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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, 2005
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 3, 2005: 1,943,000 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, 2005 and June 30, 2004
Consolidated Statements of Operations for the three......................... 2
and nine months ended March 31, 2005 and 2004
Consolidated Statement of Stockholders' Equity for the...................... 3
nine months ended March 31, 2005
Consolidated Statements of Cash Flows for the nine.......................... 4
months ended March 31, 2005 and 2004
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. Unregistered Sales of Equity 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........................................................... 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)
March 31 June 30,
2005 2004
-------- --------
(unaudited)
ASSETS
Cash $ 2,007 $ 1,991
Money market investments 284 283
Interest-earning deposits with other institutions 11,821 25,401
-------- --------
Total Cash and Cash Equivalents 14,112 27,675
Investment securities available for sale 45,670 47,669
Investment securities held to maturity (market value of $12,778 and $12,183) 12,915 12,210
Mortgage-backed securities available for sale 15,002 21,024
Loans receivable, held for sale 1,033 1,130
Loans receivable 204,485 175,323
Allowance for loan losses (1,998) (2,032)
-------- --------
Loans receivable, net 202,487 173,291
Federal Home Loan Bank stock 1,832 1,879
Other repossessed assets 128 -
Accrued interest receivable:
Loans 735 659
Interest-earning deposits and investments 259 384
Mortgage-backed securities 69 80
Office properties and equipment, net of accumulated depreciation 2,227 2,243
Goodwill 2,158 2,158
Other intangible assets 1,246 1,511
Prepaid income tax - 129
Prepaid expenses and sundry assets 7,869 7,333
-------- --------
Total Assets $307,742 $299,375
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits $253,282 $246,179
Federal Home Loan Bank advances 21,604 21,609
Advance deposits by borrowers for taxes and insurance 2,105 2,142
Accrued interest payable 1,248 619
Accrued income taxes 473 -
Other accrued expenses and sundry liabilities 1,737 1,701
-------- --------
Total Liabilities 280,449 272,250
-------- --------
Stockholders' Equity:
Common stock, $.01 par value; 5,000,000
shares authorized; 2,464,691 and 2,453,274 shares
issued, respectively 25 24
Additional paid-in capital 6,318 6,243
Treasury stock, at cost (524,670 shares) (8,238) (8,238)
Retained earnings 29,689 29,380
Accumulated other comprehensive income, net of tax 1 218
Stock held in deferred compensation trust (502) (502)
-------- --------
Total Stockholders' Equity 27,293 27,125
-------- --------
Total Liabilities and Stockholders' Equity $307,742 $299,375
-------- --------
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, 2005 and 2004
(In thousands, except per share data)
Three months ended Nine months ended
March 31, March 31,
------------------ -----------------
2005 2004 2005 2004
------ ------ ------ ------
Interest income:
Loans $2,769 $2,545 $7,954 $7,670
Mortgage-backed securities 155 128 515 358
Investments 519 524 1,529 1,470
Interest-earning deposits 82 119 275 453
------ ------ ------ ------
Total interest income 3,525 3,316 10,273 9,951
Interest expense:
Savings deposits 1,264 1,153 3,701 3,734
Borrowings 314 318 956 969
------ ------ ------ ------
Total interest expense 1,578 1,471 4,657 4,703
------ ------ ------ ------
Net interest income before provision
for loan losses 1,947 1,845 5,616 5,248
Provision for loan losses 3 3 9 9
------ ------ ------ ------
Net interest income after provision
for loan losses 1,944 1,842 5,607 5,239
------ ------ ------ ------
Other income:
Service charges 249 246 811 821
Net gain on the sale of securities available for sale - 22 - 35
Gain on the sale of loans held for sale 1 - 7 7
Earnings on bank owned life insurance 63 72 190 212
Other operating income 40 21 73 64
------ ------ ------ ------
Total other income 353 361 1,081 1,139
------ ------ ------ ------
Operating expenses:
Compensation, payroll taxes and
fringe benefits 757 791 2,197 2,245
Premises and occupancy costs 208 188 625 598
Federal insurance premiums 9 10 27 30
Net loss on real estate owned 4 3 4 4
Data processing expense 113 104 316 322
Professional fees 46 88 202 195
Amortization of core deposit intangible 88 102 265 306
Other operating expenses 308 291 918 970
------ ------ ------ ------
Total operating expenses 1,533 1,577 4,554 4,670
------ ------ ------ ------
Income before income taxes 764 626 2,134 1,708
------ ------ ------ ------
Provision for income taxes:
Federal 205 160 558 368
State 37 33 105 84
------ ------ ------ ------
Total income taxes 242 193 663 452
------ ------ ------ ------
Net income $ 522 $ 433 $1,471 $1,256
====== ====== ====== ======
Earnings per share
Basic $ 0.27 $ 0.23 $ 0.76 $ 0.66
====== ====== ====== ======
Diluted $ 0.26 $ 0.22 $ 0.74 $ 0.63
====== ====== ====== ======
Dividends per share $ 0.20 $ 0.20 $ 0.60 $ 0.60
====== ====== ====== ======
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, 2005
(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, 2004 $ 24 $ 6,243 $ (8,238) $ 29,380 $ 218 $ (502) $ 27,125
Comprehensive income:
Net income - - - 1,471 - - 1,471
Other comprehensive loss
net of tax ($112) - - - - (217) - (217)
------ ---------- -------- -------- ------------- ------------- -------------
Total comprehensive income - - - 1,471 (217) - 1,254
Other stock option activity - (39) - - - - (39)
Stock options exercised
(11,417) shares 1 114 - - - - 115
Dividends on common stock
at $0.60 per share - - - (1,162) - - (1,162)
------ ---------- -------- -------- ------------- ------------- -------------
Balance, March 31, 2005 $ 25 $ 6,318 $ (8,238) $ 29,689 $ 1 $ (502) $ 27,293
====== ========== ======== ======== ============= ============= =============
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, 2005 and 2004
(In thousands)
2005 2004
------- -------
Net income: $ 1,471 $ 1,256
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 204 203
Provision for loan losses 9 9
Net gain on sale of investment securities available for sale - (63)
Net loss on sale of mortgage-backed securities available for sale - 28
Gain on the sale of loans held for sale (7) (7)
Gain on the sale of REO (13) -
Net amortization of deferred loan costs 176 77
Origination of loans held for sale (343) (494)
Proceeds from sale of loans held for sale 446 511
Decrease in accrued interest receivable 60 206
Increase in accrued interest payable 629 529
Amortization of the core deposit intangible 265 306
Increase in cash surrender value (156) (189)
Increase in taxes payable 602 18
Other - net (262) (303)
------- -------
Net cash provided by operating activities 3,081 2,087
------- -------
Investing activities:
Purchase of investment securities held to maturity (12,020) (14,006)
Purchase of investment securities available for sale (2,963) (9,295)
Purchase of mortgage-backed securities available for sale - (9,266)
Proceeds from sale of investment securities available for sale - 2,272
Proceeds from sale of mortgage-backed securities available for sale - 1,457
Principal repayments and maturities of investment securities available for sale 4,740 6,498
Principal repayments and maturities of investment securities held to maturity 11,315 11,185
Principal repayments and maturities of mortgage-backed securities available for sale 5,934 5,682
Principal repayments and maturities of mortgage-backed securities held to maturity - 4
(Increase) decrease in loans receivable (23,872) 27,941
Loans purchased (5,910) (15,256)
Decrease in FHLB stock 47 351
Proceeds from the sale of REO 298 -
Additions to office properties and equipment (188) (139)
------- -------
Net cash (used in) provided by investing activities (22,619) 7,428
------- -------
Financing activities:
Net decrease in demand and club accounts (2,088) (3,713)
Net increase (decrease) in time deposit accounts 9,191 (14,190)
Net decrease in FHLB advances (5) (3,062)
Decrease in advance deposits by borrowers for taxes and insurance (37) (756)
Stock options exercised 76 465
Acquisition of treasury stock - (686)
Dividends paid (1,162) (1,129)
------- -------
Net cash provided by (used in) financing activities 5,975 (23,071)
------- -------
Net decrease in cash and cash equivalents (13,563) (13,556)
Cash and cash equivalents at beginning of period 27,675 53,425
------- -------
Cash and cash equivalents at end of period $14,112 $39,869
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------- -------
Cash paid during the period for:
Interest on savings deposits $ 3,071 $ 3,205
Interest on FHLB advances 956 1,027
Income taxes 175 580
Transfer of loans to other real estate owned 401 15
Cash paid during the period for interest includes interest credited on deposits
of $2,468 and $2,570 for the nine months ended March 31, 2005 and 2004,
respectively.
See accompanying notes to unaudited consolidated financial statements
4
LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND JUNE 30, 2004
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(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
U.S. generally accepted accounting principles. However, all adjustments,
consisting only of normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation, have been included.
Significant accounting policies have not changed since June 30, 2004. The
results of operations for the three and nine months ended March 31, 2005 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") 2004 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,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Basic earnings per share:
Net income $ 522 $ 433 $ 1,471 $ 1,256
Weighted average shares outstanding 1,940,021 1,904,878 1,935,312 1,890,728
Earnings per share $ 0.27 $ 0.23 $ 0.76 $ 0.66
Diluted earnings per share:
Net income $ 522 $ 433 $ 1,471 $ 1,256
Weighted average shares outstanding 1,940,021 1,904,878 1,935,312 1,890,728
Dilutive effect of employee
stock options 58,881 88,035 59,652 96,472
---------- ---------- ---------- ----------
Diluted weighted shares outstanding 1,998,902 1,992,913 1,994,964 1,987,200
Earnings per share $ 0.26 $ 0.22 $ 0.74 $ 0.63
Options to purchase 143,662 and 169,284 shares of common stock were outstanding
at March 31, 2005 and 2004, respectively. The dilutive effect of these options
was 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 resulting in none of the options having an antidilutive effect.
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
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, 2005 and 2004, the Company's total comprehensive income
was $1,254 and $1,185, respectively. Total comprehensive income is comprised of
net income of $1,471 and $1,256, respectively, and other comprehensive loss of
$(217) and $(71), 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 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
6
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, 2005:
Municipal obligations $ 7,613 $ 437 $ 24 $ 8,026
FHLMC preferred stock 750 - - 750
FNMA common stock 583 24 62 545
FHLMC common stock 684 201 - 885
Agency Notes 9,949 - 94 9,855
Corporate notes 1,077 13 14 1,076
Shay Financial Services ARM Fund 23,736 - 385 23,351
CRA Qualified Investment Fund 1,000 - 31 969
Other 220 - 7 213
--------- ----- ------- -------
45,612 675 617 45,670
Mortgage-backed securities available for sale 15,059 85 142 15,002
--------- ----- ------- -------
Total $ 60,671 $ 760 $ 759 $60,672
--------- ----- ------- -------
At March 31, 2005, the contractual maturities of the debt securities
available for sale are:
Amortized Fair
Cost Value
--------- -------
Due in one year or less $ 1,002 $ 998
Due after one year through five years 5,044 4,984
Due after five years through ten years 3,943 4,105
Due after ten years 23,709 23,872
--------- -------
Total $ 33,698 $33,959
========= =======
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, 2005 and
March 31, 2004 were $0 and $3,729, respectively. Net realized gains on
those sales were $0 and $35, respectively.
Investment securities held to maturity are comprised of the following:
Amortized Gross Unrealized Fair
Cost Gains Losses Value
--------- ----- ------ -------
At March 31, 2005
Corporate and Agency bonds $ 10,919 $ - $ 137 $10,782
Commercial Paper 1,996 - - 1,996
--------- ----- ------ -------
Total $ 12,915 $ - $ 137 $12,778
--------- ----- ------ -------
At March 31, 2005, the contractual maturities of the debt securities held to
maturity are:
Amortized Fair
Cost Value
--------- -------
Due in one year or less $ 4,896 $ 4,877
Due after one year through five years 7,021 6,906
Due after five years through ten years - -
Due after ten years 998 995
--------- -------
Total $ 12,915 $12,778
========= =======
8
(4) LOANS RECEIVABLE
Loans receivable are comprised of the following:
March 31, June 30,
2005 2004
--------- --------
First mortgage loans:
1 to 4 family dwellings $ 158,040 $125,304
Multi-family dwellings 1,495 1,616
Commercial 4,428 6,322
Construction and development loans 4,588 5,247
--------- --------
168,551 138,489
Commercial and other loans 731 1,475
Consumer loans:
Loans secured by savings accounts 165 285
Installment loans 36,993 38,010
--------- --------
37,889 39,770
--------- --------
Loans receivable, net of unearned discounts 206,440 178,259
Less: Allowance for loan losses (1,998) (2,032)
Loans in process (2,728) (3,459)
Net deferred loan origination costs 773 523
--------- --------
Loans receivable, net $ 202,487 $173,291
--------- --------
Changes in the allowance for loan losses for the nine months ended March 31,
2005 and 2004 are as follows:
March 31, March 31,
2005 2004
--------- ---------
Balance at beginning of the fiscal year $ 2,032 $ 2,006
Provision for losses 9 9
Charge-offs (55) (30)
Recoveries 12 32
--------- ---------
Allowance for loan losses $ 1,998 $ 2,017
--------- ---------
At March 31, 2005, there are no loans that are considered to be impaired under
SFAS 114.
March 31,
2005 2004
--------- ------
Non-accrual loans $ 833 $1,741
Non-accrual loans as a percent of total loans, net 0.41% 1.03%
- -----------------
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 $30 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,
2005 2004 2005 2004
----- ----- ------- ------
Net Income
As reported $ 522 $ 433 $ 1,471 $1,256
Deduct total stock-based compensation expense
determined under fair-value based method for
all awards, net of tax - - - (4)
----- ----- ------- ------
Pro forma $ 522 $ 433 $ 1,471 $1,252
Basic earnings per share
As reported $0.27 $0.23 $ 0.76 $ 0.66
Pro forma $0.27 $0.23 $ 0.76 $ 0.66
Diluted earnings per share
As reported $0.26 $0.22 $ 0.74 $ 0.63
Pro forma $0.26 $0.22 $ 0.74 $ 0.63
There was no stock-based employee compensation expense included in reported net
income during the three and nine months ended March 31, 2005 and 2004.
(7) GOODWILL AND OTHER INTANGIBLE ASSETS
There have been no changes in the carrying value of goodwill during the nine
months ended March 31, 2005.
10
The following table provides information for intangible assets subject to
amortization for the periods indicated:
For the nine months ended
March 31,
2005 2004
--------- ---------
Amortized intangible assets:
Core deposit intangible - gross $ 1,511 $ 1,905
Less: accumulated amortization (265) (306)
--------- ---------
Core deposit intangible - net $ 1,246 $ 1,599
========= =========
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 3/31/05 $ 265
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
For the fiscal year ended 6/30/09 158
(8) POST-RETIREMENT BENEFITS
For the nine months ended March 31, 2005, the Company had service costs and
interest costs of $85 and $3, respectively related to the Supplemental Executive
Retirement Plan and the Trustee Deferred Compensation/Retirement Plan.
11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
BALANCE SHEET DATA
At March 31,
2005 2004
-------- --------
(In thousands except per share data)
------------------------------------
(Unaudited)
Total assets $307,742 $301,251
Interest-earning deposits with other institutions 11,821 37,910
Investment securities available for sale 45,670 47,158
Investment securities held to maturity 12,915 12,011
Mortgage-backed securities available for sale 15,002 15,452
Loans receivable, held for sale 1,033 1,429
Loans receivable, net 202,487 168,416
Savings deposits 253,282 247,677
FHLB advances 21,604 21,610
Retained earnings 29,689 29,335
Stockholders' equity 27,293 27,519
Stockholders' equity per share $ 14.07 $ 14.29
STATISTICAL PROFILE
Three months ended Nine months ended
March 31, March 31,
------------------ -----------------
2005 2004 2005 2004
------ ------ ------ ------
Average yield earned on all interest-earning assets 4.81% 4.65% 4.70% 4.56%
Average rate paid on all interest-bearing liabilities 2.46 2.32 2.41 2.40
Average interest rate spread 2.35 2.33 2.29 2.16
Net yield on average interest-earning assets 2.65 2.59 2.57 2.41
Average interest-earning assets as a percentage of
average interest-bearing liabilities 113.69 111.77 113.30 111.35
Return on average assets (1) 0.68 0.57 0.64 0.54
Return on average equity (1) 7.58 6.32 7.14 6.13
Average equity to average assets 8.92 9.07 8.97 8.87
- --------------
(1) Amounts are annualized.
12
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
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, 2005 was
$522,000 compared to $433,000 for the same period in the prior year. The
increase of $89,000 or 20.55% was primarily the result of a $102,000 increase in
net interest income and a $44,000 decrease in total operating expenses partially
offset by a $49,000 increase in income taxes and an $8,000 decrease 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 increased by $102,000 or 5.53% during the three months ended
March 31, 2005 as compared to the same period of the prior year. The increase
was primarily due to an $8.4 million or 2.96% increase in the average balance of
net earning assets compared to the prior year. Additionally, the average
interest rate spread increased slightly from 2.33% for the quarter ended March
31, 2004 to 2.35% for the quarter ended March 31, 2005.
Interest income on loans receivable and loans held for sale increased by
$224,000 or 8.80% during the three months ended March 31, 2005 as compared to
the same period in the prior year. This increase was primarily due to an
increase of $34.4 million or 20.38% in the average outstanding balance of loans
receivable compared to the same period in the prior year. However, the increase
in the interest income resulting from the increase in the average outstanding
balance was partially offset by a decrease in the average yield on loans
receivable from 6.03% for the quarter ended March 31, 2004 to 5.45% for the
quarter ended March 31, 2005. The increase in the average outstanding balance of
loans receivable consisted of a $37.0 million or 29.03% increase in the average
outstanding balance of mortgage loans offset by a $2.5 million or 6.10% decrease
in the average outstanding balance of consumer loans. Reflected in the increase
in the average outstanding balance of mortgage loan are loan purchased on the
secondary market totaling $11.5 million. The loans were purchased to reduce
excess liquidity and were underwritten utilizing generally accepted underwriting
guidelines similar to those of Fannie Mae and Freddie Mac. The decrease in the
average yield was primarily the result of the re-pricing and repayment of higher
yielding loans and the increased origination of adjustable rate mortgages that
traditionally carry lower introductory rates of interest.
Interest on mortgage-backed securities held to maturity and mortgage-backed
securities available for sale increased by $27,000 or 21.09% during the quarter
ended March 31, 2005 as compared to the March 31, 2004 quarter. This increase
was primarily due to an increase in the average outstanding balance of
mortgage-backed securities of $2.4 million or 17.56% during the quarter ended
March 31, 2005 compared to the March 31, 2004 quarter. Additionally, the average
yield on mortgage-backed securities increased from 3.72% for the quarter ended
March 31, 2004 to 3.87% for the quarter ended March 31, 2005. The increase in
the average outstanding balance of mortgage-backed securities resulted from the
net effect of purchases made during the last quarter of the prior fiscal year
and principal repayments made during the period. The increase in the average
yield was primarily due to recovering market
13
interest rates which resulted in the upward re-pricing of adjustable rate
securities. At March 31, 2005, the Bank's portfolio of mortgage-backed
securities available for sale had net unrealized losses of $(56,000). This
portfolio consists of fixed and adjustable rate securities with an average yield
of 4.16% at March 31, 2005. There are no mortgage-backed securities in the held
to maturity portfolio at March 31, 2005. 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, 2005 by $5,000 or 0.95%
from the comparable period in 2004. The decline was due to decreases in both the
average yield and the average outstanding balance of investment securities. The
average outstanding balance decreased $309,000 to $59.5 million while the
average yield decreased from 3.52% for the quarter ended March 31, 2004 to 3.50%
for the quarter ended March 31, 2005. The decrease in the average outstanding
balance was primarily due to securities being called during the period in excess
of purchases. At March 31, 2005, the Bank's portfolio of investment securities
available for sale and investment securities held to maturity had net unrealized
gains(losses) of $58,000 and $(137,000), respectively. See Note 3 of "Notes to
Unaudited Consolidated Financial Statements."
Interest income on interest-earning deposits decreased during the three months
ended March 31, 2005 by $37,000 or 31.09% from the comparable period in 2004.
This decrease was primarily due to a decrease of $28.1 million or 65.79% in the
average outstanding balance of interest-earning deposits for the quarter ended
March 31, 2005 as compared to the March 31, 2004 quarter. The average yield on
interest-earning deposits increased from 1.12% for the quarter ended March 31,
2004 to 2.15% for the quarter ended March 31, 2005 partially offsetting the
reduction in income related to the decline in the average outstanding balance.
The decrease in the average balance was primarily due to the utilization of
interest-earning deposits to fund loan purchases and originations since March
31, 2004. The increase in the average yield is reflective of increases in market
interest rates.
Interest expense on interest-bearing deposits increased by $111,000 or 9.63% for
the quarter ended March 31, 2005, compared to the same period in 2004. The
increase was primarily due to an increase in the average interest rate paid on
savings deposits from 1.99% for the three months ended March 31, 2004 to 2.15%
for the three months ended March 31, 2005. Additionally, the average outstanding
balance of such deposits increased $3.1 million or 1.34% during the three months
ended March 31, 2005 as compared to the same period of the prior year. The
increase in the average interest rate paid is reflective of increases in market
interest rates.
Interest expense on borrowings for the quarter ended March 31, 2005 compared to
the quarter ended March 31, 2004 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, 2005 and March 31, 2004. 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 each of March 31, 2005 and March 31, 2004, the allowance for loan losses
amounted to $2.0 million or 0.99% and 1.20% of the total loan portfolio,
respectively.
14
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 the risks in the loan portfolio and has determined that
no significant changes have occurred during the nine months ended March 31,
2005. However, the allowance for loan losses as a percentage of the loan
portfolio has fluctuated due to the increase in total loans receivable from
$173.3 million at March 31, 2004 to $202.5 million at March 31, 2005. This
increase consisted primarily of one-to-four family loans that traditionally
carry lower risk of loss. Non-performing loans decreased from $1.7 million at
March 31, 2004 to $833,000 at March 31, 2005 primarily due to the payoff of two
loans totaling $763,000 during the period. Based on the above factors,
management believes that the Company's allowance for loan losses at March 31,
2005 is appropriate. However, future additions to the reserve may be necessary
due to changes in economic conditions and other factors. In addition, as an
integral part of their periodic examination, certain regulatory agencies review
the adequacy of the Bank's allowance for loan losses and may direct the Bank to
make additions to the allowance based on their judgment. No such additions were
required to be made during the Company's most recent examination.
OTHER INCOME. Total other income decreased by $8,000 or 2.22% to $353,000 for
the quarter ended March 31, 2005 as compared to the same period in 2004. This
was the result of decreases in the net gain on the sale of investments and
mortgage-backed securities available for sale and income from bank owned life
insurance of $22,000 and $9,000, respectively. These decreases were to a large
extent offset by a $19,000 increase in other operating income and a $3,000
increase in service charges.
OPERATING EXPENSES. Total operating expenses decreased by $44,000 or 2.79%
during the quarter ended March 31, 2005 as compared to the same quarter in 2004.
This decrease was primarily due to a $42,000 decrease in professional fees, a
$34,000 decrease in compensation and benefits expense and a $14,000 decrease in
the amortization of the core deposit intangible associated with the acquisition
of SFSB Holding Company. These decreases were partially offset by an increase of
$20,000 in premises and occupancy expense and an increase of $17,000 in other
operating expenses. Additionally, there was an increase of $9,000 with regard to
data processing expenses. The decrease in professional fees was the result of
lower legal and audit fees during the period as well as a decrease in
professional fees due to the timing of certain annual expenses. The decrease in
compensation and benefits expense relates primarily to the expiration of
compensation agreements related to the acquisition of SFSB Holding Company and a
change in vesting periods for certain retirement benefits. The increase in
premises and occupancy expense was primarily the result of increased insurance
expenses during the period.
INCOME TAX EXPENSE. Income tax expense increased by $49,000 for the quarter
ended March 31, 2005 as compared to the quarter ended March 31, 2004 primarily
as a result of higher pre-tax income. The effective tax rate increased slightly
from 30.83% for the 2004 quarter to 31.68% for the 2005 quarter.
15
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2005 AND 2004
GENERAL. The Company's net income for the nine months ended March 31, 2005 was
$1.5 million compared to $1.3 million for the same period in the prior year. The
increase of $215,000 or 17.12% was primarily the result of a $368,000 increase
in net interest income and a $116,000 decrease in other operating expenses
partially offset by a $211,000 increase in income taxes and a $58,000 decrease
in other income. These and other significant fluctuations are discussed below.
NET INTEREST INCOME. Net interest income increased by $368,000 or 7.02% during
the nine months ended March 31, 2005 as compared to the same period of the prior
year. The increase was primarily due to a shift within the portfolio of
interest-earning assets from lower yielding interest-earning deposits to higher
yielding mortgage loans. The overall increase in the average balance of net
earning assets was $585,000 or 0.20%. Additionally, the average interest rate
spread increased from 2.16% for the nine months ended March 31, 2004 to 2.29%
for the nine months ended March 31, 2005.
Interest income on loans receivable and loans held for sale increased by
$284,000 or 3.70% during the nine months ended March 31, 2005 as compared to the
same period in the prior year. This increase was primarily due to an increase in
the average outstanding balance of loans receivable of $27.7 million or 16.66%.
The increase in the average outstanding balance of loans receivable consisted of
a $31.1 million or 25.15% increase in the average outstanding balance of
mortgage loans combined with a $3.4 million or 7.94% decrease in the average
outstanding balance of consumer loans. The impact of the increase in the average
outstanding balance was to a large extent offset by a decrease in the yield on
loans receivable from 6.15% for the nine months ended March 31, 2004 to 5.46%
for the nine months ended March 31, 2005. The decrease in the average yield was
primarily the result of the re-pricing and repayment of higher yielding loans
and the increased origination of adjustable rate mortgages that traditionally
carry lower introductory rates of interest. The increase in the average balance
of loans receivable was the result of significant decreases in the amount of
loan repayments along with loan purchases and originations during the period.
Interest on mortgage-backed securities held to maturity and mortgage-backed
securities available for sale increased by $157,000 or 43.85% during the nine
months ended March 31, 2005 as compared to the same period in the prior year.
This increase was primarily due to an increase in the average outstanding
balance of mortgage-backed securities of $6.5 million or 55.87% during the
period as a result of purchases made in the fourth quarter of the prior fiscal
year. The average yield on mortgage-backed securities decreased from 4.09% to
3.78% for the nine months ended March 31, 2004 and 2005, respectively. The
decrease in the average yield on mortgage-backed securities was primarily due to
the downward re-pricing of adjustable rate mortgage-backed securities.
Interest income on investments held to maturity and investments available for
sale increased during the nine months ended March 31, 2005 by $59,000 or 4.01%
from the comparable period in 2004. This increase was due to both an increase in
the average yield on investment securities and an increase in the average
outstanding balance of such securities. The average yield increased from 3.36%
for the nine months ended March 31, 2004 to 3.43% for the nine months ended
16
March 31, 2005. The average outstanding balance increased $1.2 million or 1.98%
during the period.
Interest income on interest-earning deposits decreased during the nine months
ended March 31, 2005 by $178,000 or 39.29% from the comparable period in 2004.
This decrease was primarily due to a decrease of $34.8 million or 63.66% in the
average outstanding balance of interest-earning deposits for the nine months
ended March 31, 2005 as compared to the same period in the prior year. This
decrease was partially offset by an increase in the average yield on
interest-earning deposits from 1.11% for the nine months ended March 31, 2004 to
1.84% for the nine months ended March 31, 2005. The decrease in the average
balance was primarily the result of the funding of new loans and purchases of
mortgage-backed and investment securities.
Interest expense on interest-bearing deposits decreased by $33,000 or 0.88% for
the nine months ended March 31, 2005 compared to the same period in 2004. The
decrease was primarily due to a decrease of $2.5 million or 1.05% in the average
outstanding balance of savings deposits. The average interest rate paid on
savings deposits remained constant at 2.09% for both the nine months ended March
31, 2004 and the nine months ended March 31, 2005.
Interest expense on borrowings for the nine months ended March 31, 2005 compared
to the nine months ended March 31, 2004 decreased $13,000 or 1.34%. This
decrease was primarily due to a $1.5 million or 6.41% decrease in the average
outstanding balance of FHLB advances. Partially offsetting the decrease related
to the change in the average balance was an increase in the average rate from
5.52% at March 31, 2004 to 5.81% at March 31, 2005.
PROVISION FOR LOAN LOSSES. The Bank provided $9,000 to its allowance for loan
losses for each of the nine months ended March 31, 2005 and 2004. 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 additional
discussion in "Provision for Loan Losses" Section on pages 14 and 15.
OTHER INCOME. Total other income decreased by $58,000 or 5.09% for the nine
months ended March 31, 2005 as compared to the same period in 2004. This was
primarily the result of a $35,000 decrease in the net gain on the sale of
investments and mortgage-backed securities available for sale and a $22,000
decrease in the income from bank owned life insurance. Additionally, there was a
$10,000 decrease in service charge income. These decreases were slightly offset
by a $9,000 increase in other operating income. The decrease in income from bank
owned life insurance was primarily the result of decreases in the yields earned
through the various carriers during the period.
OPERATING EXPENSES. Total operating expenses decreased by $116,000 or 2.48%
during the nine months ended March 31, 2005 as compared to the same period in
2004. This decrease was primarily due to a $52,000 decrease in other operating
expenses, a $48,000 decrease in compensation and benefits and a $41,000 decrease
in the amortization of the core deposit intangible associated with the
acquisition of SFSB Holding Company. These decreases were partially offset by a
$27,000 increase in premises and occupancy expense. The decrease in other
operating expenses was the result of increased efficiencies attained throughout
the period with regard to various items. The decrease in compensation and
benefits expense is primarily the result of reductions in officer and director
compensation related to the expiration
17
of compensation agreements related to the acquisition of SFSB Holding Company
and the retirement of a director during the period. Premises and occupancy
expense increased due to increased repair and maintenance expense and furniture,
fixture and equipment expense.
INCOME TAX EXPENSE. Income tax expense increased by $211,000 or 46.68% for the
nine months ended March 31, 2005 as compared to the nine months ended March 31,
2004 primarily as a result of higher pre-tax income. Additionally, the effective
tax rate increased from 26.46% for the nine months ended March 31, 2004 to
31.07% for the same period in 2005.
FINANCIAL CONDITION AND CAPITAL RESOURCES
Total assets increased by $8.4 million or 2.79% from June 30, 2004 to March 31,
2005. This increase was comprised of an increase in loans receivable, net of
$29.2 million offset, to a large extent, by a $13.6 million decrease in
interest-earning deposits with other institutions, a $6.0 million decrease in
mortgage-backed securities available for sale and a $2.0 million decrease in
investment securities available for sale. The largest component of change in
liabilities was a $7.1 million increase in savings deposits. The increase in
savings deposits was primarily utilized to fund the increase in loans
receivable, net mentioned above.
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, 2005, the Bank
exceeded all of these requirements, with Tier I and Tier II ratios of 7.64% and
16.08%, respectively.
The following table sets forth certain information concerning the Bank's
regulatory capital at March 31, 2005.
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
-------- ----------- ------------
(Dollar amounts in thousands)
Tier I capital (1) $23,349 $ 23,349 $ 23,349
Plus general valuation allowances (2) - - 1,968
Plus allowable unrealized gains - - -
------- ---------- ----------
Total regulatory capital 23,349 23,349 25,317
Minimum required capital 12,344 6,297 12,594
------- ---------- ----------
Excess regulatory capital $11,005 $ 17,052 $ 12,722
======= ========== ==========
Minimum required capital to be well
capitalized under Prompt Corrective
Action Provisions $15,430 $ 9,444 $ 15,740
======= ========== ==========
Regulatory capital as a percentage (3) 7.57% 14.83% 16.08%
Minimum required capital percentage 4.00 4.00 8.00
------- ---------- ----------
Excess regulatory capital percentage 3.57% 10.83% 8.08%
======= ========== ==========
Minimum required capital percentage
to be well capitalized under Prompt
Corrective Action Provisions 5.00% 6.00% 10.00%
======= ========== ==========
18
- -------------------------------
(1) Represents tier I 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, 2005.
(2) Limited to 1.25% of risk adjusted assets.
(3) Tier I capital is calculated as a percentage of adjusted total assets of
$305,610. Tier I and Tier II risk-based capital are calculated as
percentage of adjusted risk-weighted assets of $157,401.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in
accordance with U.S. generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, substantially all
of the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services as measured by the consumer price
index.
CRITICAL ACCOUNTING POLICIES
Various elements of the Company's accounting policies, by their nature, are
inherently subject to estimation techniques, valuation assumptions and other
subjective assessments. The estimates made with respect to the methodologies
used to determine the allowance for loan losses is the Company's most critical
accounting estimate. Critical accounting estimates are significantly affected by
management judgment and uncertainties and there is a likelihood that materially
different amounts would be reported under different, but reasonably plausible,
conditions or assumptions.
The following is a description of the Company's critical accounting estimate,
allowance for loan losses, and an explanation of the methods and assumptions
underlying its application.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses reflects the estimated
losses resulting from the inability of the Company's borrowers to make required
loan payments. The allowance for loan losses is established through a provision
for loan losses that is charged to expense. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely. Subsequent recoveries are added to the allowance.
At least quarterly, management reviews the Company's loan portfolio to determine
if the allowance for loan losses is appropriate to absorb the estimated 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 nine months ended March 31, 2005. Thus, the
19
level of the allowance for loan losses as a percentage of the loan portfolio is
substantially unchanged from June 30, 2004. 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. Historically, the Company's estimates of the allowance for loan losses
have not required significant adjustments from management's initial estimates.
Additionally, 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.
For additional information on the Company's allowance for loan losses see Note 4
"Loans Receivable" on page 9 and the discussion on "Provision for Loan Losses"
on pages 14 and 15 herein.
ACCOUNTING DEVELOPMENTS
In April 2005, the Securities and Exchange Commission adopted a new rule that
amends the compliance dates for Financial Accounting Standards Board's ("FASB")
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment ("FAS No. 123R"). The Statement requires that compensation cost relating
to share-based payment transactions be recognized in financial statements and
that this cost be measured based on the fair value of the equity or liability
instruments issued. FAS No. 123R covers a wide range of share-based compensation
arrangements including share options, restricted share plans, performance-based
awards, share appreciation rights, and employee share purchase plans. The
amended compliance dates make FAS No. 123R effective for interim or annual
periods beginning after December 31, 2005. The Company does not anticipate any
material impact on the Company's results of operations as a result of adoption
of this statement since all of the Company's current outstanding options are
vested.
In December 2004, FASB issued FAS No. 153, "Exchanges of Nonmonetary Assets - An
Amendment of APB Opinion No. 29". The guidance in APB Opinion No. 29,
"Accounting for Nonmonetary Transactions", is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. FAS No. 153 amends Opinion No. 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The provisions of FAS No. 153 are effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early
application is permitted and companies must apply the standard prospectively.
The adoption of this standard is not expected to have a material effect on the
Company's results of operations or financial position.
In October 2003, the American Institute of Certified Public Accountants issued
SOP 03-3, "Accounting for Loans or Certain Debt Securities Acquired in a
Transfer". SOP 03-3 applies to a loan that is acquired where it is probable, at
acquisition, that a transferee will be unable to collect all contractually
required payments receivable. SOP 03-3 requires the recognition, as accretable
yield, of the excess of all cash flows expected at acquisition over the
investor's initial investment in the loan as
20
interest income on a level-yield basis over the life of the loan. The amount by
which the loan's contractually required payments exceed the amount of its
expected cash flows at acquisition may not be recognized as an adjustment to
yield, a loss accrual, or a valuation allowance for credit risk. SOP 03-3 is
effective for loans acquired in fiscal years beginning after December 31, 2004.
Early adoption is permitted. The adoption of SOP 03-3 is not expected to have a
material impact on the Company's consolidated financial statements.
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 2004 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, 2004.
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, 2005. 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 2005 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 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
21
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. Unregistered Sales of Equity 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
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
22
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
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: May 16, 2005
24