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UNITED STATES
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 March 31, 2006
--------------
[ ] 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.
(Exact name of small business issuer as specified in its charter)
_______________
Pennsylvania 20-1882440
(State or other jurisdiction of (IRS Employer Identification
Incorporation or organization) No.)
216 Adams Avenue, Scranton, PA 18503
(Address of principal executive offices)
(570) 344-6113 (Issuer's
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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
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 as of May 12, 2006.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PAGE
----
Consolidated Balance Sheets at March 31, 2006 1
and December 31, 2005
Consolidated Statements of Income for the
Three Months Ended March 31, 2006 and 2005 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2006 and 2005 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operation. 8
Item 3. Controls and Procedures. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 11
Item 3. Defaults Upon Senior Securities. 11
Item 4. Submission of Matters to a Vote of Security Holders. 11
Item 5. Other Information. 11
Item 6. Exhibits. 11
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
North Penn Bancorp, Inc. (the "Company") was organized on November 22,
2004 in anticipation of the mutual holding company 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 principal activities of
the Company are the ownership and supervision of the Bank and, therefore, the
information presented in this report is primarily for the Bank and its
subsidiary.
NORTH PENN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2006 2005
--------- ---------
(Unaudited) (Audited)
(In thousands)
ASSETS:
Cash and due from banks $ 2,080 $ 2,333
Interest bearing deposits 14 20
--------- ---------
Total cash and cash equivalents 2,094 2,353
Investment securities, available for sale 15,353 15,651
Investment securities, held to maturity -- --
Equity securities at cost, substantially restricted 1,244 991
Loans, net of allowance for loan losses 84,274 79,560
Bank premises and equipment - net 4,048 3,592
Accrued interest receivable 503 480
Cash surrender value of life insurance 2,037 2,018
Deferred income taxes 512 448
Other real estate owned -- 105
Other assets 155 183
--------- ---------
TOTAL ASSETS $ 110,220 $ 105,381
========= =========
LIABILITIES:
Deposits:
Non-interest bearing deposits $ 5,232 $ 7,306
Interest bearing demand deposits 26,114 23,604
Interest bearing time deposits 51,246 46,519
--------- ---------
Total deposits 82,592 77,429
Other borrowed funds 14,207 14,698
Accrued interest and other liabilities 633 459
--------- ---------
TOTAL LIABILITIES 97,432 92,586
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) 144 144
Additional paid-in capital 5,853 5,853
Retained earnings 7,583 7,481
Unearned ESOP shares (509) (509)
Accumulated other comprehensive (loss) income (283) (174)
--------- ---------
TOTAL EQUITY 12,788 12,795
--------- ---------
TOTAL LIABILITIES AND EQUITY $ 110,220 $ 105,381
========= =========
1
NORTH PENN BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(In thousands)
2006 2005
----------- -----------
INTEREST INCOME
Interest on loans $ 1,425 $ 961
Interest and dividends on investments 172 239
----------- -----------
Total interest income 1,597 1,200
INTEREST EXPENSE
Interest on deposits 504 396
Interest on borrowed funds 225 88
----------- -----------
Total interest expense 729 484
----------- -----------
NET INTEREST INCOME 868 716
PROVISION FOR LOAN LOSSES 30 15
----------- -----------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 838 701
----------- -----------
OTHER INCOME
Service charges on deposit accounts 31 50
Other income 66 40
Gain on sale of securities -- 4
----------- -----------
TOTAL OTHER INCOME 97 94
OTHER EXPENSE
Salaries and employee benefits 444 377
Occupancy and equipment expense 142 116
Other expenses 162 156
----------- -----------
TOTAL OTHER EXPENSE 748 649
----------- -----------
INCOME BEFORE INCOME TAXES 187 146
INCOME TAX EXPENSE (BENEFIT) 41 54
----------- -----------
NET INCOME 146 92
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized holding (loss) gain arising during period,
net of income tax (110) (136)
----------- -----------
COMPREHENSIVE INCOME $ 36 $ (44)
=========== ===========
Weighted average number of shares outstanding 1,443,555 1,443,555
Earnings per share $ 0.10 $ 0.07
2
NORTH PENN BANCORP, INC. AND SUBSIDIARY
(UNAUDITED) CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(In thousands)
2006 2005
------- -------
Operating Activities:
Net income $ 146 $ 92
Items not requiring (providing) cash
Depreciation 63 40
Provision for loan losses 30 15
Amortization of securities (net of accretion) 7 --
Increase in cash surrender value of life insurance (19) (18)
Net realized (gain) loss on securities -- (4)
Net realized (gain) loss on other real estate (29) --
Changes in:
Accrued interest income and other assets 5 (98)
Accrued interest expense and other liabilities 131 (107)
------- -------
Net Cash Provided By (Used In) Operating Activities 334 (80)
------- -------
Investing Activities:
Purchase of bank premises and equipment (519) (32)
Proceeds from sale of other real estate 134 --
Purchase of securities "available for sale" (153) (291)
Sales of securities "available for sale" -- 4,428
Redemptions of securities "available for sale" -- 915
Purchase of mortgage-backed securities "available for sale" -- --
Redemptions of mortgage-backed securities "available for sale" 269 513
Purchase of life insurance policies -- (125)
Net (purchase) sale of restricted stock (253) 243
Net (increase) decrease in loans to customers (4,743) (3,316)
------- -------
Net Cash (Used In) Provided by Investing Activities (5,265) 2,335
------- -------
Financing Activities:
Increase (decrease) in deposits 5,163 (928)
(Decrease) increase in borrowed funds (491) (1,475)
------- -------
Net Cash Provided by (Used In) Financing Activities 4,672 (2,403)
------- -------
Net Decrease In Cash and Cash Equivalents (259) (148)
------- -------
Cash and Cash Equivalents, January 1 2,353 1,659
------- -------
Cash and Cash Equivalents, March 31 $ 2,094 $ 1,511
======= =======
Supplementary Schedule of Cash Flow Information:
Cash paid during the period for:
Interest $ 67 $ 68
Income taxes 9 36
Non-cash investing and financing activities:
Unrealized (losses) gains on securities $ (175) $ (199)
3
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
North Penn Bancorp, Inc. was organized on November 22, 2004 to be the
bank holding company for North Penn Bank (Bank) in connection with the
Bank's mutual holding company reorganization and minority stock
issuance. The 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 accompanying consolidated financial statements include the accounts
of North Penn Bancorp, Inc., its wholly-owned subsidiary, North Penn
Bank, North Penn Bank's wholly-owned subsidiary, Norpenco, Inc., and
its partial investment in North Penn Settlement Services, LLC. These
entities are collectively referred to herein as the Company. All
significant intercompany accounts and transactions have been eliminated
in consolidation. Norpenco, Inc. received approval and began purchasing
bank stocks in October, 2004. Its sole activities are purchasing bank
stocks and receiving dividends on such stocks.
The accounting policies of the Company conform with accounting
principles generally accepted in the United States of America and with
general practices within the banking industry.
BASIS OF PRESENTATION
The unaudited 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
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:
4
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 March 31,
2006 and December 31, 2005 are as follows:
AVAILABLE-FOR-SALE
MARCH 31, 2006
(In thousands)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ------- ------- -------
U.S. Agency securities $ 385 $ -- $ (10) $ 375
Mortgage-backed securities 6,222 1 (234) 5,989
Municipal securities 7,026 -- (172) 6,854
Other securities 1,260 1 (14) 1,247
------- ------- ------- -------
Total debt securities 14,893 2 (430) 14,465
Equity securities 898 27 (37) 888
------- ------- ------- -------
Total Available for Sale $15,791 $ 29 $ (467) $15,353
======= ======= ======= =======
HELD-TO-MATURITY
MARCH 31, 2006
(In thousands)
None.
AVAILABLE-FOR-SALE
DECEMBER 31, 2005
(In thousands)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ------- ------- -------
U.S. Agency securities $ 385 $ -- $ (8) $ 377
Mortgage-backed securities 6,494 1 (149) 6,346
Municipal securities 7,026 -- (74) 6,952
Other securities 1,264 3 (11) 1,256
------- ------- ------- -------
Total debt securities 15,169 4 (242) 14,931
Equity securities 745 15 (40) 720
------- ------- ------- -------
Total Available for Sale $15,914 $ 19 $ (282) $15,651
======= ======= ======= =======
HELD-TO-MATURITY
DECEMBER 31, 2005
(In thousands)
5
None.
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 March
31, 2006 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 $ -- $ -- $ 375 $ 10 $ 375 $ 10
Mortgage-backed -- -- 5,935 234 5,935 234
Municipal 6,854 172 -- -- 6,854 172
Other securities -- -- 492 14 492 14
Equity securities 354 11 163 26 517 37
------- ------- ------- ------- ------- -------
Total 7,208 $ 183 $ 6,965 $ 284 14,173 $ 467
======= ======= ======= ======= ======= =======
The above table at March 31, 2006 includes 36 securities that have
unrealized losses for less than 12 months and 21 securities that have
been in an unrealized loss position for 12 or more months.
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 March 31, 2006.
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
March 31, 2006.
3. LOANS
MARCH 31, DECEMBER 31,
2006 2005
--------- ---------
Real estate mortgages: (In thousands)
Construction and land development $ 1,110 $ 1,126
Residential, 1 - 4 family 45,916 43,159
Residential, multi-family 171 1,997
Commercial 27,752 23,738
--------- ---------
Total real estate mortgages 74,949 70,020
Commercial 960 1,069
Consumer 9,419 9,496
--------- ---------
Total loans 85,328 80,585
Allowance for loan losses 1,054 1,025
--------- ---------
Total loans, net $ 84,274 $ 79,560
========= =========
6
Loans are stated at the principal amount outstanding, net of any
unearned income, deferred loan fees and the allowance for loan losses.
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.
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 March 31, 2006, the Bank borrowed $2,207,000 in
overnight funds.
The Bank has a $5,000,000 borrowing with the Federal Home Loan Bank of
Pittsburgh 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.
The Bank also has a $7,000,000 borrowing with the Federal Home Loan
Bank of Pittsburgh at a fixed rate of 4.34%, which was issued in July
of 2005, and matures in July of 2015. This loan requires quarterly
interest payments, with the principal due at maturity.
5. EARNINGS PER SHARE
Earnings per share are calculated based on 1,443,555 shares
outstanding. The prior period did not have stock issued and should be
considered pro forma figures. The 1,443,555 shares outstanding at March
31, 2006, include 778,451 shares issued to the North Penn Mutual
Holding Company, and 28,277 shares issued to the North Penn Charitable
Foundation in conjunction with the reorganization effective June 1,
2005.
6. COMMITMENT & CONTINGENCY
A new branch office is under construction in Effort, Pennsylvania. At
December 31, 2004, the land was purchased by the Bank in the amount of
$563,000 and was recorded in "Other Assets", since it is intended to be
transferred to North Penn Bancorp, Inc. In October, 2005, the Company
signed a construction agreement in the amount of $1 million. At March
31, 2006, $794,000 was recorded in "Building and improvements" as
construction-in-progress. The total cost of the branch facility,
including equipment, is estimated to be $1.2 million, not including
land acquisition cost. The branch is expected to open in the second
quarter of 2006.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING STATEMENTS
THIS REPORT CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. THESE STATEMENTS ARE NOT HISTROICAL
FACTS BUT RATHER ARE STATEMENTS BASED ON NORTHPENN BANCORP, INC.'S CURRENT
EXPECTATIONS REGARDING ITS BUSINESS STRATEGIES, INTENDED RESULTS AND FUTURE
PERFORMANCE. FORWARD LOOKING STATEMENTS MAY BE PRECEDED BY TERMS SUCH AS
"EXPECTS," "BELIEVES," "ANTICIPATES," "INTENDS" AND SIMILAR EXPRESSIONS.
MANAGEMENT'S ABILITY TO PREDICT RESULTS OR THE EFFECT OF FUTURE PLANS
OR STATEMENTS IS INHERENTLY UNCERTAIN. FACTORS WHICH COULD AFFECT ACTUAL RESULTS
IN WHICH NORTH PENN BANCORP, INC. OPERATES AS WELL AS NATIONWIDE, INCLUDE NORTH
PENN BANCORP, INC.'S ABILITY TO CONTROL COSTS AND EXPENSES, COMPETITIVE PRODUCTS
AND PRICING, LOAN DELINQUENCY RATES AND CHANGES IN FEDERAL AND STATE LEGISLATION
AND REGULATION. THESE FACTORS SHOULD BE CONSIDERED IN EVALUATING THE
FORWARD-LOOKING STATEMENTS AND UNDUE RELIANCE SHOULD NOT BE PLACED ON SUCH
STATEMENTS. NORTH PENN BANCORP, INC. ASSUMES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS.
FINANCIAL CONDITION
Our total assets increased approximately $4.8 million or 5% from $105.4
million at December 31, 2005 to $110.2 million at March 31, 2006. The increase
was primarily due to loan growth, specifically in the commercial mortgage
market. This segment of our loan portfolio grew approximately $4.0 million or
17% since December 31, 2005. The Bank has been increasing its commercial loan
volume to diversify its loan portfolio and reduce its exposure to the interest
rate risk associated with fixed rate residential mortgages.
The allowance for loan loss was approximately $1.1 million at March 31,
2006, compared to approximately $1.0 million at December 31, 2005. The increase
in the loan loss provision was offset by the charge off of one mortgage loan.
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 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 $459,000 at March 31, 2006, compared to $539,000 at
December 31, 2005. The reduction was all in residential mortgages. The ratio of
the Bank's allowance for loan losses to total loans was 1.24% at March 31, 2006
and 1.27% at December 31, 2005.
The bank had one property listed as other real estate owned for
$105,000 as of December 31, 2005. This property has since been sold during the
1st quarter of 2006, with the bank recognizing a gain of approximately $29,000.
8
Total deposits increased approximately $5.2 million or 7% from
approximately $77.4 million at December 31, 2005 to approximately $82.6 million
at March 31, 2006. Non-interest bearing deposits declined by approximately $2.1
million or 28%, interest bearing demand deposits increased approximately $2.5
million or 11%, while time deposits increased approximately $4.7 million or 10%.
The increase in interest bearing deposits is due to promotions being run at our
branches in order to attract customers to our money market and CD products.
Other borrowings decreased $491,000 or 3% from approximately $14.7
million at December 31, 2005 to approximately $14.2 million at March 31, 2006,
due to reductions in overnight borrowings from the Federal Home Loan Bank of
Pittsburgh.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTH PERIODS ENDED MARCH 31, 2006 AND 2005
Net income totaled $146,000 for the three months ended March 31, 2006
compared to $92,000 for the three months ended March 31, 2005, an increase of
$54,000 or 59%.
Interest income increased $397,000 or 33%, to approximately $1.6
million in 2006, compared to $1.2 million in 2005. Interest on loans increased
$464,000 or 48%, from $961,000 in 2005 to approximately $1.4 million in 2006,
due to higher loan volume and higher interest rates due to increases in the
prime rate. Interest and dividends on investments decreased $67,000 or 28%
mainly due to a decrease in the investment portfolio in 2006 from the same
period in 2005.
Interest expense increased $245,000 or 51%, from $484,000 in 2005 to
$729,000 in 2006. Interest on deposits increased $108,000 or 27%, from $396,000
in 2005 to $504,000 in 2006 due to increases in outstanding interest bearing
deposits and the increases in rates of short term time deposits. Interest on
borrowed funds increased $137,000 or 156%, due to the increase in the rate and
volume of overnight borrowings, as well as the addition of a fixed rate long
term note.
Net interest income increased $152,000 or 21% from $716,000 in 2005, to
$868,000 in 2006.
Other income increased $3,000 from $94,000 in 2005, to $97,000 in 2006,
primarily due to a gain on the sale of foreclosed real estate, offset by a
reduction of service charges on deposit accounts. Other expenses increased
$99,000 from $649,000 in 2005 to $748,000 in 2006. Salaries and employee
benefits increased $67,000 or 18%, from $377,000 in 2005, to $444,000 in 2006,
occupancy and equipment expense increased $26,000 or 22% from $116,000 in 2005,
to $142,000 in 2006, and other expenses increased $6,000 or 4%, from $156,000 in
2005 to $162,000 in 2006.
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 Statements of Cash Flows included in the
accompanying financial statements shows that the Bank's cash and cash
equivalents decreased $259,000 for the three months ended March 31, 2006. During
that period, cash was primarily provided from earnings and customer deposits and
primarily used to fund loans to customers, continued construction of the new
branch building, and to pay down on overnight borrowings.
The Company's and North Penn Bank's capital ratios at March 31, 2006
and December 31, 2005 as well as the required minimum ratios for capital
adequacy purposes and to be well capitalized under the prompt corrective action
provisions as defined by the FDIC are summarized as follows:
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ --------------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------- ------- ------- ------ -----
AT MARCH 31, 2006:
-----------------------------------
Tier 1 Capital to risk-weighted
assets:
Consolidated $13,609 15.46% >$3,520 >4.0% >$5,281 >6.0%
North Penn Bank $10,985 12.59% >$3,489 >4.0% >$5,233 >6.0%
Total Capital to risk-weighted
assets:
Consolidated $12,788 14.53% >$7,041 >8.0% >$8,801 >10.0%
North Penn Bank $10,704 12.27% >$6,977 >8.0% >$8,722 >10.0%
Tier 1 Capital to total average
assets:
Consolidated $13,609 12.29% >$4,431 >4.0% >$5,538 >5.0%
North Penn Bank $10,985 10.21% >$4,302 >4.0% >$5,378 >5.0%
Tangible Capital to total average
assets:
Consolidated $13,609 12.29% >$1,661 >1.5% N/A N/A
North Penn Bank $10,985 10.21% >$1,613 >1.5% N/A N/A
Risk-Weighted Assets:
Consolidated $88,012
North Penn Bank $87,218
Average Assets:
Consolidated $110,766
North Penn Bank $107,558
AT DECEMBER 31, 2005:
-----------------------------------
Tier 1 Capital to risk-weighted
assets:
Consolidated $13,450 17.03% >$3,158 >4.0% >$4,737 >6.0%
North Penn Bank $10,824 13.76% >$3,146 >4.0% >$4,720 >6.0%
Total Capital to risk-weighted
assets:
Consolidated $13,304 16.85% >$6,317 >8.0% >$7,896 >10.0%
North Penn Bank $11,808 15.01% >$6,293 >8.0% >$7,866 >10.0%
Tier 1 Capital to total average
assets:
Consolidated $13,450 13.44% >$4,002 >4.0% >$5,003 >5.0%
North Penn Bank $10,824 11.20% >$3,866 >4.0% >$4,833 >5.0%
Tangible Capital to total average
assets:
Consolidated $13,450 13.44% >$1,501 >1.5% N/A N/A
North Penn Bank $10,824 11.20% >$1,450 >1.5% N/A N/A
Risk-Weighted Assets:
Consolidated $78,958
North Penn Bank $78,659
Average Assets:
Consolidated $100,060
North Penn Bank $96,659
9
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.
North Penn Bancorp, Inc., under the supervision and with the
participation of its management, including its Chief Executive Officer and the
Chief Financial Officer, evaluated the effectiveness of the design and operation
of North Penn's disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as
of the end of the period covered by this report. Based on that evaluation, North
Penn's Chief Executive Officer and Chief Financial Officer concluded that North
Penn's disclosure controls and procedures are effective. There were no
significant changes to North Penn's disclosure controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation.
Exchange Act Rule 13a-15(e) defines "disclosure controls and
procedures" as controls and other procedures of an issuer that are designed to
ensure that information required to be disclosed by the issuer in the reports
that it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that such
information is accumulated and communicated to the issuer's management,
including its principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
There have been no changes to the Company's internal control over
financial reporting identified in connection with management's evaluation
thereof that occurred during the Company's fourth fiscal quarter that have
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
10
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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
USE OF PROCEEDS
1. 1. The effective date of the Securities Act statement for which the use
of proceeds information is being disclosed is December 10, 2004. The
Commission file number assigned to the registration statement is
333-121121.
2. From March 28, 2005 to March 31, 2006, the amount of net offering
proceeds used for certain items and any other purposes for which at
least 5% of the Company's total offering proceeds or $100,000
(whichever is less) has been used are listed below:
Amount of Net
Activity Proceeds
------------------------------------------------------------------
Net Offering Proceeds $5,714,000
Construction of Plant, Building and Facilities 794,088
Purchase and Installation of Machinery and Equipment --
Purchase of Real Estate --
Acquisition of Other Business(es) --
Repayment of Indebtedness --
Working Capital --
Capitalization of North Penn Bank $2,929,000
Initial Capitalization of
North Penn Mutual Holding Company $ 100,000
Contribution to North Penn Charitable Foundation $ 100,000
North Penn Bank Employee Stock Ownership Plan Loan $ 545,000
Dividends Paid $ 43,000
----------
Proceeds Remaining at North Penn Bancorp, Inc. $1,202,912
==========
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.
Exhibit No. Description
----------- ------------
3.1 Articles of Incorporation of North Penn Bancorp, Inc.(1)
3.2 Bylaws of North Penn Bancorp, Inc.(1)
4 Specimen Stock Certificate(1)
11.1 Statement re: computation of per share earnings: Refer to Note 5
31.1 Rule 13a-14(a) /15d-14(a) Chief Executive Officer Certification
31.1 Rule 13a-14(a) /15d-14(a) Principal Accounting Officer
Certification
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Principal Accounting Officer
- ------------
(1) Incorporated herein by reference into this document from the Exhibits
to Form SB-2, Registration Statement filed on December 10, 2004,
Registration No. 333-121121.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
North Penn Bancorp, Inc
Dated: May 12, 2006 /s/ Frederick L. Hickman
------------------------ -------------------------------
Frederick L. Hickman
President and
Chief Executive Officer
Dated: May 12, 2006 /s/ Glenn J. Clark
------------------------ -------------------------------
Glenn J. Clark
Assistant Vice President and
Principal Accounting Officer
12