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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, 2002
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: 0-23010
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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES NO X
----- -----
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 3, 2003: 1,882,664 shares
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
INDEX
PAGE
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of ..... 1
December 31, 2002 and June 30, 2002
Consolidated Statements of Operations for the three
and six months ended December 31, 2002 and 2001 ..... 2
Consolidated Statement of Stockholders' Equity for the
six months ended December 31, 2002 ..... 3
Consolidated Statements of Cash Flows for the six ..... 4
months ended December 31, 2002 and 2001
Notes to Unaudited Consolidated Financial Statements ..... 5-10
Item 2. Management's Discussion and Analysis of Financial ..... 11-20
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..... 21
Item 4. Controls and Procedures ..... 20-21
Part II - Other Information
Item 1. Legal Proceedings ..... 21
Item 2. Changes in Securities and Use of Proceeds ..... 21
Item 3. Defaults Upon Senior Securities ..... 21
Item 4. Submission of Matters to a Vote of
Security Holders ..... 21
Item 5. Other Information ..... 22
Item 6. Exhibits and Reports on Form 8-K ..... 22
Signatures ..... 23
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands)
December 31, June 30,
2002 2002
- ------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
Cash $3,075 $1,051
Money market investments 2,142 -
Interest-earning deposits with other institutions 25,096 32,812
Investment securities available for sale 44,045 39,156
Investment securities held to maturity (market value of $11,414 and $12,127) 11,236 11,909
Mortgage-backed securities available for sale 9,893 7,998
Mortgage-backed securities held to maturity (market value of $35 and $41) 34 40
Loans receivable, held for sale 1,336 1,371
Loans receivable 170,477 180,125
Allowance for loan losses (1,794) (1,803)
- ------------------------------------------------------------------------------------------------------------
Loans receivable, net 168,683 178,322
Federal Home Loan Bank stock 1,655 1,637
Real estate owned 155 131
Accrued interest receivable:
Loans 748 915
Interest-earning deposits and investments 517 537
Mortgage-backed securities 45 40
Office properties and equipment, net of accumulated depreciation 1,468 1,184
Prepaid expenses and sundry assets 1,018 958
- ------------------------------------------------------------------------------------------------------------
Total Assets $271,146 $278,061
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits $218,761 $225,419
Federal Home Loan Bank advances 21,618 21,620
Advance deposits by borrowers for taxes and insurance 1,604 2,506
Accrued interest payable 638 522
Accrued income taxes 134 289
Other accrued expenses and sundry liabilities 1,127 1,152
- ------------------------------------------------------------------------------------------------------------
Total Liabilities 243,882 251,508
- ------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock, $.01 par value; 5,000,000
shares authorized; 2,361,067 and 2,356,401 shares
issued, respectively 24 24
Additional paid-in capital 5,425 5,389
Treasury stock, at cost (483,975 and 473,675 shares) (7,405) (7,157)
Retained earnings 28,801 28,103
Accumulated other comprehensive income, net of tax 857 632
Stock held in deferred compensation trust (438) (438)
- ------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 27,264 26,553
- ------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $271,146 $278,061
- ------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-1-
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
For the Three and Six Months Ended December 31, 2002 and 2001
(In thousands, except per share data)
Three months ended Six months ended
December 31, December 31,
------------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Interest income:
Loans $3,011 $3,235 $6,140 $6,625
Mortgage-backed securities 123 131 257 281
Investments 566 650 1,147 1,376
Interest-earning deposits 87 80 205 173
---------- ---------- ---------- ----------
Total interest income 3,787 4,096 7,749 8,455
Interest expense:
Savings deposits 1,634 1,949 3,414 4,057
Borrowings 322 322 643 643
---------- ---------- ---------- ----------
Total interest expense 1,956 2,271 4,057 4,700
---------- ---------- ---------- ----------
Net interest income before provision
for loan losses 1,831 1,825 3,692 3,755
Provision for loan losses 3 4 6 9
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,828 1,821 3,686 3,746
---------- ---------- ---------- ----------
Other income:
Service charges 217 223 404 434
Net gain on sale of securities available for sale 0 55 4 55
Gain on the sale of loans held for sale 2 3 7 14
Other operating income 20 17 35 35
---------- ---------- ---------- ----------
Total other income 239 298 450 538
---------- ---------- ---------- ----------
Operating expenses:
Compensation, payroll taxes and
fringe benefits 514 500 1,055 1,011
Premises and occupancy costs 134 150 282 281
Federal insurance premiums 9 10 18 19
Net loss on real estate owned 7 2 11 9
Data processing expense 65 58 139 117
Professional fees 33 44 82 68
Other operating expenses 267 246 487 497
---------- ---------- ---------- ----------
Total operating expenses 1,029 1,010 2,074 2,002
---------- ---------- ---------- ----------
Income before income taxes 1,038 1,109 2,062 2,282
---------- ---------- ---------- ----------
Provision for income taxes:
Federal 268 284 532 588
State 60 66 118 131
---------- ---------- ---------- ----------
Total income taxes 328 350 650 719
---------- ---------- ---------- ----------
Net income $710 $759 $1,412 $1,563
========== ========== ========== ==========
Earnings per share
Basic $0.38 $0.39 $0.75 $0.80
========== ========== ========== ==========
Diluted $0.36 $0.37 $0.71 $0.77
========== ========== ========== ==========
Dividends per share $0.19 $0.18 $0.38 $0.36
========== ========== ========== ==========
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-2-
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
(Unaudited)
For the Six Months Ended December 31, 2002
(In thousands)
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
---------- --------- ---------- ---------- ------------- -------------- ------------
Balance, June 30, 2002 $24 $5,389 ($7,157) $28,103 $632 ($438) $26,553
Comprehensive income:
Net income - - - 1,412 - - 1,412
Other comprehensive
income, net of
tax $116 - - - - 225 - 225
---------- --------- ---------- ---------- ------------- -------------- ------------
Total comprehensive income - - - 1,412 225 - 1,637
Stock options exercised
(4,666 shares) - 36 - - - - 36
Dividends on common stock
at $0.38 per share - - - (714) - - (714)
Treasury stock purchased - - (248) - - - (248)
---------- --------- ---------- ---------- ------------- -------------- ------------
Balance, December 31, 2002 $24 $5,425 ($7,405) $28,801 $857 ($438) $27,264
========== ========= ========== ========== ============= ============== ============
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-3-
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended December 31, 2002 and 2001
(In thousands)
2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
Net income: $ 1,412 $ 1,563
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 97 95
Provision for loan losses 6 9
Net gain on sale of investment securities available for sale (4) (55)
Gain on the sale of loans held for sale (7) (14)
Net amortization (accretion) of deferred loan costs/fees 77 (2)
Origination of loans held for sale (386) (478)
Proceeds from sale of loans held for sale 428 721
Decrease in accrued interest receivable 182 254
Increase in accrued interest payable 116 58
Decrease in taxes payable (155) (90)
Other - net (307) (67)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,459 1,994
- -------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of investment securities held to maturity (10,650) (2,032)
Purchase of investment securities available for sale (4,877) (1,629)
Purchase of mortgage-backed securities available for sale (5,487) -
Proceeds from sale of investment securities available for sale - 358
Proceeds from sale of mortgage-backed securities available for sale 963 -
Principal repayments and maturities of investment securities available for sale 386 1,500
Principal repayments and maturities of investment securities held to maturity 11,400 6,445
Principal repayments and maturities of mortgage-backed securities available for sale 2,607 1,689
Principal repayments and maturities of mortgage-backed securities held to maturity 6 101
Decrease in loans receivable 9,530 5,097
Increase in FHLB Stock (18) -
Additions to office properties and equipment (381) (15)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 3,479 11,514
- -------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net decrease in demand and club accounts (558) (44)
Net decrease in time deposit accounts (6,100) (2,139)
Net decrease in FHLB advances (2) (3)
Decrease in advance deposits by borrowers for taxes and insurance (902) (1,013)
Stock options exercised 36 26
Acquisition of treasury stock (248) (360)
Dividends paid (714) (703)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (8,488) (4,236)
- -------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (3,550) 9,272
Cash and cash equivalents at beginning of period 33,863 9,714
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 30,313 $ 18,986
- -------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- -------------------------------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Interest on savings deposits $ 3,299 $ 3,999
Interest on FHLB advances 639 639
Income taxes 800 959
Cash paid during the period for interest includes interest credited on
deposits of $2,741 and $3,441 for the six months ended December 31, 2002
and 2001, respectively.
- -------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-4-
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND JUNE 30, 2002
(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, 2002. The results of operations for the
three and six months ended December 31, 2002 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") 2002 Annual Report to Stockholders for the
year ended June 30, 2002. 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:
Three Months Ended Six Months Ended
December 31, December 31,
2002 2001 2002 2001
--------------------- ----------------------
Basic earnings per share:
Net income $710 $759 $1,412 $1,563
Weighted average shares outstanding 1,878,552 1,943,997 1,879,955 1,950,643
Earnings per share $0.38 $0.39 $0.75 $0.80
Diluted earnings per share:
Net income $710 $759 $1,412 $1,563
Weighted average shares outstanding 1,878,552 1,943,997 1,879,955 1,950,643
Dilutive effect of employee
stock options 102,700 92,934 105,714 90,596
------- ------ ------- ------
Diluted weighted shares outstanding 1,981,252 2,036,931 1,985,669 2,041,239
Earnings per share $0.36 $0.37 $0.71 $0.77
Options to purchase 102,700 and 105,714 shares of common stock were outstanding
during the three and six months ended December 31, 2002, respectively, and were
included in the computation of diluted earnings per share because the option
exercise price for these options was less than the average market price of the
common shares.
-5-
Options to purchase 8,430 shares of common stock at $18.00 and 8,430 shares of
common stock at $19.50 per share were outstanding during the three and six
months ended December 31, 2001, 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.
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 six
months ended December 31, 2002 and 2001, the Company's total comprehensive
income was $1,637 and $1,583, respectively. Total comprehensive income is
comprised of net income of $1,412 and $1,563, respectively, and other
comprehensive income of $225 and $20, 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 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
-6-
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 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.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company has defined cash and cash
equivalents as cash, money market investments and interest-earning deposits with
other institutions.
(2) CONTINGENT LIABILITIES
The Company is subject to 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-
(3) INVESTMENT AND MORTGAGE-BACKED SECURITIES
Investment and mortgage-backed securities available for sale are
comprised of the following:
Amortized Gross Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------
AT DECEMBER 31, 2002:
Municipal obligations $ 18,261 $ 850 $ - $ 19,111
Government Agency Notes 3,037 44 - 3,081
FHLMC preferred stock 750 55 - 805
FNMA common stock 966 73 74 965
FHLMC common stock 787 119 20 886
SLMA Student Loan Trust 75 8 - 83
CRA Mutual Fund 1,000 - - 1,000
Shay Financial Services ARM Fund 18,114 - - 18,114
------------------------------------------------------
42,990 1,149 94 44,045
Mortgage-backed securities available
for sale 9,649 248 4 9,893
------------------------------------------------------
Total $ 52,639 $ 1,397 $ 98 $ 53,938
------------------------------------------------------
At December 31, 2002, the contractual maturities of the debt securities Amortized Fair
available for sale are: Cost Value
---------------------------
Due in one through five years $ 2,075 $ 2,098
Due after five years through ten years 2,677 2,866
Due after ten years 16,621 17,311
---------------------------
Total $ 21,373 $ 22,275
===========================
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, CRA Mutual
Fund and Shay Financial Services ARM Fund have no stated maturity.
Note: Proceeds from the sale of investment and mortgage-backed securities
available for sale during the six months ended December 31, 2002
and 2001 were $963 and $358, respectively. Gross realized gains on
those sales were $4 and $55, respectively.
Investment and mortgage-backed securities held to maturity are comprised
of the following:
Amortized Gross Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------
AT DECEMBER 31, 2002
Corporate and Agency bonds $11,236 $179 $ 1 $11,414
Mortgage-backed securities 34 1 35 -
------------------------------------------------------
Total $11,270 $180 $ 1 $11,449
------------------------------------------------------
At December 31, 2002, the contractual maturities of the debt securities Amortized Fair
held to maturity are: Cost Value
---------------------------
Due in less than one year $2,996 $2,995
Due after one year through five years 2,500 2,517
Due after five years through ten years 1,741 1,742
Due after ten years 4,033 4,195
---------------------------
Total $11,270 $11,449
===========================
Mortgage-backed securities have various contractual maturity dates.
Actual repayments may be different due to prepayments on the loans
underlying the securities.
-8-
(4) LOANS RECEIVABLE
Loans receivable are comprised of the following:
December 31, June 30,
2002 2002
---------------------------------------------------------------------------------------------
First mortgage loans:
1 to 4 family dwellings $117,606 $131,336
Multi-family dwellings 3,025 3,202
Commercial 5,698 4,496
Guaranteed or insured 12 23
Construction and development loans 13,408 9,687
---------------------------------------------------------------------------------------------
139,749 148,744
Commercial loans 1,904 1,560
Consumer loans:
Loans secured by savings accounts 210 227
Installment loans 34,864 34,234
---------------------------------------------------------------------------------------------
36,978 36,021
---------------------------------------------------------------------------------------------
Loans receivable, net of unearned discounts 176,727 184,765
Less: Allowance for loan losses (1,794) (1,803)
Loans in process (6,387) (4,719)
Net deferred loan origination costs (fees
collected) 137 79
---------------------------------------------------------------------------------------------
Loans receivable, net $168,683 $178,322
---------------------------------------------------------------------------------------------
Changes in the allowance for loan losses for the six months ended
December 31, 2002 and 2001 are as follows:
Fiscal Fiscal
2003 2002
---------------------------------------------------------------------------------------------
Balance at beginning of the fiscal year $1,803 $1,759
Provision for losses 6 9
Charge-offs (18) (16)
Recoveries 3 24
---------------------------------------------------------------------------------------------
Balance at December 31, 2002 and 2001 $1,794 $1,776
---------------------------------------------------------------------------------------------
At December 31, 2002, there were no loans that are considered to be
impaired under SFAS 114.
December 31,
2002 2001
----------------------------------
Non-accrual loans $149 $312
Non-accrual loans as a percent of total loans, net 0.09 % 0.18 %
-----------------------------
All loans 90 days or more past due are reported as non-accrual.
-9-
(5) ACQUISITION
On September 12, 2002, the Company announced it had entered into a definitive
agreement to acquire SFSB Holding Company and Stanton Federal Savings Bank. As
of September 30, 2002, SFSB Holding Company had total assets of $52.5 million,
deposits of $41.9 million and stockholders' equity of $7.1 million. Pending
approval by SFSB Holding Company's stockholders and applicable regulatory
authorities, the transaction is expected to be completed in the first quarter of
calendar year 2003.
(6) GUARANTEES
The Company issues standby letters of credit in the normal course of business.
Letters of credit are issued for a one-year period. The Company would be
required to perform under the standby leters of credit when drawn upon by the
guaranteed, in the case of nonperformance by the Company's customer. The maximum
potential amount of future payments the Company could be required to make under
these guarantees is $119,000 of which 100% is fully collateralized. Currently,
no liability has been recognized by the Company for these obligations. There are
no recourse provisions that would enable the Company to recover any amounts from
third parties.
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BALANCE SHEET DATA At December 31,
2002 2001
---- ----
(In thousands except per share data)
------------------------------------
(Unaudited)
Total assets $271,146 $255,270
Interest-earning deposits with other institutions 25,096 17,875
Investment securities available for sale 44,045 39,517
Investment securities held to maturity 11,236 9,511
Mortgage-backed securities available for sale 9,893 8,350
Mortgage-backed securities held to maturity 34 49
Loans receivable held for sale 1,336 1,472
Loans receivable, net 168,683 171,804
Savings deposits 218,761 203,453
FHLB advances 21,618 21,623
Retained earnings 28,801 27,287
Stockholders' equity 27,264 26,677
Stockholders' equity per share $14.49 $13.75
STATISTICAL PROFILE Three months ended Six months ended
December 31, December 31,
------------------------------ -----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Average yield earned on all interest-earning assets 5.71 % 6.55 % 5.77% 6.75%
Average rate paid on all interest-bearing liabilities 3.38 4.19 3.47 4.34
Average interest rate spread 2.33 2.36 2.30 2.41
Net yield on average interest-earning assets 2.76 2.92 2.75 3.00
Average interest-earning assets as a percentage of
average interest-bearing liabilities 115.35 116.47 115.63 116.56
Return on average assets (1) 1.04 1.18 1.02 1.21
Return on average equity (1) 10.51 11.35 10.51 11.74
Average equity to average assets 9.86 10.40 9.74 10.34
- ---------------------------------------------
(1) Amounts are annualized
-11-
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
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, 2002
was $710,000 compared to $759,000 for the same period in the prior year. The
decrease of $49,000 or 6.46% was primarily the result of a $59,000 decrease in
total other income and a $19,000 increase in total operating expense partially
offset by a $22,000 decrease in income taxes and a $6,000 increase in net
interest income. 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 $6,000 or 0.33% during the three months ended
December 31, 2002 as compared to the same period of the prior year. The increase
was primarily due to an increase in the average balance of net earning assets of
$15.0 million or 5.98%. This increase was partially offset by a decrease in the
average interest rate spread from 2.36% for the quarter ended December 31, 2001
to 2.33% for the quarter ended December 31, 2002.
Interest income on loans receivable and loans held for sale decreased by
$224,000 or 6.92% during the three months ended December 31, 2002 as compared to
the same period in the prior year. This decrease was primarily due to a decrease
in the average yield on loans receivable from 7.42% to 7.01% for the three
months ended December 31, 2001 and 2002, respectively. In addition, the average
outstanding balance of loans receivable decreased $2.7 million or 1.54% compared
to the same period in the prior year. The decrease in the average outstanding
balance of loans receivable was the result of a $3.5 million or 2.55% decrease
in the average outstanding balance of mortgage loans and a $846,000 or 2.35%
increase in the average outstanding balance of consumer and other loans. The
decrease in the average outstanding balance of loans receivable was primarily
the result of increased loan repayments in excess of loan originations. The
decrease in the average yield was primarily due to generally lower market
interest rates and the corresponding downward re-pricing of adjustable rate
loans, as well as, the lower pricing of new loans relative to loans already in
the portfolio.
Interest on mortgage-backed securities held to maturity and mortgage-backed
securities available for sale decreased by $8,000 or 6.11% during the quarter
ended December 31, 2002 as compared to the December 31, 2001 quarter. This
decrease was primarily due to a decrease in the average yield on mortgage-backed
securities from 5.93% for the quarter ended December 31, 2001 to 5.32% for the
quarter ended December 31, 2002. The decrease in the average yield was primarily
due to a decline in market interest rates that resulted in increased repayments
and downward re-pricing of such securities. The decrease resulting from the
decline in the average yield was partially offset by an increase in the average
balance of mortgage-backed securities of $404,000 during the same period. At
December 31, 2002, the Bank's portfolio of mortgage-backed securities available
for sale had net unrealized gains of $244,000. This portfolio consists of
-12-
fixed and adjustable rate securities with an average yield of 4.45% at December
31, 2002. Rising interest rates would decrease the unrealized gains in this
portfolio if the fixed rate securities were not sold. The mortgage-backed
securities held to maturity portfolio consists of one adjustable-rate
collateralized mortgage obligation (CMO) with a yield of 2.68% at December 31,
2002. At December 31, 2002, the Bank's portfolio of mortgage-backed securities
held to maturity had an amortized cost and fair market value of $34,000 and
$35,000, respectively. In periods of rising interest rates, unrealized losses
could occur due to the timing difference of when the securities re-price. See
Note 3 of "Notes to Unaudited Consolidated Financial Statements."
Interest income on investment securities held to maturity and investment
securities available for sale decreased during the three months ended December
31, 2002 by $84,000 or 12.92% from the comparable period in 2001, primarily due
to a decrease in the average yield on investment securities from 5.10% for the
quarter ended December 31, 2001 to 3.91% for the quarter ended December 31,
2002, reflecting the lower interest rate environment in the 2002 period. This
decrease was partially offset by a $6.9 million or 13.59% increase in the
average outstanding balance of such securities for the quarter ended December
31, 2002 as compared to the same period in the prior fiscal year. The increase
in the average outstanding balance was primarily due to purchases of relatively
short-term government agency notes. At December 31, 2002, the Bank's portfolio
of investment securities available for sale and investment securities held to
maturity had net unrealized gains of $1.1 million and $178,000, 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, 2002 by $7,000 or 8.75% from the comparable period in 2001.
This increase was primarily due to an increase of $10.4 million or 63.35% in the
average outstanding balance of interest-earning deposits for the quarter ended
December 31, 2002 as compared to the December 31, 2001 quarter. This increase
was, to a large extent, offset by a decrease in the average yield on
interest-earning deposits from 1.94% for the quarter ended December 31, 2001 to
1.29% for the quarter ended December 31, 2002. The increase in the average
balance was primarily a result of increases in deposit balances and the
temporary investment of funds from the repayment of loans and investment and
mortgage-backed securities.
Interest expense on interest-bearing deposits decreased by $315,000 or 16.16%
for the quarter ended December 31, 2002, compared to the same period in 2001.
The decrease was primarily due to a decrease in the average interest rate paid
on savings deposits from 4.00% for the three months ended December 31, 2001 to
3.11% for the three months ended December 31, 2002, reflecting the lower
interest rate environment in the 2002 period. This decrease was partially offset
by a $15.1 million or 7.80% increase in the average outstanding balance of such
deposits during the three months ended December 31, 2002 as compared to the same
period of the prior year.
Interest expense on borrowings for the quarter ended December 31, 2002 compared
to the quarter ended December 31, 2001 remained the same. This consistency was
the result of an insignificant change in the average outstanding balance of FHLB
advances coupled with a constant average rate paid on borrowings of 5.82%.
-13-
PROVISION FOR LOAN LOSSES. The Bank provided $3,000 to its allowance for loan
losses for the quarter ended December 31, 2002 and $4,000 to its allowance for
loan losses for the quarter ended December 31, 2001. 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, 2002 and 2001, the Bank's allowance for loan losses
amounted to $1.8 million or 1.05% and 1.02%, 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 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 December 31,
2002. Thus, the level of the allowance for loan losses is substantially
unchanged from June 30, 2002. 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 judgment. No such
additions were required to be made during the Company's most recent examination.
OTHER INCOME. Total other income decreased by $59,000 or 19.80% to $239,000 for
the quarter ended December 31, 2002 as compared to the same period in 2001. This
was the result of a decrease in the net gain on the sale of investments and
mortgage-backed securities available for sale of $55,000, as well as a $6,000
decrease in service charge income and $1,000 decrease in the gain on the sale of
loans held for sale partially offset by a $3,000 increase in other operating
income.
OPERATING EXPENSES. Total operating expenses increased by $19,000 or 1.88%
during the quarter ended December 31, 2002 as compared to the same quarter in
2001. This increase was primarily due to a $21,000 increase in other operating
expenses and a $14,000 increase in compensation and benefits expense.
Additionally, data processing expense increased $7,000 and there was a $5,000
increase in net loss on real estate owned. These increases were partially offset
by a $16,000 decrease in premises and occupancy expense and a $11,000 decrease
in professional fees.
INCOME TAX EXPENSE. Income tax expense decreased by $22,000 for the quarter
ended December 31, 2002 as compared to the quarter ended December 31, 2001
primarily as a result of lower pre-tax income. The effective tax rate increased
slightly from 31.56% for the 2001 quarter to 31.60% for the 2002 quarter.
-14-
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001
GENERAL. The Company's net income for the six months ended December 31, 2002 was
$1.4 million compared to $1.6 million for the same period in the prior year. The
decrease of $151,000 or 9.66% was primarily the result of an $88,000 decrease in
total other income, a $72,000 increase in total operating expense and a $63,000
decrease in net interest income partially offset by a $69,000 decrease in income
taxes. These and other significant fluctuations are discussed below.
NET INTEREST INCOME. Net interest income decreased by $63,000 or 1.68% during
the six months ended December 31, 2002 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 2.41% for the six months ended December 31, 2001 to 2.30% for
the six months ended December 31, 2002. This decrease was partially offset by an
increase in the average balance of net earning assets of $17.9 million or 7.15%.
Interest income on loans receivable and loans held for sale decreased by
$485,000 or 7.32% during the six months ended December 31, 2002 as compared to
the same period in the prior year. This decrease was primarily due to a decrease
in the average yield on loans receivable from 7.53% to 7.02% for the six months
ended December 31, 2001 and 2002, respectively. The average outstanding balance
of loans receivable decreased $1.1 million or 0.60% compared to the same period
in the prior year. The decrease in the average outstanding balance of loans
receivable was the result of a $1.5 million or 1.10% decrease in the average
outstanding balance of mortgage loans and a $483,000 or 1.33% increase in the
average outstanding balance of consumer and other loans. The decrease in the
average outstanding balance of loans receivable was primarily the result of
increased loan repayments in excess of loan originations. The decrease in the
average yield was primarily due to generally lower market interest rates and the
corresponding downward re-pricing of adjustable rate loans, as well as, the
lower pricing of new loans relative to loans already in the portfolio.
Interest on mortgage-backed securities held to maturity and mortgage-backed
securities available for sale decreased by $24,000 or 8.54% during the six
months ended December 31, 2002 as compared to the six months ended December 31,
2001. This decrease was primarily due to a decrease in the average yield on
mortgage-backed securities from 6.09% for the six months ended December 31, 2001
to 5.50% for the six months ended December 31, 2002. The decrease in the average
yield was primarily due to a decline in market interest rates that resulted in
increased repayments and downward re-pricing of such securities. The decrease
resulting from the decline in the average yield was partially offset by a
$116,000 increase in the average balance of mortgage-backed securities during
the same period. See "Comparison of the Three Months Ended December 31, 2002 and
2001 - Net Interest Income."
Interest income on investment securities held to maturity and investment
securities available for sale decreased during the six months ended December 31,
2002 by $229,000 or 16.64% from the comparable period in 2001, primarily due to
a decrease in the average yield on investment securities from 5.29% for the six
months ended December 31, 2001 to 4.08% for the six
-15-
months ended December 31, 2002, reflecting the lower interest rate environment
in the 2002 period. This decrease was partially offset by a $4.1 million or
8.03% increase in the average outstanding balance for the six months ended
December 31, 2002 as compared to the same period in the prior fiscal year. The
increase in the average outstanding balance was primarily due to purchases of
relatively short-term government agency notes. See "Comparison of the Three
Months Ended December 31, 2002 and 2002 - Net Interest Income."
Interest income on interest-earning deposits increased during the six months
ended December 31, 2002 by $32,000 or 18.50% from the comparable period in 2001.
This increase was primarily due to an increase of $14.7 million or 106.77% in
the average outstanding balance of interest-earning deposits for the period
ended December 31, 2002 as compared to the same period in 2001. This increase
was, to a large extent, offset by a decrease in the average yield on
interest-earning deposits from 2.49% for the six months ended December 31, 2001
to 1.43% for the six months ended December 31, 2002. The increase in the average
balance was primarily a result of increases in deposit balances and the
temporary investment of funds from the repayment of loans and investment and
mortgage-backed securities.
Interest expense on interest-bearing deposits decreased by $643,000 or 15.85%
for the six months ended December 31, 2002, compared to the same period in 2001.
The decrease was primarily due to a decrease in the average interest rate paid
on savings deposits from 4.16% for the six months ended December 31, 2001 to
3.22% for the six months ended December 31, 2002, reflecting the lower interest
rate environment in the 2002 period. This decrease was partially offset by a
$17.2 million or 8.91% increase in the average outstanding balance of such
deposits during the six months ended December 31, 2002 as compared to the same
period of the prior year.
Interest expense on borrowings for the six months ended December 31, 2002
compared to the six months ended December 31, 2001 remained the same. This
consistency was the result of an insignificant change in the average outstanding
balance of FHLB advances coupled with the steady average rate paid on borrowings
of 5.90%.
PROVISION FOR LOAN LOSSES. The Bank provided $6,000 to its allowance for loan
losses for the six months ended December 31, 2002 and $9,000 to its allowance
for loan losses for the same period in 2001. 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,
2002 and 2001 - Provision for Loan Losses."
OTHER INCOME. Total other income decreased by $88,000 or 16.36% to $450,000 for
the six months ended December 31, 2002 as compared to the same period in 2001.
This was the result of a decrease in the net gain on the sale of investments and
mortgage-backed securities available for sale of $51,000, as well as a $30,000
decrease in service charge income and a $7,000 decrease in the gain on the sale
of loans held for sale.
OPERATING EXPENSES. Total operating expenses increased by $72,000 or 3.60%
during the six months ended December 31, 2002 as compared to the same period in
2001. This increase was primarily due to a $44,000 increase in compensation and
benefits expense and a $22,000 increase in data processing
-16-
expense. Additionally, professional fees increased $14,000 and there was a
$2,000 increase in net loss on real estate owned. These increases were partially
offset by a $10,000 decrease in other operating expenses.
INCOME TAX EXPENSE. Income tax expense decreased by $69,000 for the six months
ended December 31, 2002 as compared to the six months ended December 31, 2001
primarily as a result of lower pre-tax income. The effective tax rate remained
relatively the same for the six months ended December 31, 2002 as compared to
the six months ended December 31, 2001 at 31.52% and 31.51%, respectively.
FINANCIAL CONDITION AND CAPITAL RESOURCES
Total assets decreased by $6.9 million or 2.49% from June 30, 2002 to December
31, 2002. The largest decrease was a $9.6 million decrease in loans receivable,
net. Additionally, there was a $7.7 million decrease in interest-earning
deposits with other institutions and a $673,000 decrease in investment
securities held to maturity. These decreases were partially offset by a $4.9
million increase in investment securities available for sale, a $2.0 million
increase in cash and a $1.9 million increase in mortgage-backed securities
available for sale. The largest components of change in liabilities were a $6.7
million decrease in savings deposits and a $902,000 decrease in advance deposits
by borrowers for taxes and insurance.
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 December 31, 2002, the Bank
exceeded all of these requirements, with Tier I and Tier II ratios of 9.57% and
19.98%, respectively.
-17-
The following table sets forth certain information concerning the Bank's
regulatory capital at December 31, 2002.
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
------- ------- ------
(Dollar amounts in thousands)
Equity capital (1) $26,247 $26,247 $26,247
Plus general valuation allowances (2) - - 1,757
Plus allowable unrealized gains - - 69
------- ------- ------
Total regulatory capital 26,247 26,247 28,073
Minimum required capital 10,966 5,622 11,245
------- ------- ------
Excess regulatory capital $15,281 $20,625 $16,828
======= ======= =======
Minimum required capital to be well
capitalized under Prompt Corrective
Action Provisions $13,707 $ 8,432 $14,053
======= ======= =======
Regulatory capital as a percentage (3) 9.57% 18.68% 19.98%
Minimum required capital percentage 4.00 4.00 8.00
---- ----- ----
Excess regulatory capital percentage 5.57% 14.68% 11.98%
==== ===== =====
Minimum required capital percentage
to be well capitalized under Prompt
Corrective Action Provisions 5.00% 6.00% 10.00%
==== ===== =====
- ---------------------------------------
(1) Represents equity capital of the Bank as reported to the FDIC and the
Pennsylvania Department of Banking on Form 041 for the three months ended
December 31, 2002.
(2) Limited to 1.25% of risk adjusted assets.
(3) Tier I capital is calculated as a percentage of adjusted total assets of
$274,145. Tier I and Tier II risk-based capital are calculated as
percentage of adjusted risk-weighted assets of $140,525.
-18-
ACQUISITION
On September 12, 2002 the Company announced it had entered into a definitive
agreement to acquire SFSB Holding Company and Stanton Federal Savings Bank. The
transaction is expected to be completed in the first quarter of calendar year
2003. See Note 5 of "Notes to Unaudited Consolidated Financial Statements."
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.
CRITICAL ACCOUNTING POLICIES
Certain critical accounting policies affect the more significant judgments and
estimates used in the preparation of the consolidated financial statements. The
Company's single most critical accounting policy relates to the Company's
allowance for loan loss, which reflects the estimated losses resulting from the
inability of the Company's borrowers to make required loan payments. If the
financial condition of the Company's borrowers were to deteriorate, resulting in
an impairment of their ability to make payments, the Company's estimates would
be updated, and additional provisions for loan losses may be required. Further
discussion of the estimates used in determining the allowance for loan loss is
contained in the discussion on "Provision for Loan Losses" on pages 13 and 14
herein.
ACCOUNTING DEVELOPMENTS
In October 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 147 "Acquisitions of
Certain Financial Institutions - an amendment of FASB Statements No. 72 and 144
and FASB Interpretation No. 9." This statement addresses the financial
accounting and reporting for the acquisition of all or part of a financial
institution, except for transactions between two or more mutual enterprises.
This statement removes the acquisitions of financial institutions from the scope
of FASB Statement No. 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions" and FASB Interpretation No. 9, "Applying APB Opinions No.
16 and 17 When a Savings and Loan Association or a Similar Institution is
Acquired in a Business Combination Accounted for by the Purchase Method." The
acquisition of all or part of a financial institution that meets the definition
of a business
-19-
combination shall now be accounted for by the purchase method in accordance with
FASB Statement No. 141, "Business Combinations." The new guidance was effective
immediately but had no effect on the Company's results of operation or financial
condition.
In November 2002, FASB issued FASB Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This interpretation elaborates on the
existing disclosures to be made by a guarantor in its financial statements about
its obligations under certain guarantees that it has issued ("disclosure
requirements"). This interpretation also clarifies that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee ("recognition and measurement
provisions"). The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The recognition and measurement provisions are
not expected to have a material effect on the Company. The disclosure
requirements are effective for interim and annual periods ending after December
15, 2002. The Company's disclosure of guarantees is included in Note 6 to the
Notes to Unaudited Consolidated Financial Statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure - An Amendment of FASB Statement No.
123." This statement amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The new
guidance is effective for interim periods beginning after December 15, 2002 and
is not expected to have a material effect on the financial position, results of
operations or liquidity of 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 2002 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, 2002.
CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer (its principal
executive officer and principal financial officer, respectively) have evaluated
the effectiveness of the design and operation of the Company's disclosure
controls and procedures within 90 days of the filing date of this Form 10-Q.
Based on their evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that these disclosure controls and procedures are
effective. There have been no significant changes to the Company's internal
controls or in
-20-
other factors that could significantly affect these controls subsequent to the
date of such evaluation.
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. Factors that could have a material
adverse effect on our operations and future prospects include, but are not
limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Board of Governors
of the Federal Reserve System, the quality or composition of the loan or
investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in our market area and accounting principles,
policies and guidelines. These risks and uncertainties should be considered in
evaluating forward-looking statements contained herein, and you should not place
undue reliance on such statements, which reflect our position as of the date of
this report.
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
-21-
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
99.1 Certification of President and CEO pursuant to section 906 of
the Sarbanes-Oxley Act of 2002
99.2 Certification of Senior Vice President and CFO pursuant to
section 906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K
None
-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 14, 2003
-23-
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT
OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Edwin R. Maus, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Laurel Capital Group,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report ( the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
February 14, 2003
/s/ Edwin R. Maus
- -----------------
Edwin R. Maus
President and Chief Executive Officer
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT
OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John A. Howard Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Laurel Capital Group,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report ( the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors:
d. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
e. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
February 14, 2003
/s/ John A. Howard, Jr.
- -----------------------
John A. Howard Jr.
Senior Vice President and Chief Financial
Officer