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 June 30, 2006
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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
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NORTH PENN BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Pennsylvania 20-1882440
------------ ----------
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
216 Adams Avenue, Scranton, PA 18503
------------------------------------
(Address of principal executive offices)
(570) 344-6113
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(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 last practical date: 1,443,555 as of August 14th 2006.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
at June 30, 2006 and December 31, 2005
Consolidated Statements of Income
for the Three and Six Months Ended June 30, 2006 and 2005
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2006 and 2005
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation.
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.
2
PART I - FINANCIAL INFORMATION
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.
ITEM I. FINANCIAL STATEMENTS
NORTH PENN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
(UNAUDITED) (AUDITED)
(IN THOUSANDS)
ASSETS:
Cash and due from banks $ 4,206 $ 2,333
Interest bearing deposits 19 20
--------- ---------
Total cash and cash equivalents 4,225 2,353
Investment securities, available for sale 14,431 15,651
Investment securities, held to maturity -- --
Equity securities at cost, substantially restricted 1,098 991
Loans, net of allowance for loan losses 89,322 79,560
Bank premises and equipment - net 4,430 3,592
Accrued interest receivable 582 480
Cash surrender value of life insurance 2,056 2,018
Deferred income taxes 572 448
Other real estate owned -- 105
Other assets 37 183
--------- ---------
TOTAL ASSETS $ 116,753 $ 105,381
========= =========
LIABILITIES:
Deposits:
Non-interest bearing deposits $ 6,131 $ 7,306
Interest bearing demand deposits 28,299 23,604
Interest bearing time deposits 53,038 46,519
--------- ---------
Total deposits 87,468 77,429
Other borrowed funds 15,872 14,698
Accrued interest and other liabilities 665 459
--------- ---------
TOTAL LIABILITIES 104,005 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 7,656 7,481
Unearned ESOP shares (509) (509)
Accumulated other comprehensive income (396) (174)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 12,748 12,795
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 116,753 $ 105,381
========= =========
See notes to unaudited consolidated financial statements.
3
NORTH PENN BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(IN THOUSANDS)
SIX MONTHS ENDED THREE MONTHS ENDED
------------------------------- -------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2006 2005 2006 2005
----------- ----------- ----------- -----------
INTEREST INCOME
Interest on loans $ 2,961 $ 2,069 $ 1,536 $ 1,097
Interest and dividends on investments 351 419 179 180
----------- ----------- ----------- -----------
Total interest income 3,312 2,488 1,715 1,277
INTEREST EXPENSE
Interest on deposits 1,155 792 651 396
Interest on borrowed funds 433 169 208 81
----------- ----------- ----------- -----------
Total interest expense 1,588 961 859 477
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,724 1,527 856 800
PROVISION FOR LOAN LOSSES 60 45 30 30
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 1,664 1,482 826 770
----------- ----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts 66 55 35 16
Other income 107 120 41 80
Gain on sale of securities 11 4 11 0
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 184 179 87 96
OTHER EXPENSE
Salaries and employee benefits 880 743 436 366
Occupancy and equipment expense 311 247 169 131
Other expenses 391 438 229 282
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSE 1,582 1,428 834 779
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 266 233 79 87
INCOME TAX EXPENSE 48 102 7 48
----------- ----------- ----------- -----------
NET INCOME 218 131 72 39
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized holding loss arising during period,
net of income tax (222) (114) (112) 23
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ (4) $ 17 $ (40) $ 16
=========== =========== =========== ===========
Weighted average number of shares outstanding 1,393,844
1,443,555 1,393,844 1,443,555
Earnings per share $ 0.16 $ 0.09 $ 0.05 $ 0.03
Dividends per share $ 0.03 $ 0.00 $ 0.03 $ 0.00
See notes to unaudited consolidated financial statements.
4
NORTH PENN BANCORP, INC. AND SUBSIDIARY
(UNAUDITED) CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(IN THOUSANDS)
2006 2005
-------- --------
Operating Activities:
Net income $ 218 $ 131
Items not requiring (providing) cash
Depreciation 135 97
Provision for loan losses 60 45
Amortization of securities (net of accretion) 15 --
Increase in cash surrender value of life insurance (38) (37)
Net realized gain on securities (11) (4)
Net realized gain on other real estate owned (29) --
Changes in:
Accrued interest income and other assets 41 214
Accrued interest expense and other liabilities 206 (102)
-------- --------
Net Cash Provided by Operating Activities 597 344
-------- --------
Investing Activities:
Purchase bank premises and equipment (973) (118)
Proceeds from sale of other real estate owned 134 --
Proceeds from sale of securities "available for sale" 48 4,428
Purchase of securities "available for sale" (220) (291)
Redemptions of securities "available for sale" 500 3,593
Redemptions of securities "held to maturity" -- 500
Redemptions of mortgage-backed securities "available for sale" 545 1,135
Purchase of life insurance policies -- (125)
Net (purchase) sale of restricted stock (107) 312
Net increase in loans to customers (9,822) (7,754)
-------- --------
Net Cash (Used in) Provided by Investing Activities (9,895) 1,680
-------- --------
Financing Activities:
Net increase (decrease) in deposits 10,039 (4,454)
Increase (decrease) in borrowed funds 1,174 (2,275)
Net proceeds of initial public stock offering -- 5,833
Initial capitalization of North Penn Mutual Holding Company -- (100)
Cash dividends paid (43) --
-------- --------
Net Cash Provided by (Used In) Financing Activities 11,170 (996)
-------- --------
Net Increase in Cash and Cash Equivalents 1,872 1,028
-------- --------
Cash and Cash Equivalents, January 1 $ 2,353 $ 1,659
-------- --------
Cash and Cash Equivalents, June 30 $ 4,225 $ 2,687
======== ========
Supplementary Schedule of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,588 $ 961
Income taxes 21 46
Non-cash investing and financing activities:
None
See notes to unaudited consolidated financial statements.
5
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 five 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, and North Penn Bank's wholly-owned subsidiary, Norpenco, Inc.
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.
All information is presented in thousands of dollars, except per share
amounts.
6
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:
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,
2006 and December 31, 2005 are as follows:
7
AVAILABLE-FOR-SALE
JUNE 30, 2006
(IN THOUSANDS)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- -------
U.S. Agency securities $ 385 $ -- $ (16) $ 369
Mortgage-backed securities 5,942 -- (252) 5,690
Municipal securities 7,026 -- (301) 6,725
Other securities 756 -- (18) 738
------- ------- ------- -------
Total debt securities 14,109 -- (587) 13,522
Equity securities 928 34 (53) 909
------- ------- ------- -------
Total Available for Sale $15,037 $ 34 $ (640) $14,431
======= ======= ======= =======
HELD-TO-MATURITY
JUNE 30, 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)
None
8
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, 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 $ -- $ -- $ 369 $ (16) $ 369 $ (16)
Mortgage-backed -- -- 5,690 (252) 5,690 (252)
Municipal 6,725 (301) -- -- 6,725 (301)
Other securities 250 (1) 488 (17) 738 (18)
Equity securities 377 (16) 182 (37) 559 (53)
-------- -------- -------- -------- -------- --------
$ 7,352 $ (318) $ 6,729 $ (322) $ 14,081 $ (640)
======== ======== ======== ======== ======== ========
The above table at June 30, 2006 includes 40 securities that have
unrealized losses for less than 12 months and 24 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 June 30, 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
June 30, 2006.
9
3. LOANS
JUNE 30, DECEMBER 31,
2006 2005
-------- ------------
(IN THOUSANDS)
REAL ESTATE MORTGAGES:
Construction and land development $ 1,764 $ 1,126
Residential, 1 - 4 family 44,874 43,159
Residential, multi-family 37 1,997
Commercial 32,136 23,738
------- -------
Total real estate mortgages 78,811 70,020
Commercial 1,564 1,069
Consumer 10,000 9,496
------- -------
Total loans 90,375 80,585
Allowance for loan loss 1,053 1,025
------- -------
Total loans, net $89,322 $79,560
======= =======
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.
Uncollectible 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 FHLBank 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, 2011. At June 30,
2006, the Bank borrowed $3,872 in overnight funds.
10
The Bank also has a $5,000 borrowing with FHLBank 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 borrowing with FHLBank of Pittsburgh at a
fixed rate of 4.34%, which was issued in July of 2005, and matures July
of 2015. The 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
less 49,711 unearned ESOP shares for the current period.
6. CONSTRUCTION OF A BRANCH
On May 1, 2006, a new branch office opened in Effort, Pennsylvania. At
December 31, 2004, the land was purchased by the Bank in the amount of
$571, and was recorded in "Other Assets," since it was intended to be
transferred to North Penn Bancorp, Inc. At June 30, 2006, the total
cost of the branch facility, including furniture, fixtures and
equipment was approximately $1,380, not including the land acquisition
costs of $571. The cost is no longer designated
"construction-in-progress," but is now included in "Bank premises and
equipment". The company recorded $9 of depreciation expense as of June
30, 2006. The land is still held as an asset of North Penn Bank.
11
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
historical facts but rather are statements based on North Penn 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 $11,372, or 11%, from $105,381 at December
31, 2005 to $116,753 at June 30, 2006. The increase was primarily due
to loan growth in the commercial real estate sector.
Net loans increased $9,762 or 12%, from $79,560 at December 31, 2005 to
$89,322 million at June 30, 2006, 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 losses was $1,053 at June 30, 2006, compared to
$1,025 at December 31, 2005. We recorded $30 in loan loss provision
expense for the three months and $60 for the six months ended June 30,
2006. The Bank had five loans charged-off and no recoveries during the
three months ending in June 2006. The loans charged off during the
second quarter totaled $31 and all were consumer type 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 management believes that, based on information currently
available, the allowance for loan losses is sufficient to cover losses
12
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 $306 at June 30, 2006, compared to $539 at
December 31, 2005. 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 1.17% at June 30, 2006 and 1.27% at
December 31, 2005.
Total deposits increased $10,039, or 13%, from $77,429 at December 31,
2005 to $87,468 at June 30, 2006. Non-interest bearing deposits
decreased by $1,175 or 16%, while interest bearing demand deposits
increased $4,695, or 20%, and time deposits increased $6,519, or 14%.
The decrease in non-interest bearing deposits is primarily due to
fluctuations in consumer and commercial accounts. The increases in
interest bearing demand deposits and time deposits are primarily due to
accounts being opened through our new branch in Effort, PA.
Other borrowings increased $1,174, or 8%, from $14,698 at December 31,
2005 to $15,872 at June 30, 2006, due to increases in overnight
borrowings from FHLBank of Pittsburgh. Borrowings are primarily being
used to fund loan growth when deposit growth is inadequate.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2006 AND 2005
Net income for the second quarter of 2006 increased $33, or 85%, to
$72, compared to $39 in 2005. Net income for the six months ended June
30, 2006 increased $87, or 67%, to $218, compared to $131 in 2005. Net
income increased primarily due to the increase in loan interest and
fees coupled with an increase in tax exempt income.
13
Interest income for the second quarter of 2006 increased $438, or 34%,
to $1,715, compared to $1,277 in 2005. Interest income for the six
months ended June 30, 2006 increased $824, or 33%, to $3,312 compared
to $2,488 for June 30, 2005. Interest on loans increased $439, or 40%,
from $1,097 in 2005 to $1,536 during the second quarter in 2006. For
the six months ended June 30, interest on loans increased $892, or 43%,
from $2,069 for 2005, to $2,961 for 2006. The increases are due to
higher loan volumes and the increase in the prime rate. Interest on
investments decreased $1, or 1%, from $180 to $179 during the second
quarter, and $68, or 16%, from $419 to $351 for the six months ended
June 30, 2006 due to lower balances of investments.
Interest expense during the second quarter increased $382, or 80%, from
$477 in 2005 to $859 in 2006. For the six months ended June 30, 2006,
interest expense increased $627, or 65%, from $961 in 2005 to $1,588 in
2006. Interest on deposits for the second quarter increased $255, or
64%, from $396 in 2005 to $651 in 2006, due to increases in volume and
rate of time and demand deposits. For the six months ended June 30,
interest on deposits increased $363, or 46%, from $792 in 2005 to
$1,155 in 2006. Interest on borrowed funds increased $127, or 157%, for
the second quarter of 2006 and $264, or 156%, for the six months ended
June 30, 2006 due to the increases in the rate and volume of overnight
borrowings, along with the additional fixed rate long term note issued
in July of 2005.
Net interest income for the second quarter increased $56, or 7%, from
$800 in 2005, to $856 in 2006. For the six months ended June 30, 2006,
net interest income increased $197, or 13%, from $1,527 to $1,724.
Other income for the second quarter decreased $9, or 9%, from $96, in
2005, to $87 in 2006. Total other expenses increased $55, or 7%, from
$779 in 2005 to $834 in 2006. Salaries and employee benefits increased
$70, or 19%, from $366 in 2005, to $436 in 2006, while occupancy and
equipment expense increased $38, or 29%, from $131 in 2005, to $169 in
2006, and other expenses decreased $53, or 19%, from $282 in 2005 to
$229 in 2006. Other expenses incurred during the second quarter of 2006
include costs involved with opening and supplying our new branch, while
2005 expenses include the contribution to fund the North Penn
Charitable Foundation.
For the six months ended June 30, other income increased $5, or 3%,
from $179 in 2005 to $184 in 2006. Total other expenses increased $154,
or 11%, from $1,428 in 2005 to $1,582 in 2006. Salaries and employee
benefits increased $137, or 18%, from $743 in 2005 to $880 in 2006,
while occupancy and equipment expense increased $64, or 26%, from $247
in 2005 to $311 in 2006. Other expenses decreased $47, or 11%, from
$438 in 2005 to $391 in 2006, primarily due to the contribution to our
charitable foundation in 2005, offset by expenses incurred in opening
and supplying our new branch in the second quarter of 2006.
14
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, principal and
interest payments on loans and FHLBank advances. 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 increased $1,872 for the six months ended June, 2006.
During that period, cash was primarily provided from earnings and
customer deposits and primarily used to fund loans to customers and
continued construction of the new branch building.
The Company's and North Penn Bank's capital ratios at June 30, 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:
15
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
AT JUNE 30, 2006:
-----------------
Tier 1 Capital to risk-weighted
assets:
Consolidated $13,144 14.21% >$3,520 >4.0% >$5,281 >6.0%
- - - -
North Penn Bank $11,053 12.09% >$3,489 >4.0% >$5,233 >6.0%
- - - -
Total Capital to risk-weighted
assets:
Consolidated $12,748 13.78% >$7,041 >8.0% >$8,801 >10.0%
- - - -
North Penn Bank $10,681 11.69% >$6,977 >8.0% >$8,722 >10.0%
- - - -
Tier 1 Capital to total average
assets:
Consolidated $13,144 11.40% >$4,431 >4.0% >$5,538 >5.0%
- - - -
North Penn Bank $11,053 10.00% >$4,302 >4.0% >$5,378 >5.0%
- - - -
Tangible Capital to total average
assets:
Consolidated $13,144 11.40% >$1,661 >1.5% N/A N/A
- - --- ---
North Penn Bank $11,053 10.00% >$1,613 >1.5% N/A N/A
- - --- ---
Risk-Weighted Assets:
Consolidated $92,515
North Penn Bank $91,388
Average Assets:
Consolidated $115,327
North Penn Bank $110,540
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 $10,677 13.57% >$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
16
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.
17
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
USE OF PROCEEDS
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 June 30, 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 1,000,000
Purchase and Installation of Machinery and Equipment 380,000
Purchase of Real Estate --
Acquisition of Other Business(es) --
Repayment of Indebtedness --
Working Capital --
Temporary Investments --
North Penn Bank 2,929,000
North Penn Mutual Holding Company 100,000
North Penn Charitable Foundation 100,000
North Penn Bank Employee Stock Ownership Plan 545,000
Dividends Paid 86,000
----------
Proceeds Remaining at North Penn Bancorp, Inc. $ 574,000
==========
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A. The Annual Meeting of Shareholders of North Penn Bancorp, Inc.
on May 23, 2006.
B.-C. The results of the items submitted for a vote are as follows:
18
The following three Directors were elected for a term of three
years, expiring in 2009 -
NAME VOTES FOR VOTES AGAINST VOTES NOT CAST
---- --------- ------------- --------------
Herbert C. Kneller 1,368,944 47,959 26,652
Frank H. Mechler 1,368,843 48,060 26,652
David Samuel 1,368,694 48,209 26,652
The approval of the North Penn Bancorp, Inc. 2006 Omnibus
Stock Option Plan
Votes for 373,799
Votes against 137,477
Votes abstained 2,912
Votes not cast 929,367
The ratification of Appointment of McGrail Merkel Quinn &
Associates as Independent Registered Public Accounting Firm of North
Penn Bancorp, Inc. for the fiscal year ending December 31, 2006.
Votes for 1,371,927
Votes against 2,351
Votes abstained 42,625
Votes not cast 26,652
Name of Each Director Whose Term of Office Continued After the
Annual Meeting:
NAME TERM EXPIRES
---- ------------
Kevin M. Lamont 2007
Otto P. Robinson, Esq. 2007
Frederick L. Hickman, President & CEO 2007
Gordon S. Florey 2008
James W. Reid, Esq. 2008
John Schumaker 2008
ITEM 5 OTHER INFORMATION.
None
19
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. Specimen Stock Certificate of North Penn Bancorp, Inc.*
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
31.2 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
- ----------
* Incorporated herein by reference into this document from Form SB-2
Registration Statement, as amended, filed on December 10, 2004,
Registration No. 333-121121.
20
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 14, 2006 /s/ Frederick L. Hickman
-------------------------- ------------------------------
Frederick L. Hickman
President and
Chief Executive Officer
Dated: August 14, 2006 /s/ Glenn J. Clark
-------------------------- ------------------------------
Glenn J. Clark
Assistant Vice President and
Principal Accounting Officer
21