of the loan portfolio is conducted at least quarterly by management to
determine that the allowance for loan losses is appropriate 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 months ended September 30,
2000. Thus, the level of the allowance for loan losses is substantially
unchanged from June 30, 2000. Although management believes that the current
allowance for loan losses is appropriate, 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 $3,000 or 1.5% to $206,000 for the
quarter ended September 30, 2000 as compared to the same period in 1999. This
was primarily due to a $5,000 increase in gains on the sale of investment
securities held for sale. There were no such gains recorded during the quarter
ended September 30, 1999.
OPERATING EXPENSES. Total operating expenses increased by $23,000 or 2.3% during
the quarter ended September 30, 2000 as compared to the comparable quarter in
1999. This increase was primarily due to a $46,000 increase in other operating
expenses, a $36,000 increase in compensation and benefits expense, a $9,000
increase in professional fees and a $3,000 increase in data processing fees.
These increases were partially offset by a decrease of $39,000 in real estate
owned expense, a $16,000 decrease in federal insurance premiums and a $16,000
decrease in premises and occupancy costs.
INCOME TAX EXPENSE. Income tax expense increased by $9,000 for the quarter ended
September 30, 2000 as compared to the quarter ended September 30, 1999 primarily
as a result of higher pre-tax income partially offset by a decrease in the
effective tax rate from 30.8% for the 1999 quarter to 30.6% for the 2000
quarter. This decrease was primarily due to increased purchases of non-taxable
municipal obligations by the Company during the past year.
FINANCIAL CONDITION AND CAPITAL RESOURCES
Total assets increased by $3.0 million or 1.2% from June 30, 2000 to September
30, 2000. The largest increases were a $2.8 million increase in loans
receivable, net, a $579,000 increase in investment securities available for sale
and a $375,000 increase in FHLB stock. These increases were partially offset by
a $579,000 decrease in interest-earning deposits in other institutions and a
$167,000 decrease in accrued interest receivable. The largest components of
change in liabilities were a $7.5 million increase in FHLB advances and a $1.2
million increase in accrued interest payable partially offset by a $4.5 million
decrease in savings deposits and a $2.0 million decrease in advance deposits by
borrowers for taxes and insurance.
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<PAGE> 16
Under regulations adopted by the Federal Deposit Insurance Corporation ("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 September 30, 2000, the
Bank exceeded all of these requirements, with Tier I and Tier II ratios of 9.28%
and 17.63%, respectively.
The following table sets forth certain information concerning the Bank's
regulatory capital at September 30, 2000.
<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) $23,692 $23,692 $23,692
Plus general valuation allowances (2) - - 1,764
------- ------- ------
Total regulatory capital 23,692 23,692 25,456
Minimum required capital 10,212 5,776 11,552
------- ------- ------
Excess regulatory capital $13,480 $17,916 $13,904
======= ======= =======
Minimum required capital to be well
capitalized under Prompt Corrective
Action Provisions $12,765 $ 8,664 $14,440
======= ======= =======
Regulatory capital as a percentage (3) 9.28% 16.41% 17.63%
Minimum required capital percentage 4.00 4.00 8.00
---- ----- ----
Excess regulatory capital percentage 5.28% 12.41% 9.63%
==== ===== =====
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 September 30, 2000.
(2) Limited to 1.25% of risk adjusted assets.
(3) Tier I capital is calculated as a percentage of adjusted total assets
of $255,304. Tier I and Tier II risk-based capital are calculated as a
percentage of adjusted risk-weighted assets of $144,397.
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
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<PAGE> 17
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.
ACCOUNTING DEVELOPMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," and SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - An Amendment of FASB Statement No. 133," requires that derivative
instruments be carried at fair value on the balance sheet. The statement
continues to allow derivative instruments to be used to hedge various risks and
sets forth specific criteria to be used to determine when hedge accounting can
be used. The statements also provide for offsetting changes in fair value or
cash flows of both the derivative and the hedged asset or liability to be
recognized in earnings in the same period; however, any changes in fair value or
cash flow that represent the ineffective portion of a hedge are required to be
recognized in earnings and cannot be deferred. For derivative instruments not
accounted for as hedges, changes in fair value are required to be recognized in
earnings.
The Company adopted the provisions of this statement as amended as of July 1,
2000. As of September 30, 2000, no such instruments were used by the Company.
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 2000 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, 2000.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. In
addition, in those and other portions of this document, the words "anticipate,"
"believe," "estimate," "except," "intend," "should" and similar expressions, or
the negative thereof, as they relate to the Company or the Company's management,
are intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future looking events and are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize or should underlying assumptions prove
incorrect, actual results may vary from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
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<PAGE> 18
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
None
Item 5. Other Information
On July 20, 2000, the Company announced its intent to repurchase up to
100,000 shares or approximately 5.00% of the Company's common stock
over the next twelve months. As of November 6, 2000, the Company had
repurchased 48,400 shares.
Item 6. Exhibits and Reports on Form 8-K
None
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<PAGE> 19
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: November 14, 2000
17
