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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: March 31, 2004
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 May 11, 2004: 1,930,183 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
March 31, 2004 and June 30, 2003
Consolidated Statements of Operations for the Three .... 2
and Nine months ended March 31, 2004 and 2003
Consolidated Statement of Stockholders' Equity for the .... 3
nine months ended March 31, 2004
Consolidated Statements of Cash Flows for the nine .... 4
months Ended March 31, 2004 and 2003
Notes to Unaudited Consolidated Financial Statements .... 5-11
Item 2. Management's Discussion and Analysis of Financial .... 12-20
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk .... 20
Item 4. Controls and Procedures .... 20
Part II - Other Information
Item 1. Legal Proceedings .... 21
Item 2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities .... 21
Item 3. Defaults Upon Senior Securities .... 21
Item 4. Submission of Matters to a Vote of
Security Holders .... 21
Item 5. Other Information .... 21
Item 6. Exhibits and Reports on Form 8-K .... 21-22
Signatures .... 23
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands)
March 31, June 30,
2004 2003
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
Cash $ 1,781 $ 2,053
Money market investments 178 137
Interest-earning deposits with other institutions 37,910 51,235
Investment securities available for sale 47,158 46,603
Investment securities held to maturity (market value of $12,063 and $9,304) 12,011 9,207
Mortgage-backed securities available for sale 15,452 13,478
Mortgage-backed securities held to maturity (market value of $- and $28) - 27
Loans receivable, held for sale 1,429 1,439
Loans receivable 170,433 183,208
Allowance for loan losses (2,017) (2,006)
- -------------------------------------------------------------------------------------------------------------------
Loans receivable, net 168,416 181,202
Federal Home Loan Bank stock 1,820 2,171
Other repossessed assets 12 -
Accrued interest receivable:
Loans 721 842
Interest-earning deposits and investments 353 442
Mortgage-backed securities 65 61
Office properties and equipment, net of accumulated depreciation 2,302 2,366
Goodwill 2,158 2,158
Other intangible assets 1,599 1,905
Prepaid income tax 31 49
Prepaid expenses and sundry assets 7,855 7,408
- -------------------------------------------------------------------------------------------------------------------
Total Assets $ 301,251 $ 322,783
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits $ 247,677 $ 265,580
Federal Home Loan Bank advances 21,610 24,672
Advance deposits by borrowers for taxes and insurance 1,630 2,386
Accrued interest payable 1,072 543
Other accrued expenses and sundry liabilities 1,743 1,918
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities 273,732 295,099
- -------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock, $.01 par value; 5,000,000
shares authorized; 2,449,898 and 2,373,906 shares
issued, respectively 24 24
Additional paid-in capital 6,030 5,565
Treasury stock, at cost (524,670 and 491,675 shares) (8,238) (7,552)
Retained earnings 29,335 29,208
Accumulated other comprehensive income, net of tax 785 856
Stock held in deferred compensation trust (417) (417)
- -------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 27,519 27,684
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 301,251 $ 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 Nine Months Ended March 31, 2004 and
2003 (In thousands, except per share data)
Three months ended Nine months ended
March 31, March 31,
---------------------- ----------------------
2004 2003 2004 2003
------- ------- ------- -------
Interest income:
Loans $ 2,545 $ 2,805 $ 7,670 $ 8,945
Mortgage-backed securities 128 112 358 369
Investments 524 578 1,470 1,725
Interest-earning deposits 119 69 453 274
------- ------- ------- -------
Total interest income 3,316 3,564 9,951 11,313
Interest expense:
Savings deposits 1,153 1,461 3,734 4,876
Borrowings 318 315 969 957
------- ------- ------- -------
Total interest expense 1,471 1,776 4,703 5,833
------- ------- ------- -------
Net interest income before provision
for loan losses 1,845 1,788 5,248 5,480
Provision for loan losses 3 3 9 9
------- ------- ------- -------
Net interest income after provision
for loan losses 1,842 1,785 5,239 5,471
------- ------- ------- -------
Other income:
Service charges 246 179 821 583
Net gain on sale of securities available for sale 22 0 35 4
Gain on the sale of loans held for sale 0 0 7 7
Other operating income 93 24 276 59
------- ------- ------- -------
Total other income 361 203 1,139 653
------- ------- ------- -------
Operating expenses:
Compensation, payroll taxes and
fringe benefits 791 554 2,245 1,609
Premises and occupancy costs 188 213 598 494
Federal insurance premiums 10 9 30 28
Net loss on real estate owned 3 1 4 12
Data processing expense 104 66 322 205
Professional fees 88 30 195 113
Other operating expenses 393 310 1,276 797
------- ------- ------- -------
Total operating expenses 1,577 1,183 4,670 3,258
------- ------- ------- -------
Income before income taxes 626 805 1,708 2,866
------- ------- ------- -------
Provision for income taxes:
Federal 160 194 368 727
State 33 44 84 161
------- ------- ------- -------
Total income taxes 193 238 452 888
------- ------- ------- -------
Net income $ 433 $ 567 $ 1,256 $ 1,978
======= ======= ======= =======
Earnings per share
Basic $ 0.23 $ 0.30 $ 0.66 $ 1.05
======= ======= ======= =======
Diluted $ 0.22 $ 0.29 $ 0.63 $ 1.00
======= ======= ======= =======
Dividends per share $ 0.20 $ 0.19 $ 0.60 $ 0.57
======= ======= ======= =======
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
(Unaudited)
For the Nine Months Ended March 31, 2004
(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 -- -- -- 1,256 -- -- 1,256
Other comprehensive loss,
net of tax ($37) -- -- -- -- (68) -- (68)
Reclassification adjust-
ment, net of tax, $(2) -- -- -- -- (3) -- (3)
-------- -------- -------- -------- -------- -------- --------
Total comprehensive income -- -- -- 1,256 (71) -- 1,185
Stock options exercised
(75,992 shares) -- 465 -- -- -- -- 465
Dividends on common stock
at $0.20 per share -- -- -- (1,129) -- -- (1,129)
Treasury stock purchased -- -- (686) -- -- -- (686)
-------- -------- -------- -------- -------- -------- --------
Balance, March 31, 2004 $ 24 $ 6,030 $ (8,238) $ 29,335 $ 785 $ (417) $ 27,519
======== ======== ======== ======== ======== ======== ========
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended March 31, 2004 and 2003
(In thousands)
2004 2003
- -----------------------------------------------------------------------------------------------------------------------------
Net income: $ 1,256 $ 1,978
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 203 207
Provision for loan losses 9 9
Net gain on sale of real estate owned - (5)
Net gain on sale of investment securities available for sale (63) (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 77 146
Origination of loans held for sale (494) (665)
Proceeds from sale of loans held for sale 511 457
Decrease in accrued interest receivable 206 334
Increase in accrued interest payable 529 728
Decrease in taxes payable 18 (244)
Other - net (186) (6)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,721 2,595
- -----------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of investment securities held to maturity (14,006) (17,950)
Purchase of investment securities available for sale (9,295) (4,982)
Purchase of mortgage-backed securities available for sale (9,266) (5,487)
Proceeds from sale of investment securities available for sale 2,272 963
Proceeds from sale of mortgage-backed securities available for sale 1,457 -
Principal repayments and maturities of investment securities available for sale 6,498 1,809
Principal repayments and maturities of investment securities held to maturity 11,185 17,400
Principal repayments and maturities of mortgage-backed securities available for sale 5,682 4,113
Principal repayments and maturities of mortgage-backed securities held to maturity 4 10
Decrease in loans receivable 12,685 13,333
Decrease (increase) in FHLB stock 351 (248)
Proceeds from sale of real estate owned - 32
Acquisition - net of cash and cash equivalents - (248)
Additions to office properties and equipment (139) (577)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 7,794 8,501
- -----------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net (decrease) increase in demand and club accounts (3,713) 1,004
Net decrease in time deposit accounts (14,190) (8,247)
Net decrease in FHLB advances (3,062) (4)
Decrease in advance deposits by borrowers for taxes and insurance (756) (634)
Stock options exercised 465 81
Acquisition of treasury stock (686) (248)
Dividends paid (1,129) (1,071)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (23,071) (9,119)
- -----------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (13,556) 1,977
Cash and cash equivalents at beginning of period 53,425 33,863
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 39,869 $ 35,840
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Interest on savings deposits $ 3,205 $ 4,876
Interest on FHLB advances 1,027 957
Income taxes 580 1,027
Transfer of loans to other real estate owned 15 26
Cash paid during the period for interest includes interest credited on
deposits of $2,570 and $3,750 for the nine months ended March 31, 2004 and
2003, respectively
- -----------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 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 nine months ended March 31, 2004 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") 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 Nine months ended
March 31, March 31,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Basic earnings per share:
Net income $ 433 $ 567 $ 1,256 $ 1,978
Weighted average shares outstanding 1,904,878 1,881,271 1,890,728 1,880,767
Earnings per share $ 0.23 $ 0.30 $ 0.66 $ 1.05
Diluted earnings per share:
Net income $ 433 $ 567 $ 1,256 $ 1,978
Weighted average shares outstanding 1,904,878 1,881,271 1,890,728 1,880,767
Dilutive effect of employee
stock options 88,035 95,082 96,472 102,130
---------- ---------- ---------- ----------
Diluted weighted shares outstanding 1,992,913 1,976,353 1,987,200 1,982,897
Earnings per share $ 0.22 $ 0.29 $ 0.63 $ 1.00
All outstanding options during the three and nine months ended March 31, 2004
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 $19.50 were outstanding
during the three months ended March 31, 2003 but were not included in the
computation of diluted earnings per share. These options were excluded because
the option exercise price was greater than the average market price of the
common shares resulting in an antidilutive effect. All outstanding options
during the nine months ended March 31, 2003 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.
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 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 nine
months ended March 31, 2004 and 2003, the Company's total comprehensive income
was $1,185 and $2,070, respectively. Total comprehensive income is comprised of
net income of $1,256 and $1,978, respectively, and other comprehensive (loss)
income of $(71) and $92, net of tax, respectively. Other comprehensive income
consists of unrealized gains and losses on investment securities and
mortgage-backed securities available for sale, net of tax.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances net of the allowance
for possible loan losses, net deferred loan fees and discounts. The Company
accounts for impaired loans in accordance with SFAS 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures", an amendment of SFAS
114. These statements address the accounting by creditors for impairment of
certain loans. They apply to all creditors and to all loans, uncollateralized as
well as collateralized, except for large groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment. 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
6
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. 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 SFAS 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 MARCH 31, 2004:
Municipal obligations $ 9,964 $ 728 $ 5 $10,687
FHLMC preferred stock 750 54 - 804
FNMA common stock 583 160 - 743
FHLMC common stock 684 143 - 827
Agency Notes 8,441 125 - 8,566
Corporate notes 1,079 44 1 1,122
Shay Financial Services ARM Fund 23,151 - 155 22,996
CRA Qualified Investment Fund 1,000 - 6 994
Other 424 - 5 419
----------------------------------------------------
46,076 1,254 172 47,158
Mortgage-backed securities available for sale 15,345 189 82 15,452
----------------------------------------------------
Total $61,421 $ 1,443 $ 254 $62,610
====================================================
At March 31, 2004, the contractual maturities of the debt securities
available for sale are:
Amortized Fair
Cost Value
-----------------------------
Due after one year through five years $ 1,600 $ 1,622
Due after five years through ten years 6,549 6,617
Due after ten years 26,884 27,791
-----------------------------
Total $ 35,033 $ 36,030
=============================
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 nine months ended March 31, 2004 and
2003 were $3,729 and $963, respectively. Gross realized gains on
those sales were $35 and $4, respectively.
Investment securities held to maturity are comprised of the following:
Amortized Gross Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------
AT MARCH 31, 2004
Corporate and Agency bonds $ 9,515 $ 75 $ 31 $ 9,559
Commercial Paper 2,496 8 - 2,504
----------------------------------------------------------
Total $ 12,011 $ 83 $ 31 $ 12,063
==========================================================
At March 31, 2004, the contractual maturities of the debt securities
held to maturity are:
Amortized Fair
Cost Value
-----------------------------
Due in one year or less $ 2,496 $ 2,504
Due after one year through five years 5,000 5,017
Due after five years through ten years 1,681 1,665
Due after ten years 2,834 2,877
-----------------------------
Total $ 12,011 $ 12,063
=============================
8
(4) LOANS RECEIVABLE
Loans receivable are comprised of the following:
March 31, June 30,
2004 2003
------------------------------------------------------------------------------------------------------
First mortgage loans:
1 to 4 family dwellings $117,841 $118,962
Multi-family dwellings 1,659 2,640
Commercial 6,439 5,337
Construction and development loans 6,330 14,728
------------------------------------------------------------------------------------------------------
132,269 141,667
Commercial and other loans 2,269 3,012
Consumer loans:
Loans secured by savings accounts 324 350
Installment loans 38,331 45,113
------------------------------------------------------------------------------------------------------
40,924 48,475
------------------------------------------------------------------------------------------------------
Loans receivable, net of unearned discounts 173,193 190,142
Less: Allowance for loan losses (2,017) (2,006)
Loans in process (3,363) (7,314)
Net deferred loan origination costs 603 380
------------------------------------------------------------------------------------------------------
Loans receivable, net $168,416 $181,202
------------------------------------------------------------------------------------------------------
Changes in the allowance for loan losses for the nine months ended
March 31, 2004 and 2003 are as follows:
Fiscal Fiscal
2004 2003
------------------------------------------------------------------------------------------------------
Balance at beginning of the fiscal year $2,006 $1,803
Provision for losses 9 9
Charge-offs (30) (18)
Recoveries 32 11
Allowance on loans acquired from Stanton Federal Savings Bank - 209
------------------------------------------------------------------------------------------------------
Balance at March 31, 2004 and 2003 $2,017 $2,014
------------------------------------------------------------------------------------------------------
At March 31, 2004, there were no loans that are considered to be
impaired under SFAS 114.
March 31,
2004 2003
---------------------
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 $589,000 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 Nine Months Ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
Net Income
As reported $ 433 $ 567 $1,256 $1,978
Deduct total stock-based compensation expense
determined under fair-value based method for
all awards, net of tax - (14) (4) (41)
----- ----- ------ ------
Pro forma $ 433 $ 553 $1,252 $1,937
Basic earnings per share
As reported $0.23 $0.30 $ 0.66 $ 1.05
Pro forma $0.23 $0.29 $ 0.66 $ 1.03
Diluted earnings per share
As reported $0.22 $0.29 $ 0.63 $ 1.00
Pro forma $0.22 $0.28 $ 0.63 $ 0.98
There was no stock-based employee compensation expense included in reported net
income during the three and nine months ended March 31, 2004 and 2003.
(7) GOODWILL AND OTHER INTANGIBLE ASSETS
There have been no changes in the carrying value of goodwill during the nine
months ended March 31, 2004.
10
The following table provides information for intangible assets subject to
amortization for the periods indicated:
For the nine months ended
March 31,
2004 2003
---- ----
Amortized intangible assets:
Core deposit intangible - gross $ 1,905 $ 2,006
Less: accumulated amortization (306) --
------- -------
Core deposit intangible - net $ 1,599 $ 2,006
======= =======
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 nine months ended 3/31/04 $306
----------------------------------------------------------------
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
----------------------------------------------------------------
(8) POST-RETIREMENT BENEFITS
During the quarter ended March 31, 2004 the Company implemented a Supplemental
Executive Retirement Plan ("SERP") and a Trustee Deferred Compensation/
Retirement Plan ("TDCRP") to provide certain additional retirement benefits to
participating executive officers and trustees. These plans did not include any
provisions for previous service provided by the participating executive
officers and trustees.
For the three and nine months ended March 31, 2004, the Company had service
costs and interest costs of $66,000 and $2,000, respectively related to the SERP
and the TDCRP.
11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
BALANCE SHEET DATA
At March 31,
2004 2003
---- ----
(In thousands except per share data)
------------------------------------
(Unaudited)
Total assets $301,251 $316,755
Interest-earning deposits with other institutions 37,910 32,476
Investment securities available for sale 47,158 51,310
Investment securities held to maturity 12,011 12,518
Mortgage-backed securities available for sale 15,452 16,001
Mortgage-backed securities held to maturity - 30
Loans receivable, held for sale 1,429 1,586
Loans receivable, net 168,416 187,171
Savings deposits 247,677 259,388
FHLB advances 21,610 24,713
Retained earnings 29,335 29,010
Stockholders' equity 27,519 27,385
Stockholders' equity per share $ 14.29 $ 14.55
STATISTICAL PROFILE
Three months ended Nine months ended
March 31, March 31,
-------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Average yield earned on all interest-earning assets 4.65% 5.47% 4.56% 5.66%
Average rate paid on all interest-bearing liabilities 2.32 3.16 2.40 3.37
Average interest rate spread 2.33 2.31 2.16 2.29
Net yield on average interest-earning assets 2.59 2.72 2.41 2.74
Average interest-earning assets as a percentage of
average interest-bearing liabilities 111.77 115.14 111.35 115.47
Return on average assets (1) 0.57 0.83 0.54 0.96
Return on average equity (1) 6.32 8.29 6.13 9.76
Average equity to average assets 9.07 10.01 8.87 9.82
- --------------------
(1) Amounts are annualized.
12
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
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 March 31, 2004 was
$433,000 compared to $567,000 for the same period in the prior year. The
decrease of $134,000 or 23.63% was primarily the result of a $394,000 increase
in total operating expenses partially offset by a $158,000 increase in total
other income, a $57,000 increase in net interest income and a $45,000 decrease
in income taxes. These and other significant fluctuations are discussed below.
NET INTEREST INCOME. The Company's operating results depend substantially on the
Bank's net interest income, which is determined by the average interest rate
spread between the Bank's interest-earning assets and interest-bearing
liabilities and the relative amounts of such assets and liabilities. Net
interest income increased by $57,000 or 3.19% during the three months ended
March 31, 2004 as compared to the same period of the prior year. The increase
was primarily due to an increase in the average interest rate spread from 2.31%
for the quarter ended March 31, 2003 to 2.33% for the quarter ended March 31,
2004. Additionally, the average balance of net earning assets increased $22.6
million or 8.60% from the prior year.
Interest income on loans receivable and loans held for sale decreased by
$260,000 or 9.27% during the three months ended March 31, 2004 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 6.74% for the quarter ended March
31, 2003 to 6.03% for the quarter ended March 31, 2004. The decrease resulting
from the change in the average yield was partially offset by an increase of $2.5
million or 1.52% in the average outstanding balance of loans receivable compared
to the same period in the prior year. The increase in the average outstanding
balance of loans receivable consisted of a $4.3 million or 11.75% increase in
the average outstanding balance of consumer loans offset by a $1.8 million or
1.42% decrease in the average outstanding balance of mortgage loans. Included in
the increase in the average outstanding balance of loans receivable are the
loans acquired from SFSB Holding Company on March 28, 2003. The decrease in the
average yield was primarily due to the continued low interest rate environment.
Interest on mortgage-backed securities held to maturity and mortgage-backed
securities available for sale increased by $16,000 or 14.29% during the quarter
ended March 31, 2004 as compared to the March 31, 2003 quarter. This increase
was primarily due to an increase in the average outstanding balance of
mortgage-backed securities of $4.7 million or 52.22% during the quarter ended
March 31, 2004 compared to the March 31, 2003 quarter. Partially offsetting the
fluctuation resulting from the increase in the average outstanding balance was a
decrease in the average yield on mortgage-backed securities from 5.00% for the
quarter ended March 31, 2003 to 3.72% for the quarter ended March 31, 2004. The
increase in the average outstanding balance of mortgage-backed securities
resulted from purchases made during the period. The decrease in the average
yield was primarily due to a decline in market interest rates which resulted in
increased repayments and downward re-pricing of adjustable rate securities. At
March 31, 2004, the Bank's portfolio of mortgage-backed securities available for
sale had net unrealized gains of $101,000. This portfolio consists of fixed and
adjustable rate securities with an average yield of 4.19% at March 31, 2004.
Rising interest rates would decrease the unrealized gains in this portfolio if
the fixed rate securities were not sold. There are no mortgage-backed
13
securities in the held to maturity portfolio at March 31, 2004. See Note 3 of
"Notes to Unaudited Consolidated Financial Statements."
Interest income on investments held to maturity and investments available for
sale decreased during the three months ended March 31, 2004 by $54,000 or 9.34%
from the comparable period in 2003, primarily due to a decrease in the average
yield on investment securities from 3.82% for the quarter ended March 31, 2003
to 3.52% for the quarter ended March 31, 2004. In addition, the average
outstanding balance of investment securities decreased $1.6 million or 2.59% for
the quarter ended March 31, 2004 as compared to the same period in the prior
fiscal year. The decrease in the average outstanding balance was primarily due
to securities being called during the period. At March 31, 2004, 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 $52,000,
respectively. See Note 3 of "Notes to Unaudited Consolidated Financial
Statements."
Interest income on interest-earning deposits increased during the three months
ended March 31, 2004 by $50,000 or 72.46% from the comparable period in 2003.
This increase was primarily due to an increase of $17.0 million or 65.89% in the
average outstanding balance of interest-earning deposits for the quarter ended
March 31, 2004 as compared to the March 31, 2003 quarter. Additionally, the
average yield on interest-earning deposits increased from 1.06% for the quarter
ended March 31, 2003 to 1.12% for the quarter ended March 31, 2004. The increase
in the average balance was primarily due to increases in deposit balances and
the investment of excess funds resulting from repayments of loans and investment
and mortgage-backed securities.
Interest expense on interest-bearing deposits decreased by $308,000 or 21.08%
for the quarter ended March 31, 2004, compared to the same period in 2003. The
decrease was primarily due to a decrease in the average interest rate paid on
savings deposits from 2.87% for the three months ended March 31, 2003 to 1.99%
for the three months ended March 31, 2004. This decrease was partially offset by
a $27.1 million or 13.13% increase in the average outstanding balance of such
deposits during the three months ended March 31, 2004 as compared to the same
period of the prior year. Included in the increase in the average outstanding
balance of interest-bearing deposits are deposits acquired from SFSB Holding
Company on March 28, 2003.
Interest expense on borrowings for the quarter ended March 31, 2004 compared to
the quarter ended March 31, 2003 remained relatively 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 5.81%.
PROVISION FOR LOAN LOSSES. The Bank provided $3,000 to its allowance for loan
losses for each of the quarters ended March 31, 2004 and March 31, 2003. 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 March 31, 2004 and March 31, 2003, the allowance for loan losses amounted to
$2.0 million or 1.20% and 1.08% of the total loan portfolio, respectively.
A review of the loan portfolio is conducted at least quarterly by management to
determine if 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
14
the risks in the loan portfolio and has determined that no significant changes
have occurred during the nine months ended March 31, 2004. Thus, the level of
the allowance for loan losses as a percentage of the loan portfolio 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 $158,000 or 77.83% to $361,000 for
the quarter ended March 31, 2004 as compared to the same period in 2003. This
was the result of an increase in service charge income of $67,000, a $67,000
increase in other operating income and a $22,000 increase in the net gain on the
sale of investment and mortgage-backed securities available for sale.
OPERATING EXPENSES. Total operating expenses increased by $394,000 or 33.31%
during the quarter ended March 31, 2004 as compared to the same quarter in 2003.
This increase was primarily due to a $237,000 increase in compensation and
benefits expense and a $93,000 increase in other operating expenses.
Additionally, professional fees increased $58,000 and data processing expense
increased $38,000. These increases were slightly offset by a decrease of $25,000
in premises and occupancy expense. 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 since March 31, 2003.
Additionally, the Company incurred expenses related to the Supplemental
Executive Retirement Plan and the Trustee Deferred Compensation/Retirement Plan
of $68,000. The increase in other operating expenses was largely attributable to
amortization expense of $102,000 related to the core deposit intangible
associated with the acquisition of SFSB Holding Company.
INCOME TAX EXPENSE. Income tax expense decreased by $45,000 for the quarter
ended March 31, 2004 as compared to the quarter ended March 31, 2003 primarily
as a result of lower pre-tax income. The effective tax rate increased slightly
from 29.57% for the 2003 quarter to 30.83% for the 2004 quarter.
15
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2004 AND 2003
GENERAL. The Company's net income for the nine months ended March 31, 2004 was
$1.3 million compared to $2.0 million for the same period in the prior year. The
decrease of $722,000 or 36.50% was primarily the result of a $1.4 million
increase in other operating expenses and a $232,000 decrease in net interest
income partially offset by a $486,000 increase in other income and a $436,000
decrease in income taxes. These and other significant fluctuations are discussed
below.
NET INTEREST INCOME. Net interest income decreased by $232,000 or 4.23% during
the nine months ended March 31, 2004 as compared to the same period of the prior
year. The decrease was primarily due to a decrease in the average balance of net
earning assets of $6.0 million or 16.94%. Additionally, the average interest
rate spread decreased from 2.29% for the nine months ended March 31, 2003 to
2.16% for the nine months ended March 31, 2004.
Interest income on loans receivable and loans held for sale decreased by $1.3
million or 14.25% during the nine months ended March 31, 2004 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 6.93% for the nine months ended March
31, 2003 to 6.15% for the nine months ended March 31, 2004. Additionally, the
average outstanding balance of loans receivable decreased $5.7 million or 3.32%
compared to the same period in the prior year. The decrease in the average
outstanding balance of loans receivable consisted of an $11.5 million or 8.48%
decrease in the average outstanding balance of mortgage loans which was
partially offset by a $5.7 million or 15.57% increase in the average outstanding
balance of consumer loans. The decrease in the average yield was primarily due
to lower market interest rates. The decrease in the average balance of loans
receivable was the result of loan repayments exceeding loan originations during
the period.
Interest on mortgage-backed securities held to maturity and mortgage-backed
securities available for sale decreased by $11,000 or 2.98% during the nine
months ended March 31, 2004 as compared to the same period in the prior year.
This decrease was primarily due to a decrease in the average yield on
mortgage-backed securities from 5.34% to 4.09% for the nine months ended March
31, 2003 and 2004, respectively. This decrease was partially offset by a $2.5
million or 26.60% increase in the average outstanding balance of mortgage-backed
securities during the nine months ended March 31, 2004 as compared to the nine
months ended March 31, 2003.
Interest income on investments held to maturity and investments available for
sale decreased during the nine months ended March 31, 2004 by $255,000 or 14.78%
from the comparable period in 2003. This decrease was primarily due to a
decrease in the average yield on investment securities from 3.99% for the nine
months ended March 31, 2003 to 3.36% for the nine months ended March 31, 2004.
Slightly offsetting the decrease resulting from the decline in the average yield
was a $644,000 or 1.12% increase in the average outstanding balance of
investment securities.
Interest income on interest-earning deposits increased during the nine months
ended March 31, 2004 by $179,000 or 65.33% from the comparable period in 2003.
This increase was primarily due to an increase of $27.1 million or 98.27% in the
average outstanding balance of interest-earning deposits for the nine months
ended March 31, 2004 as compared to the same period in the prior year. This
increase was partially offset by a decrease in the average yield on
interest-earning deposits from 1.30% for
16
the nine months ended March 31, 2003 to 1.11% for the nine months ended March
31, 2004. The increase in the average balance was primarily a result of the
temporary investment of funds received related to the repayment of loans and
investment and mortgage-backed securities.
Interest expense on interest-bearing deposits decreased by $1.1 million or
23.42% for the nine months ended March 31, 2004 compared to the same period in
2003. The decrease was primarily due to a decrease in the average interest rate
paid on savings deposits from 3.11% for the nine months ended March 31, 2003 to
2.09% for the nine months ended March 31, 2004. This decrease was partially
offset by an increase of $29.1 million or 13.90% in the average outstanding
balance of savings deposits during the nine months ended March 31, 2004 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 SFBS Holding Company.
Interest expense on borrowings for the nine months ended March 31, 2004 compared
to the nine months ended March 31, 2003 increased $12,000 or 1.25%. This
increase was primarily due to a $1.5 million or 6.79% 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 March 31, 2003 to 5.52% at March 31, 2004.
PROVISION FOR LOAN LOSSES. The Bank provided $9,000 to its allowance for loan
losses for each of the nine months ended March 31, 2004 and 2003. 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.
OTHER INCOME. Total other income increased by $486,000 or 74.43% to $1.1 million
for the nine months ended March 31, 2004 as compared to the same period in 2003.
This was primarily the result of a $238,000 increase in service charge income
and a $215,000 increase in other operating income. Additionally, the net gain on
the sale of investments and mortgage-backed securities available for sale
increased $31,000. The increase in service charge income was largely
attributable to activity related to the accounts obtained through the
acquisition of SFSB Holding 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 $1.4 million or 43.34%
during the nine months ended March 31, 2004 as compared to the same period in
2003. This increase was primarily due to a $636,000 increase in compensation and
benefits and a $489,000 increase in other operating expenses. Additionally, data
processing expense increased $117,000, premises and occupancy expense increased
$104,000 and professional fees increased 82,000. These increases were partially
offset by an $18,000 decrease in net loss on real estate owned. The increase in
compensation and benefits was primarily the result of the hiring of new
employees during the first nine months of the fiscal year. Additionally, the
Company incurred expenses related to the Supplemental Executive Retirement Plan
and the Trustee Deferred Compensation/Retirement Plan of $68,000. The increase
in other operating expenses was largely attributable to amortization expense of
$306,000 related to the core deposit intangible associated with 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.
17
INCOME TAX EXPENSE. Income tax expense decreased by $436,000 or 49.10% for the
nine months ended March 31, 2004 as compared to the nine months ended March 31,
2003 primarily as a result of lower pre-tax income. Additionally, the effective
tax rate decreased from 30.98% for the nine months ended March 31, 2003 to
26.46% for the same period in 2004.
FINANCIAL CONDITION AND CAPITAL RESOURCES
Total assets decreased by $21.5 million or 6.67% from June 30, 2003 to March 31,
2004. The majority of this decrease was comprised of a decrease in
interest-earning deposits with other institutions of $13.3 million or 26.01% and
a decrease in loans receivable, net of $12.8 million or 6.97%. These decreases
were slightly offset by a $2.8 million increase in investment securities held to
maturity and a $2.0 million increase in mortgage-backed securities available for
sale. The largest components of change in liabilities were a $17.9 million
decrease in savings deposits and a $3.1 million decrease in FHLB advances. The
decrease in savings deposits was funded primarily through the decreases in
interest earning deposits with other institutions and loans mentioned above. The
decrease in FHLB advances resulted from the maturity of a $3.1 million advance
during the second quarter of fiscal 2004.
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 March 31, 2004, the Bank
exceeded all of these requirements, with Tier I and Tier II ratios of 7.70% and
16.60%, respectively.
The following table sets forth certain information concerning the Bank's
regulatory capital at March 31, 2004.
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
------- ------- -------
(Dollar amounts in thousands)
Equity capital (1) $23,020 $23,020 $23,020
Plus general valuation allowances (2) - - 1,883
Plus allowable unrealized gains - - 87
------- ------- -------
Total regulatory capital 23,020 23,020 24,990
Minimum required capital 11,956 6,025 12,051
------- ------- -------
Excess regulatory capital $11,064 $16,995 $12,939
======= ======= =======
Minimum required capital to be well
capitalized under Prompt Corrective
Action Provisions $14,945 $ 9,030 $15,050
======= ======= =======
Regulatory capital as a percentage (3) 7.70% 15.30% 16.60%
Minimum required capital percentage 4.00 4.00 8.00
------- ------- -------
Excess regulatory capital percentage 3.70% 11.30% 8.60%
======= ======= =======
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
March 31, 2004.
(2) Limited to 1.25% of risk adjusted assets.
(3) Tier I capital is calculated as a percentage of adjusted total assets of
$298,892. Tier I and Tier II risk-based capital are calculated as
percentage of adjusted risk-weighted assets of $150,503.
18
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 losses, 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 was required to adopt the interim-period disclosure requirements of SFAS
No. 132(R) effective March 31, 2004. The Company has included the required
interim-period disclosures in Note 8 of the Notes to Unaudited Consolidated
Financial Statements.
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
19
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 March 31, 2004. 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 nine months 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 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
20
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, Use of Proceeds and Issuer Purchases of Equity
Securities
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
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
21
Reports on Form 8-K
On April 27, 2004, 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 March 31, 2004.
No financial statements were required to be filed with the Form
8-K.
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: May 14, 2004
23