##### Table of Contents



Securities and Exchange Commission
 WASHINGTON, D. C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended: March 31, 2006
 or
 o
    
    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.
  Pennsylvania
    
    25-1717451(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer
Identification No.)
 2724 Harts Run Road
Allison Park, Pennsylvania
    
    15101(Address of principal executive office)
    
    (Zip Code)
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ




---



##### 



LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
 Index
 PAGE
 Part I  Financial InformationItem 1. Financial Statements (Unaudited)Consolidated Statements of Financial Condition as of
March 31, 2006 and June 30, 2005
    
    
    1Consolidated Statements of Operations for the Three
and Nine months ended March 31, 2006 and 2005
    
    
    2Consolidated Statement of Stockholders Equity for the
Nine months ended March 31, 2006
    
    
    3Consolidated Statements of Cash Flows for the Nine
Months ended March 31, 2006 and 2005
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    5-11Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    12-21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    21Part II  Other InformationItem 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of
Security Holders
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    23Signatures
    
    
    24EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



Financial Statements
 LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
 
    March 31,
    
    June 30,2006
    
    2005ASSETSCash
    
    $
    2,047
    
    
    $
    2,146Interest-earning deposits with other institutions
    
    
    13,869
    
    
    
    10,825Total Cash and Cash Equivalents
    
    
    15,916
    
    
    
    12,971Investment securities available for sale
    
    
    43,234
    
    
    
    45,539Investment securities held to maturity (market value of $13,176 and $10,845)
    
    
    13,418
    
    
    
    10,918Mortgage-backed securities available for sale
    
    
    9,661
    
    
    
    13,002Loans receivable, held for sale
    
    
    172
    
    
    
    947Loans receivable
    
    
    216,987
    
    
    
    211,738Allowance for loan losses
    
    
    (2,000
    )
    
    
    (1,989
    )Loans receivable, net
    
    
    214,987
    
    
    
    209,749Federal Home Loan Bank stock
    
    
    1,912
    
    
    
    1,878Real estate owned
    
    
    
    
    
    
    37Accrued interest receivable:Loans
    
    
    700
    
    
    
    733Interest-earning deposits and investments
    
    
    298
    
    
    
    287Mortgage-backed securities
    
    
    40
    
    
    
    66Office properties and equipment, net of accumulated depreciation
    
    
    2,168
    
    
    
    2,277Goodwill
    
    
    2,158
    
    
    
    2,158Other intangible assets
    
    
    944
    
    
    
    1,170Prepaid expenses and sundry assets
    
    
    8,687
    
    
    
    8,069Total Assets
    
    $
    314,295
    
    
    $
    309,801LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Savings deposits
    
    $
    258,810
    
    
    $
    254,891Federal Home Loan Bank advances
    
    
    21,597
    
    
    
    21,602Advance deposits by borrowers for taxes and insurance
    
    
    2,267
    
    
    
    2,713Accrued interest payable
    
    
    1,556
    
    
    
    765Accrued income taxes
    
    
    189
    
    
    
    90Other accrued expenses and sundry liabilities
    
    
    2,052
    
    
    
    1,936Total Liabilities
    
    
    286,471
    
    
    
    281,997Stockholders Equity:Common stock, $.01 par value; 5,000,000
shares authorized; 2,515,847 and 2,467,670 shares
issued, respectively
    
    
    25
    
    
    
    25Additional paid-in capital
    
    
    6,949
    
    
    
    6,465Treasury stock, at cost (524,670 shares)
    
    
    (8,238
    )
    
    
    (8,238
    )Retained earnings
    
    
    30,102
    
    
    
    29,878Accumulated other comprehensive (loss) income, net of tax
    
    
    (491
    )
    
    
    176Stock held in deferred compensation trust (32,402 and 31,452 shares)
    
    
    (523
    )
    
    
    (502
    )Total Stockholders Equity
    
    
    27,824
    
    
    
    27,804Total Liabilities and Stockholders Equity
    
    $
    314,295
    
    
    $
    309,801
 See accompanying notes to unaudited consolidated financial statements
 1




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##### Table of Contents



LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
 
 
 
 Three months ended
    
    
    Nine months endedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest income:Loans
    
    $
    2,856
    
    
    $
    2,769
    
    
    $
    8,523
    
    
    $
    7,954Mortgage-backed securities
    
    
    100
    
    
    
    155
    
    
    
    320
    
    
    
    515Investments
    
    
    616
    
    
    
    519
    
    
    
    1,783
    
    
    
    1,529Interest-earning deposits
    
    
    100
    
    
    
    82
    
    
    
    225
    
    
    
    275Total interest income
    
    
    3,672
    
    
    
    3,525
    
    
    
    10,851
    
    
    
    10,273Interest expense:Savings deposits
    
    
    1,539
    
    
    
    1,264
    
    
    
    4,388
    
    
    
    3,701Borrowings
    
    
    314
    
    
    
    314
    
    
    
    956
    
    
    
    956Total interest expense
    
    
    1,853
    
    
    
    1,578
    
    
    
    5,344
    
    
    
    4,657Net interest income before provision
for loan losses
    
    
    1,819
    
    
    
    1,947
    
    
    
    5,507
    
    
    
    5,616Provision for loan losses
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    9Net interest income after provision
for loan losses
    
    
    1,819
    
    
    
    1,944
    
    
    
    5,507
    
    
    
    5,607Other income:Service charges
    
    
    226
    
    
    
    249
    
    
    
    718
    
    
    
    811Gain on the sale of loans held for sale
    
    
    9
    
    
    
    
    
    
    
    17
    
    
    
    7Income from bank owned life insurance
    
    
    66
    
    
    
    63
    
    
    
    201
    
    
    
    190Other operating income
    
    
    15
    
    
    
    41
    
    
    
    44
    
    
    
    73Total other income
    
    
    316
    
    
    
    353
    
    
    
    980
    
    
    
    1,081Operating expenses:Compensation, payroll taxes and
fringe benefits
    
    
    786
    
    
    
    757
    
    
    
    2,315
    
    
    
    2,197Premises and occupancy costs
    
    
    211
    
    
    
    208
    
    
    
    641
    
    
    
    625Federal insurance premiums
    
    
    8
    
    
    
    9
    
    
    
    25
    
    
    
    27Data processing expense
    
    
    114
    
    
    
    113
    
    
    
    334
    
    
    
    316Professional fees
    
    
    50
    
    
    
    46
    
    
    
    165
    
    
    
    202Amortization of core deposit intangible
    
    
    76
    
    
    
    88
    
    
    
    226
    
    
    
    265Other operating expenses
    
    
    241
    
    
    
    312
    
    
    
    794
    
    
    
    922Total operating expenses
    
    
    1,486
    
    
    
    1,533
    
    
    
    4,500
    
    
    
    4,554Income before income taxes
    
    
    649
    
    
    
    764
    
    
    
    1,987
    
    
    
    2,134Provision for income taxes:Federal
    
    
    147
    
    
    
    205
    
    
    
    452
    
    
    
    558State
    
    
    38
    
    
    
    37
    
    
    
    119
    
    
    
    105Total income taxes
    
    
    185
    
    
    
    242
    
    
    
    571
    
    
    
    663Net income
    
    $
    464
    
    
    $
    522
    
    
    $
    1,416
    
    
    $
    1,471Earnings per shareBasic
    
    $
    0.23
    
    
    $
    0.27
    
    
    $
    0.71
    
    
    $
    0.76Diluted
    
    $
    0.23
    
    
    $
    0.26
    
    
    $
    0.71
    
    
    $
    0.74Dividends per share
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.60
    
    
    $
    0.60
 See accompanying notes to unaudited consolidated financial statements
 2




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##### Table of Contents



LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
 
   
 AccumulatedOther
    
    
    Stock Held inAdditional
    
    
    
    
    
    
    
    
    
    
    Comprehensive
    
    
    Deferred
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Treasury
    
    
    Retained
    
    
    Income (Loss),
    
    
    Compensation
    
    
    StockholdersStock
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    Net of Tax
    
    
    Trust
    
    
    EquityBalance, June 30, 2005
    
    $
    25
    
    
    $
    6,465
    
    
    
    ($8,238
    )
    
    $
    29,878
    
    
    $
    176
    
    
    
    ($502
    )
    
    $
    27,804Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,416
    
    
    
    
    
    
    
    
    
    
    
    1,416Other comprehensive loss,
net of tax $(344)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (667
    )
    
    
    
    
    
    
    (667
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,416
    
    
    
    (667
    )
    
    
    
    
    
    
    749Stock options exercised
(41,628 shares)
    
    
    
    
    
    
    484
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    484Dividends on common stock
at $0.60 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,192
    )
    
    
    
    
    
    
    
    
    
    
    (1,192
    )Stock purchased by deferred
compensation trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )Balance, March 31, 2006
    
    $
    25
    
    
    $
    6,949
    
    
    
    ($8,238
    )
    
    $
    30,102
    
    
    ($
    491
    )
    
    
    ($523
    )
    
    $
    27,824
 See accompanying notes to unaudited consolidated financial statements
 3




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##### Table of Contents



LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
 
   
 2006
    
    
    2005Net income:
    
    $
    1,416
    
    
    $
    1,471Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    201
    
    
    
    204Provision for loan losses
    
    
    
    
    
    
    9Gain on the sale of loans held for sale
    
    
    (17
    )
    
    
    (7
    )Loss (gain) on the sale of REO
    
    
    3
    
    
    
    (13
    )Net amortization of deferred loan costs
    
    
    185
    
    
    
    176Origination of loans held for sale
    
    
    (74
    )
    
    
    (343
    )Proceeds from sale of loans held for sale
    
    
    865
    
    
    
    446Decrease in accrued interest receivable
    
    
    48
    
    
    
    60Increase in accrued interest payable
    
    
    791
    
    
    
    629Amortization of the core deposit intangible
    
    
    226
    
    
    
    265Increase in cash surrender value
    
    
    (161
    )
    
    
    (156
    )Increase in taxes payable
    
    
    99
    
    
    
    602Other  net
    
    
    (44
    )
    
    
    (262
    )Net cash provided by operating activities
    
    
    3,538
    
    
    
    3,081Investing activities:Purchase of investment securities held to maturity
    
    
    (7,394
    )
    
    
    (12,020
    )Purchase of investment securities available for sale
    
    
    (699
    )
    
    
    (2,963
    )Principal repayments and maturities of investment securities available for sale
    
    
    2,220
    
    
    
    4,740Principal repayments and maturities of investment securities held to maturity
    
    
    4,894
    
    
    
    11,315Principal repayments and maturities of mortgage-backed securities available for sale
    
    
    3,141
    
    
    
    5,934Increase in loans receivable
    
    
    (5,423
    )
    
    
    (23,872
    )Loans purchased
    
    
    
    
    
    
    (5,910
    )Purchase of FHLB stock
    
    
    (162
    )
    
    
    (192
    )Sale of FHLB stock
    
    
    128
    
    
    
    239Proceeds from the sale of REO
    
    
    34
    
    
    
    298Additions to office properties and equipment
    
    
    (92
    )
    
    
    (188
    )Net cash used by investing activities
    
    
    (3,353
    )
    
    
    (22,619
    )Financing activities:Net decrease in demand and club accounts
    
    
    (4,180
    )
    
    
    (2,088
    )Net increase in time deposit accounts
    
    
    8,099
    
    
    
    9,191Repayment of FHLB advances
    
    
    (5
    )
    
    
    (5
    )Decrease in advance deposits by borrowers for taxes and insurance
    
    
    (446
    )
    
    
    (37
    )Stock options exercised
    
    
    484
    
    
    
    76Dividends paid
    
    
    (1,192
    )
    
    
    (1,162
    )Net cash provided by financing activities
    
    
    2,760
    
    
    
    5,975Net change in cash and cash equivalents
    
    
    2,945
    
    
    
    (13,563
    )Cash and cash equivalents at beginning of period
    
    
    12,971
    
    
    
    27,675Cash and cash equivalents at end of period
    
    $
    15,916
    
    
    $
    14,112SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the period for:Interest on savings deposits
    
    $
    3,597
    
    
    $
    3,071Interest on FHLB advances
    
    
    956
    
    
    
    956Income taxes
    
    
    523
    
    
    
    175Transfer of loans to other real estate owned
    
    
    
    
    
    
    401Cash paid during the period for interest includes interest credited on deposits of $2,914
and $2,468 for the nine months ended March 31, 2006 and 2005, respectively
 See accompanying notes to unaudited consolidated financial statements
 4




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##### Table of Contents



LAUREL CAPITAL GROUP, INC. AND SUBSIDIARY
 
 Notes to Unaudited Consolidated Financial Statements
 March 31, 2006 and June 30, 2005
 (Dollar amounts in thousands, except per share data)
 (1) Summary of Significant Accounting Policies
 Basis of Presentation
  Earnings Per Share
  Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Basic earnings per share:Net income
    
    $
    464
    
    
    $
    522
    
    
    $
    1,416
    
    
    $
    1,471Weighted average shares outstanding
    
    
    1,991,177
    
    
    
    1,940,021
    
    
    
    1,980,203
    
    
    
    1,935,312Earnings per share
    
    $
    0.23
    
    
    $
    0.27
    
    
    $
    0.71
    
    
    $
    0.76Diluted earnings per share:Net income
    
    $
    464
    
    
    $
    522
    
    
    $
    1,416
    
    
    $
    1,471Weighted average shares outstanding
    
    
    1,991,177
    
    
    
    1,940,021
    
    
    
    1,980,203
    
    
    
    1,935,312Dilutive effect of employee
stock options
    
    
    18,823
    
    
    
    58,881
    
    
    
    24,998
    
    
    
    59,652Diluted weighted shares outstanding
    
    
    2,010,000
    
    
    
    1,998,902
    
    
    
    2,005,201
    
    
    
    1,994,964Earnings per share
    
    $
    0.23
    
    
    $
    0.26
    
    
    $
    0.71
    
    
    $
    0.74
  5




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##### Table of Contents



Securities
  Comprehensive Income
  Loans Receivable
  6




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##### Table of Contents



Cash and Cash Equivalents
  Recent Accounting Developments
 Accounting for Certain Hybrid Instruments, as an amendment of FASB
Statements No. 133 and 140
 7




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##### Table of Contents



Accounting for Servicing of Financial Assets
 (2) Contingent Liabilities
  8




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##### Table of Contents



(3) INVESTMENT AND MORTGAGE-BACKED SECURITIES
  Amortized
    
    Gross Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    ValueAt March 31, 2006:Municipal obligations
    
    $
    7,405
    
    
    $
    310
    
    
    $
    2
    
    
    $
    7,713Freddie Mac preferred stock
    
    
    750
    
    
    
    8
    
    
    
    
    
    
    
    758Fannie Mae common stock
    
    
    583
    
    
    
    8
    
    
    
    77
    
    
    
    514Freddie Mac common stock
    
    
    684
    
    
    
    170
    
    
    
    
    
    
    
    854Agency Notes
    
    
    8,000
    
    
    
    
    
    
    
    170
    
    
    
    7,830Corporate notes
    
    
    508
    
    
    
    
    
    
    
    57
    
    
    
    451Shay Financial Services ARM Fund
    
    
    24,629
    
    
    
    
    
    
    
    674
    
    
    
    23,955CRA Qualified Investment Fund
    
    
    1,000
    
    
    
    
    
    
    
    50
    
    
    
    950Other
    
    
    220
    
    
    
    
    
    
    
    11
    
    
    
    20943,779
    
    
    
    496
    
    
    
    1,041
    
    
    
    43,234Mortgage-backed securities
available for sale
    
    
    9,859
    
    
    
    15
    
    
    
    213
    
    
    
    9,661Total
    
    $
    53,638
    
    
    $
    511
    
    
    $
    1,254
    
    
    $
    52,895
  Amortized
    
    
    FairCost
    
    
    ValueDue after one year through five years
    
    $
    5,022
    
    
    $
    4,914Due after five years through ten years
    
    
    2,651
    
    
    
    2,733Due after ten years
    
    
    18,077
    
    
    
    17,986Total
    
    $
    25,750
    
    
    $
    25,633
 Mortgage-backed securities have various contractual maturity dates. Actual repayments
may be different due to prepayments on the loans underlying the securities. The Fannie Mae
stock, Freddie Mac stock, Community Reinvestment Act (CRA) Qualified Investment Fund and
Shay Financial Services ARM Fund have no stated maturity.
   Amortized
    
    Gross Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    ValueAt March 31, 2006Corporate and Agency bonds
    
    $
    13,418
    
    
    $
    
    
    
    $
    242
    
    
    $
    13,176Total
    
    $
    13,418
    
    
    $
    
    
    
    $
    242
    
    
    $
    13,176
  Amortized
    
    FairCost
    
    ValueDue after one year through five years
    
    $
    12,420
    
    
    $
    12,193Due after ten years
    
    
    998
    
    
    
    983Total
    
    $
    13,418
    
    
    $
    13,176
 9




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##### Table of Contents



(4) Loans Receivable
  March 31,
    
    
    June 30,2006
    
    
    2005First mortgage loans:1 to 4 family dwellings
    
    $
    169,518
    
    
    $
    165,844Multi-family dwellings
    
    
    1,373
    
    
    
    1,462Commercial
    
    
    3,575
    
    
    
    4,437Construction and development loans
    
    
    4,577
    
    
    
    5,095179,043
    
    
    
    176,838Commercial and other loans
    
    
    927
    
    
    
    665Consumer loans:Loans secured by savings accounts
    
    
    95
    
    
    
    155Installment loans
    
    
    37,686
    
    
    
    36,48338,708
    
    
    
    37,303Loans receivable, net of unearned discounts
    
    
    217,751
    
    
    
    214,141Less: Allowance for loan losses
    
    
    (2,000
    )
    
    
    (1,989
    )Loans in process
    
    
    (1,741
    )
    
    
    (3,290
    )Net deferred loan origination costs
    
    
    977
    
    
    
    887Loans receivable, net
    
    $
    214,987
    
    
    $
    209,749
  March 31,
    
    
    March 31,2006
    
    
    2005Balance at beginning of the fiscal year
    
    $
    1,989
    
    
    $
    2,032Provision for losses
    
    
    
    
    
    
    9Charge-offs
    
    
    (6
    )
    
    
    (55
    )Recoveries
    
    
    17
    
    
    
    12Allowance for loan losses
    
    $
    2,000
    
    
    $
    1,998
 March 31,2006
    
    2005Non-accrual loans
    
    $
    669
    
    
    $
    833Non-accrual loans as a percent of total loans, net
    
    
    0.31
    %
    
    
    0.41
    %
 
 All loans 90 days or more past due are reported as non-accrual. 10




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(5) Guarantees
  (6) Goodwill and Other Intangible Assets
   For the nine months endedMarch 31,2006
    
    
    2005Amortized intangible assets:Core deposit intangible  gross
    
    $
    1,170
    
    
    $
    1,511Less: accumulated amortization
    
    
    (226
    )
    
    
    (265
    )Core deposit intangible  net
    
    $
    944
    
    
    $
    1,246
  For the nine months ended 3/31/06
    
    $
    226For the fiscal year ending 6/30/06
    
    
    290For the fiscal year ending 6/30/07
    
    
    243For the fiscal year ending 6/30/08
    
    
    199For the fiscal year ending 6/30/09
    
    
    158For the fiscal year ending 6/30/10
    
    
    120
 (7) Post-retirement Benefits
  11




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
  At March 31,2006
    
    2005(In thousands except per share data)(Unaudited)Total assets
    
    $
    314,295
    
    
    $
    307,742Interest-earning deposits with other institutions
    
    
    13,869
    
    
    
    11,821Investment securities available for sale
    
    
    43,234
    
    
    
    45,670Investment securities held to maturity
    
    
    13,418
    
    
    
    12,915Mortgage-backed securities available for sale
    
    
    9,661
    
    
    
    15,002Loans receivable, held for sale
    
    
    172
    
    
    
    1,033Loans receivable, net
    
    
    214,987
    
    
    
    202,487Savings deposits
    
    
    258,810
    
    
    
    253,282FHLB advances
    
    
    21,597
    
    
    
    21,604Retained earnings
    
    
    30,102
    
    
    
    29,689Stockholders equity
    
    
    27,824
    
    
    
    27,293Stockholders equity per share
    
    $
    13.97
    
    
    $
    14.07
 STATISTICAL PROFILE
 Three months ended
    
    Nine months endedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Average yield earned on all interest-earning assets
    
    
    4.94
    %
    
    
    4.81
    %
    
    
    4.90
    %
    
    
    4.70
    %Average rate paid on all interest-bearing liabilities
    
    
    2.89
    
    
    
    2.46
    
    
    
    2.76
    
    
    
    2.41Average interest rate spread
    
    
    2.05
    
    
    
    2.35
    
    
    
    2.14
    
    
    
    2.29Net yield on average interest-earning assets
    
    
    2.44
    
    
    
    2.65
    
    
    
    2.49
    
    
    
    2.57Average interest-earning assets as a percentage of
average interest-bearing liabilities
    
    
    114.27
    
    
    
    113.69
    
    
    
    114.35
    
    
    
    113.30Return on average assets (1)
    
    
    0.60
    
    
    
    0.68
    
    
    
    0.61
    
    
    
    0.64Return on average equity (1)
    
    
    6.64
    
    
    
    7.58
    
    
    
    6.78
    
    
    
    7.14Average equity to average assets
    
    
    8.98
    
    
    
    8.92
    
    
    
    9.01
    
    
    
    8.97
 
 (1)
    
    Amounts are annualized. 12




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COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
 GENERAL.
 NET INTEREST INCOME.
   13




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PROVISION FOR LOAN LOSSES.
   14




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OTHER INCOME.
 OPERATING EXPENSES.
 INCOME TAX EXPENSE.
 15




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COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2006 AND 2005
 GENERAL.
 NET INTEREST INCOME.
    16




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PROVISION FOR LOAN LOSSES.
 OTHER INCOME.
 OPERATING EXPENSES.
 17




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INCOME TAX EXPENSE.
 FINANCIAL CONDITION AND CAPITAL RESOURCES
    Tier I
    
    
    Tier I
    
    
    Tier IICore
    
    
    Risk-Based
    
    
    Risk-BasedCapital
    
    
    Capital
    
    
    Capital(Dollar amounts in thousands)Equity capital (1)
    
    $
    24,114
    
    
    $
    24,114
    
    
    $
    24,114Plus general valuation allowances (2)
    
    
    
    
    
    
    
    
    
    
    2,000Total regulatory capital
    
    
    24,114
    
    
    
    24,114
    
    
    
    26,114Minimum required capital
    
    
    12,330
    
    
    
    6,526
    
    
    
    13,051Excess regulatory capital
    
    $
    11,784
    
    
    $
    17,588
    
    
    $
    13,063
 18




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##### Table of Contents



Tier I
    
    
    Tier I
    
    
    Tier IICore
    
    
    Risk-Based
    
    
    Risk-BasedCapital
    
    
    Capital
    
    
    Capital(Dollar amounts in thousands)Minimum required capital to be well
capitalized under Prompt Corrective
Action Provisions
    
    $
    15,413
    
    
    $
    9,789
    
    
    $
    16,314Regulatory capital as a percentage (3)
    
    
    7.82
    %
    
    
    14.78
    %
    
    
    16.01
    %Minimum required capital percentage
    
    
    4.00
    
    
    
    4.00
    
    
    
    8.00Excess regulatory capital percentage
    
    
    3.82
    %
    
    
    10.78
    %
    
    
    8.01
    %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, 2006.(2)
    
    Limited to 1.25% of risk adjusted assets.(3)
    
    Tier I capital is calculated as a percentage of adjusted total assets of $308,252. Tier I
and Tier II risk-based capital are calculated as percentage of adjusted risk-weighted assets
of $163,144. IMPACT OF INFLATION AND CHANGING PRICES
  CRITICAL ACCOUNTING POLICIES
   Allowance for Loan Losses.
 19




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Other Than Temporary Decline.
 Deferred Income Taxes. Accounting for Income
Taxes
 20




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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
   FORWARD LOOKING STATEMENTS
  21




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Legal Proceedings
  
 Risk Factors
  
 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Defaults Upon Senior Securities
  
 Submission of Matters to a Vote of Security Holders
  
 Other Information
   22




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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 200231.2
    
    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 200232.1
    
    Certification of Chief Executive Officer pursuant to section 906
of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to section 906
of the Sarbanes-Oxley Act of 2002
 23




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SIGNATURES
  LAUREL CAPITAL GROUP, INC./s/ Edwin R. MausEdwin R. MausPresident and Chief Executive Officer/s/ John A. Howard, Jr.John A. Howard, Jr.Senior Vice President andChief Financial OfficerDate: May 15, 2006
 24