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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2007
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to ______________________
NORTH PENN BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Pennsylvania 000-51234 20-1882440
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(State or other jurisdiction of (Commission (IRS Employer
Incorporation or organization) File Number) Identification No.)
216 Adams Avenue, Scranton, PA 18503
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(Address of principal executive offices)(Zip Code)
(570) 344-6113
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(Registrant's telephone number, including area code)
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: As of May 11, 2007, the issuer had
1,443,555 shares of common stock, par value $0.10 per share, outstanding.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets at March 31, 2007
and December 31, 2006 3
Consolidated Statements of Income for the Three
Months Ended March 31, 2007 and 2006 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2007 and 2006 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation. 11
Item 3. Controls and Procedures. 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 16
Item 3. Defaults Upon Senior Securities. 16
Item 4. Submission of Matters to a Vote of Security Holders. 16
Item 5. Other Information. 16
Item 6. Exhibits. 16
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NORTH PENN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2007 2006
--------- ------------
(Unaudited) (Audited)
(In thousands)
ASSETS:
Cash and due from banks $ 2,732 $ 4,029
Interest bearing deposits 87 87
--------- ---------
Total cash and cash equivalents 2,819 4,116
Investment securities, available for sale 13,948 14,227
Equity securities at cost, substantially restricted 1,165 1,236
Loans, net of allowance for loan losses 95,525 95,154
Bank premises and equipment - net 4,304 4,342
Accrued interest receivable 637 638
Cash surrender value of life insurance 2,113 2,094
Deferred income taxes 442 417
Other real estate owned 100 100
Other assets 173 132
--------- ---------
TOTAL ASSETS $ 121,226 $ 122,456
========= =========
LIABILITIES:
Deposits:
Non-interest bearing deposits $ 7,287 $ 6,993
Interest bearing demand deposits 24,716 26,026
Interest bearing time deposits 54,826 53,727
--------- ---------
Total deposits 86,829 86,746
Other borrowed funds 20,451 21,741
Accrued interest and other liabilities 807 843
--------- ---------
TOTAL LIABILITIES 108,087 109,330
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 5,878 5,870
Retained earnings 7,675 7,623
Unearned ESOP shares (460) (460)
Accumulated other comprehensive loss (98) (51)
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TOTAL STOCKHOLDERS' EQUITY 13,139 13,126
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 121,226 $ 122,456
========= =========
See notes to unaudited consolidated financial statements.
3
NORTH PENN BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(In thousands)
2007 2006
----------- -----------
INTEREST INCOME
Interest on loans $ 1,690 $ 1,425
Interest and dividends on investments 169 172
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Total interest income 1,859 1,597
INTEREST EXPENSE
Interest on deposits 735 504
Interest on borrowed funds 257 225
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Total interest expense 992 729
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NET INTEREST INCOME 867 868
PROVISION FOR LOAN LOSSES 30 30
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NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 837 838
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OTHER INCOME
Service charges and fees 32 31
Other operating income 60 66
Gain on sale of securities 17 --
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TOTAL OTHER INCOME 109 97
OTHER EXPENSE
Salaries and employee benefits 463 444
Occupancy and equipment expense 149 142
Other operating expenses 202 162
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TOTAL OTHER EXPENSE 814 748
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INCOME BEFORE INCOME TAXES 132 187
INCOME TAX EXPENSE 37 41
-----------
NET INCOME 95 146
OTHER COMPREHENSIVE INCOME:
Unrealized holding loss arising during
period, net of income tax (47) (110)
----------- -----------
COMPREHENSIVE INCOME $ 48 $ 36
=========== ===========
Weighted average number of shares outstanding 1,398,562 1,393,844
Earnings per share, basic and diluted $ 0.07 $ 0.10
Dividends per share $ 0.03 $ 0.03
See notes to unaudited consolidated financial statements.
4
NORTH PENN BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(In thousands)
2007 2006
------- -------
Operating Activities:
Net income $ 95 $ 146
Items not requiring (providing) cash
Depreciation 67 63
Provision for loan losses 30 30
Amortization of securities (net of accretion) 4 7
Increase in cash surrender value of life insurance (19) (19)
Net realized gain on securities (17) --
Net realized gain on other real estate (6) (29)
Changes in:
Accrued interest income and other assets (40) 5
Accrued interest expense and other liabilities (71) 131
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Net Cash Provided By Operating Activities 43 334
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Investing Activities:
Purchase of bank premises and equipment (29) (519)
Proceeds from sale of other real estate 427 134
Purchase of securities "available for sale" (100) (153)
Sales of securities "available for sale" 91 --
Redemptions of mortgage-backed securities "available for sale" 229 269
Net sale (purchase) of restricted stock 71 (253)
Net increase in loans to customers (822) (4,743)
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Net Cash Used In Investing Activities (133) (5,265)
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Financing Activities:
Increase in deposits 83 5,163
Decrease in borrowed funds (1,290) (491)
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Net Cash (Used In) Provided by Financing Activities (1,207) 4,672
------- -------
Net Decrease In Cash and Cash Equivalents (1,297) (259)
------- -------
Cash and Cash Equivalents, January 1 4,116 2,353
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Cash and Cash Equivalents, March 31 $ 2,819 $ 2,094
======= =======
Supplementary Schedule of Cash Flow Information:
Cash paid during the period for:
Interest $ 911 $ 729
Income taxes 57 9
Non-cash investing and financing activities:
Unrealized losses on securities $ (72) $ (175)
Transfer from loans to other real estate owned 421 --
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. (Company) is the bank holding company for
North Penn Bank (Bank). The Company's common stock is quoted on the OTC
Bulletin Board under the symbol "NPEN.OB". 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 subsidiaries, Norpenco, Inc.
and 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.'s sole activities are purchasing bank
stocks and receiving dividends on such stocks. North Penn Settlement
Services, LLC, receives non interest income from providing title search
work.
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:
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.
6
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,
2007 and December 31, 2006 are as follows:
AVAILABLE-FOR-SALE
MARCH 31, 2007
(In thousands)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
U.S. Agency securities $ 385 $ -- $ (5) $ 380
Mortgage-backed securities 5,158 1 (125) 5,034
Municipal securities 7,026 18 (6) 7,038
Other securities 503 -- (7) 496
------- ------- ------- -------
Total debt securities 13,072 19 (143) 12,948
Equity securities 1,025 46 (71) 1,000
------- ------- ------- -------
Total Available for Sale $14,097 $ 65 $ (214) $13,948
======= ======= ======= =======
AVAILABLE-FOR-SALE
DECEMBER 31, 2006
(In thousands)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
U.S. Agency securities $ 385 $ -- $ (7) $ 378
Mortgage-backed securities 5,391 2 (113) 5,280
Municipal securities 7,026 51 -- 7,077
-------
Other securities 503 -- (8) 495
------- ------- ------- -------
Total debt securities 13,305 53 (128) 13,230
Equity securities 999 51 (53) 997
- -------------------------- ------- ------- ------- -------
Total Available for Sale $14,304 $ 104 $ (181) $14,227
======= ======= ======= =======
All of the Company's investment securities were classified as available
for sale at March 31, 2007 and December 31, 2006.
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 March
31, 2007 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 $ -- $ -- $ 380 $ 5 $ 380 $ 5
Mortgage-backed 334 4 4,662 121 4,996 125
Municipal 1,020 6 -- -- 1,020 6
Other securities -- -- 496 7 496 7
Equity securities 247 20 376 51 623 71
------ ---------- ------ ----------- ------ ----------
Total $1,601 $ 30 $5,914 $ 184 $7,515 $ 214
====== ========== ====== =========== ====== ==========
The above table at March 31, 2007 includes 13 securities that have
unrealized losses for less than 12 months and 29 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, 2007.
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, 2007.
3. LOANS
MARCH 31, DECEMBER 31,
2007 2006
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(In thousands)
Real estate mortgages:
Construction and land development $ 1,537 $ 1,186
Residential, 1 - 4 family 43,785 42,323
Residential, multi-family 2,435 2,449
Commercial 37,289 37,711
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Total real estate mortgages 85,046 83,669
Commercial 1,725 1,742
Consumer 9,905 10,864
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Total loans 96,676 96,275
Allowance for loan losses 1,151 1,121
------- -------
Total loans, net $95,525 $95,154
========= ===========
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.
8
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 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, 2011. At March 31, 2007, the Bank borrowed $8,451,000 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
Basic earnings per share is computed on the weighted average number of
common shares outstanding during each year, adjusted for unearned
shares of the ESOP, as prescribed in Statement of Financial Accounting
Standards No. 128, Earnings Per Share (SFAS 128). Diluted earnings per
share at March 31, 2007, includes common shares issuable upon exercise
of employee stock options as follows:
INCOME SHARES PER-SHARE
(NUMERATOR) DENOMINATOR) AMOUNT
----------- ------------ ---------
Basic EPS
Income available $ 95,000 1,398,562 $ 0.07
Options includable -- 940 --
--------- --------- --------
Diluted EPS $ 95,000 1,399,502 $ 0.07
========= ========= ========
As of March 31, 2006 there were no dilutive shares.
6. OMNIBUS STOCK OPTION PLAN
STOCK GRANTS. Restricted stock grants totaling 4,875 shares were
awarded on September 26, 2006 having a fair value of $54,000. The
grants vest over five years. The market value as of the grant date of
the restricted stock grants is charged to expense as the grants vest.
STOCK OPTIONS. Stock options covering 27,000 shares of common stock
were awarded on September 26, 2006. The option awards were granted with
an exercise price equal to the average price of the last trade date.
The stock options vest and therefore become exercisable on a pro rata
basis annually over five years from the date awarded, commencing
September 26, 2007. The options are available to be exercised for a
period of ten years after the date awarded.
9
The fair value of each option grant was estimated to be $3.86 on the
date of grant using the Black-Scholes option pricing model with the
following assumptions used for grants during the applicable period:
Dividend Yield (per share) $0.12
Volatility (%) 3.76%
Risk-free Interest Rate (%) 4.76%
Expected Life 10 years
During the quarter ended March 31, 2007, the Company recorded $8,000 in
expense included in "Salaries and employee benefits" on the
accompanying financial statements. As of March 31, 2007, there was
approximately $143,000 of total unrecognized compensation cost related
to unvested options and grants. That cost is expected to be recognized
over a weighted-average period of 5 years. The Company plans on
obtaining shares to be issued upon exercise of stock options through
authorized common stock.
NUMBER WEIGHTED WEIGHTED -AVERAGE
OF -AVERAGE REMAINING
SHARES EXERCISE PRICE CONTRACTUAL TERM
------ -------------- -----------------
Outstanding, January 1, 2007 27,000 $ 11.15 --
Granted -- -- --
Exercised -- -- --
Forfeited or expired -- -- --
------
Outstanding, March 31, 2007 27,000 $ 11.15 9.5
======
STOCK OPTIONS RESTRICTED STOCK
--------------------- --------------------
WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE
OF GRANT-DATE OF GRANT-DATE
SHARES FAIR VALUE SHARES FAIR VALUE
Nonvested shares ------ ---------- ------ ----------
Nonvested, January 1, 2007 27,000 $ 3.86 4,875 $ 11.15
Granted -- -- -- --
Vested -- -- -- --
Forfeited -- -- -- --
------ ------
Nonvested, March 31, 2007 27,000 $ 3.86 4,875 $ 11.15
====== ======
10
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 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.
RECENT DEVELOPMENTS
On April 24, 2007, the Boards of Directors of the Company, North Penn
Mutual Holding Company and the Bank adopted a Plan of Conversion and
Reorganization pursuant to which the Bank will reorganize from the
mutual holding company structure to the stock holding company
structure. Pursuant to the terms of the Plan, shares of the Company's
common stock, other than those held by North Penn Mutual Holding
Company, will be converted into shares of a new Pennsylvania
corporation pursuant to an exchange ratio designed to preserve their
aggregate percentage ownership interest. The new Pennsylvania holding
company will offer shares of its common stock for sale to the Bank's
eligible account holders, to the Bank's tax-qualified employee benefit
plans and to members of the general public in a subscription and
community offering in the manner, and subject to the priorities, set
forth in the Plan. The conversion will be subject to approval of the
Bank's depositors, the Company's shareholders (including the approval
of a majority of the shares held by persons other than North Penn
Mutual Holding Company) and regulatory agencies.
FINANCIAL CONDITION
Our total assets decreased $1.3 million, or 1.0%, from $122.5 million
at December 31, 2006 to $121.2 million at March 31, 2007. The decrease
was primarily due to cash being used to pay down our overnight
borrowing. Our cash and cash equivalents decreased $1.3 million, or
31.5%, approximately the same amount that our overnight borrowing
decreased.
Our overall loan portfolio grew $371,000, or 0.4%, since December 31,
2006. This amount is net of a property that we had to transfer into
other real estate owned at a value of $421,000. The significant loan
growth we were able to achieve in 2006 was funded primarily by
relatively high-costing certificates of deposit and overnight
borrowings. The inability to fund a larger portion of this growth with
lower costing core deposits resulted in a decline in our net interest
margin. Minimal loan growth in the first quarter of 2007 is reflective
of reduced loan demand, as well as our unwillingness to be aggressive
in loan pricing without the availability of less costly core deposits
to fund such growth.
11
Investment securities declined $279,000, or 2.0%, since December 31,
2006 primarily as a result of pay downs on mortgaged back securities.
During the quarter, we continued to use our liquidity to originate
loans and did not purchase any debt securities.
The allowance for loan loss increased $30,000 during the first quarter
of 2007. There were no charge-offs or reimbursements made during the
first quarter of 2007. 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 $184,000 at March 31, 2007, compared to
$594,000 at December 31, 2006. The reduction was all in residential
mortgages. The biggest contributor to this reduction was a mortgage
with a value of $421,000 that the bank foreclosed on and moved into
other real estate owned. The property was subsequently sold within the
quarter for a profit of $6,000. The ratio of the Bank's allowance for
loan losses to total loans was 1.19% at March 31, 2007 and 1.16% at
December 31, 2006.
Total deposits increased $83,000, or 0.1%, from $86.7 million at
December 31, 2006 to $86.8 million at March 31, 2007. Non-interest
bearing deposits increased $294,000, or 4.2%, from $7.0 million at
December 31, 2006 to $7.3 million at March 31, 2007. Interest bearing
demand deposits decreased $1.3 million, or 5.0%, from $26.0 million at
December 31, 2006 to $24.7 million at March 31, 2007. This decrease was
partially offset by an increase in time deposits of almost $1.1
million, or 2.0%, from $53.7 million at December 31, 2006 to $54.8
million at March 31, 2007. A portion of this shift is attributable to a
decrease in NOW account rates at our Effort branch and a shift of those
funds into time deposits.
Borrowings decreased $1.3 million, or 5.9%, from $21.7 million at
December 31, 2006 to $20.4 million at March 31, 2007, 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, 2007 AND 2006
Net income totaled $95,000 for the three months ended March 31, 2007
compared to $146,000 for the three months ended March 31, 2006, a
decrease of $51,000, or 34.9%. Net interest income for the first
quarter was essentially unchanged from the first quarter of the prior
year. The decline in net income was the result of higher expenses in
the current year, which were partially offset by higher other income.
Interest income increased $262,000, or 16.4%, to $1.9 million in 2007
compared to $1.6 million in 2006. Interest on loans increased $265,000,
or 18.6%, from $1.4 million in 2006 to $1.7 million in 2007, due to
slightly higher loan volume and higher interest rates due to increases
12
in the prime rate. Interest and dividends on investments decreased
$3,000, or 1.7%, to $169,000 at March 31, 2007 from $172,000 at March
31, 2006, mainly due to a decrease in the investment portfolio in 2007
from the same period in 2006. The decrease was directly related to pay
downs on mortgaged back securities.
Interest expense increased $263,000, or 36.1%, from $729,000 in 2006 to
$992,000 in 2007. Interest on deposits increased $231,000 or 45.8%,
from $504,000 in 2006 to $735,000 in 2007 due to increases in
outstanding interest bearing deposits and the increases in rates of
short term time deposits. Interest on borrowed funds increased $32,000,
or 14.2%, to $257,000 in 2007 compared to $225,000 in 2006. The
increase is the result of increases in the average volume of overnight
borrowings.
Net interest income decreased slightly from $838,000 in 2006 to
$837,000 in 2007. The decrease represents a change of $1,000 or 0.1%.
Other income increased $12,000 to $109,000 in 2007, from $97,000 in
2006, primarily due to a $17,000 gain on the sale of securities in
2007. Other expenses increased $66,000 to $814,000 in 2007 from
$748,000 in 2006. Salaries and employee benefits increased $19,000 or
4.3%, from $444,000 in 2006, to $463,000 in 2007, occupancy and
equipment expense increased $7,000 or 4.9% from $142,000 in 2006, to
$149,000 in 2007, and other operating expenses increased $40,000 or
24.7%, from $162,000 in 2006 to $202,000 in 2007. The largest
contributors to this increase were increased professional fees, various
increases in running an additional branch, and a one time expense
incurred in the first quarter to revise our teller slips to work with
our new image capture software.
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 $1,297,000 for the three months ended March 31,
2007. During that period, cash was primarily provided from earnings and
customer deposits and primarily used to pay down overnight borrowings.
13
The Company's and North Penn Bank's capital ratios at March 31, 2007
and December 31, 2006 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, 2007:
- --------------------------------------
TOTAL CAPITAL TO RISK-WEIGHTED ASSETS:
Consolidated $ 14,361 15.07% >$7,622 >8.0% >$9,528 >10.0%
- - - -
North Penn Bank $ 12,447 13.22% >$7,530 >8.0% >$9,413 >10.0%
- - - -
TIER 1 CAPITAL TO RISK-WEIGHTED ASSETS:
Consolidated $ 13,210 13.86% >$3,811 >4.0% >$5,717 >6.0%
- - - -
North Penn Bank $ 11,296 12.00% >$3,765 >4.0% >$5,648 >6.0%
- - - -
TIER 1 CAPITAL TO TOTAL AVERAGE ASSETS:
Consolidated $ 13,210 10.99% >$4,808 >4.0% >$6,010 >5.0%
- - - -
North Penn Bank $ 11,296 9.49% >$4,762 >4.0% >$5,952 >5.0%
- - - -
Risk-Weighted Assets:
Consolidated $ 95,281
North Penn Bank $ 94,130
Average Assets:
Consolidated $120,196
North Penn Bank $119,045
AT DECEMBER 31, 2006:
- --------------------------------------
TOTAL CAPITAL TO RISK-WEIGHTED ASSETS:
Consolidated $ 14,295 15.13% >$7,560 >8.0% >$9,450 >10.0%
- - - -
North Penn Bank $ 12,326 13.17% >$7,487 >8.0% >$9,359 >10.0%
- - - -
TIER 1 CAPITAL TO RISK-WEIGHTED ASSETS:
Consolidated $ 13,175 13.94% >$3,780 >4.0% >$5,670 >6.0%
- -- - -
North Penn Bank $ 11,206 11.97% >$3,744 >4.0% >$5,615 >6.0%
- -- - -
TIER 1 CAPITAL TO TOTAL AVERAGE ASSETS:
Consolidated $ 13,175 11.02% >$4,782 >4.0% >$5,977 >5.0%
- - - -
North Penn Bank $ 11,206 9.45% >$4,746 >4.0% >$5,932 >5.0%
- - - -
Risk-Weighted Assets:
Consolidated $ 94,496
North Penn Bank $ 93,586
Average Assets:
Consolidated $119,548
North Penn Bank $118,641
14
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 Principal Accounting 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 Principal Accounting 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.
15
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.
The Company did not repurchase any shares of its common stock during
the quarter ended March 31, 2007 and did not have any publicly
announced repurchase plans or programs.
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.
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)
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.
16
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 15, 2007 /s/ Frederick L. Hickman
-------------------------------------
Frederick L. Hickman
President and Chief Executive Officer
Dated: May 15, 2007 /s/ Glenn J. Clark
-------------------------------------
Glenn J. Clark
Assistant Vice President and
Principal Accounting Officer
17