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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, 2003
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 6, 2004: 1,890,151 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, 2003 and June 30, 2003
Consolidated Statements of Operations for the three ..... 2
and six months ended December 31, 2003 and 2002
Consolidated Statement of Stockholders' Equity for the ..... 3
six months ended December 31, 2003
Consolidated Statements of Cash Flows for the six ..... 4
months ended December 31, 2003 and 2002
Notes to Unaudited Consolidated Financial Statements ..... 5-11
Item 2. Management's Discussion and Analysis of Financial ..... 12-21
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..... 21
Item 4. Controls and Procedures ..... 21
Part II - Other Information
Item 1. Legal Proceedings ..... 22
Item 2. Changes in Securities and Use of Proceeds ..... 22
Item 3. Defaults Upon Senior Securities ..... 22
Item 4. Submission of Matters to a Vote of
Security Holders ..... 22
Item 5. Other Information ..... 22
Item 6. Exhibits and Reports on Form 8-K ..... 22-23
Signatures ..... 24
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands)
December 31, June 30,
2003 2003
- --------------------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
Cash $1,974 $2,053
Money market investments 145 137
Interest-earning deposits with other institutions 53,550 51,235
Investment securities available for sale 44,708 46,603
Investment securities held to maturity (market value of $13,301 and $9,304) 13,198 9,207
Mortgage-backed securities available for sale 10,640 13,478
Mortgage-backed securities held to maturity (market value of $- and $28) - 27
Loans receivable, held for sale 1,288 1,439
Loans receivable 161,994 183,208
Allowance for loan losses (1,984) (2,006)
- --------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 160,010 181,202
Federal Home Loan Bank stock 1,950 2,171
Other repossessed assets 12 -
Accrued interest receivable:
Loans 700 842
Interest-earning deposits and investments 373 442
Mortgage-backed securities 44 61
Office properties and equipment, net of accumulated depreciation 2,339 2,366
Goodwill 2,158 2,158
Other intangible assets 1,701 1,905
Prepaid income tax 297 49
Prepaid expenses and sundry assets 7,638 7,408
- --------------------------------------------------------------------------------------------------------------------------
Total Assets $302,725 $322,783
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits $248,803 $265,580
Federal Home Loan Bank advances 21,612 24,672
Advance deposits by borrowers for taxes and insurance 1,351 2,386
Accrued interest payable 717 543
Other accrued expenses and sundry liabilities 3,097 1,918
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities 275,580 295,099
- --------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock, $.01 par value; 5,000,000
shares authorized; 2,404,024 and 2,373,906 shares
issued, respectively 24 24
Additional paid-in capital 5,877 5,565
Treasury stock, at cost (524,670 and 491,675 shares) (8,238) (7,552)
Retained earnings 29,280 29,208
Accumulated other comprehensive income, net of tax 619 856
Stock held in deferred compensation trust (417) (417)
- --------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 27,145 27,684
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $302,725 $322,783
- --------------------------------------------------------------------------------------------------------------------------
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, 2003 and 2002
(In thousands, except per share data)
Three months ended Six months ended
December 31, December 31,
-------------------------------- --------------------------------
2003 2002 2003 2002
------------- -------------- --------------- --------------
Interest income:
Loans $2,440 $3,011 $5,125 $6,140
Mortgage-backed securities 90 123 230 257
Investments 459 566 946 1,147
Interest-earning deposits 179 87 334 205
------------- -------------- --------------- --------------
Total interest income 3,168 3,787 6,635 7,749
Interest expense:
Savings deposits 1,213 1,634 2,581 3,414
Borrowings 319 322 651 643
------------- -------------- --------------- --------------
Total interest expense 1,532 1,956 3,232 4,057
------------- -------------- --------------- --------------
Net interest income before provision
for loan losses 1,636 1,831 3,403 3,692
Provision for loan losses 3 3 6 6
------------- -------------- --------------- --------------
Net interest income after provision
for loan losses 1,633 1,828 3,397 3,686
------------- -------------- --------------- --------------
Other income:
Service charges 247 217 575 404
Net gain on sale of securities available for sale 13 0 13 4
Gain on the sale of loans held for sale 1 2 7 7
Other operating income 97 20 183 35
------------- -------------- --------------- --------------
Total other income 358 239 778 450
------------- -------------- --------------- --------------
Operating expenses:
Compensation, payroll taxes and
fringe benefits 753 514 1,454 1,055
Premises and occupancy costs 217 134 410 282
Federal insurance premiums 10 9 20 18
Net loss on real estate owned 1 7 1 11
Data processing expense 103 65 218 139
Professional fees 58 33 107 82
Other operating expenses 441 267 883 487
------------- -------------- --------------- --------------
Total operating expenses 1,583 1,029 3,093 2,074
------------- -------------- --------------- --------------
Income before income taxes 408 1,038 1,082 2,062
------------- -------------- --------------- --------------
Provision for income taxes:
Federal 40 268 208 532
State 15 60 51 118
------------- -------------- --------------- --------------
Total income taxes 55 328 259 650
------------- -------------- --------------- --------------
Net income $353 $710 $823 $1,412
============= ============== =============== ==============
Earnings per share
Basic $0.19 $0.38 $0.44 $0.75
============= ============== =============== ==============
Diluted $0.18 $0.36 $0.42 $0.71
============= ============== =============== ==============
Dividends per share $0.20 $0.19 $0.40 $0.38
============= ============== =============== ==============
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, 2003
(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, 2003 $24 $5,565 ($7,552) $29,208 $856 ($417) $27,684
Comprehensive income:
Net income - - - 823 - - 823
Other comprehensive loss,
net of tax ($122) - - - - (237) - (237)
-------- ------------ --------- --------- -------------- -------------- --------------
Total comprehensive income - - - 823 (237) - 586
Stock options exercised
(30,118 shares) - 312 - - - - 312
Dividends on common stock
at $0.20 per share - - - (751) - - (751)
Treasury stock purchased - - (686) - - - (686)
-------- ------------ --------- --------- -------------- -------------- --------------
Balance, December 31, 2003 $24 $5,877 ($8,238) $29,280 $619 ($417) $27,145
======== ============ ========= ========= ============== ============== ==============
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, 2003 and 2002
(In thousands)
2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Net income: $ 823 $ 1,412
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 134 97
Provision for loan losses 6 6
Net gain on sale of investment securities available for sale (41) (4)
Net loss on sale of mortgage-backed securities available for sale 28 -
Gain on the sale of loans held for sale (7) (7)
Net amortization of deferred loan costs 56 77
Origination of loans held for sale (341) (386)
Proceeds from sale of loans held for sale 499 428
Decrease in accrued interest receivable 228 182
Increase in accrued interest payable 174 116
Decrease in taxes payable (248) (155)
Other - net (443) (307)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 868 1,459
- ------------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of investment securities held to maturity (12,000) (10,650)
Purchase of investment securities available for sale (2,450) (4,877)
Purchase of mortgage-backed securities available for sale (3,302) (5,487)
Proceeds from sale of investment securities available for sale 1,553 -
Proceeds from sale of mortgage-backed securities available for sale 1,457 963
Principal repayments and maturities of investment securities available for sale 4,325 386
Principal repayments and maturities of investment securities held to maturity 8,000 11,400
Principal repayments and maturities of mortgage-backed securities available for sale 4,557 2,607
Principal repayments and maturities of mortgage-backed securities held to maturity 4 6
Decrease in loans receivable 21,115 9,530
Decrease (Increase) in FHLB stock 221 (18)
Additions to office properties and equipment (107) (381)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 23,373 3,479
- ------------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net decrease in demand and club accounts (4,477) (558)
Net decrease in time deposit accounts (12,300) (6,100)
Net decrease in FHLB advances (3,060) (2)
Decrease in advance deposits by borrowers for taxes and insurance (1,035) (902)
Stock options exercised 312 36
Acquisition of treasury stock (686) (248)
Dividends paid (751) (714)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (21,997) (8,488)
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 2,244 (3,550)
Cash and cash equivalents at beginning of period 53,425 33,863
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $55,669 $30,313
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Interest on savings deposits $ 2,407 $ 3,299
Interest on FHLB advances 709 639
Income taxes 578 800
Transfer of loans to other real estate owned - -
Cash paid during the period for interest includes interest credited on deposits of $1,955
and $2,741 for the six months ended December 31, 2003 and 2002, respectively.
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements
4
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND JUNE 30, 2003
(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 operations and cash flows in conformity with
accounting principles generally accepted in the United States of America.
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, 2003.
The results of operations for the three and six months ended December 31, 2003
are not necessarily indicative of the results that 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") 2003
Annual Report to Stockholders. 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,
2003 2002 2003 2002
--------------- -------------- --------------- ----------------
Basic earnings per share:
Net income $353 $710 $823 $1,412
Weighted average shares outstanding 1,879,262 1,878,552 1,881,017 1,879,955
Earnings per share $0.19 $0.38 $0.44 $0.75
Diluted earnings per share:
Net income $353 $710 $823 $1,412
Weighted average shares outstanding 1,879,262 1,878,552 1,881,017 1,879,955
Dilutive effect of employee
stock options 95,601 102,700 100,717 105,714
------ ------- ------- -------
Diluted weighted shares outstanding 1,974,863 1,981,252 1,981,734 1,985,669
Earnings per share $0.18 $0.36 $0.42 $0.71
Options to purchase 242,097 and 242,276 shares of common stock were outstanding
during the three and six months ended December 31, 2003, 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
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
established standards for the 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, 2003 and 2002, the Company's total comprehensive
income was $586 and $1,637, respectively. Total comprehensive income is
comprised of net income of $823 and $1,412, respectively, and other
comprehensive (loss)income of $(237) and $225, 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. Laurel Savings Bank ("the Bank")
considers all one-to-four family residential mortgage loans and all consumer
loans (as presented in Note 4) to be smaller-balance homogeneous loans. Loans
within the scope of these statements are considered impaired when, based on
current information and events, it is probable that all principal and interest
will not be collected in accordance with the contractual terms of the loans.
Management determines the impairment of loans based on knowledge of the
borrower's ability to repay the loan according to 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 of less than 90 days will be considered
an
6
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. All unpaid accrued
interest on such loans 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, 2003:
Municipal obligations $12,096 $ 666 $ 2 $12,760
FHLMC preferred stock 750 41 - 791
FNMA common stock 966 167 7 1,126
FHLMC common stock 999 133 23 1,109
Corporate notes 3,465 35 - 3,500
Shay Financial Services ARM Fund 23,026 - 155 22,871
CRA Qualified Investment Fund 1,000 - 11 989
Other 1,536 39 13 1,562
---------------------------------------------------------------------
43,838 1,081 211 44,708
Mortgage-backed securities available for sale 10,573 160 93 10,640
---------------------------------------------------------------------
Total $54,411 $ 1,241 $ 304 $55,348
---------------------------------------------------------------------
At December 31, 2003, the contractual maturities of the debt securities Amortized Fair
available for sale are: Cost Value
-----------------------------------
Due in one year or less $ 55 $ 55
Due after one year through five years 1,608 1,623
Due after five years through ten years 4,815 4,857
Due after ten years 20,972 21,711
-----------------------------------
Total $ 27,450 $ 28,246
===================================
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, Community
Reinvestment Act (CRA) Qualified Investment 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, 2003 and
December 31, 2002 were $3,010 and $963, respectively. Net realized
gains on those sales were $13 and $4, 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, 2003
Corporate and Agency bonds $10,702 $ 92 $ 1 $10,793
Commercial Paper 2,496 12 - 2,508
---------------------------------------------------------------------
Total $13,198 $ 104 $ 1 $13,301
---------------------------------------------------------------------
At December 31, 2003, the contractual maturities of the debt securities Amortized Fair
held to maturity are: Cost Value
-----------------------------------
Due in one year or less $ 2,496 $ 2,508
Due after one year through five years 5,000 5,020
Due after five years through ten years 1,682 1,685
Due after ten years 4,020 4,088
-----------------------------------
Total $13,198 $13,301
===================================
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,
2003 2003
------------------------------------------------------------------------------------------------------------------
First mortgage loans:
1 to 4 family dwellings $107,777 $118,962
Multi-family dwellings 1,536 2,640
Commercial 5,164 5,337
Construction and development loans 8,432 14,728
------------------------------------------------------------------------------------------------------------------
122,909 141,667
Commercial and other loans 2,254 3,012
Consumer loans:
Loans secured by savings accounts 353 350
Installment loans 39,781 45,113
------------------------------------------------------------------------------------------------------------------
42,388 48,475
------------------------------------------------------------------------------------------------------------------
Loans receivable, net of unearned discounts 165,297 190,142
Less: Allowance for loan losses (1,984) (2,006)
Loans in process (3,528) (7,314)
Net deferred loan origination costs 225 380
------------------------------------------------------------------------------------------------------------------
Loans receivable, net $160,010 $181,202
------------------------------------------------------------------------------------------------------------------
Changes in the allowance for loan losses for the six months ended
December 31, 2003 and 2002 are as follows:
Fiscal Fiscal
2004 2003
------------------------------------------------------------------------------------------------------------------
Balance at beginning of the fiscal year $2,006 $1,803
Provision for losses 6 6
Charge-offs (29) (18)
Recoveries 1 3
------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 and 2002 $1,984 $1,794
------------------------------------------------------------------------------------------------------------------
At December 31, 2003, there were no loans that are considered to be
impaired under SFAS 114.
December 31,
2003 2002
-------------------------------------------
Non-accrual loans $1,595 $149
Non-accrual loans as a percent of total loans, net 1.00 % 0.09 %
-----------------------------------
All loans 90 days or more past due are reported as non-accrual.
9
(5) 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 letters 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 $789,000 of which 100% is fully collateralized. Currently,
the Company has not recognized a liability for the outstanding obligations, as
the amount of the liability is insignificant. There are no recourse provisions
that would enable the Company to recover any amounts from third parties.
(6) STOCK-BASED COMPENSATION
SFAS 123 allows companies to expense an estimated fair value of stock options or
to continue to measure compensation expense for stock option plans using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25
("APB No. 25"). Entities that elect to continue to measure compensation expense
based on APB No. 25 must provide pro forma disclosures of net income and
earnings per share as if the fair value method of accounting had been applied.
The Company has elected to continue to measure compensation cost using the
intrinsic value method prescribed by APB No. 25. Had the Company used the fair
value method, net income and earnings per share would have been as follows (In
thousands, except per share data):
Three Months Ended Six Months Ended
December 31, December 31,
2003 2002 2003 2002
---- ---- ---- ----
Net Income
As reported $353 $710 $823 $1,412
Deduct total stock-based compensation expense
determined under fair-value based method for
all awards, net of tax (1) (14) (4) (28)
-------- ------- -------- ---------
Pro forma $352 $696 $819 $1,384
Basic earnings per share
As reported $0.19 $0.38 $0.44 $0.75
Pro forma $0.19 $0.37 $0.44 $0.74
Diluted earnings per share
As reported $0.18 $0.36 $0.42 $0.71
Pro forma $0.18 $0.35 $0.41 $0.70
There was no stock-based employee compensation expense included in reported net
income during the three months ended December 31, 2003 and 2002.
10
(7) GOODWILL AND OTHER INTANGIBLE ASSETS
There have been no changes in the carrying value of goodwill during the six
months ended December 31, 2003.
The following table provides information for intangible assets subject to
amortization for the periods indicated:
For the six months ended
December 31,
2003 2002
---- ----
Amortized intangible assets:
Core deposit intangible - gross $ 1,905 $ --
Less: accumulated amortization (204) --
----------------- -----------------
Core deposit intangible - net $ 1,701 $ --
================= =================
The following information shows the actual amortization expense for the current
year and the estimated amortization expense for each of the five succeeding
fiscal years:
For the six months ended 12/31/03 $204
--------------------------------------------------------------------------------------------
For the fiscal year ended 6/30/04 394
--------------------------------------------------------------------------------------------
For the fiscal year ended 6/30/05 340
--------------------------------------------------------------------------------------------
For the fiscal year ended 6/30/06 290
--------------------------------------------------------------------------------------------
For the fiscal year ended 6/30/07 243
--------------------------------------------------------------------------------------------
For the fiscal year ended 6/30/08 199
--------------------------------------------------------------------------------------------
11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
BALANCE SHEET DATA At December 31,
2003 2002
---- ----
(In thousands except per share data)
------------------------------------
(Unaudited)
Total assets $302,725 $271,146
Interest-earning deposits with other institutions 53,550 25,096
Investment securities available for sale 44,708 44,045
Investment securities held to maturity 13,198 11,236
Mortgage-backed securities available for sale 10,640 9,893
Mortgage-backed securities held to maturity - 34
Loans receivable, held for sale 1,288 1,336
Loans receivable, net 160,010 168,683
Savings deposits 248,803 218,761
FHLB advances 21,612 21,618
Retained earnings 29,280 28,801
Stockholders' equity 27,145 27,264
Stockholders' equity per share $14.42 $14.49
STATISTICAL PROFILE Three months ended Six months ended
December 31, December 31,
------------------------------ --------------------------
2003 2002 2003 2002
---- ---- ---- ----
Average yield earned on all interest-earning assets 4.52 % 5.71 % 4.61 % 5.77 %
Average rate paid on all interest-bearing liabilities 2.37 3.38 2.42 3.47
Average interest rate spread 2.15 2.33 2.19 2.30
Net yield on average interest-earning assets 2.34 2.76 2.36 2.75
Average interest-earning assets as a percentage of
average interest-bearing liabilities 109.36 115.35 108.88 115.63
Return on average assets (1) 0.46 1.04 0.53 1.02
Return on average equity (1) 5.20 10.51 6.04 10.51
Average equity to average assets 8.91 9.86 8.77 9.74
- ----------------
(1) Amounts are annualized.
12
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
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, 2003
was $353,000 compared to $710,000 for the same period in the prior year. The
decrease of $357,000 or 50.28% was primarily the result of a $554,000 increase
in total operating expenses and a $195,000 decrease in net interest income
partially offset by a $273,000 decrease in income taxes and a $119,000 increase
in total other 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 decreased by $195,000 or 10.65% during the three months ended
December 31, 2003 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 2.33%
for the quarter ended December 31, 2002 to 2.15% for the quarter ended December
31, 2003. This was partially offset by an increase of $15.0 million or 5.73% in
the average balance of net earning assets.
Interest income on loans receivable and loans held for sale decreased by
$571,000 or 18.96% during the three months ended December 31, 2003 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 7.01% to 6.15% for the
three months ended December 31, 2002 and 2003, respectively. In addition, the
average outstanding balance of loans receivable decreased $13.1 million or 7.61%
compared to the same period in the prior year. The decrease in the average
outstanding balance of loans receivable was the result of a $18.7 million or
13.85% decrease in the average outstanding balance of mortgage loans and a $5.6
million or 15.19% 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 $33,000 or 26.83% during the quarter
ended December 31, 2003 as compared to the December 31, 2002 quarter. This
decrease was primarily due to a decrease in the average yield on mortgage-backed
securities from 5.32% for the quarter ended December 31, 2002 to 3.89% for the
quarter ended December 31, 2003. 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 slightly offset by an increase in the average
balance of mortgage-backed securities of $6,000 during the same period. At
December 31, 2003, the Bank's portfolio of mortgage-backed securities available
for sale had net unrealized gains of $67,000. This portfolio consists of fixed
13
and adjustable rate securities with an average yield of 4.37% at December 31,
2003. There were no mortgage-backed securities held to maturity at December 31,
2003. Rising interest rates would decrease the unrealized gains in the available
for sale portfolio if the fixed rate securities were not sold. 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, 2003 by $107,000 or 18.90% from the comparable period in 2002, primarily due
to a decrease in the average yield on investment securities from 3.91% for the
quarter ended December 31, 2002 to 3.19% for the quarter ended December 31,
2003, reflecting the lower interest rate environment in the 2003 period.
Additionally, there was a $332,000 or 0.58% decrease in the average outstanding
balance of such securities for the quarter ended December 31, 2003 as compared
to the same period in the prior fiscal year. At December 31, 2003, the Bank's
portfolio of investment securities available for sale and investment securities
held to maturity had net unrealized gains of $870,000 and $103,000,
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, 2003 by $92,000 or 105.75% from the comparable period in
2002. This increase was predominantly due to an increase of $28.6 million or
106.76% in the average outstanding balance of interest-earning deposits for the
quarter ended December 31, 2003 as compared to the December 31, 2002 quarter.
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 $421,000 or 25.76%
for the quarter ended December 31, 2003, compared to the same period in 2002.
The decrease was primarily due to a decrease in the average interest rate paid
on savings deposits from 3.11% for the three months ended December 31, 2002 to
2.06% for the three months ended December 31, 2003, reflecting the lower
interest rate environment in the 2003 period. This decrease was slightly offset
by a $25.1 million or 12.05% increase in the average outstanding balance of such
deposits during the three months ended December 31, 2003 as compared to the same
period of the prior year. The increase in the average outstanding balance was
primarily due to the deposits obtained as a result of the acquisition of SFSB
Holding Company.
Interest expense on borrowings decreased $3,000 or 0.93% for the quarter ended
December 31, 2003 compared to the quarter ended December 31, 2002 primarily due
to a decrease in the average rate paid on such advances from 5.81% to 5.43% at
December 31, 2003. This decrease was partially offset by an increase of $1.4
million or 6.33% in the average outstanding balance of FHLB advances.
PROVISION FOR LOAN LOSSES. The Bank provided $3,000 to its allowance for loan
losses for each of the quarters ended December 31, 2003 and December 31, 2002.
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 December 31, 2003 and 2002 the Bank's allowance for loan losses amounted
14
to $2.0 million and $1.8 million or 1.24% and 1.05%, 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 six months ended December 31,
2003. Thus, the level of the allowance for loan losses is substantially
unchanged from June 30, 2003. 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 increased by $119,000 or 49.79% to $358,000 for
the quarter ended December 31, 2003 as compared to the same period in 2002. This
was the result of an increase in other operating income of $77,000, as well as a
$30,000 increase in service charges and a $13,000 increase in the net gain on
the sale of investments and mortgage-backed securities available for sale. The
increase in other operating income was primarily the result of an increase in
the cash surrender value of bank owned life insurance during the quarter. The
increase in service charge income was largely attributable to activity related
to the accounts obtained through the acquisition of SFSB Holding Company.
OPERATING EXPENSES. Total operating expenses increased by $554,000 or 53.84%
during the quarter ended December 31, 2003 as compared to the same quarter in
2002. This increase was primarily due to a $239,000 increase in compensation and
benefits expense, a $174,000 increase in other operating expenses and an $83,000
increase in premises and occupancy expense. Additionally, data processing
expense increased $38,000 and there was a $25,000 increase in professional fees.
These increases were partially offset by a $6,000 decrease in net loss on real
estate owned. The increase in compensation and benefits was primarily the result
of increased staffing resulting from the acquisition of SFSB Holding Company and
the hiring of new employees during the quarter. The increase in other operating
expenses was largely attributable to amortization of the core deposit intangible
of $102,000 related to the acquisition of SFSB Holding Company. Premises and
occupancy expense increased primarily as a result of the two additional branches
obtained through the acquisition of SFSB Holding Company.
INCOME TAX EXPENSE. Income tax expense decreased by $273,000 for the quarter
ended December 31, 2003 as compared to the quarter ended December 31, 2002
resulting from lower pre-tax income and a decrease in the effective tax rate
from 31.60% for the 2002 quarter to 13.48% for the 2003 quarter. The decrease in
the effective tax rate resulted primarily from the increased investment of funds
in tax-free vehicles.
15
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002
GENERAL. The Company's net income for the six months ended December 31, 2003 was
$823,000 compared to $1.4 million for the same period in the prior year. The
decrease of $589,000 or 41.71% was primarily the result of a $1.0 million
increase in total operating expenses and a decrease of $289,000 in net interest
income partially offset by a $328,000 increase in total other income and a
$391,000 decrease in income taxes. These and other significant fluctuations are
discussed below.
NET INTEREST INCOME. Net interest income decreased by $289,000 or 7.83% during
the six months ended December 31, 2003 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 2.30% for the six months ended December 31, 2002 to 2.19% for
the six months ended December 31, 2003. This decrease was partially offset by an
increase in the average balance of net earning assets of $19.5 million or 7.25%.
Interest income on loans receivable and loans held for sale decreased by $1.0
million or 16.53% during the six months ended December 31, 2003 as compared to
the same period in the prior year. This decrease was primarily due to a $9.8
million or 5.62% decrease in the average outstanding balance of loans receivable
compared to the same period in the prior year. Additionally, the average yield
on loans receivable decreased from 7.02% to 6.21% for the six months ended
December 31, 2002 and 2003, respectively. The decrease in the average
outstanding balance of loans receivable was the result of a $16.2 million or
11.78% decrease in the average outstanding balance of mortgage loans partially
offset by a $6.4 million or 17.50% 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 $27,000 or 10.51% during the six
months ended December 31, 2003 as compared to the six months ended December 31,
2002. This decrease was primarily due to a decrease in the average yield on
mortgage-backed securities from 5.50% for the six months ended December 31, 2002
to 4.31% for the six months ended December 31, 2003. 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 slightly offset by a $1.3
million increase in the average balance of mortgage-backed securities during the
same period. See "Comparison of the Three Months Ended December 31, 2003 and
2002 - Net Interest Income."
Interest income on investment securities held to maturity and investment
16
securities available for sale decreased during the six months ended December 31,
2003 by $201,000 or 17.52% from the comparable period in 2002, primarily due to
a decrease in the average yield on investment securities from 4.08% for the six
months ended December 31, 2002 to 3.27% for the six months ended December 31,
2003, reflecting the lower interest rate environment in the 2003 period. This
decrease was partially offset by a $1.7 million or 3.12% increase in the average
outstanding balance for the six months ended December 31, 2003 as compared to
the same period in the prior fiscal year. The increase in the average
outstanding balance was primarily due to purchases of government agency notes.
See "Comparison of the Three Months Ended December 31, 2003 and 2002 - Net
Interest Income."
Interest income on interest-earning deposits increased during the six months
ended December 31, 2003 by $129,000 or 62.93% from the comparable period in
2002. This increase was primarily due to an increase of $26.2 million or 92.10%
in the average outstanding balance of interest-earning deposits for the period
ended December 31, 2003 as compared to the same period in 2002. This increase
was, to some extent, offset by a decrease in the average yield on
interest-earning deposits from 1.43% for the six months ended December 31, 2002
to 1.21% for the six months ended December 31, 2003. 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 $833,000 or 24.40%
for the six months ended December 31, 2003, compared to the same period in 2002.
The decrease was primarily due to a decrease in the average interest rate paid
on savings deposits from 3.22% for the six months ended December 31, 2002 to
2.13% for the six months ended December 31, 2003, reflecting the lower interest
rate environment in the 2003 period. This decrease was partially offset by a
$30.1 million or 14.28% increase in the average outstanding balance of such
deposits during the six months ended December 31, 2003 as compared to the same
period of the prior year. The increase in the average outstanding balance was
primarily due to the deposits obtained as a result of the acquisition of SFSB
Holding Company.
Interest expense on borrowings for the six months ended December 31, 2003
compared to the six months ended December 31, 2002 increased $8,000. This
increase was primarily due to a $2.2 million or 10.19% increase in the average
outstanding balance of FHLB advances. Partially offsetting the increase related
to the change in the average balance was a decrease in the average rate from
5.81% at December 31, 2002 to 5.35% at December 31, 2003.
PROVISION FOR LOAN LOSSES. The Bank provided $6,000 to its allowance for loan
losses for each of the six months ended December 31, 2003 and 2002. 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, 2003 and 2002 - Provision for Loan Losses."
OTHER INCOME. Total other income increased by $328,000 or 72.89% to $778,000 for
the six months ended December 31, 2003 as compared to the same period in 2002.
This was the result of a $171,000 increase in service charge income and a
$148,000 increase in other operating income. The increase in service charge
income was largely attributable to activity related to the accounts obtained
through the acquisition of SFSB Holding
17
Company. The increase in other operating income was primarily the result of an
increase in the cash surrender value of bank owned life insurance during the
period.
OPERATING EXPENSES. Total operating expenses increased by $1.0 million or 49.13%
during the six months ended December 31, 2003 as compared to the same period in
2002. This increase was primarily due to a $399,000 increase in compensation and
benefits expense and a $396,000 increase in other operating expenses.
Additionally, premises and occupancy costs increased $128,000, data processing
expense increased $79,000 and professional fees increased $25,000. These
increases were partially offset by a $10,000 decrease in the net loss on real
estate owned. The increase in compensation and benefits was primarily the result
of increased staffing resulting from the acquisition of SFSB Holding Company and
the hiring of new employees during the first six months of the fiscal year. The
increase in other operating expenses was largely attributable to amortization of
the core deposit intangible of $204,000 related to the acquisition of SFSB
Holding Company. Premises and occupancy expense increased primarily as a result
of the two additional branches obtained through the acquisition of SFSB Holding
Company.
INCOME TAX EXPENSE. Income tax expense decreased by $391,000 for the six months
ended December 31, 2003 as compared to the six months ended December 31, 2002
primarily as a result of lower pre-tax income and a lower effective tax rate.
The effective tax rate for the six months ended December 31, 2003 was 23.94%
compared to 31.52% for the six months ended December 31, 2002.
FINANCIAL CONDITION AND CAPITAL RESOURCES
Total assets decreased by $20.1 million or 6.21% from June 30, 2003 to December
31, 2003. The largest decrease was a $21.2 million decrease in loans receivable,
net. Additionally, there was a $2.8 million decrease in mortgage-backed
securities available for sale and a $1.9 million decrease in investment
securities available for sale. These decreases were slightly offset by a $4.0
million increase in investment securities held to maturity and a $2.3 million
increase in interest-earning deposits with other institutions. The largest
components of change in liabilities were a $16.8 million decrease in savings
deposits and a $3.1 million decrease in FHLB advances. The decrease in FHLB
advances resulted from the maturity of a $3.0 million advance during the second
quarter of fiscal 2004. Additionally, advance deposits by borrowers for taxes
and insurance decreased $1.0 million while other accrued expenses and sundry
liabilities increased $1.2 million as compared to June 30, 2003.
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, 2003, the Bank
exceeded all of these requirements, with Tier I and Tier II ratios of 7.63% and
16.69%, respectively.
18
The following table sets forth certain information concerning the Bank's
regulatory capital at December 31, 2003.
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
------- ------- -------
(Dollar amounts in thousands)
Equity capital (1) $22,978 $22,978 $22,978
Plus general valuation allowances (2) - - 1,867
Plus allowable unrealized gains - - 63
------- ------- ------
Total regulatory capital 22,978 22,978 24,908
Minimum required capital 12,049 5,976 11,951
------- ------- ------
Excess regulatory capital $10,929 $17,002 $12,957
======= ======= =======
Minimum required capital to be well
capitalized under Prompt Corrective
Action Provisions $15,061 $ 8,957 $14,928
======= ======= =======
Regulatory capital as a percentage (3) 7.63% 15.39% 16.69%
Minimum required capital percentage 4.00 4.00 8.00
---- ----- ----
Excess regulatory capital percentage 3.63% 11.39% 8.69%
==== ===== =====
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, 2003.
(2) Limited to 1.25% of risk adjusted assets.
(3) Tier I capital is calculated as a percentage of adjusted total assets of
$301,215. Tier I and Tier II risk-based capital are calculated as a
percentage of adjusted risk-weighted assets of $149,279.
19
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in
accordance with accounting principles generally accepted in the United States of
America, 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 14 and 15
herein.
ACCOUNTING DEVELOPMENTS
In December 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 132 (revised 2003),
"Employers' Disclosures about Pensions and Other Post-retirement Benefits, an
amendment of FASB Statements No. 87, 88 and 106" ("SFAS No. 132(R)"). SFAS No.
132(R) retains the disclosure requirements contained in SFAS No. 132 "Employers
Disclosures about Pensions and Other Post-retirement Benefits" but requires
additional disclosures to those in the original SFAS No. 132 about plan assets,
benefit obligations, cash flows and net periodic cost of defined benefit plans
and other postretirement plans. The Company will be required to adopt the new
annual disclosure requirements effective June 30, 2004.
SFAS No. 132(R) also amends Accounting Principles Board ("APB") Opinion No. 28,
"Interim Financial Reporting" to require interim-period disclosure of the
components of net periodic benefit cost and, if significantly different from
previously disclosed amounts, the amounts of contributions and projected
contributions to fund pension plans and other post-retirement benefit plans. The
Company is required to adopt the interim-period disclosure requirements of SFAS
No. 132(R) effective March 31, 2004. Because SFAS No. 132(R) pertains only to
disclosure provisions, the Company's adoption of SFAS No. 132(R) will not have
an impact on the Company's financial condition, results of operations or cash
flows.
20
In January 2003, the FASB issued Financial Interpretation No. 46, "Consolidation
of Variable Interest Entities" revised December 2003 ("FIN 46(R)"). FIN 46(R)
requires that companies consolidate a variable interest entity if it is subject
to a majority of the risk of loss from the variable interest entity's
activities, or is entitled to receive a majority of the entity's residual
returns, or both. The provisions of FIN 46(R) currently are required to be
applied no later than the first reporting period ending after March 15, 2004 for
variable interest entities in which the Company holds a variable interest that
it acquired on or before January 31, 2003. Companies that acquired a variable
interest after January 31, 2003, continue to apply the provisions of FIN 46 or
apply FIN 46(R) beginning December 31, 2003. Companies that hold a variable
interest in a special purpose entity, as defined, are required to apply either
FIN 46 or FIN 46(R) no later than the end of the first reporting period that
ends after December 15, 2003. There will be no impact on the Company's financial
position, results of operations or cash flows related to FIN 46 or FIN 46 (R).
ITEM 3. 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 2003 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, 2003.
ITEM 4. CONTROLS AND PROCEDURES
Our management evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of December 31, 2003. Based on such evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and regulations and are
operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred
during the first fiscal quarter of fiscal 2004 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
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
21
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 - OTHER INFORMATION
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
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
31.1 Certification of Chief Executive Officer Pursuant to
Rules 13a-14 and 15d-14 of the Securities Exchange Act
of 1934 and Section 302 of the Sarbanes-Oxley Act of
2002
22
31.2 Certification of Chief Financial Officer Pursuant to
Rules 13a-14 and 15d-14 of the Securities Exchange Act
of 1934 and Section 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification of Chief Executive Officer pursuant to
section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to
section 906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K
On November 10, 2003, the Company filed a Form 8-K to report
under "Item 12. Results of Operations and Financial Condition"
the results of its operations for the quarter ended September 30,
2003. No financial statements were required to be filed with the
Form 8-K.
On December 2, 2003, the Company filed a Form 8-K/A to report
under "Item 12. Results of Operations and Financial Condition"
the restatement of four ratios that were incorrect in the 8-K
filed on November 10, 2003. No financial statements were required
to be filed with the Form 8-K.
23
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 17, 2004
24