SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________________ to ______________________
Commission File Number: 000-51234
NORTH PENN BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Pennsylvania 20-1882440
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(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
216 Adams Avenue, Scranton, PA 18503
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(Address of principal executive offices)
(570) 344-6113 (Issuer's
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telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
[ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date: 1,443,555
Transitional Small Business Disclosure Format (Check One): Yes ___ No _X_
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at June 30, 2005
and December 31, 2004
Condensed Consolidated Statements of Income for the three
and six months ended June 30, 2005 and 2004
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 2005 and 2004
Notes to Unaudited Condensed Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Controls and Procedures.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
North Penn Bancorp, Inc ("the Company") was organized on November 22,
2004 in anticipation of the mutual reorganization of North Penn Bank (the
"Bank"). The reorganization was completed on June 1, 2005. The Company is a bank
holding company and parent of the Bank. The information presented for 2004 is
for the Bank and its subsidiary only, and are presented for comparative
purposes. Earnings per share information for 2004 are pro forma based on the
shares issued 2005.
ITEM I. FINANCIAL STATEMENTS
NORTH PENN BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, December 31,
2005 2004
(Unaudited) (Audited)
-------- --------
(In thousands)
ASSETS:
Cash and due from banks $ 2,681 $ 719
Interest bearing deposits 6 940
-------- --------
Total cash and cash equivalents 2,687 1,659
Investment securities, available for sale 13,933 22,967
Investment securities, held to maturity
(fair value 2004, $503) 498
Equity securities at cost, substantially restricted 474 786
Loans, net of allowance for loan losses 68,536 60,829
Bank premises and equipment - net 3,354 2,713
Accrued interest receivable 566 529
Cash surrender value of life insurance 1,979 1,817
Deferred income taxes 231 291
Other assets 100 908
-------- --------
TOTAL ASSETS 91,860 92,997
======== ========
LIABILITIES:
Deposits:
Non-interest bearing deposits 4,074 4,127
Interest bearing demand deposits 25,525 30,190
Interest bearing time deposits 43,289 43,025
-------- --------
Total deposits 72,888 77,342
Other borrowed funds 5,100 7,375
Accrued interest and other liabilities 369 527
-------- --------
TOTAL LIABILITIES 78,357 85,244
STOCKHOLDERS' EQUITY
Preferred stock, no par; 20,000,000 authorized; issued and outstanding, none
Common stock, par value $0.10; 80,000,000 authorized; issued
and outstanding, 1,443,555 (Note 5) 63 --
Additional paid-in capital 5,770 --
Retained earnings 7,779 7,748
Accumulated other comprehensive income (109) 5
-------- --------
TOTAL STOCKHOLDERS' EQUITY 13,503 7,753
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 91,860 $ 92,997
======== ========
See notes to unaudited condensed consolidated financial statements.
2
NORTH PENN BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands)
Six Months Ended Three Months Ended
-------------------------- -------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
INTEREST INCOME
Interest on loans $ 2,069 $ 1,601 $ 1,097 $ 819
Interest and dividends on investments 419 760 180 371
----------- ----------- ----------- -----------
Total interest income 2,488 2,361 1,277 1,190
INTEREST EXPENSE
Interest on deposits 792 847 396 417
Interest on borrowed funds 169 157 81 79
----------- ----------- ----------- -----------
Total interest expense 961 1,004 477 496
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,527 1,357 800 694
PROVISION FOR LOAN LOSSES 45 0 30 0
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,482 1,357 770 694
----------- ----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts 55 64 16 34
Other income 80 121 40 70
Gain on sale of other real estate 40 26 40 26
Gain on sale of securities 4 4 0 0
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 179 215 96 130
OTHER EXPENSE
Salaries and employee benefits 743 706 366 360
Occupancy and equipment expense 247 279 131 147
Other expenses 438 353 282 189
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSE 1,428 1,338 779 696
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 233 234 87 128
INCOME TAX EXPENSE (BENEFIT) 102 44 48 52
----------- ----------- ----------- -----------
NET INCOME 131 190 39 76
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized holding loss arising during
period, net of income tax (114) (397) 23 (449)
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ 17 $ (207) $ 62 $ (373)
=========== =========== =========== ===========
Weighted average number of shares
outstanding $ 1,443,555 1,443,555 1,443,555 1,443,555
Earnings per share $ 0.09 $ 0.13 $ 0.03 $ 0.05
See notes to unaudited condensed consolidated financial statements.
3
NORTH PENN BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(In thousands)
2005 2004
------- -------
Operating Activities:
Net income $ 131 $ 190
Items not requiring (providing) cash
Depreciation 97 136
Provision for loan losses 45 0
Increase in cash surrender value of life insurance (37) (35)
Net realized (gain) loss on securities (4) (4)
Changes in:
Accrued interest income and other assets 214 (71)
Accrued interest expense and other liabilities (102) 587
------- -------
Net Cash Provided by Operating Activities 344 803
------- -------
Investing Activities:
Purchase bank premises and equipment (118) (145)
Purchase of securities "available for sale" (291) (385)
Sales of securities "available for sale" 4,428 1,254
Redemptions of securities "available for sale" 3,593 2,434
Redemptions of securities "held to maturity" 500 --
Purchase of mortgage-backed securities "available for sale" (1,251)
Redemptions of mortgage-backed securities "available for sale" 1,135 1,589
Purchase of life insurance policies (125)
Net redemption of restricted stock 312 29
Net increase in loans to customers (7,754) (6,550)
Net increase in other real estate -- 50
------- -------
Net Cash Provided by (Used) In Investing Activities 1,680 (2,975)
------- -------
Financing Activities:
Increase (decrease) in deposits (4,454) 1,201
Increase (decrease) in borrowed funds (2,275) --
Issuance of common stock 5,833 --
Cash dividends paid (100) --
------- -------
Net Cash Used In Financing Activities (996) 1,201
------- -------
Net Increase (Decrease) In Cash and Cash Equivalents 1,028 (971)
------- -------
Cash and Cash Equivalents, January 1 1,659 3,068
------- -------
Cash and Cash Equivalents, June 30 $ 2,687 $ 2,097
======= =======
Supplementary Schedule of Cash Flow Information:
Cash paid during the period for:
Interest $ 126 $ 148
Income taxes 46 2
Non-cash investing and financing activities:
Unrealized gains (losses) on securities $ (164) $ (119)
See notes to unaudited condensed consolidated financial statements.
4
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The accounting policies of North Penn Bancorp, Inc., North Penn Bank
and Norpenco (collectively referred to herein as the "Company") conform
with accounting principles generally accepted in the United States of
America and with general practice within the banking industry. A
description of the significant accounting policies is presented below.
The Company was organized on November 22, 2004 to be the bank holding
company for North Penn Bank (formerly "North Penn Savings and Loan
Association") in connection with the Bank's mutual holding company
reorganization and minority stock issuance.. The Company's common stock
trades on the OTC Bulletin Board under the symbol "NPEN". The Bank
operates from four offices under a state savings bank charter and
provides financial services to individuals and corporate customers
primarily in Northeastern Pennsylvania. The Bank's primary deposit
products are savings and demand deposit accounts and certificates of
deposit. Its primary lending products are real estate, commercial, and
consumer loans.
PRINCIPLES OF CONSOLIDATION
The financial statements of North Penn Bancorp, Inc. have been
consolidated with those of its wholly-owned subsidiary, North Penn
Bank, and the Bank's wholly-owned subsidiary, Norpenco, Inc.,
eliminating intercompany accounts. Norpenco, Inc. is used by the Bank
to make equity investments in other banking companies.
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principals
for interim financial information. In the opinion of management, all
adjustments that are of a normal recurring nature and are considered
necessary for a fair presentation have been included. They are not,
however, necessarily indicative of the results of consolidated
operations for a full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
5
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses on
loans and the valuation of real estate acquired in connection with
foreclosures or in the satisfaction of loans. In connection with the
determination of the allowances for losses on loans and foreclosed real
estate, management periodically obtains independent appraisals for
significant properties.
2. INVESTMENT SECURITIES
The Bank's investments in securities are classified in two categories
and accounted for as follows:
Securities Held-to-Maturity. Bonds, notes and debentures for
which the Bank has the positive intent and ability to hold to
maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts.
Securities Available-for-Sale. Securities available-for-sale
consist of bonds, notes, debentures and equity securities not
classified to be held-to-maturity and are carried at fair
value with unrealized holding gains and losses, net of tax,
reported as a separate component of other comprehensive income
until realized.
Purchase premiums and discounts are recognized in interest income on
the straight-line basis over the terms of the securities, which
approximates the interest method. Declines in the fair value of
held-to-maturity and available-for-sale securities below their cost
that are deemed to be other than temporary are reflected in earnings as
realized losses. Gains and losses on the sale of securities are
recorded on the trade date and are determined using the specific
identification method and are reported as other income in the statement
of income.
The amortized cost and fair value of investment securities at June 30,
2005 and December 31, 2004 are as follows:
6
AVAILABLE-FOR-SALE
JUNE 30, 2005
(In thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------- ------- ------- -------
U.S. Agency securities $ 2,385 $ $ (32) $ 2,353
Mortgage-backed securities 7,470 3 (129) 7,344
Municipal securities 550 (9) 541
Other securities 3,024 15 (8) 3,031
------- ------- ------- -------
Total debt securities 13,429 18 (178) 13,269
Equity securities 668 18 (22) 664
------- ------- ------- -------
Total Available for Sale $14,097 $ 36 $ (200) $13,933
======= ======= ======= =======
AVAILABLE-FOR-SALE
DECEMBER 31, 2004
(In thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------- ------- ------- -------
U.S. Agency securities $ 2,385 $ -- $ (35) $ 2,350
Mortgage-backed securities 10,882 10 (116) 10,776
Municipal securities 875 1 (3) 873
Other securities 8,544 143 (1) 8,686
------- ------- ------- -------
Total debt securities 22,686 154 (155) 22,865
Equity securities 273 11 (2) 282
------- ------- ------- -------
Total Available for Sale $22,959 $ 165 $ (157) $22,967
======= ======= ======= =======
HELD-TO-MATURITY
DECEMBER 31, 2004
(In thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------- ------- ------- -------
Municipal securities $ 498 5 -- 503
------- ------- ------- -------
Total Available for Sale $ 498 $ 5 $ -- $ 503
======= ====== ======= =======
7
The gross fair value and unrealized losses of the Bank's investments,
aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position at June
30, 2005 is as follows:
Less than 12 months 12 months or longer
-------------------- -------------------- Total
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
-------- -------- -------- -------- -------- --------
U.S. Agencies $ $ $ 2,353 $ (32) $ 2,353 $ (32)
Mortgage-backed -- -- 7,196 (129) 7,196 (129)
Municipal -- -- 541 (9) 541 (9)
Other securities -- -- 500 (8) 500 (8)
Equity securities 514 (22) -- -- 514 (22)
-------- -------- -------- -------- -------- --------
$ 514 $ (22) $ 10,590 $ (178) $ 11,805 $ (200)
======== ======== ======== ======== ======== ========
The Bank invests in debt securities of the U.S. government, U.S.
agencies, U.S. sponsored agencies, obligations of states and political
subdivisions and corporate obligations. Changes in market value of all
debt securities can result from changes in interest rates. Changes in
credit quality can affect securities of states and political
subdivisions and corporate obligations. The changes in market value of
the debt securities held by the Bank have been due to changes in
interest rates, and because the Bank has the ability to hold these
investments until maturity, the Bank does not consider these
investments to be other-than-temporarily impaired at June 30, 2005.
The Bank invests in equity securities of other banks through its
subsidiary, Norpenco, Inc. Management has evaluated the near-term
prospects of the issuers with unrealized losses, in relation to the
severity and duration of the impairment. Based on that evaluation, and
the Bank's ability to hold these stocks for a reasonable period of time
sufficient for a forecasted recovery of fair value, the management does
not consider these investments to be other-than-temporarily impaired at
June 30, 2005.
3. LOANS
June 30, December 31,
2005 2004
-------- ------------
(In thousands)
Real estate mortgages:
Construction and land development $ -- $ 2,030
Residential, 1 - 4 family 38,435 35,892
Residential, multi-family -- 256
Commercial 21,065 13,640
------- -------
Total real estate mortgages 59,500 51,818
Commercial 754 347
Consumer 9,260 9,595
------- -------
Total loans 69,514 61,760
Allowance for loan loss 978 931
------- -------
Total loans, net $68,536 $60,829
======= =======
8
Loans are stated at the principal amount outstanding, net of any
unearned income, deferred loan fees and the allowance for loan losses.
Commercial loans secured by real estate have been reclassified as
mortgages for June 2005 and December 2004. Interest on mortgage and
commercial loans is calculated at the time of payment based on the
current outstanding balance of the loan. Interest on consumer loans is
recognized on the simple interest method.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the bank's past
loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to pay, the
estimated value of any underlying collateral and current economic
conditions.
Uncollectable interest on loans that are contractually past due 90 days
or more is credited to an allowance established through management's
periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are
received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments is back to normal, in
which case the loan is returned to accrual status.
The company granted a loan to the North Penn Employee Stock Ownership
Plan with a balance at June 30, 2005 of $380. Subsequently advances
have been made to bring the loan to its maximum amount of $545.
Repayment of the loan will occur over 15 years with annual payments of
principal and interest which will be funded by the Bank's annual
contributions to the plan, as approved by the Board of Directors.
4. OTHER BORROWINGS
The Bank has a line of credit agreement with the Federal Home Loan Bank
of Pittsburgh for short term borrowings varying from one day to three
years. Advances on this line must be secured by "qualifying collateral"
as defined in the agreement and bear interest at fixed or variable
rates as determined at the date advances are made. The line expires in
June, 2006. At June 30, 2005, the Bank borrowed $100 in overnight
funds.
The Bank also has a $5,000 term loan at a fixed rate of 6.19%, which
was issued in July of 2000, and matures July of 2010. The loan requires
monthly interest payments, with the principal due at maturity.
9
5. EARNINGS PER SHARE
Earnings per share are calculated based on 1,443,555 shares outstanding
for both the current and prior periods. The prior periods did not have
stock issued and should be considered pro forma figures. The 1,443,555
outstanding at June 30, 2005, includes 778,451 issued to the mutual
holding company, and 28,277 issued to the charitable foundation in
conjunction with the reorganization effective June 1, 2005.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
FORWARD-LOOKING INFORMATION
In addition to historical information, this Report on Form 10-QSB may include
certain forward-looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulation of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality of competition, changes in the
quality or composition of the Company's loan or investment portfolios, changes
in accounting principles, policies or guidelines, and other economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices. Further description of the
risks and uncertainties to the business are included in detail under the caption
"Liquidity and Capital Reserves."
FINANCIAL CONDITION
All amounts presented are in thousands, except ratios.
Our total assets decreased $1,137 from $92,997 at December 31, 2004 to $91,860
at June 30, 2005, or 1%. The decline was primarily in investment securities.
Investment securities decreased $9,532 from $23,465 at December 31, 2004 to
$13,933 at June 30, 2005, or 40%. Investment securities decreased primarily to
fund an increase in loans and a decline in other borrowings. The decrease
included $4,428 in sales of securities and the remainder in maturities and
principal payments on mortgage-backed securities. All of the company's
securities classified as "held to maturity" have matured.
Net loans increased $7,707, or 13%, from $60,829 at December 31, 2004 to $68,536
at June 30, 2005, mainly due to an increase in commercial loans. The Bank has
been increasing its commercial loan portfolio to diversify its loan portfolio
and reduce its exposure to the interest rate risk associated with residential
mortgages. Most of the Bank's commercial loans are secured by real estate in
order to minimize their risk.
The allowance for loan loss was $978 at June 30, 2005, compared to $931 at
December 31, 2004. We recorded $30 in loan loss provision for the three months
and $45 for the six months ended June 30, 2005. The Bank had no loans
charged-off, or recoveries during the three months ending in June, but had $2 in
recoveries for the six months ending in June 2005. The increase in the provision
is due to the increase in the Bank's portfolio of commercial loans. Management
assesses the adequacy of the allowance for loan losses based on evaluating known
and inherent risks in the loan portfolio and upon management's continuing
analysis of the factors underlying the quality of the loan portfolio. While
11
management believes that, based on information currently available, the
allowance for loan losses is sufficient to cover losses inherent in its loan
portfolio at this time, no assurance can be given that the level of the
allowance for loan losses is sufficient to cover future possible loan losses
incurred by the Bank or that future adjustments to the allowance for loan losses
will not be necessary if economic and other conditions differ substantially from
the economic and other conditions used by management to determine the current
level of the allowance for loan losses. Management may in the future increase
the level of the allowance for loan losses as a percentage of total loans and
non-performing loans in the event it increases the level of commercial or
consumer lending as a percentage of its total loan portfolio. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies may require the
Bank to provide additions to the allowance based upon judgments different from
management.
Non-performing loans, which are loans past due 90 days or more and non-accruing
loans, totaled $1,108 at June 30, 2005, compared to $1,357 at December 31, 2004.
The improvement was primarily in non-accruing residential mortgages which
decreased by $255, while non-accruing consumer loans increased by $6. The ratio
of the Bank's allowance for loan losses to total loans was 1.41% at June 30,
2005 and 1.51% at December 31, 2004.
Total deposits decreased $4,454 or 6% from $77,342 at December 31, 2004 to
$72,888 at June 30, 2005. Non-interest bearing deposits declined by $53 or 1%,
interest bearing demand deposits declined $4,665 or 15%, while time deposits
increased $264. The changes are primarily due to seasonal fluctuations.
Other borrowings decreased $2,275 from $7,375 at December 31, 2004 to $5,100 at
June 30, 2005, due to reductions in overnight borrowings from the Federal Home
Loan Bank of Pittsburgh.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2005 AND 2004
Net income totaled $39 and $131 for the three and six months ended June 30, 2005
compared to $76 and $190 for the three and six months ended June 30, 2004, a
decrease of $37, or 49% and $59 or 31%. Net income decreased primarily due to
the expense of the charitable contribution to fund the North Penn Charitable
Foundation, during the second quarter, as outlined in the prospectus for the
stock offering dated March 28, 2005.
Interest income increased $87 or 7%, to $1,277 during the second quarter in
2005, compared to $1,190 in 2004. Interest income increased $127 or 5%, to
$2,488 for the six months ended June 30, 2005 compared to $2,361 for June 30,
2004. Interest on loans increased $278 or 34%, from $819 in 2004 to $1,097
during the second quarter in 2005. For the six months ended June 30, interest on
loans increased $468 or 29%, from $1,601 for 2004, to $2,069 for 2005. The
increases are due to higher loan volumes and the increase in the prime rate.
Interest on investments decreased $191, or 51% from $371 to $180 during the
12
second quarter, and $341 or 45% from $760 to $419 for the six months ended June
30, 2005 due to lower balances of investments.
Interest expense during the second quarter decreased $19, or 4%, from $496 in
2004 to $477 in 2005. For the six months ended June 30, 2005, interest expense
decreased $43 or 4% from $1,004 in 2004 to $961 in 2005. Interest on deposits
for the second quarter decreased $21, or 5%, from $417 in 2004 to $396 in 2005,
due to the roll-off of higher rate time deposits. For the six months ended June
30, interest on deposits decreased $55 or 6%, from $847 in 2004 to $792 in 2005.
Interest on borrowed funds increased $2, or 3% for the second quarter of 2005
and $12 or 8% for the six months ended June 30, 2005 due to the volume of
overnight borrowings.
Net interest income increased $106 or 15% from $694 in 2004, to $800 for the
second quarter, and $170 or 13%, from $1,357 to $1,527 the six months ended June
30, 2005.
Other income for the second quarter decreased $34 or 26%, from $130 in 2004, to
$96 in 2005. Total other expenses increased $83 or 12% from $696 in 2004 to $779
in 2005. Salaries and employee benefits increased $6 or 2% from $360 in 2004, to
$366 in 2005, while occupancy and equipment expense decreased $16, or 11% from
$147 in 2004, to $131 in 2005, and other expenses increased $93 or 49%, from
$189 in 2004 to $282 in 2005. The Company's contribution of $100 to the North
Penn Charitable Foundation, as outlined in the stock offering prospectus is the
reason for the increase.
For the six months ended June 30, other income decreased $36 or 17% from $215 in
2004 to $179 in 2005. Total other expenses increased $90 or 7% from $1,338 in
2004 to $1,428 in 2005. Salaries and employee benefits increased $37 or 5% from
$706 in 2004 to $743 in 2005, while occupancy and equipment expense decreased
$32 or 11% from $279 in 2004 to $247 in 2005. Other expenses increased $85 or
24% from $353 in 2004 to $438 in 2005, primarily due to the contribution to the
North Penn Charitable Foundation.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, principal and interest
payments on loans, FHLB advances and proceeds from mortgage loan sales. While
maturities and scheduled amortization of loans are predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, and competition. The Bank's regulators
require the Bank to maintain sufficient liquidity to ensure its safe and sound
operation.
A review of the Consolidated Statement of Cash Flows included in the
accompanying financial statements shows that the Bank's cash and cash
equivalents increased $1,028 for the six months ended June 30, 2005. During that
period, cash was primarily provided from the issuance of stock, sales and
redemptions of securities, deposits in other banks and earnings. During the
period, cash was used primarily to fund loans to customers, a decrease in
customer's deposits and a decrease in borrowed funds.
13
At June 30, 2005 and December 31, 2004, the Bank exceeded all of its regulatory
capital requirements as indicated in the following table.
June 30, 2005 December 31, 2004
------------- -----------------
(Dollars in Thousands)
Tier 1 capital:
Equity, less unrealized gains or losses $10,842 $ 7,744
Tier 2 capital:
Loan loss reserves includable in Tier 2 818 803
Total risk-based capital 11,660 8,547
Risk-adjusted assets (including off-balance sheet items) 92,845 92,686
Tier 1 capital ratio (4.00% required) 16.76% 12.07%
Total risked-based capital ratio (8.00% required) 18.02% 13.33%
Tier 1 leverage ratio 11.68% 8.36%
RELATED PARTIES
The Company does not have any material transactions involving related persons or
entities, other than traditional banking transactions, which are made on the
same terms and conditions as those prevailing at the time for comparable
transactions with unrelated parties.
ITEM 3. CONTROLS AND PROCEDURES.
The Company's management, including the Company's principal executive officer
and principal financial officer, have evaluated the effectiveness of the
Company's "disclosure controls and procedures," as such term is defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended,
(the "Exchange Act"). Based upon their evaluation, the principal executive
officer and principal financial officer concluded that, as of the end of the
period covered by this report, the Company's disclosure controls and procedures
were effective for the purpose of ensuring that the information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act with the Securities and Exchange Commission (the "SEC") (1) is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and (2) is accumulated and communicated to the Company's
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. Such routine
legal proceedings, in the aggregate, are believed by management to be immaterial
to the Company's financial condition or results of operations.
14
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 AND REPORTS ON FORM 8-K.
EXHIBITS
3.1 Certificate of Incorporation of North Penn Bancorp, Inc.*
3.2 By-laws of North Penn Bancorp, Inc.*
4.1 Specimen Stock Certificate of North Penn Bancorp, Inc.*
10.1 Amended and Restated Employment Agreement by and between
Frederick L Hickman and North Penn Bancorp, Inc. and North Penn
Bank
10.2 Amended and Restated Employment Agreement by and between Thomas
J. Dziak and North Penn Bancorp, Inc. and North Penn Bank
10.3 Amended and Restated Employment Agreement by and between Thomas
A. Byrne and North Penn Bancorp, Inc. and North Penn Bank
10.4 Amended and Restated Employment Agreement by and between Theresa
Yocum and North Penn Bancorp, Inc. and North Penn Bank
10.5 North Penn Bank Employee Stock Ownership Plan
11.1 Statement re: computation of per share earnings: Refer to Note 1
31.1 Rule 13a-14(a) /15d-14(a) Chief Executive Officer Certification
31.2 Rule 13a-14(a) /15d-14(a) Chief Financial Officer Certification
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
FORM 8-K
May 27, 2005 Press Release announcing completion of stock offering.
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* Incorporated herein by reference into this document from Form SB-2
Registration Statement, as amended, filed on December 10, 2004, Registration
No. 333-121121.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be so signed on its behalf by the undersigned,
thereunto duly authorized.
North Penn Bancorp, Inc
Dated: August 12, 2005 /s/ Frederick L. Hickman
--------------- --------------------------
Frederick L. Hickman
President and
Chief Executive Officer
Dated: August 12, 2005 /s/ Philip O. Farr
--------------- --------------------------
Philip O. Farr
Senior Vice President and
Chief Financial Officer
16